Post by: LonerMatt on July 29, 2014, 02:19:17 AM
It seems every week or so another Aussie comes on the forum with a few investing questions, and maybe it'd be more productive and useful to have a central discussion, rather than disparate pockets.
So, please feel free to ask questions, post ideas, offer suggestions, pose solutions, proffer allocations, exploit loopholes!
Post by: LonerMatt on July 29, 2014, 02:26:27 AM
$17k cash
$20k stocks (1/2 AUD, 1/2 other)
$16.5k bonds
$6k Whiskey Barrell
I'll be adding about $10k of my savings into investments soon, and I was weighing up my options.
So far (6 months in), the stock market has kept relatively stable (I think total ups and downs total $200 change) - but the dividends have been nice. I've been investing in index funds (IAU and Vanguard's US/World). I'm tempted to throw a few more $$$ this way, as stocks are what I'm biased against.
Bonds have been pretty cool - I'm glad they are easily purchased now. They're a bit conservative (but then, so am I).
I'd like to buy 1 barrel a year - it seems a small risk and the returns are higher (10%) - exposing about 10% of my portfolio seems fine.
I wish my strategy was a bit more coherent and conscious - at the moment I'm choosing asset classes not-quite-arbitarily (diversifying). Ideally, I'm after average returns and growth, and hopefully build wealth without massive ups and downs (which I'm not really comfortable with).
Any thoughts on the strategies - any tips from my follow Australians?
Post by: goponcho on July 29, 2014, 11:09:18 AM
Me+partner:
x2 houses value 1.3million, equity 130k. One is a PPOR
ETF 2k
200k cash
Spent the last year learning as much as could about RE and happy to sit on it to see how it pans out for a few months.
Popping all excess monies in my offset account for my PPOR while i learn as much as i can about value investing. Still minimal knowledge.
Will likely sink some more money into an ETF as i learn!
Long journey ahead, good to have a place to bounce ideas!
Post by: LonerMatt on July 29, 2014, 05:32:35 PM
I've been interested in it for awhile, but the entry costs seem way too high. I also keep reading things about how the level of mortage debt, and the price rises in the cities are unsustainable. I don't know what credence to give these, bt RE seems uber complex.
Post by: TB_J on July 30, 2014, 10:31:53 PM
I've got no RE yet. Hopefully soon.
I'm at approx 90k individual stocks
3k cash
20k asx 300 mutual fund (super)
Liabilities - 9.5k personal loan used for shares, tax deductible but stupid high interest rate.
Age 25.
Post by: bigchrisb on July 30, 2014, 11:22:21 PM
Assets:
AU shares: $457k
AU REITS: $108k
AU LICs (closed end funds): $350k
US ETFs: $142k
International ETFs: $212k
Car: $6.5k
Cash: $160k
Cash collectible in next 2 years (payout from company sale) $306k
First home saver account: $21k
Deposit paid on house (not yet settled): $40k
Total: $1802k
Liabilities:
Margin loan: $500k (fixed at 5.35% until June)
Add in settlement of a house in October (purchase price $770k), which is why I'm so cash heavy at the moment.
Net worth approx $1.3M
Main themes for me at the moment are:
- I want to stop paying rent out of taxable income (hence the PPOR purchase - will pay this out in full in the next year)
- Desire to refinance margin loan against PPOR - lower interest rate, no margin calls
- Continue to make use of trust and company structures where it makes sense
- I'm feeling stock values are a bit stretched, so not keen to leverage into them at the moment (I'm guilty of occasionally being a naughty market timer!)
- I want to increase international weighting (currently about 15% international, if you include RE in my asset allocation), I feel I should be more like 50%
- Need to keep savings rate up and avoid lifestyle inflation.
Great to see more Aussies!
Post by: LonerMatt on July 31, 2014, 02:37:30 AM
Post by: Meat Popsicle on July 31, 2014, 02:49:00 AM
In all honesty I'm a pretty late starter on these financial matters. Until about three yeas ago I was completely oblivious to these FI ideas, after a year of researching, then another of procrastination, I've finally had a sensible year of spending ...at the age of 33.
Currently I'm cash & stocks, and have begun looking at bonds, my question for the Australian investor is where's a good place to buy bonds?
(Fiigs appears in various searches and ASX has a market for bonds however there seem to be little volume)
Post by: marty998 on July 31, 2014, 06:02:17 AM
Post by: happy on July 31, 2014, 08:02:57 AM
Post by: bigchrisb on July 31, 2014, 03:25:39 PM
Chris why do you say the market's overinflated right now (stocks, that is)?
Pure speculation. I'm still fully invested in stocks and I'm not selling. However I'm more reluctant than previously to buy on margin at the moment. My reasoning in that:
A) a g20 nation just defaulted on its bonds (Argentina)
B) a European nation just annexed part of its neighbor (Russia/Ukraine)
C) most of the middle east seems to be at war (iraq, Syria, lybia, Israel, palestine)
Usually any one of those would freak the market out. All three and not a blip? Seems like investors have forgotten fear, and that scares me a little.
Post by: LonerMatt on July 31, 2014, 07:49:52 PM
Hmm...Bonds are a tough one. Have you considered hybrids? Personally I'd stay aways from any hybrids that are not issued by the banks, however many preference shares come with those glorious franking credits attached.
Marty (or anyone) - what is a hybrid? I've never heard of this term used when discussing bonds? Where do I find out about them?
Chris - thanks for the explanation. I was thinking of investing sooner rather than later because most markets have a run up over the October-Christmas period with increased spending on travel, presents, entertainment, food, transport, etc. Without market timing, sooner is often a bit better.
I might just invest more OS - since my job and many other investments are Australian-centric.
Which brings us to another question I wonder about: how important is international diversification for you guys? Australia doesn't really seem like the place that'll go caput and its market crash into nothing (though there are always some alarming things happening and worries for the future), but I've tried to balance out my investments here (stocks/bonds) with 25-50% international (US/Top100 companies, etc). My rationale is that, in general, larger companies tend to be a bit more stable (coca cola, apple, sony, etc, seem to do ok no matter what their domestic market is doing).
Post by: limeandpepper on July 31, 2014, 08:37:09 PM
I'd love to have a mix of both Australian and international investments, as well.
Just wondering if anyone has any recommendations from this list of ETFs?
http://au.ishares.com/publish/content/documents/pdfs/product_list_au.pdf
Or are there cheaper alternatives?
Post by: bigchrisb on July 31, 2014, 08:46:21 PM
VAS - Vanguard Australian shares 0.15%
Also consider the listed investment companies (some pros and cons), several of which are cheaper than Vanguard (MLT at 0.125% and CIN at 0.09% last time I checked)
Post by: goponcho on August 01, 2014, 12:30:02 AM
Why so much in RE?
Because i have very limited investing knowledge, RE seems to have a decent return long term, have placed my money in there while i learn further. Money was sitting in the bank prior to this. Studied RE books/forums/followed local market for a bout a year prior to purchasing. Now focussing on learning how to gain a reliable return through value investing which can at least beat inflation!
Post by: The Falcon on August 02, 2014, 05:02:32 PM
I'm a 36 year old guy, married with a 2 year old daughter, based in Sydney.
LonerMatt, one of the main advantages that RE provides in Oz is leverage, obviously works both ways though...banks are happy to lend against home equity, so once you get established, that property provides access to funds for equities investment at 4.xx% with no margin calls, and your home is CGT Free....one of the few free kicks available.
I have SMSF and a Family trust and outside of our family home I am not in RE. Outside of our home, Investments as below ;
- Shares in unlisted business of which i am a director, dividends streamed to my wife via trust.
- SMSF holding 80% Oz stocks, Blue chips and the big LIC's. 20% US stocks, which is ETFs and direct stock in BRK-B
My wife and I both salary sacrifice into super, works well for her as she only earns 45k, so she salary sacrifices most of her pay so after trust distributions (fully franked divi) she gets a cheque from the ATO.
Shortly, family trust will taking out a 5 year interest only loan at sub 5% against some home equity for income focused buy and hold...VHY as primary vehicle, with Large LIC's (when cheap...ie. discount to NTA) and 25% US stocks unhedged for some diversification. This will be a DCA draw down situation whereby $XX,XXX will be drawn down and invested twice annually on specific days as set in the investment plan, and invested in predetermined weights so that no attempt at kidding myself with market timing, or getting weak kneed can occur!
Post by: terrier56 on August 02, 2014, 05:23:34 PM
Chris b seems to have this game locked up. about me.
20k shares 24k cash
looking to get a property in perth when I get to 90k (20%) and after all that I will start investing.
Probably a mix of Vangard, ARIETs (I like the look of GOZ) and LICs.
Does anyone know if I can do this. I am married and have joint bank account with wife. Can she purchase all the investments under her name since I earn significantly more than her?? any advice appreciated.
Post by: The Falcon on August 02, 2014, 05:36:32 PM
Post by: terrier56 on August 02, 2014, 06:16:22 PM
Terrier56 - Yes, just set up the brokerage account in your wifes name, or if you go Vanguard unlisted funds then same thing.
Great news indeed. thanks.
Post by: marty998 on August 02, 2014, 08:52:23 PM
Hmm...Bonds are a tough one. Have you considered hybrids? Personally I'd stay aways from any hybrids that are not issued by the banks, however many preference shares come with those glorious franking credits attached.
Marty (or anyone) - what is a hybrid? I've never heard of this term used when discussing bonds? Where do I find out about them?
Usually called preference shares, listed on the ASX. Have bond like characteristics (pay a fixed return, linked to BBSW + margin). Some pay interest, some are dividends with franking credits attached.
Terms vary per issuer, some are redeemed at face value, some get converted to equity/ord shares at a discount. As always gotta DYOR.
Post by: marty998 on August 02, 2014, 08:56:19 PM
Fell as low as 8c a couple of months ago and was afraid to pull the trigger. Just released some good drill results and now trading at 26c. No guts no glory, missed the easy gains on this one.
Post by: The Falcon on August 02, 2014, 09:43:54 PM
Re bonds, ASX:VGB might be worth a look, Vanguard Oz Govt's bonds ETF. mer is 20bps....market cap is very low so not sure of the spread. RCB & IAF (corporate and composite index) are available too. Forget the Vanguard unlisted products, the fees are killers.
Post by: LonerMatt on August 02, 2014, 09:52:13 PM
1. With bank interest so high (think mine's 4-5%) keeping cash is still a great option: I've been umming and ahhing about investing most of my cash, but the liquidity and returns are easily on par with the market over the past 6 months (well, my foray into the market).
2. I really, really need to know about the ATO and salary sacrificing and all that jazz. I just found out that some states have salary deferring in my profession - taking 4 years @ 80% pay for a fifth year of 80% pay but no work. Interesting.
3. What is ''franking"?
Post by: The Falcon on August 02, 2014, 10:03:50 PM
Franking applies under the Australian Dividend imputation scheme whereby there is no double taxation on dividend payments from a company, a dividend received with 100% franking means that the company has paid tax at company rate (30%) on that distribution, franking credits are attached to that payment to you. So when you see dividend yield of 5% with 100% franking, we are actually talking about a grossed up equivalent of 7.10%. in other words, franking matters!
Cash franking = zero
ASX200 index franking level = approx. 70-80%
LIC's franking level = 100%
What you want is both yield, and growth of the value of the underlying asset......cash can never do that.
Post by: LonerMatt on August 02, 2014, 10:26:52 PM
Where are you getting 4-5% Matt? 4%+ at the moment is just a BS honeymoon rate, typically over a few months. 3.25% is more like the ongoing rate from online guys like ING Direct. Cash is just buffer, not an investment. "Beware the yield trap" as Peter Thornhill says.
Franking applies under the Australian Dividend imputation scheme whereby there is no double taxation on dividend payments from a company, a dividend received with 100% franking means that the company has paid tax at company rate (30%) on that distribution, franking credits are attached to that payment to you. So when you see dividend yield of 5% with 100% franking, we are actually talking about a grossed up equivalent of 7.10%. in other words, franking matters!
Cash franking = zero
ASX200 index franking level = approx. 70-80%
LIC's franking level = 100%
What you want is both yield, and growth of the value of the underlying asset......cash can never do that.
1. Thanks for the explanation of franking - does that mean that we (investors) have to claim that against ATO - or that it is automatic?
2. Ubank gave me 4.17% this month - I get a 'bonus' for depositing a consistent amount, but you're right the trend has ben interest rates going down
3. How do I get into hybrids? There seem to be quite a few attached to banks, so it might be an interesting experiment to have 10k or so in them.
At the moment, I feel like my investing is so random - I just buy different assets, but there's no coherence or strategy. I'm not OK with this, but I barely understand the most basic options.
Post by: The Falcon on August 02, 2014, 10:39:58 PM
I wouldn't get too worried about hybrids as yet. I think the starting point would be picking up something like Burton Malkiel's "A random walk down wall street" and getting your head around basic investment philosophy, products, risk, life stage planning and the like. From there you can start to build an investment framework that suits you. Then you work in Australian specific things like franking, super and tax into that plan/asset mix. Vanguard Australia actually has some pretty good educational stuff on their site as well.
Post by: LonerMatt on August 02, 2014, 11:01:09 PM
I've read a few books on investing (asset allocation, PP), but while I understand what I want conceptually, it's difficult to make that a reality as the ASX (as many other places) is incredibly complex in terms of options.
Basically, I just would like steady, average returns with some dividends along the way, happy to keep pace with the market, generally. I always thought if I had something like 60/40 stocks/bonds, or 70/30 that'd be fine, but I'm not adverse to a bit more risk at times.
Post by: The Falcon on August 02, 2014, 11:07:32 PM
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vlsgf.pdf?20140731|103700
then just work on your MMM savings side and BPAY $$$$ into Vanguard every month. Simple to transact, simple tax reporting.
Depending on your PAYG income is, and your living arrangements you'd also need to consider salary sacrifice, getting your super into a low cost fund, and what you will be doing viz. putting a roof over your head. Remember this is a very long game....ignore the market noise and just keep saving and investing...always.
It can be as simple or as complex as you make it.
Post by: SU on August 03, 2014, 01:28:14 AM
Quote
I'm afraid I don't do my own tax but essentially when you do you annual return you report dividends and franking then. Your accountant will take care of that.
I think these days the ATO is taking care of this for you (<3 the ATO). Last time I went to report dividends and franking credits my accountant told me not to bother as the securities registers (ie. CHESS etc) are now reporting directly to the ATO.
Post by: limeandpepper on August 03, 2014, 01:50:21 AM
The expense ratios on those aren't too bad really. There are some cheaper alternatives if you really want to screw down the costs. some I have used include:
VAS - Vanguard Australian shares 0.15%
Also consider the listed investment companies (some pros and cons), several of which are cheaper than Vanguard (MLT at 0.125% and CIN at 0.09% last time I checked)
Thanks for that, bigchrisb!
Its not incredibly complex. If you want a 70/30 diversified portfolio and you cant put it together and administer it yourself (ie. ETFs and direct shares), you could do far, far worse than buying this ;
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vlsgf.pdf?20140731|103700
then just work on your MMM savings side and BPAY $$$$ into Vanguard every month. Simple to transact, simple tax reporting.
Thanks for this suggestion, The Falcon. Simple transactions and tax reporting is an enticing feature indeed...
Post by: The Falcon on August 03, 2014, 02:07:33 AM
Post by: LonerMatt on August 03, 2014, 03:02:35 AM
Its not incredibly complex. If you want a 70/30 diversified portfolio and you cant put it together and administer it yourself (ie. ETFs and direct shares), you could do far, far worse than buying this ;
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vlsgf.pdf?20140731|103700
then just work on your MMM savings side and BPAY $$$$ into Vanguard every month. Simple to transact, simple tax reporting.
Depending on your PAYG income is, and your living arrangements you'd also need to consider salary sacrifice, getting your super into a low cost fund, and what you will be doing viz. putting a roof over your head. Remember this is a very long game....ignore the market noise and just keep saving and investing...always.
It can be as simple or as complex as you make it.
I think the bolded part is the most important thing to keep in mind.
I'm happy doing my own buying, etc, just as long as I'm keeping it simple.
I'll go for:
70% stocks (35% international, 35% Australian)
30% bonds (all Australian)
This thread is already mad useful.
Post by: The Falcon on August 03, 2014, 03:10:37 AM
Post by: LonerMatt on August 03, 2014, 03:28:24 AM
Post by: Ozstache on August 03, 2014, 05:37:34 AM
- 65% super (Sunsuper balanced fund)
- 15% Aussie shares (Vanguard VAS ETF)
- 25% fixed interest (various net bank accounts ~ 3.8%)
My portfolio is less share heavy than I had planned, due to my concern that share markets are potentially due for a sizable correction soon and that I can still achieve my target WR without having to take more risk than this. As comforting as this has been, it has cost me around 3% lower portfolio performance for the year to date, which is not too bad in the grand scheme of things.
If I wasn't in receipt of a military pension, I would have far less in super as I have 14 years to go until preservation and I reckon the government may move that age to the right in the future. I am also fortunate in that I can withdraw nearly half of my super before preservation age due to the type of contribution it was (unrestricted, non-preserved), so I've effectively got an each way bet on changing superannuation laws.
Apart from owning my house outright, I have no other interest in investing in property, especially in (IMO) overpriced Australia. The only way property really stacks up with investment numbers compared to shares is using leverage. In Australia at least, property is more about capital gain than yield, which is not very useful when you are after income streams like I am. As such, for me property is just too much administrative and hands-on management effort for too little income compared to passively receiving quarterly share dividend payments paid directly into my bank account.
Post by: marty998 on August 03, 2014, 05:46:16 AM
QuoteI'm afraid I don't do my own tax but essentially when you do you annual return you report dividends and franking then. Your accountant will take care of that.
I think these days the ATO is taking care of this for you (<3 the ATO). Last time I went to report dividends and franking credits my accountant told me not to bother as the securities registers (ie. CHESS etc) are now reporting directly to the ATO.
They won't report it if your shares are held in joint names. And besides, it still up to you to include them in your tax return, especially if you are an early bird who lodges in July when not all the data may have been reported.
Post by: HappierAtHome on August 04, 2014, 09:30:26 PM
Its not incredibly complex. If you want a 70/30 diversified portfolio and you cant put it together and administer it yourself (ie. ETFs and direct shares), you could do far, far worse than buying this ;
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vlsgf.pdf?20140731|103700
then just work on your MMM savings side and BPAY $$$$ into Vanguard every month. Simple to transact, simple tax reporting.
Okay I'm super lazy and this appeals to me.
It looks like it's paid an average 4% 'distribution' annually, does this mean that as well as any capital growth (which I would need to sell units to access), it will also give me, on average, 4% a year without me needing to sell anything?
Possibly a really dumb question but I'm a beginner when it comes to investing :-)
The idea of my asset allocation being sorted out for me, so I don't have to rebalance or make those decisions, sounds enticing right now.
Post by: The Falcon on August 04, 2014, 09:37:44 PM
Post by: MsRichLife on August 04, 2014, 10:19:54 PM
Assets:
RE: $1M
Cash (term deposits & ING Savings): $270k
Super: $770k
Total: $2040k
Liabilities:
$Nil
Net worth: ~$2M
Investing has been pretty 'simple' for the last few years. Our goal was to get out of debt and then save some cash. As FIRE approaches I'm finding myself starting to think more about how to best to invest for the long haul. I'm pretty conservative after being burnt really bad during the GFC. The fact that I've started to look at getting back into shares probably means that we are due for a huge downturn! :)
Anyway, I look forward to bouncing ideas around with you all.
Now off to read the thread.....
Post by: The Falcon on August 04, 2014, 10:52:39 PM
PS. Well done, $2M net worth is not to be sneezed at :)
Post by: Majik on August 04, 2014, 11:18:35 PM
Post by: MsRichLife on August 04, 2014, 11:25:15 PM
Hi MsRichLife, when you say you were burnt badly during the GFC what did you hold and what did you do?
PS. Well done, $2M net worth is not to be sneezed at :)
I'll try to outline our financial position at the time, but I honestly think I've blocked most of it out :) It was painful.
We had 5 IPs. We used the equity in those properties to leverage into various share market investments. We also had a margin loan. All up, we had about $500K in the share market and we were heavily leveraged. I thought I had a high tolerance for risk, but I now realise we had no idea of the real potential of a significant downturn. My whole life had been a growth bonanza, so it was not within my worldview to think otherwise.
Anyway, GFC hits. I was living in the US at the time and was trusting my finances to my financial advisor in Australia. (Hint: Big mistake. I will never outsource my investment thinking again). I was getting to see first hand how badly GFC hit Americans. By comparison, Australia got off very lightly. Anyway, I digress.
Sometime in mid 2008 I started getting margin calls. Because I was in the US, I'd often get them in the middle of the night or on weekends. They would not be for small amounts. I'm thinking $40K at a time. I was left scrambling to find money in Australia whilst I was overseas. To say it was stressful is an understatement. It fact, my pulse is rising as I type this. [ ohhh...you are in luck. I just re-discovered a blog post from back then: http://livingmyrichlife.wordpress.com/2008/11/12/so-my-financial-advisor-called/ ]
I don't recall exactly how much I lost, but I think it was in the vicinity of $250K.
After we got through the worst of it, we did the sums and worked out we were better off selling what was left of our stock portfolio and getting out of debt as quickly as possible. I'm actually surprised at how fast we managed to pay off over $1M of debt. Since then, we've just been saving.
I'm still not sure about investing in shares as I think most of the 'recovery' has been engineered by
Post by: The Hamster on August 04, 2014, 11:27:21 PM
I would like to save up some cash over the next 3 - 4 years then enter the share market with the idea of actively trading (not day trading) and learning about options to make some extra income off shares. I'm also interested in investing directly into US shares.
Thanks for sharing your story MsRichLife. Its great to see you have come out on top after what must have been an extremely stressful time.
Post by: The Falcon on August 05, 2014, 12:04:06 AM
What a nightmare, I think you know the real issue here was leverage, not shares per se (lack of stop loss/poor advice a significant contributor!). If you had not leveraged with margin loans, say just taken out line of credit against your IP's you would have been able to hold on and weather the storm. The ASX200 accumulation index (growth and dividends reinvested) is at an all time high, as opposed to the ASX200 index which is nowhere near where it was. Vanguard Australia recently included this in one of their newsletters ;
Quote
What a difference five years can make. Contrast, the fortunes of the S&P/ASX200 Index (prices only) and the S&P/ASX200 Accumulation Index (share price plus dividends) over this period.
Five years ago on July 16, 2009, the S&P/ASX200 closed at 3995.6 points with further to fall in the depths of the GFC. Move forward to July 16, 2014 when this index closed at 5518.9 points - a rise of 38 per cent.
By contrast on July 16, 2009, the S&P/ASX200 Accumulation Index closed at 27,332.5. And move forward again to July 16, 2014, this index closed at 47,043.6 - a rise of 72 per cent.
In short, the accumulation index passed its pre-GFC high almost a year ago and hit an all-time high this month. Meanwhile, the S&P/ASX200 (price only) is still way below its pre-GFC high.
If you had held, you wouldn't have lost your money, and now would be significantly ahead. (say in the case you held ASX200 index ie. STW or similar, and had LOC against IP equity - no margin call).
The underlying message here is understand that shares of stock are not 1 dimensional assets, they provide income, and ideally, capital growth. In Oz due to dividend imputation, pay out ratios are higher than just about anywhere else....but here is the big secret ; the entire industry doesn't want you to buy and hold shares and take the dividend reinvestment plan that many companies offer......why? how can they make money from you if you don't keep buying, selling, paying for advice, subscribing to newsletters, attending seminars, watching CNBC etc etc.
With shares you have to take a long term (20+ years) view, and embrace volatility (essential in the capitalist system) as a chance to BUY more. Stock picking yeah you can certainly come undone there...but if you are diversified enough (ie. index or individually constructed portfolio) and you can hold on through the troughs I believe that you will be well served in the future, as in the past. Provided you don't try to time the market, (ie. dollar cost average - and force yourself to BUY) and avoid selling at all costs and reinvest dividends.
I love this bit from Peter Thornhill, from the darker days of 2011 ;
Quote
I'm not going to bother, but consider this possibility. The share market ultimately reflects the endeavours of the human race, for better or worse. If you therefore believe that human endeavour is not dead then for heaven's sake, buy with your ears pinned back; we are not going to go back to living in caves.
http://www.motivatedmoney.com/mysay.php?iid=w5awkrn9fp
Is anyone a more active investor or do most people buy index ETFs and just hold?
I would like to save up some cash over the next 3 - 4 years then enter the share market with the idea of actively trading (not day trading) and learning about options to make some extra income off shares. I'm also interested in investing directly into US shares.
Thanks for sharing your story MsRichLife. Its great to see you have come out on top after what must have been an extremely stressful time.
I buy and hold, but a combination of LIC, Direct shares and ETFs. There are some businesses I "like" over the long term but I do not intend to sell these shares unless I change my view on these businesses. So I have no intention to "trade". Essentially, we are talking about Investment vs. Speculation. Take into consideration tax and transactional costs of churning, oh I mean trading :) and in my view its just a punt. Despite what the industry says.
Post by: The Hamster on August 05, 2014, 05:06:27 PM
Thanks for the extremely in depth reply. Some very valuable information there.
By "trade" I think Im mainly talking about buying dips and holding for min 5 years then re-evaluating and adding an option buying strategy for extra income. I definately don't mean trading in days or weeks. I've done that in the past and no doubt would have been better off just buying and holding for the longer term. A strategy that has worked well for me in the past is what I call boom-trading. Basically waiting for the next irrational "boom" and jumping on board until things get too overheated and then getting out. I have done OK with that in the past due basically to not knowing what good shares to buy and just going along with the herd until I get chicken :-)
I think you are spot on the money re the use of leverage in share trading. Anyone who wasn't leveraged during the GFC and could afford to ride out the storm would have done OK. I myself suffered a small margin call on some funds I was invested in and made a loss when I sold out. It probably was a good thing as those funds ended up going broke and I would have lost a lot more had I not gotten out when I did. I made it all back from buying CBA shares in 2008 when they were down below $25.00 though but even so, I have become very wary of margin loans since then and probably won't ever use one again.
I also completely agree with your quote from Peter Thornhill. Even if the share market is a huge Ponzi scheme propped up by free credit or whatever, the basic human drive to make a better life for ourselves and a more prosperous society will ensure that the share market goes up in the long term no matter what economic blips happen along the way. We as a species simply wont devolve back to living in caves or a basic barter society. And with superannuation funds having to put their trillions of $$$ in the share market, it certainly wont go to 0 in my lifetime, bar a huge meteor striking the planet in which case it won't matter anyway :-)
A final question, I didn't realise there was a prices only index and an accumulation index. Which one do ETFs such as STW invest in or try to follow? I assume the accumulation index?
Post by: MsRichLife on August 05, 2014, 05:52:38 PM
What a nightmare, I think you know the real issue here was leverage, not shares per se (lack of stop loss/poor advice a significant contributor!). If you had not leveraged with margin loans, say just taken out line of credit against your IP's you would have been able to hold on and weather the storm.
Yep. The leverage was the killer. Maximise your return on the may up. Maximise your loss on the way down. I also had put a lot of trust in my financial advisor. He had done well for me over the years and I assumed that would continue (you know what they say about assuming). My view on investing had fundamentally changed since then. I will never use leverage again and I will not run my investments on autopilot. I am a lot more cautious now, which is why it's taken so long to even consider buying shares again.
The underlying message here is understand that shares of stock are not 1 dimensional assets, they provide income, and ideally, capital growth. In Oz due to dividend imputation, pay out ratios are higher than just about anywhere else....but here is the big secret ; the entire industry doesn't want you to buy and hold shares and take the dividend reinvestment plan that many companies offer......why? how can they make money from you if you don't keep buying, selling, paying for advice, subscribing to newsletters, attending seminars, watching CNBC etc etc.
This is the key to my investment in shares going forward. I need to think of it as an additional income stream and therefore will be looking to maximise the 'income' from the shares and worry less about the capital growth/loss along the way. This was how I started investing in shares when I was young, but at some point I felt 'rich', got a bit fancy and well...we know where that got me.
Post by: The Falcon on August 05, 2014, 05:57:32 PM
STW is ASX200. The big LICs tend to mark themselves against the accumulation index. index is just ASX200 with all divis reinvested...so STW with DRP box ticked will get you the accumulation index performance less STW costs (bugger all).
Post by: MsRichLife on August 05, 2014, 05:59:57 PM
Thanks for sharing your story MsRichLife. Its great to see you have come out on top after what must have been an extremely stressful time.
You are welcome. What doesn't kill us, makes us stronger, right?
Actually DH and I firmly believe that $250K was well worth
We very quickly learned that we don't need to be filthy rich to retire early. We just need be very conscious of what is actually important to us (rather than the Jones's) and simplifying our lives accordingly. We cut away all the crap and realised we don't really need much to live a great life. We have gleaned so many benefits from our new philosophy on life.
Post by: AustralianMustachio on August 06, 2014, 09:21:44 AM
Post by: AustralianMustachio on August 06, 2014, 08:16:00 PM
Im looking to invest in both most likely, and I guess I'm curious what made you choose VHY as the primary vehicle for your leveraged share investment.
Post by: LonerMatt on August 06, 2014, 08:20:05 PM
Just wanted to post to subscribe and say thanks for the great thread so far
It is hyper informative, isn't it?
I'm seriously considering just selling all I've got and then investing in that Vanguard diversified fund - it would simplify and re-balance (something I don't do, at all). Which would potentially be interesting, and maybe better. On the other hand, maybe it'd be a better learning habit to try and manage my own, even if it is a little messy.
Post by: The Falcon on August 06, 2014, 08:53:40 PM
Also @The Falcon, could you explain the basic difference between VAS and VHY? I've read the vanguard page but can't quite work out what the jargon and stats going to mean. Is it as simple as VHY paying out larger dividends? If so, does that mean less capital growth perhaps?
Im looking to invest in both most likely, and I guess I'm curious what made you choose VHY as the primary vehicle for your leveraged share investment.
VAS is the ASX300 weighted by market cap, VHY is holding the High Dividend yield index based on companies with the highest forecast payout ratio for next 12 months. Reason for this over VAS is a few, I already hold lots of the big LIC's in SMSF and their weights are quite similar to VAS, VHY has different weightings not market cap based so it provides additional diversification, but the main thing is to keep this investment positively geared or neutral....the higher yielding divis cover the holding (interest costs). It also allows me to pick up stuff like BRK-B or VTS which would be negatively geared by themselves.
as for yield vs. growth, theoretically perhaps, though I think that dividend imputation tilts things in the favour of higher divi paying businesses in Australia. Lets look at the underlying index funds over ten years ;
VAS (Vanguard Oz shares fund) Growth : Growth : 3.81% / Yield : 4.83%
VHY (Vanguard Oz shares high yield fund) Growth : 4.16% / Yield : 5.69%
Post by: Primm on August 06, 2014, 09:40:06 PM
I think it's an indicator of my mindset that I'm watching the funds in my stock purchase account build up (slowly!) and watching the market go down and thinking awesome, I get more for my money! The me from even a few months ago would have been looking at my current holdings and panicking. Not any more. :)
Post by: The Falcon on August 06, 2014, 09:54:11 PM
Target yield grossed up 5.00+%
Cost of funds 5.00%
INVESTMENTS (75% AU / 25% US UNHEDGED)
VANGUARD HIGH YIELD ETF / 50% WEIGHT / YIELD 7%
ASX LARGE LIC’S BASED ON VALUE / 25% WEIGHT / YIELD 5%
VANGUARD VTS US / 15% WEIGHT / YIELD 2%
BRK-B / 10% WEIGHT / YIELD 0%.
Portfolio grossed up yield 5.05%
As you can see this provides a revenue neutral investment with a combination of long term growth and income. LICs will only be bought at discount to NTA, and only AFI/ARG/MLT/WHF. If none of these are available at discount, will invest in VAS.
Nobody knows what will happen in a year, ten or twenty years from now, there is no such thing as a risk free investment but I am pretty happy with above.
Post by: Primm on August 06, 2014, 10:39:32 PM
Post by: bigchrisb on August 06, 2014, 11:27:07 PM
LICs will only be bought at discount to NTA, and only AFI/ARG/MLT/WHF.
I think we have very similar investment philosophies.
I'm curious why you includes WHF in this list? The LICs I use are AFI/ARG/MLT/BKI/CIN. The first three are well known. The latter two are moderate in size (in the 700M-1000M) category), and made my cut due to very low MER (both sub 0.2%), and at the time, a steep discount to NTA (CIN was at more than a 20% discount for quite a while, albeit almost at NTA now).
What's the appeal of WHT for you? Seems to be fairly high cost for a LIC (0.35%) and trading at NTA (1.6% discount).
I'm struggling to see value in the LICs at the moment, with most at NTA or a premium. Not selling them, but not really buying either.
Post by: The Falcon on August 06, 2014, 11:44:40 PM
Spot on, MER is slightly higher at 35bps, but WHF recently has been the only solid LIC trading at a good discount. Picked it up around -7% a couple of months ago. Its an all Industrials play, and adds a bit of diversification in the Portfolio. This LIC is about 30% held by the Gluskie family (Angus Gluskie is CEO) I like to align with family money rather than corporate money.
Other LIC's I currently hold are ARG/MLT/BKI. I also hold SOL and BKW, so holding off on any BKI top ups...too much Millner family exposure lol.
just on CIN, that's a very different LIC, Alan Rydges vehicle, huge overweight on Amalgamated Holdings, I would consider it at 15% discount or more but I think its crept in to 6% or so which is crappy.
Looked at the ASX NTA report today there is no value except maybe CTN.......if I had to DCA today would just buy VAS.
Post by: bigchrisb on August 07, 2014, 12:21:32 AM
Other LIC's I currently hold are ARG/MLT/BKI. I also hold SOL and BKW, so holding off on any BKI top ups...too much Millner family exposure lol.
just on CIN, that's a very different LIC, Alan Rydges vehicle, huge overweight on Amalgamated Holdings, I would consider it at 15% discount or more but I think its crept in to 6% or so which is crappy.
Agree on the Milner Family exposure - I hold SOL and BKW in there too, which in many ways are really LICs with a bit less transparency.
I'm fairly heavy in my allocation to CIN (approx $180k total), mostly bought at a discount rate that means I got the AHD exposure for free. Don't know that I would buy it at current discounts though. It means I have a ~70k underlying holding in AHD, wich is a lot of cash to have in a single midcap! That said, I've done very well from CIN to date, and can't bring myself to pay the CGT if I sold out.
A question I've long debated on LICs and not managed to get an answer from (either from the ATO, the ASX or the LICs themselves). Do you know if the post tax NTA accounts for the value of the LIC capital gains credits or not? i.e. is the CGT calculated at 30% or 15% in that stat?
Post by: The Falcon on August 07, 2014, 12:31:56 AM
Post by: limeandpepper on August 07, 2014, 02:15:37 AM
You mention that the Vanguard option makes for simple tax reporting - is it easier than ETFs? And how does the tax reporting work? Does it all just come in magically in E-tax using the pre-fill function?
Post by: The Falcon on August 07, 2014, 02:43:57 AM
Ie each of them hold cash, bonds, unlisted property securities, australian shares, international shares etc.
So they will provide one annual tax statement and do the rebalancing for you. Personally I don't hold any of these
Funds but they are a great starting point IMHO. As you already have a brokerage account I'd be inclined to buy ETFs and construct your portfolio in the weight you want. You could do the same with ETFs and high interest online account cheaper for higher balances
As for the nuts and bolts of DIY tax returns, I'm afraid I can't assist there. Lonsec does my portfolio admin and my accountant
Gets the info from them.
Post by: limeandpepper on August 07, 2014, 02:50:12 AM
Post by: marty998 on August 07, 2014, 05:27:59 AM
One of the reasons for this is capital gains. Etax cannot work out what your CGT position is unless you tell it to based on the information you enter (purchase & sale dates, 50% concessional amounts etc).
You have to use the tax statement provided by you fund and enter it in. It's actually quite simple to be fair, you normally have to fill out several boxes - distributions from trusts (including franking credits), capital gains, and foreign source income and foreign tax credits if applicable. Etax does walk you through it.
Post by: limeandpepper on August 07, 2014, 07:51:33 AM
Post by: TB_J on August 07, 2014, 08:42:50 PM
Question: Who else is in VTS? Noticing that the few of you who are have relatively small weightings as opposed to VAS.
Why is this? In my opinion VTS is much more diversified, doesn't have the fickle financials vs resources sector risk inherently associated with VAS. Not to mention anyone in an industry super fund who has a weighting to an 'Australian Shares' option would have similar to VAS exposure.
Perhaps it's because the VTS index is possibly quite overvalued at the moment or it's low divi yeild? Just curious as it seems like an excellent long term low maintenance vehicle.
Post by: MsRichLife on August 07, 2014, 09:16:51 PM
Bullion or ETF?
Post by: The Falcon on August 07, 2014, 10:17:53 PM
Hi all, great banter here.
Question: Who else is in VTS? Noticing that the few of you who are have relatively small weightings as opposed to VAS.
Why is this? In my opinion VTS is much more diversified, doesn't have the fickle financials vs resources sector risk inherently associated with VAS. Not to mention anyone in an industry super fund who has a weighting to an 'Australian Shares' option would have similar to VAS exposure.
Perhaps it's because the VTS index is possibly quite overvalued at the moment or it's low divi yeild? Just curious as it seems like an excellent long term low maintenance vehicle.
Yield and currency risk. In a leveraged investment, yield is important if you want to be cash positive or neutral. VTS is unhedged, as I intend to live in Australia, I will be spending AUD. In super, franked dividends are a massive free kick in a 15% tax environment, so that is another reason for the tilt.
Long run I will probably looking for a 70/30 AU/US mix over all. I like VTS and I like BRK-B. You dead right about the diversification the US index....it also provides more Global exposure each year. I don't think there is a right or wrong here, but a matter of preference.
Anyone investing in precious metals?
Bullion or ETF?
I've got a gold bar that I bought for my daughter her first Christmas, the idea is she will get it on her 21st. I don't expect it to be worth much if anything more in real terms though!
Precious metals are a speculative tool, I don't have any interest but a bit of bullion is a cool thing :)
Post by: MsRichLife on August 07, 2014, 10:48:56 PM
I don't expect it to be worth much if anything more in real terms though!
The beauty of gold bullion is that its value in real terms is much the same as it was 5000 years ago. 1 ounce is worth roughly the price of a well made suit or something along those lines.
My biggest concern (clearly not shared by the majority of folks in MMM land) is that tertiary wealth (paper money, derivatives et al) has exponentially outgrown the primary and secondary wealth supposedly underlying it. At some point there is likely to be a reckoning and those holding the primary and secondary wealth when the music stops will be much better off that those holding useless bits of paper. Gold therefore is a hedge against a collapse of derivatives and other paper assets.
Anyone else willing to entertain such a view?
Post by: The Falcon on August 07, 2014, 11:09:03 PM
If you are an extreme bear, then gold is what you want. May as well dig a bunker then as well, and stack up on guns :) The bears might be right....who knows. You pay your money and you take your chances.
Post by: TB_J on August 07, 2014, 11:15:07 PM
Yield and currency risk. In a leveraged investment, yield is important if you want to be cash positive or neutral. VTS is unhedged, as I intend to live in Australia, I will be spending AUD. In super, franked dividends are a massive free kick in a 15% tax environment, so that is another reason for the tilt.
Long run I will probably looking for a 70/30 AU/US mix over all. I like VTS and I like BRK-B. You dead right about the diversification the US index....it also provides more Global exposure each year. I don't think there is a right or wrong here, but a matter of preference.
Thanks Mr Bird. I appreciate your view. I would see the unhedged position of VTS as beneficial in the short to medium term... pending on how a few things play out. I think perhaps in an unleveraged portfolio that isn't dependent on yield to cover holding costs the diversification may be worth it. The VAS weighting to our small selection of large caps is risky business.I don't expect it to be worth much if anything more in real terms though!
The beauty of gold bullion is that its value in real terms is much the same as it was 5000 years ago. 1 ounce is worth roughly the price of a well made suit or something along those lines.
My biggest concern (clearly not shared by the majority of folks in MMM land) is that tertiary wealth (paper money, derivatives et al) has exponentially outgrown the primary and secondary wealth supposedly underlying it. At some point there is likely to be a reckoning and those holding the primary and secondary wealth when the music stops will be much better off that those holding useless bits of paper. Gold therefore is a hedge against a collapse of derivatives and other paper assets.
Anyone else willing to entertain such a view?
It is a view shared by more than you would think. Read the comments section on this Australian property and economics blog for a shared perspective....
http://www.whocrashedtheeconomy.com/
Post by: MsRichLife on August 07, 2014, 11:18:05 PM
If you are an extreme bear, then gold is what you want. May as well dig a bunker then as well, and stack up on guns :)
Great...Probably need ammo too right? :) I was living in the US during the GFC. It left it's mark on me in more ways than one.
Not an extreme bear here. Maybe a bear cub. Just thinking a small percentage of my portfolio could go into gold. Still pondering.....
Post by: The Falcon on August 07, 2014, 11:22:21 PM
I remember seeing a portfolio somewhere which was targeted as the ultimate set and forget, no stress, survive Armageddon portfolio ;
25% index funds
25% government bonds
25% cash
25% gold
Post by: MsRichLife on August 07, 2014, 11:29:18 PM
ha. yes, you'd need ammo to keep the hordes at bay.
I remember seeing a portfolio somewhere which was targeted as the ultimate set and forget, no stress, survive Armageddon portfolio ;
25% index funds
25% government bonds
25% cash
25% gold
'The Ultimate Portfolio': Harry Browne via Dan Denning perhaps? (attached)
The real Armageddon portfolio is:
25% Cash
25% Gold and Silver Bullion
10% Russian Vodka
15% Dark Rum
15% Tobacco Products
10% Tinned Food
5% Batteries and bottled water
Post by: The Falcon on August 08, 2014, 12:00:43 AM
Post by: LonerMatt on August 08, 2014, 12:41:33 AM
ha. yes, you'd need ammo to keep the hordes at bay.
I remember seeing a portfolio somewhere which was targeted as the ultimate set and forget, no stress, survive Armageddon portfolio ;
25% index funds
25% government bonds
25% cash
25% gold
This is the Permanent Portfolio which is supposed to offer modest (4-7%) returns annually and preserve wealth without major highs or lows.
Post by: deborah on August 08, 2014, 01:23:41 AM
The real Armageddon portfolio is:Why cash? Seeds and hardware (including solar panels)!
25% Cash
25% Gold and Silver Bullion
10% Russian Vodka
15% Dark Rum
15% Tobacco Products
10% Tinned Food
5% Batteries and bottled water
Post by: AustralianMustachio on August 08, 2014, 10:12:17 AM
Post by: The Falcon on August 08, 2014, 03:52:00 PM
US Index however weighted by market cap is more diversified ; Tech, Energy, consumer staples, telecoms, banks.
Post by: TB_J on August 10, 2014, 06:50:34 AM
He means the Australian index, weighted by market caps is very heavy on banks and miners....essentially the big 4 , BHP and RIO.
US Index however weighted by market cap is more diversified ; Tech, Energy, consumer staples, telecoms, banks.
Yes AustralianMustachio, The Falcon has nailed it. The Aus 200 & 300 indexes are too heavy on the big 4 banks and large cap commodity miners due to forced weighting based on capitalization, which presents an obvious risk. The US total market index and S&P 500 are far more diversified across industries that aren't present or mature in Australia - think manufacturing, Silicon Valley tech etc. also worth remembering the global exposure gained from the US index as many of the index constituents are US based multinationals.
Post by: The Falcon on August 10, 2014, 04:18:20 PM
As an aside, those wanting different to market cap exposure on the ASX, there are now economic weight and "equal weight" ETFs like MVW and QOZ available.
Post by: Gecko235 on August 11, 2014, 04:23:14 AM
Just thought I'd chip in where I'm atm.
26 yrs old.
I have a partner but she is terrible with money as she has learnt bad habits from her parents. She is getting better as she's saved up $800 which is very impressive on her behalf (she has come along way).
2 Properties worth $920k, roughly $260k equity. 1 is sub dividable and that's the retirement egg right there.
$76k in shares (to heavy in banks which I plan on changing in the future when the price come back up again)
3k in cash
Currently in the middle of refinancing to pull out some equity and buy up some more shares if I find something at a good price.
I'm fairly new to it and over paid for NAB bank shares a year ago. I have had chances to sell off a profit so I might do at the next chance as I think there are better options now that I've learnt a bit more
Also take a look at Collins food shares (CKF). I wish I had some more $ to snap them up they dropped in price today!
Post by: This_Is_My_Username on August 12, 2014, 06:50:24 AM
I am at:
age 30
100k pretax salary
20% equity in PPOR =$80k
100k super
$40k shares: VAS, VHY, and IOZSWG
65% savings rate
Retire at 40.
Post by: steveo on August 12, 2014, 02:58:03 PM
41 wife 38. 3 kids.
House - say 600k net worth with 130k debt
Super - 210k
Combined earnings - 170k pre-tax
Looking to retire at 50.
Post by: TB_J on August 12, 2014, 07:56:22 PM
Just my musings for the day.
Post by: AustralianMustachio on August 14, 2014, 02:25:09 AM
Post by: marty998 on August 14, 2014, 03:54:19 AM
Else perhaps you could log into the share registry and update it online (not sure if it is computershare or link market services).
Remember to keep track of all the reinvestments for CGT purposes. Each reinvestment is a new "purchase" and you need to record the date, number of shares/units and cost for tax.
You will also need to keep track of tax deferred income, which will reduce the cost base of each unit.
TMI? Talk to your accountant about it.
Post by: AustralianMustachio on August 14, 2014, 09:15:52 AM
Post by: potm on August 16, 2014, 11:31:01 AM
350k in direct shares with about 128k margin loan.
Investing is something I really enjoy and am constantly thinking and learning. To be able to value companies and make good investments I think you need a knowledge of accounting, finance, economics, human psychology, the business and markets that company operates in and a lot of luck. Otherwise achieving the average return through indexing and cost averaging is not a bad way to do things and requires no knowledge or effort. Just decide on your allocation and minimise the costs.
I invest in companies with reliable revenue, not high levels of debt, leader in their market with some good growth prospects and at a good price.
I mainly look at medium sized companies in the top 200-300 range by market cap, large enough to be reliable and liquid but small enough to go unnoticed by the majority of people and still have room to grow.
Hopefully with some growth, they can enter the top 200 and get rerated upwards as they come under the spotlight.
Just a comment on bonds, I don't think there's any need for them in Australia, especially at these low levels of interest rates. Leaving money in ubank is preferable.
If interest rates go up to like 10% then some long maturity bonds would be a good idea.
I also don't like hybrids. They are like the worse of both worlds of cash and shares. Unless you buy at a large discount there's no upside potential if the company does well but there is a downside potential if the company does poorly.
I think the prices for the popular bluechip stocks, banks, telstra and wow etc are getting to the high part of the cycle now. I hear lots of people wanting to start investing in shares which is always a sign that things are getting expensive.
That doesn't mean that the prices can't get much higher though. Who knows how long things will run for before we get cheap prices again and nobody wants to invest in shares. Even with the overall market high though, there are always individual opportunities out there.
Post by: bigchrisb on August 16, 2014, 09:23:55 PM
Post by: dungoofed on August 17, 2014, 08:25:29 AM
VAS.AX
IOO.AX
IME.AX
VGB.AX
PMGOLD-A
plus an HSBC term deposit.
Started off with the Permanent Portfolio and tweaked it into something I am more comfortable with.
Post by: dungoofed on August 17, 2014, 09:07:33 AM
Post by: This_Is_My_Username on August 17, 2014, 08:07:49 PM
Anyone run the ruler over the Telstra buyback? I've got some Telstra shares in my name that I'd like to sell, and re-purchase in my trust of SMSF's name. I picked them up at about $3, so there is a fair capital gain on them.
Is this a potential wash sale ?
http://www.asx.com.au/education/investor-update-newsletter/201305-tax-loss-selling.htm
Post by: bigchrisb on August 17, 2014, 08:18:12 PM
Post by: superannuationfreak on August 17, 2014, 08:36:20 PM
Oh, and I had a question - anyone ever considered anything from the Realindex range? The fees always turned me off but I can see the benefits to the RAFI approach. I'd consider 100% 16885.AX a fair substitute for, say, 50% holdings in each of VAS.AX and VSO.AX.
I've considered them. For a RAFI ASX 200 product I'd be more inclined to use the ETF QOZ from Betashares with lower fees and lower likelihood of capital gains distribution.
I'd really like to invest in their Realindex (Wholesale) Australian small companies fund but my two concerns are the potential for turnover (generating capital gains) and the fees. The fees bother me more for the potential for capital gains lock-in: if a cheaper comparable product becomes available it may still be worth sticking with an existing fund as otherwise the capital gains tax bill may hurt. If I were putting more into super at the moment I'd probably use that for a portion of my Australian equity allocation (maybe 10% or 20% of my Australian equities) as in Super turnover is less of an issue due to lower tax rates, and capital gains lock-in is not a problem.
Post by: superannuationfreak on August 17, 2014, 08:40:18 PM
I was leaning towards it as I like their methodology, including the caps it puts on individual holdings and sectors.
However it just had an enormous distribution of (mostly) capital gains in July, dropping its usually high franking level substantially. Was there any explanation of this given to unit holders? Was it just turnover or was there some corporate action (merger, etc.) which caused it?
Post by: The Falcon on August 20, 2014, 06:57:00 PM
A question I've long debated on LICs and not managed to get an answer from (either from the ATO, the ASX or the LICs themselves). Do you know if the post tax NTA accounts for the value of the LIC capital gains credits or not? i.e. is the CGT calculated at 30% or 15% in that stat?
Ok, here is an answer. LIC Post tax NTA is CG paid at company tax rate 30% but no LIC investor CG credit is applied.
The value of the investor CG credit will depend on investors individual tax situation, ie it is not company tax @ 30% / 2 , as LIC structure does not get 50% CGT discount but the individual shareholders get the flow through discount on the underlying holdings. Hope this makes sense.
Post by: bigchrisb on August 20, 2014, 07:56:13 PM
Thanks for coming back to me on this one.
Post by: The Falcon on August 20, 2014, 08:03:57 PM
No worries at all mate :)
Post by: dungoofed on August 24, 2014, 06:34:36 AM
Oh, and I had a question - anyone ever considered anything from the Realindex range? The fees always turned me off but I can see the benefits to the RAFI approach. I'd consider 100% 16885.AX a fair substitute for, say, 50% holdings in each of VAS.AX and VSO.AX.
I've considered them. For a RAFI ASX 200 product I'd be more inclined to use the ETF QOZ from Betashares with lower fees and lower likelihood of capital gains distribution.
I'd really like to invest in their Realindex (Wholesale) Australian small companies fund but my two concerns are the potential for turnover (generating capital gains) and the fees. The fees bother me more for the potential for capital gains lock-in: if a cheaper comparable product becomes available it may still be worth sticking with an existing fund as otherwise the capital gains tax bill may hurt. If I were putting more into super at the moment I'd probably use that for a portion of my Australian equity allocation (maybe 10% or 20% of my Australian equities) as in Super turnover is less of an issue due to lower tax rates, and capital gains lock-in is not a problem.
Thanks superannuationfreak for highlighting QOZ.
Unrelated question (and actually probably deserves its own thread), but what are your suggestions for a second hand car in Australia these days? I anticipate three trips a week of about 20-40 km each way, with the occasional 300km trip to Sydney. Otherwise it will be in the garage the whole time. Would be interested to know what you guys purchased, how much you paid, how it has worked out for you etc.
Post by: The Hamster on August 25, 2014, 07:50:38 PM
Is anyone here invested in IHD (iShares® S&P/ASX High Dividend Fund)?
I was leaning towards it as I like their methodology, including the caps it puts on individual holdings and sectors.
However it just had an enormous distribution of (mostly) capital gains in July, dropping its usually high franking level substantially. Was there any explanation of this given to unit holders? Was it just turnover or was there some corporate action (merger, etc.) which caused it?
I have been looking at this for my superfund as well so I will check it out further.
This might be a useful website for those of us who like to research shares - you do have to register though (free) http://www.australiandividends.com.au/
And finally, what P/E is considered "safe" is it below 20? And what's the difference between trailing and forward P/E?
Post by: TB_J on August 25, 2014, 10:42:05 PM
Quote
Unrelated question (and actually probably deserves its own thread), but what are your suggestions for a second hand car in Australia these days? I anticipate three trips a week of about 20-40 km each way, with the occasional 300km trip to Sydney. Otherwise it will be in the garage the whole time. Would be interested to know what you guys purchased, how much you paid, how it has worked out for you etc.
A whopping 2k for a 98 mitsubishi mirage - costs about $50 a month on fuel. No power steering, but that's ok. Everyday is arms day :)
It's nice knowing I have the bank balance to purchase just about any car on the road, outright, in cash... If I was a clown. But I've got nothing to prove, so the mirage does the job. My other car is a bicycle. I also like to ride my skateboard.
Back to investments - something worth raising about superannuation for anyone with an INDUSTRY SUPER FUND.
I'm with REST and have recently logged into my super account online - changed my asset control from a "Core" default strategy (bonds/stocks/cash/REIT mix), to 100% Australian Stocks. This gives a significantly higher return over the long term & costs about $10-20 bucks to change. I've also removed a number of unnecessary insurances - for example, a default life insurance policy that was only payable to my dependants in the case of my death. I have no dependants, so I've saved my self a few bucks a week.
Simple changes that I would expect to have a significant impact over the course of time.
Post by: Notch on August 25, 2014, 11:23:00 PM
Quote
Unrelated question (and actually probably deserves its own thread), but what are your suggestions for a second hand car in Australia these days? I anticipate three trips a week of about 20-40 km each way, with the occasional 300km trip to Sydney. Otherwise it will be in the garage the whole time. Would be interested to know what you guys purchased, how much you paid, how it has worked out for you etc.
A whopping 2k for a 98 mitsubishi mirage - costs about $50 a month on fuel. No power steering, but that's ok. Everyday is arms day :)
It's nice knowing I have the bank balance to purchase just about any car on the road, outright, in cash... If I was a clown. But I've got nothing to prove, so the mirage does the job. My other car is a bicycle. I also like to ride my skateboard.
Back to investments - something worth raising about superannuation for anyone with an INDUSTRY SUPER FUND.
I'm with REST and have recently logged into my super account online - changed my asset control from a "Core" default strategy (bonds/stocks/cash/REIT mix), to 100% Australian Stocks. This gives a significantly higher return over the long term & costs about $10-20 bucks to change. I've also removed a number of unnecessary insurances - for example, a default life insurance policy that was only payable to my dependants in the case of my death. I have no dependants, so I've saved my self a few bucks a week.
Simple changes that I would expect to have a significant impact over the course of time.
$5000 for a 2006 Kia Rio. Service it myself.
TB_J, you may have no need for life insurance, but check that you didn't also cancel your total permanent disability (TPD) insurance at the same time, as they are often linked. TPD insurance is vital for protecting you against the risk of losing your most important asset of all, your earning capacity.
Post by: TB_J on August 25, 2014, 11:49:33 PM
Quote
$5000 for a 2006 Kia Rio. Service it myself.
TB_J, you may have no need for life insurance, but check that you didn't also cancel your total permanent disability (TPD) insurance at the same time, as they are often linked. TPD insurance is vital for protecting you against the risk of losing your most important asset of all, your earning capacity.
Thanks Notch - I've kept my TPD Insurance. You are correct, this one is vital. I should have mentioned that.
Post by: This_Is_My_Username on August 26, 2014, 06:32:29 AM
Unrelated question (and actually probably deserves its own thread), but what are your suggestions for a second hand car in Australia these days? I anticipate three trips a week of about 20-40 km each way, with the occasional 300km trip to Sydney. Otherwise it will be in the garage the whole time. Would be interested to know what you guys purchased, how much you paid, how it has worked out for you etc.
Buy a 5-8 year-old car for 3k-5k cash. With good fuel efficiency. Or a motorbike! Seems pretty simple to me.
Post by: AustralianMustachio on August 26, 2014, 06:34:39 PM
A number of economists predicting the AUD to slide to 80c against the greenback by end of next year. VTS may prove to be a decent medium term proposition with somewhat of a hedge against a US market correction.
Just my musings for the day.
This seems to be what I'm seeing in the financial media more and more recently - the AUD will fall soon vs the rallying USD, and we won't have the buying international power we have had for much longer.
Post by: MsRichLife on August 27, 2014, 08:04:48 PM
I'm looking for recommendations for a good online high interest account to hold some cash in for a while (about to sell a property).
We've already maxed out INGDirect, so looking for something similar or better.
Thanks
MRL
Post by: superannuationfreak on August 27, 2014, 08:18:27 PM
Currently offers 4.17% p.a. if you deposit $200 per month or more (which you can then transfer elsewhere or withdraw if you wish)
You need to keep $100 minimum in the Ultra (0% transaction account) but it still beats everything else I've found (and I find the transaction account useful too)
Post by: Sky23 on August 27, 2014, 08:20:44 PM
Hi All,
I'm looking for recommendations for a good online high interest account to hold some cash in for a while (about to sell a property).
We've already maxed out INGDirect, so looking for something similar or better.
Thanks
MRL
Ubank's Usaver account has the highest interest rate as far as I'm aware... actually just checked and Commbank's Goal Saver is at 4% at the moment which is currently higher than Usavers 3.81%
Also a couple of beginner level questions for everyone:
1. If I want to buy VAS / VHY or ARGO etc. what is the best way to do so? I have an eTrade account, should I purchase through there?
2. Also was thinking of purchasing under my wife's name as she earns less than I do, is it easy to transfer them to my own name later on? Any other potential drawbacks of purchasing under the wife's name that I should be aware of?
Thanks and any advice would be much appreciated!
Post by: Sky23 on August 27, 2014, 08:31:27 PM
Ubank USaver with Ultra
Currently offers 4.17% p.a. if you deposit $200 per month or more (which you can then transfer elsewhere or withdraw if you wish)
You need to keep $100 minimum in the Ultra (0% transaction account) but it still beats everything else I've found (and I find the transaction account useful too)
I just saw this new account as well, do you know how it works? I was a little confused with the details.
If I have a Usaver account and open an Ultra, do I only get the bonus on the amount in the Ultra and lose the bonus interest on the Usaver?
Or do I get the 1.06% bonus rate on both the Usaver and Ultra accounts and forfeit the lower Usaver bonus rate of 0.70%?
Post by: This_Is_My_Username on August 27, 2014, 09:27:04 PM
1. If I want to buy VAS / VHY or ARGO etc. what is the best way to do so? I have an eTrade account, should I purchase through there?1. simply buy them with your online brokerage account. not sure if ARGO is available via that method(?).
2. Also was thinking of purchasing under my wife's name as she earns less than I do, is it easy to transfer them to my own name later on? Any other potential drawbacks of purchasing under the wife's name that I should be aware of?
2a. risks: divorce, change in annaul earnings e.g. if you become a stay at home parent, is she the type of person to make transactions without your knowledge.
2b. That is an "off-market transfer". You just need to fill in the hard-copy form and pay the fee, which is approx $50 - 70. Not sure if the fee is higher for larger transfers?
Post by: potm on August 27, 2014, 09:33:00 PM
Ubank USaver with Ultra
Currently offers 4.17% p.a. if you deposit $200 per month or more (which you can then transfer elsewhere or withdraw if you wish)
You need to keep $100 minimum in the Ultra (0% transaction account) but it still beats everything else I've found (and I find the transaction account useful too)
I just saw this new account as well, do you know how it works? I was a little confused with the details.
If I have a Usaver account and open an Ultra, do I only get the bonus on the amount in the Ultra and lose the bonus interest on the Usaver?
Or do I get the 1.06% bonus rate on both the Usaver and Ultra accounts and forfeit the lower Usaver bonus rate of 0.70%?
The ultra is the transaction account so you don't get any interest on amounts in there. Having one though gives you the bonus interest on your saver account.
Post by: AustralianMustachio on August 27, 2014, 09:41:22 PM
From the Vanguard website:
Quote
The Vanguard US Total Market Shares Index ETF is fully exposed to the fluctuating values of foreign currencies as there will not be any hedging of foreign currencies to the Australian dollar.
Is it simply dividends that are "exposed to the fluctuating values"? I understand that my dividend payments will come in USD, and thus whatever I receive in AUD will depend on the exchange rate at the time. Or does the price of the fund itself move in line with currency changes? E.g when the AUD is higher vs the USD the price of the ETF (listed in AUD) falls, because we can buy more with more AUD?
Post by: Notch on August 28, 2014, 12:00:14 AM
Question about currency risk in international ETFs such as VTS:
From the Vanguard website:QuoteThe Vanguard US Total Market Shares Index ETF is fully exposed to the fluctuating values of foreign currencies as there will not be any hedging of foreign currencies to the Australian dollar.
Is it simply dividends that are "exposed to the fluctuating values"? I understand that my dividend payments will come in USD, and thus whatever I receive in AUD will depend on the exchange rate at the time. Or does the price of the fund itself move in line with currency changes? E.g when the AUD is higher vs the USD the price of the ETF (listed in AUD) falls, because we can buy more with more AUD?
Both. If it's unhedged, the price of units and dividends will be affected by currency fluctuations - which can be good or bad.
Post by: superannuationfreak on August 28, 2014, 12:09:48 AM
Ubank USaver with Ultra
Currently offers 4.17% p.a. if you deposit $200 per month or more (which you can then transfer elsewhere or withdraw if you wish)
You need to keep $100 minimum in the Ultra (0% transaction account) but it still beats everything else I've found (and I find the transaction account useful too)
I just saw this new account as well, do you know how it works? I was a little confused with the details.
If I have a Usaver account and open an Ultra, do I only get the bonus on the amount in the Ultra and lose the bonus interest on the Usaver?
Or do I get the 1.06% bonus rate on both the Usaver and Ultra accounts and forfeit the lower Usaver bonus rate of 0.70%?
You get the 1.06% bonus interest (total currently 4.17%) on the linked USaver and 0% interest on the Ultra.
Incidentally the lower USaver bonus by itself will vanish shortly anyway.
The only costs are you have to keep at least $100 in the Ultra account (you can change the minimum but only down to $100) and you have to deposit at least $200 per month into one of the two accounts. You can then choose to use the Ultra account as a transaction account or just ignore it.
I found it was a better-value option than the next-best (4.11% with RAMS but to keep the high interest rate you can't withdraw at all during the month).
Post by: Sky23 on August 28, 2014, 01:30:27 AM
Thanks guys for the info / advice =)
Will set up my Ultra account then and look into these index funds a little more closely (still don't know which to start off with)
Post by: KaosAD on September 02, 2014, 06:54:07 AM
I have been following MMM for a long time now and have worked my way up from post number one.
I would humbly like to ask some advice on where to put the $25k that I have currently sitting in cash as well as a $1k per week ongoing investment.
I am interested in the Vanguard mechanisms and would like to understand more about the pros and cons of buying the ETFs (lower management costs but will incur brokerage each way) versus the Retail Managed Funds (higher management costs and spread each way).
I have previous experience in both share and forex trading and have quite a healthy risk apatite (but not crazy casino style) as I am young, have no debts and no family.
At this stage I am leaning towards the RMFs specifically a mix of:
Vanguard® Index Australian Property Securities Fund
Vanguard® Index Australian Shares Fund
Vanguard® High Yield Australian Shares Fund
Vanguard® Index International Shares Fund
Vanguard® Index Hedged International Shares Fund
The question is now what allocation should I go with?
Thanks in anticipation - NS
Post by: AustralianMustachio on September 02, 2014, 08:04:56 PM
http://www.reuters.com/article/2014/09/02/us-australia-mining-tax-idUSKBN0GX0LD20140902
Surely not having to pay that tax will make the companies much more profitable and drive the share prices up? BHP has been quite low for a while, too. Just some pure uneducated speculation. I don't own any BHP, apart from in VAS (BHP makes up about 9% of VAS).
That being said, politically I am against the move and think it's going to be bad for Australia
Post by: drspaceman on September 04, 2014, 07:49:19 AM
On a separate note I have some questions of my own.
My Situation
So I am 23 and currently have 50k sitting in cash earning 4.17%
3k of Vanguard VTS, 3k of Vanguard VAS, and a random 3k of rio (as a while ago my father thought the price was low an suggested it wouldn't be a bad time to buy).
I want to start moving out some of the 50k into index funds but as I have already found out, the etfs incur brokerage fees I was wondering what brokers people here are using e.g. commsec, nabtrade, etrade? Is there any way to avoid brokerage? Or is the only option the managed fund style but then your charged per annum( for Vanguard High growth I think it was 0.9%).
If I wanted to dollar cost average and buy parcels of say 5k this would be(for my current broker):
50/5 = 10 = 10*19 = $190
as a percentage of 50k = 190/50000*100 = 0.38percent
Which is not terrible and is a once off fee, but I will also want to keep buying in the future every time I have 5k set aside costing brokerage each time.
My other question is can anyone explain the how the taxing of the VTS(US Total) is compared to the VAS? It incurs 15% withholding tax but i'm not sure how that compares to australian franked dividends.
Post by: potm on September 04, 2014, 08:34:34 AM
And like you said, it's only a one off fee so in the long run it works out cheaper than paying a higher MER per year.
15% with holding tax can be claimed as a tax offset when you do your Australian tax return. This is after the companies have paid corporate tax in the US though. You don't get an offset on the corporate tax like you do with franked dividends here.
Post by: dusty on September 05, 2014, 05:37:23 PM
Drspaceman - I have an onlinebroker account with 'Bell Direct' their brokerage fee is $15 per trade.
Post by: Wadiman on September 06, 2014, 03:11:21 AM
So happy that I found this site and some fellow Aussies to provide some regionally-tuned feedback.
Apologies if this is the wrong thread for this but would be keen to hear others' experiences/opinions re Au investment strategy for someone who is about 10 years off FI.
Here's my situation:
Age: 49
Family: Wife and 1 son (20 months)
Assets: PPOR (valuation 1.3M); IP1 (valuation 600k); Charter hall unlisted property trust ($50k), Super ($270k), Car and scooter ($20k) - total = $2.85M
Liabilities: Mortgage 1 (PPOR - $230k; investments - $180k); Mortgage 2 (IP1 - $448k) - total = $858k
Net worth: say $2M
Salary: $200k (gross inc super)
Current debt repayment/saving rate: 68%
I've been thinking about the best way forward from here on to hit FI (target is around $1.4M invested in addition to retaining PPOR, plan to sell IP1). I've identified three broad options (there are minor tweaks of course to each):
Options, pros and cons:
OPTION 1 - Continue paying down PPOR mortgage aggressively with all savings allocated to same (due to clear in 3 years at current rate) then when PPOR mortgage cleared invest into ETF/LIC/direct share portfolio and maintain super contributions at $25k for next 9 years or so.
Pros - low risk, psychologically rewarding to see the mortgage drop quickly, guaranteed return of 4.8% (current mortgage rate)
Cons - conservative, could be better off with increasing super but concerned about legislative risk
OPTION 2 - Reduce PPOR mortgage repayments slightly to allow for max super contributions (currently $30k) and then invest as per Option 1.
Pros - low risk, tax-advantaged super contributions
Cons - conservative, concern about legislative risk on super and not being able to access at 60 (if changes)
OPTION 3 - Reduce PPOR mortgage repayments by 50% (or some other percentage), invest balance in EFT/LIC/Direct share portfolio (no leverage), continue super contributions at $25k p/a
Pros - potentially better returns (say 3-5%) than mortgage rate
Cons - increased risk, psychologically perhaps not as rewarding seeing mortgage paid out as quick (perhaps could take another 2 years to clear).
I would love to hear fellow aus mustachians thoughts on the above options or perhaps there are others that I haven't considered - would love to hear those as well!
Thanks!
Post by: dungoofed on September 06, 2014, 03:35:04 AM
CMC Markets - $11/trade
Bell Direct - $15/trade
HSBC Australia - $15.95/trade
Australian Term Deposits
HSBC. Min Deposit: $5000. Term: 3 months. Rate: 3.10%
Australian Saver Accounts
Ultra Ubank USaver. Min Monthly Deposit: $200. Rate: 4.17%
RAMS. Rate: 4.11%
Australian Cash ETF
AAA.AX 3.29%
World Equity ETFs
WXOZ.AX SPDR S&P World ex Australia (Australian-domiciled)
VGS.AX Vanguard MSCI Index International Shares (Australian-domiciled, dividends reinvested, 0.18% MER)
IOO.AX iShares S&P Global 100 (US-domiciled)
US Equity ETFs
VTS.AX Vanguard US All Market.
IVV.AX iShares S&P 500
Australian Equity ETFs
VAS.AX Vanguard Index Australian Shares. (traditional market cap weight)
VHY.AX Vanguard High Yield Australian Shares.
IOZ.AX iShares MSCI Australia 200 ETF. MER 0.19
STW.AX SPDR S&P/ASX 200 Fund
16885.AX Realindex Australian Share
QOZ.AX BetaShares FTSE RAFI Australia 200 ETF (fundamental weight)
etc
Australian LICs
MLT.AX Milton Corp. MER: 0.125%
CIN.AX Carlton Investments. MER: 0.9%
AFI
ARG
BKI
CIN
Emerging Markets ETFs
VGE.AX Vanguard FTSE Emerging Markets Shrs ETF (Australia-domiciled)
IEM.AX iShares MSCI Emerging Markets Index ETF (US-domiciled)
Bond ETFs - Australian
VGB.AX Australian Government Bond Index. MER 0.20%
VAF.AX
RCB.AX Russell Australian Select Corp.
IAF.AX
etc
PMs - Physical, Onshore
Perth Mint
PMs - ETFs, Onshore
PMGOLD-A.AX
GOLD.AX
QAU.AX
PMs - Physical, Offshore
http://silverbullion.com.sg
Roboinvestment SaaS for Australians
http://www.stockspot.com.au/
Portfolio Management SaaS for Australians
http://www.sharesight.com.au/
Resources - Essential reading
A Random Walk Down Wall Street
Bogleheads Guide to Investing
http://mrmoneymustache.com
Failsafe Investing
http://crawlingroad.com
Resources - Australian Investing
Resources - Australian Superannuation
http://superannuationfreak.blogspot.com
Resources - Dividends
http://www.australiandividends.com.au/
etc
Very rough skeleton based on what's in this thread. Maybe put all this information onto Bogleheads Wiki eg http://www.bogleheads.org/wiki/Investing_in_Japan (Australian page conspicuously lacking). Just trying to think like a Boglehead, the info that we're really interested in is cost, liquidity, taxation issues, etc.
Books too - there are so many resources out there, but there are a few books and websites which are so good they keep bubbling to the top.
Apologies if this already exists somewhere in one place, and would appreciate your thoughts.
Post by: lolzmonster on September 06, 2014, 03:45:05 AM
Just a curious question. Is anybody here using leverage to invest in shares? From what I've seen on my bank website (ANZ), the rate is something silly like 7%.
If you do, could you outline how that has been working for you?
Thanks
Post by: marty998 on September 06, 2014, 04:32:19 AM
How do people think the mining tax repeal will affect mining company prices, such as BHP?
http://www.reuters.com/article/2014/09/02/us-australia-mining-tax-idUSKBN0GX0LD20140902
Surely not having to pay that tax will make the companies much more profitable and drive the share prices up? BHP has been quite low for a while, too. Just some pure uneducated speculation. I don't own any BHP, apart from in VAS (BHP makes up about 9% of VAS).
That being said, politically I am against the move and think it's going to be bad for Australia
Iron Ore price is having a much bigger effect. Currently at a 5 year low of US$80 and most IO stocks are getting hammered.
BHP, RIO and FMG on the other hand are carrying on pumping out record volumes. They were never going to pay a material amount of tax anyway based on how it was designed.
Post by: dungoofed on September 06, 2014, 06:45:26 AM
I would love to hear fellow aus mustachians thoughts on the above options or perhaps there are others that I haven't considered - would love to hear those as well!
Hi Wadiman -
Quote
Assets: PPOR (valuation 1.3M); IP1 (valuation 600k); Charter hall unlisted property trust ($50k), Super ($270k), Car and scooter ($20k) - total = $2.85M
Liabilities: Mortgage 1 (PPOR - $230k; investments - $180k); Mortgage 2 (IP1 - $448k) - total = $858k
Net worth: say $2M
Firstly, I get Assets at $2.24m, which brings your net worth down to about $1.4m (and unless you're thinking of selling your car/scooter you might want to remove it from these calculations).
Also, what is that "investments" liability? Did you forget to include some stocks bought with the bank's money in your Assets perhaps?
Post by: Wadiman on September 06, 2014, 07:44:01 AM
You're right re the assets calc - circa $2.2M is correct.
The liability is for the deposit on the IP and purchase costs and past misadventures with equities when I got cold feet and wore some losses.
Any thoughts re options?
Thanks
Post by: dungoofed on September 06, 2014, 06:12:59 PM
The preservation age being increased, the stock market taking a dive, and you losing your job are the three biggest risks on the horizon for which you need to plan.
The second and the third are unfortunately often linked, so at risk of sounding like a bit of a nutter I'm going to suggest you put some money outside of your super into PMs and bonds. More on that later.
Regarding the preservation age being increased, the key point to remember is, you will be able to access your money in super at some stage, it's just a matter of having enough outside of your super account from FI to survive until preservation age (assuming you fully retire at that point).
Assuming preservation age remains at 60 and you continue living on the inflation-adjusted equivalent of $64,000 a year you'll only need to cover one year's expenses ie $64,000 - the rest will be better off in your super account.
Assuming preservation age goes up to 65, you'll need about six years worth of salary or $384,000 in today's dollars. If you are saving $111,000 a year (ie after-super income) then this is three or four years' worth of savings/investments outside of super.
Just given your age and investing horizon I'd be looking to pay the minimum on your loan for the next four years and put about 100K/year into maybe 70% stocks, 20% bonds, 10% PMs.
If only preservation age goes up but the stock market doesn't crash and you keep your job then you're set.
If preservation age stays the same but the stock market crashes then you should still be fine. Sell the bonds/gold as appropriate and buy up stocks, pay off your debt, etc.
If preservation age is increased, the stock market crashes, and you lose your job then I think you could still get out of this ok, but you might need to sell your investment property if the bonds and gold don't give you enough to weather the storm.
Post by: Wadiman on September 06, 2014, 07:24:18 PM
Hi Wadiman -
The preservation age being increased, the stock market taking a dive, and you losing your job are the three biggest risks on the horizon for which you need to plan.
The second and the third are unfortunately often linked, so at risk of sounding like a bit of a nutter I'm going to suggest you put some money outside of your super into PMs and bonds. More on that later.
Regarding the preservation age being increased, the key point to remember is, you will be able to access your money in super at some stage, it's just a matter of having enough outside of your super account from FI to survive until preservation age (assuming you fully retire at that point).
Assuming preservation age remains at 60 and you continue living on the inflation-adjusted equivalent of $64,000 a year you'll only need to cover one year's expenses ie $64,000 - the rest will be better off in your super account.
Assuming preservation age goes up to 65, you'll need about six years worth of salary or $384,000 in today's dollars. If you are saving $111,000 a year (ie after-super income) then this is three or four years' worth of savings/investments outside of super.
Just given your age and investing horizon I'd be looking to pay the minimum on your loan for the next four years and put about 100K/year into maybe 70% stocks, 20% bonds, 10% PMs.
If only preservation age goes up but the stock market doesn't crash and you keep your job then you're set.
If preservation age stays the same but the stock market crashes then you should still be fine. Sell the bonds/gold as appropriate and buy up stocks, pay off your debt, etc.
If preservation age is increased, the stock market crashes, and you lose your job then I think you could still get out of this ok, but you might need to sell your investment property if the bonds and gold don't give you enough to weather the storm.
Thanks DF - I like your ideas and will carefully think them through.
Post by: The Hamster on September 08, 2014, 05:56:31 PM
Post by: bigchrisb on September 08, 2014, 06:20:31 PM
Is anyone here buying US ETF's directly from US exchanges ie VT, VOO etc? If so, what broker are you using?
I used to do this through Interactive Brokers. Was very cost effective, but the interface and tax treatment took a bit of getting used to (not bad, just very different from Aust brokers/chess sponsorship). However, their margin lending rates were probably too low compared to the AUS financials, and a bit of lobbying got APRA involved to ban them from providing margin debt to individual accounts. Or at least that's what the inner skeptic in me thought!
I've since just stuck with the cross listed versions, and they have been OK for me. I'd like a lower cost option for exposure to emerging markets though.
Post by: superannuationfreak on September 08, 2014, 07:11:12 PM
Is anyone here buying US ETF's directly from US exchanges ie VT, VOO etc? If so, what broker are you using?
I've recently started this with optionsxpress. As I'm not planning to purchase/trade frequently they were better value for me (interactive brokers have a minimum $10 per month but their fees are very low so they're very good value if you are purchasing every month, less so if purchasing only a couple of times per year).
They offered me five free trades and live data if I funded my account ($500 minimum) within five days. They also have an Australian bank account you can transfer into and the foreign exchange spread was surprisingly reasonable (0.5 - 1c rather than the 3% or so with an Australian bank). However they will only send out wire transfers in USD (and not to third parties such as ozforex) so think about having a plan to get the money back in a cost-effective manner. For my needs Citibank will probably suffice there.
Post by: bigchrisb on September 08, 2014, 07:26:11 PM
Post by: The Hamster on September 08, 2014, 08:33:53 PM
Post by: superannuationfreak on September 08, 2014, 09:14:05 PM
To be honest, I don't see much value in government bonds in 'taxable' accounts in Australia right now. uBank or RAMS online savings accounts have a higher expected yield without risk if interest rates rise. This may not always be true, of course. In Super, though, many industry funds provide Australian and/or AUD hedged bond funds at very low cost and, given the relative tax advantages of holding your fixed interest in Super and your equities in 'taxable' accounts, those are certainly worth exploring.
Post by: This_Is_My_Username on September 08, 2014, 09:52:58 PM
iShares S&P/ASX Dividend Opportunities ETF (IHD)
http://au.ishares.com/fund/fund-distributions-IHD-ASX.do
The price is currently $16.
The previous four quarterly dividends were 125c, 18c, 18c, 29c = 190c = 12% return.
????
That sounds too good to be true?
Post by: superannuationfreak on September 08, 2014, 10:12:12 PM
Did IHD really give a 12% dividend payment in 13-14 ?
Yes they did. I checked with iShares and it appears largely due to turnover, i.e. capital gains from selling shares which no longer offered as good a dividend yield. This part of the distribution is not franked (although at least it looks like most of the capital gains were eligible for discount: http://au.ishares.com/fund/fund-distributions-IHD-ASX.do ). You'll note the price of the ETF dropped substantially when it went ex-dividend: https://au.finance.yahoo.com/echarts?s=IHD.AX#symbol=IHD.AX;range=3m
I'm not sure how comfortable I [personally] would be now with this fund outside Super. The tax implications are unpredictable.
Post by: potm on September 08, 2014, 10:26:12 PM
Was also a former IB customer until the the margin lending was removed. Luckily I was able to sell out and rebuy some shares with a different broker without any impact on my portfolio.
Just a question for those invested in the cross listed US ETFs, are the tax implications a problem?
I see state street have WXOZ which is a world ex Australia ETF made for the Australian market and they tout simpler tax as one of the advantages over the CDI cross listed funds.
The world ex Australia compisition is nice though whilst most international ETFs are US or world ex US but it is probably not worth the higher management fee over Vanguard funds.
Post by: bigchrisb on September 08, 2014, 11:04:20 PM
Just a question for those invested in the cross listed US ETFs, are the tax implications a problem?
I see state street have WXOZ which is a world ex Australia ETF made for the Australian market and they tout simpler tax as one of the advantages over the CDI cross listed funds.
The world ex Australia compisition is nice though whilst most international ETFs are US or world ex US but it is probably not worth the higher management fee over Vanguard funds.
The implications of the cross listed funds haven't been an issue for me to be honest. I held the US variant through my IB account, and the AUS variant through my Etrade account at the same time, and for all intents and purposes they achieved the same outcome.
The Ex-Aus feature is nice - one of my gripes of holding VEU is that AU shares compose about 6% of the index, and because of our higher yields, about 10% of the distributions. From what I can see, the franking credits on the Aus earnings in there are lost. So, if VEU yields 3%, and of that 0.3% is from AU distributions, that's something in the order of of 13 basis points in lost franking credits. Add that to the cost base (15 basis points), and you are getting up 0.28% - not all that far from the fees of the WXOZ fund. Howeve,r two things I don't like about it are:
- Its just developed markets. No emerging markets in there. (see http://www.spdrs.com.au/etf/fund/fund_detail_WXOZ.html for a country breakdown)
- Its not a full replication ETF - it tried to match the sector allocation of the index, rather than owning the whole index. The index has only ~350 of the 1700 companies in the index. Just comparing the top 10 from the index and the fund, it would seem to be missing: Nestle, Berkshire - B, Wells Fargo and Chevron. If I'm indexing, I want the whole index, not some fund managers view on an equivalent asset allocation.
Post by: potm on September 08, 2014, 11:33:32 PM
Just comparing the two here, it seems like in both cases, there is slight underperformance compared to the index but the gap is narrower with Vanguard. Maybe can be considered another hidden cost of ETFs that isn't talked about much.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfs.jsp#performancetab
http://www.spdrs.com.au/viewall/index.html
I also like the World-Ex Aus compisition because it means we only need two ETFs to cover global exposure.
If it wasn't for franking credit complications then a total world index would be sufficient. If you have a portfolio of 5 ETFs you are buying regularly then the brokerage fees have to be considered in the overall picture as well.
Post by: bigchrisb on September 09, 2014, 01:01:34 AM
The main reason I prefer full replication vs representative allocation is for lower portfolio churn. With replication, price movements of a share will not change the number of shares needed to be held (unless the price means it comes in / goes out) of the index. This means that transactions are pretty much limited to the issue or cancellation of shares, to the extent that the market is not efficient. (for example, in an efficient market a buyback would not impact an ETF, as while the number of shares reduces, the stock price increases and the market cap stays the same).
With representative sampling, there is the potential for individual stocks to out/underperform and result in additional stock re balancing within the ETF. This would be a realized capital gain and taxed, where as in full replication, it wouldn't occur. To give an example that would have effected WXOZ: WXOZ seems to represent large cap US oil producers through holding Exxon, and doesn't hold Chevron. Over the long term, these two stocks have been highly correlated. However, over the medium term, there have been large disparities in price growth. For example, if you looked at the period 1970-1976, Exxon grew 40% while chevron flat lined. That would result in the ETF being over represented in US energy, so sell off some Exxon to get that sector allocation back to the right %. Then take the period 1976-1980. over this time, Exxon grew 20%. Chevron grew 120%. Our US large cap oil exposure is now underweight compared to the average, and I end up buying more Exxon. Sure, I've cherry-picked that particular example, but I think this effect will result in a performance drag for representative funds compared to full replication funds, unless the benefit of holding fewer stocks is represented in lower management costs. Sadly, the MER for this ETF is higher, not lower than holding the full replication equivalents.
I see why fund manages do this, to keep the number of stocks in an ETF down. However, to me it destroys one of the key reasons for index investing, which is reduced portfolio churn.
Again, happy if someone can show otherwise?
Post by: potm on September 09, 2014, 01:23:44 AM
I believe the fund managers will attempt to predict future changes to the indexes to start adjusting the ETFs. It makes sense as everyone rushing to buy a sell a particular stock on the day the index change is announced would be disastrous.
Thanks on your points on partial replication negatives, I hadn't thought about it before and has put me off WXOZ.
Vanguard do have a world ex Australia unlisted fund but no ETF version which is a shame.
Post by: potm on September 09, 2014, 02:08:30 AM
Have you received a statement for VEU yet and can you confirm whether this is the case?
Post by: superannuationfreak on September 09, 2014, 06:11:33 AM
I just had a chat with Vanguard to ask about VEU and VTS and the associated franking credits and I was assured that those would be passed onto investors and would be detailed in the annual statement. I even specifically enquired about the cross listed funds and was assured that it was no problem.
Have you received a statement for VEU yet and can you confirm whether this is the case?
That's not the case. I held VEU last tax year - we get told what foreign tax has been paid (for foreign tax credit which can offset 15% US withholding tax) but there are no franking credits. The component of VEU distributions which is franked Australian dividends will be taxed at 0% for the fund but there's no way to get that 30% (or soon 28.5%) Australian bonus.
Post by: bigchrisb on September 09, 2014, 03:02:21 PM
I just had a chat with Vanguard to ask about VEU and VTS and the associated franking credits and I was assured that those would be passed onto investors and would be detailed in the annual statement. I even specifically enquired about the cross listed funds and was assured that it was no problem.
Have you received a statement for VEU yet and can you confirm whether this is the case?
That's not the case. I held VEU last tax year - we get told what foreign tax has been paid (for foreign tax credit which can offset 15% US withholding tax) but there are no franking credits. The component of VEU distributions which is franked Australian dividends will be taxed at 0% for the fund but there's no way to get that 30% (or soon 28.5%) Australian bonus.
Ditto.
I called vanguard maybe 18 months ago about it. I'm pretty sure the person on the other end of the phone had no idea what I was talking about, but they reassured me that it was included in the annual tax statements. As far as I can tell it isn't - my tax statements only show US tax withheld - and I can see no reason why franking would be recovered through that.
I've written it off as one of the trade-offs of VEU, and factor it in to the total cost of holding. Even with it, its still the cheapest alternative for that kind of asset exposure that I've been able to find.
It, along with the full/partial replication issues above should remind us that headline "expense ratio" isn't the only cost we bear in fund based investments. I think Malkiel alluded to a lot of this in part of "a random walk down wall st"?
Post by: bigchrisb on September 09, 2014, 05:19:22 PM
There has been lots of press on the paid parental leave associated with this, but as far as I can see, nil on the company tax rate issues?
Post by: Primm on September 09, 2014, 06:33:47 PM
Post by: potm on September 09, 2014, 07:20:04 PM
Good for us investors, don't want to be losing 1.5% in tax that is not included as a franking credit.
Post by: AustralianMustachio on September 12, 2014, 09:41:00 AM
What determines the exact dividend a company will pay in the future? People talk about Company X being attractive with a 6% dividend yield.... and these amounts are listed on Google Finance etc as percentage yields... but are they simply going off the past dividend amount, divided by the current share price?
Or is there something else that can tell you what the future dividend will be?
Post by: potm on September 12, 2014, 10:58:34 AM
Of course future profits is only a guess as well and even then there's no guarantee that the payout ratio will remain the same.
Predicting a companies future dividends is the essence of valuing a company as it is worth the present value of future cash flows.
Companies with stable earnings that are growing and have a long history of dividends might have a higher chance of paying increasing dividends in the future and the market usually prices these companies highly.
Another important thing is to look at the company's ability to keep paying dividends. How are the dividends financed, from operating earnings or from borrowings, how much debt does the company have, how much capital expenditure will it have in the future.
Post by: Jim from QLD on September 14, 2014, 12:42:10 AM
Hi guys,
Just a curious question. Is anybody here using leverage to invest in shares? From what I've seen on my bank website (ANZ), the rate is something silly like 7%.
If you do, could you outline how that has been working for you?
Thanks
10/10 name.
You are right margin loan rates are crazy, the clever thing to do IMO is use a line of credit redraw that is secured by a property, (PPOR normally) this gives access to the home loan 5~% rates.
I personally have used the 4.88% rate on my home loan to invest in shares yielding similar amounts and then relying on thefranking credits to put me firmly in the green.
Post by: LittleAussieBattler on September 14, 2014, 12:45:35 AM
Post by: deborah on September 14, 2014, 05:16:10 AM
http://www.canberratimes.com.au/money/super-and-funds/can-i-retire-early-and-bring-up-the-kids-too-20140911-10f8nm.html
Post by: Primm on September 14, 2014, 05:27:31 AM
"It's not a good idea to put stocks into your bottom drawer and forget about them." Um, why not George?
Post by: LittleAussieBattler on September 14, 2014, 05:38:31 AM
Post by: charms on September 16, 2014, 04:40:11 AM
Thanks for this wonderful, informative thread. I am learning a lot.
I have a question about investing. Bear in mind I am a newbie and in no way established like many of you seem to be! Which amazes and inspires me, by the way!
I have a 10k emergency fund in a high interest savings account and another 10k ready to plug into an investment fund. I have decided on Vanguard but undecided between the retail managed funds and the ETFs.
RMFs: min 5k to start, regular deposits can be made as little as $100, fees 0.70 - 0.90% p.a.
ETFs: no min to start, brokerage fees mean larger/fewer deposits, fees 0.05 - 0.30% p.a.
If I go with RMFs, I'd choose 2x 5k investments from either the property fund, the Australian shares funds or international funds. And add more to it later to have a balance of property/Aust/international. I also like the idea of being able to direct debit from my salary straight in there so I don't spend the cash on other things...
If I go with ETFs, I'd use the full 10k to create a spread across property/Aust/international funds, probably 20% property/ 50% Aust/ 30% intl... I like the idea that I can do this right away even with just a 10k investment, but I don't like that I'd have to build up elsewhere another 'stache to plug into it down the track.
What do others think? I am itching to get into it but wanted to get advice first... :)
Post by: This_Is_My_Username on September 16, 2014, 05:14:38 AM
after a while, you will have 50k, and be paying an additional 0.6% = $300pa.
when you have $200k, you will be paying an additional 0.6% = $1,200pa.
Post by: Black Dog on September 16, 2014, 08:53:39 AM
Great thread!
Im new here, so thought I would drop a line. I have been reading the MMM blog for a while now, and occasionally scanning the forum - but this is a first post here. I am on a couple of other 'investment forums' trying to learn, so I may already know some of you from there?
At this point in many ways I guess I am still very anti-mustachian. But my circumstances are fairly unique. I am a high income earner, and have very few expenses. I am provided with a house, car, phone and international flights as part of my work package. Although I am an Australian citizen Im not a resident - therefore I don't pay taxes in Australia. I have started using pocketbook to track my expenses (great tool btw), and some of what I see is pretty scary. Ive calculated I spend about $60k/pa just on normal 'living' plus I have purchased a fair few one off items in the last 12months (a boat, laser eye surgery, a big legal bill etc) which pushed it up to about $100k for the last 12months (like I said - Im not very mustachian yet).
At this point my investments are all in RE - I don't have anything in the share market.
In Australia I have property worth about $3.00m and cash about $200k. I have a couple of properties in Russia worth about $400k.
Total debt is about $2mil in Aud and another $300k in Russia.
I don't have a PPOR - and no non-investment debt.
I am in the process of setting up a trading account online so I can purchase some stocks, and by the sounds of it the Vangard fund is pretty popular in these circles. So I will probably start there.
I have a payment of $500k coming due in early 2005. Im hoping to have the cash to pay for it, but may need to leverage a bit into the properties to cover it. This will be a non-deductible payment.
Anyway. Thats me - look forward to chatting with you all.
Black Dog.
Post by: AustralianMustachio on September 17, 2014, 01:58:05 AM
Investing in VTS means that you get paid in USD converted to AUD, which I read under Australian tax law is treated as foreign sourced income. Does anyone know the tax rate for foreign sourced income?
Post by: Primm on September 17, 2014, 02:06:56 AM
But I haven't done it yet, so I'm happy to be corrected if I'm wrong.
Post by: johnnydoe on September 17, 2014, 02:12:06 AM
Asset returns
Report on asset returns that have occurred in the last 20 years is available at: http://www.russell.com/au/assets/pdfs/insights/R_RPT_ASX_Report_V1F_1405_WEB-1.pdf
Bonds, floating rate notes, stocks
Floating Rate Notes: http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=FLOATING_RATE_NOTE
Australian Corporate Bonds: http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=CORPORATE_BOND
Australian Government Bonds: http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND
Bond and stock Index funds available through Vanguard Australia: https://www.vanguardinvestments.com.au/retail/ret/investments/overview.jsp
Salary packaging your superannuation
www.smartsalary.com.au
Vanguard Australia Tools
https://www.vanguardinvestments.com.au/retail/ret/education/tools.jsp
Compound interest calculator
https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/compound-interest-calculator
Net worth/expenses trackers
ANZ Money manager: http://www.anz.com.au/ANZ-MoneyManager/
Alternatively, Pocketbook:
https://getpocketbook.com/
Australian Economic dashboard
http://www.russell.com/au/insights/market-insights/
Australian Institutions
Reserve Bank of Australia: http://www.rba.gov.au/
Australian Prudential Regulation Authority: http://www.apra.gov.au/Pages/default.aspx
Australian Productivity Commission: http://www.pc.gov.au/
Australian Bureau of Statistics: http://www.abs.gov.au/
Interesting (free) research:
The Australia Institute: http://www.tai.org.au/
Australian Centre for Financial Studies: http://www.australiancentre.com.au/
Post by: deborah on September 17, 2014, 03:32:22 AM
Post by: DrowsyBee on September 17, 2014, 05:49:44 AM
Thank you.
I've been reading so much mustachian stuff from the states over the last few months and recently got back to Australia thinking...well that's all well and good, but now I need Australian resources and Australian people to talk to.
Luckily there's the Canberra meet-up this weekend.
I'll be looking through all these links in the meantime!
Post by: bigchrisb on September 21, 2014, 09:14:00 PM
Any other alternatives on people's radar at present?
Post by: superannuationfreak on September 21, 2014, 09:45:52 PM
What are people seeing as best value for their Australian share exposure at the moment? I'm usually a big fan of the LIC's, but they are trading at premiums, so bought some VAS this month.
Any other alternatives on people's radar at present?
It's a tricky one. I want diversification (ideally more value exposure) outside of financials and mining stocks but struggle to go more extreme in my international exposure (I'm at about 60% of equities which is a touch outside my comfort zone). I really don't like the Small Ordinaries index and it has been consistently outperformed by active management (I'm 95% indexed and the evidence is in favour of indexing for large caps/international but not for Australian Small Caps).
VAS and/or old-school LICs (when not at a significant premium) would also be my primary Australian purchases as costs matter.
I purchased some FGX in the 'launch' and thought about QVE. The fees/donations are higher than I'd usually consider so I'll only ever hold a small amount.
If I were adding substantially to (SMSF or non-SMSF) Super at the moment I'd also consider the Realindex Wholesale Australian Small Companies fund as a stand-alone.
In an SMSF I'd consider the ETFs MVW or QOZ as they are less top-heavy but I'm a bit wary of their small AUM and possibility for turnover/capital gains outside super.
Post by: potm on September 21, 2014, 10:13:00 PM
Share market looks like it's going on sale. Hoping this momentum continues, looking forward to picking up some more investments.
Post by: marty998 on September 21, 2014, 10:16:09 PM
ANZ @ $30 looks enticing. If I had the balls I'd buy FMG but who knows where the iron ore price will bottom out.
Post by: Cashup on September 22, 2014, 12:37:44 PM
Just logging in to follow at this stage...:))
Post by: The Falcon on September 24, 2014, 04:01:44 PM
What are people seeing as best value for their Australian share exposure at the moment? I'm usually a big fan of the LIC's, but they are trading at premiums, so bought some VAS this month.
Any other alternatives on people's radar at present?
Yep, no great value in the LICs...prob only Whitefield if you like it.
Just bought first tranche in debt recycling scheme, I have a STG portfolio loan (4.90%),
Family Trust has a sub account, the idea is I can slightly neg gear if need be as trust has quite a lot of income.
Bought this week ;
VHY / 60%
SOL / 20%
BRK-B / 20%
I'll be drawing down twice a year and DCA into the likes of VHY (will be largest holding), big OZ LICs when at discount to NTA, and 20-30% in BRK-B / VTS / MKL and a few other US direct shares over time. This is a forever portfolio.
Post by: charms on September 24, 2014, 04:55:23 PM
I'm looking at purchasing Vanguard ETFs but the mining heaviness of Aust industry concerns me, mostly for ethical reasons.
Also, are there any other good blogs that you read regularly, some that contain some similar perspectives as MMM?
Post by: bigchrisb on September 24, 2014, 06:49:03 PM
Post by: MsRichLife on September 24, 2014, 06:50:51 PM
Also, are there any other good blogs that you read regularly, some that contain some similar perspectives as MMM?
An Australian newsletter I enjoy is The Daily Reckoning Australia. They have a variety of analysts that present interesting views on global and Australian economics and investing. Some bearish, some bullish, but always well considered.
http://www.dailyreckoning.com.au/
Post by: The Falcon on September 24, 2014, 07:12:18 PM
Falcon - what brokerage/means are you using to buy direct US shares? I had an account with IB (with its own set of issues), and don't currently have a good option for US shares.
For US stocks I get stitched up by Lonsec at 1% Bro. Don't really care though as i'm not a trader...long game only. Lonsec takes care of Portfolio Admin/reporting and I just need to fire off an email and its taken care of. Not cheap, but convenient. Use them for both ASX and NYSE , in SMSF and Family trust.
Post by: MsRichLife on September 24, 2014, 10:48:16 PM
I've just recently updated my Discretionary Family Trust and plan to start using it for investing. I started the following thread seeking answers to some investment related questions because I didn't want to clog up this thread.
http://forum.mrmoneymustache.com/investor-alley/using-a-discretionary-family-trust-for-investing/msg407559/#msg407559 (http://forum.mrmoneymustache.com/investor-alley/using-a-discretionary-family-trust-for-investing/msg407559/#msg407559)
Hopefully some of you are structure gurus and can help me with some of the finer points of investing with a DFT.
Thanks in advance
MsRL
Post by: The Falcon on September 25, 2014, 04:30:10 AM
Also, are there any other good blogs that you read regularly, some that contain some similar perspectives as MMM?
Not directly MMM related, but I do enjoy imbibing in Tim McAleenan Jr.s koolaid, along with Vanguard AU articles.
Other blogs I find have just too much useless noise, too much speculation and short term drama.
Rather than blogs, I'd recommend these timeless classics for your bookshelf in no particular order ;
A random walk down Wall Street, Burton Malkiel
Motivated Money, Peter Thornhill
Buffett, the making of an American Capitalist, Roger Lowenstein
Common sense on mutual funds, John Bogle
Post by: charms on September 25, 2014, 04:50:03 AM
Post by: banksie_82 on September 25, 2014, 04:42:54 PM
I just wanted to get peoples thoughts on LICs v ETFs.
For the sake of the argument, assume that the fees are roughly the same (0.10 - 0.25%)
Now assume that the ETF’s are traded in an efficient market (i.e. they always reflect the movements of the underlying index) while the LICS may trade at a discount or premium.
I see LICs as a superior investment for the following reasons. But I would like to know what others think.
Actively managed, but in a buy and hold way. So someone, probably much better informed than me, is thinking about what companies are doing well and which ones aren’t. I know some people here refuse to acknowledge that actively managed can possible be any better than passive, but the evidence would suggest otherwise on some of the old school LIC’s, even if only by a fraction of a percent pa.
Dividend is usually 100% franked with LIC’s, as opposed to ~70% with domestic ETF, so better tax outcomes.
Ease of accounting. The dividend is just like any other company, div + franking credit (sometimes a cap gain). To me the ETF’s complicate it for no real gain… you have div, franking, interest, foreign income, cap gains, etc.
In my limited experience, LIC’s tend to have a more dependable and predictable dividend.
Share Purchase Plan (SPP) with LIC’s. Most now have a SPP every year for $15k with a set price. This is effectively a free option on the shares that can occasionally turn out to be quite profitable in the short term.
Some LIC’s have dividend reinvestment plans (DRP) with a discount to the current price.
So, assuming that you agree with the above, what is an acceptable premium to pay for all these benefits? 0.5%? 2.0%? Or do you use the spread to your advantage (which I agree is ideal, but not always practical) and only buy when there’s a discount, and only sell when there’s a premium and play with ETF’s at all other times?
Post by: terrier56 on September 25, 2014, 05:09:57 PM
Actively managed, but in a buy and hold way. So someone, probably much better informed than me, is thinking about what companies are doing well and which ones aren’t. I know some people here refuse to acknowledge that actively managed can possible be any better than passive, but the evidence would suggest otherwise on some of the old school LIC’s, even if only by a fraction of a percent pa.
Here's where I see a flaw in the LIC. Moving funds around incurs fees. These fees ultimately cut into your long term gain since it has been proven that no fund managers methods seem to have an edge against the market (debatable though but that's the theory). not sure where you have the evidence for the old school LICs? but hey if there is on can you kindly post it up here? :)
Post by: bigchrisb on September 25, 2014, 05:51:13 PM
Actively managed, but in a buy and hold way. So someone, probably much better informed than me, is thinking about what companies are doing well and which ones aren’t. I know some people here refuse to acknowledge that actively managed can possible be any better than passive, but the evidence would suggest otherwise on some of the old school LIC’s, even if only by a fraction of a percent pa.
Here's where I see a flaw in the LIC. Moving funds around incurs fees. These fees ultimately cut into your long term gain since it has been proven that no fund managers methods seem to have an edge against the market (debatable though but that's the theory). not sure where you have the evidence for the old school LICs? but hey if there is on can you kindly post it up here? :)
Most of the old school LICs have out-performed the ASX over the medium term (10 - 15 years). For example, see:
AFI - up to 10 years of data http://www.afi.com.au/Investment-performance.aspx
MLT - up to 15 years of data http://milton.com.au/sites/default/files/MILTON%20Annual%20Report%202014_DRAFT%20V8.pdf
ARG - up to 15 years of data http://www.argoinvestments.com.au/portfolio-performance/share-price-performance
In all cases, the longest time period has had a slight out-performance over the all ords accumulation index. I suspect (but can't prove) that their hefty weighting to financials, and leaner weighting to resources has helped them, as they have been well aligned with the global hunt for yield. I tried to do some regression to back out if this accounted for all the differences, but didn't get anything significant from the analysis.
Post by: terrier56 on September 25, 2014, 06:12:21 PM
Actively managed, but in a buy and hold way. So someone, probably much better informed than me, is thinking about what companies are doing well and which ones aren’t. I know some people here refuse to acknowledge that actively managed can possible be any better than passive, but the evidence would suggest otherwise on some of the old school LIC’s, even if only by a fraction of a percent pa.
Here's where I see a flaw in the LIC. Moving funds around incurs fees. These fees ultimately cut into your long term gain since it has been proven that no fund managers methods seem to have an edge against the market (debatable though but that's the theory). not sure where you have the evidence for the old school LICs? but hey if there is on can you kindly post it up here? :)
Most of the old school LICs have out-performed the ASX over the medium term (10 - 15 years). For example, see:
AFI - up to 10 years of data http://www.afi.com.au/Investment-performance.aspx
MLT - up to 15 years of data http://milton.com.au/sites/default/files/MILTON%20Annual%20Report%202014_DRAFT%20V8.pdf
ARG - up to 15 years of data http://www.argoinvestments.com.au/portfolio-performance/share-price-performance
In all cases, the longest time period has had a slight out-performance over the all ords accumulation index. I suspect (but can't prove) that their hefty weighting to financials, and leaner weighting to resources has helped them, as they have been well aligned with the global hunt for yield. I tried to do some regression to back out if this accounted for all the differences, but didn't get anything significant from the analysis.
Indeed I will be interested to see if that trend continues for another 15 years. But I won't bet on it. indexes for this skeptic.
Post by: bigchrisb on September 25, 2014, 06:39:07 PM
Post by: The Falcon on September 25, 2014, 07:52:05 PM
Big LICs when cheap, ETFs when not is a solid approach imho....potential for some out performance in theory, but wont go too far from the index.
Even the great Burton Malkiel has recommended snapping up close ended funds when they are at big discounts to NTA.
Post by: banksie_82 on September 25, 2014, 08:06:52 PM
Terrier56, I understand the argument that active management increases fees, but given that the fees of the major LIC’s are often marginally less than Australian ETF’s, surely this point is moot?
For what it’s worth, I’m willing to pay a slight premium for LICs, in the order of 1 - 2%. Since I’m investing for the very long term I believe this is a reasonable price to pay for what I see are good financial benefits. In saying that though, any more of a premium than this, and it’s ETFs all the way.
Post by: bigchrisb on September 25, 2014, 08:47:09 PM
ETFs are required to distribute all income (100% payout ratio), which will come at your own tax rate. LIC's have the discretion to distribute income. That puts the payout ratio in the hands of the exec of the LIC. That has a couple of impacts:
- Do you trust the LIC to keep paying dividends? I see more risk in the LIC's with strong family cross-shareholdings here. Examples being CIN (Rydge) and SOL/BKW (Milner). I don't believe this risk is too large, as evidenced by my holding of these stocks. But it is there should one of them decide to go rogue?
- Tax consequences. Most LICs have a payout ratio of less than 1. That means that some of the dividends received get reinvested within the LIC. As my tax rate is higher than the company tax rate, this works out beneficially for me (I'd be reinvesting it anyway). If I was a lower tax entity, this would be less favorable - paying the tax from a 100% payout on an ETF would result in slightly more post tax dollars to reinvest (tax rate lower than company tax rate).
On the topic of turnover, I haven't looked at the numbers lately (last time I dug through the annual reports for the LIC's and the ETFs - I looked at VAS and STW), the turnover rate on the ETFs was actually slightly higher than the LICs.
I find that the information on MMM (and other US based forums) is very useful, but sometimes when I do my own due diligence on the Aus market and dig through to primary data, I get answers that diverge somewhat from the general forum consensus - the above being a couple of examples.
Post by: AustralianMustachio on September 26, 2014, 01:19:13 AM
I want to invest in real estate but the high prices and my aversion to borrowing are keeping me out of the market at the moment. On MMMs blog he mentions how REITs are a passive way of accomplishing the same thing as real estate. However from what I've read Australian REITs are only invested in Australian commercial property.
1) Are there any Australian REITs that invest in residential property?
2) How correlated are Australian commerical and residential property?
3) If property prices go up, but rents don't, does the price of the REIT benefit in any way? Or are they simply tied to rental prices?
4) Are there any Australian REITs that move in line with the prices of Australian property?
Pretty much, I'm wondering if there an investment out there that gives me something similar to Australian investment property, which I don't have to pay hundreds of thousands of dollars for.
Post by: Wadiman on September 26, 2014, 05:20:00 PM
Hey guys, put this in the Australian property thread first but figured it's probably more suited to this thread. I have a couple of questions about Australian REITs.
I want to invest in real estate but the high prices and my aversion to borrowing are keeping me out of the market at the moment. On MMMs blog he mentions how REITs are a passive way of accomplishing the same thing as real estate. However from what I've read Australian REITs are only invested in Australian commercial property.
1) Are there any Australian REITs that invest in residential property?
2) How correlated are Australian commerical and residential property?
3) If property prices go up, but rents don't, does the price of the REIT benefit in any way? Or are they simply tied to rental prices?
4) Are there any Australian REITs that move in line with the prices of Australian property?[/color][/color]
Pretty much, I'm wondering if there an investment out there that gives me something similar to Australian investment property, which I don't have to pay hundreds of thousands of dollars for.
I don't have a detailed understanding of REITs but there are a number with residential or mixed property holdings. Suggest you have a close look at the index-based REITs - State Street's SLF and Vanguard's VAP. They both hold Stockland and Mirvac which have residential components.
Post by: terrier56 on September 26, 2014, 05:57:51 PM
1) Are there any Australian REITs that invest in residential property?
2) How correlated are Australian commerical and residential property?
3) If property prices go up, but rents don't, does the price of the REIT benefit in any way? Or are they simply tied to rental prices?
4) Are there any Australian REITs that move in line with the prices of Australian property?
Pretty much, I'm wondering if there an investment out there that gives me something similar to Australian investment property, which I don't have to pay hundreds of thousands of dollars for.
I think your biggest concern should be yield. Most yields of the comercial sector (about 7%) sit well above yields from the residential sector (4-5%).
I think what you are really looking for is a trust that speculates on property after capital gains?
Even if you could buy these speculation RIETs I would advise against them. the greater fool theory will run out eventually and you should look to only buy investments with at least 5 years of future growth.
Make no mistake Australia have not found the "holy grail of investment". That is property can not have both 0% risk and the highest gains at the same time. It is simply a castle in the air.
Post by: AustralianMustachio on September 26, 2014, 06:52:03 PM
I have my concerns with australian property as well, I'm just looking into it as a small fraction of my portfolio in the future (hence the interest in REITs rather than an investment property). I've looked into VAP, which looks like the best option at this stage. However I just want to learn more about the underlying investments, since I haven't looked into REITs as much as shares yet
Post by: terrier56 on September 26, 2014, 07:58:54 PM
I guess the big downside is the low tax evasion although I wouldn't go without them. Low correlation to stocks makes them a great hedge.
Post by: bigchrisb on September 26, 2014, 09:16:03 PM
A couple of things that are important to me about REITS:
- Understand that most REITS are a stapled security, which includes property and often a management company / developer business. The risks of owning property (collecting rents) are different to the risks of playing property developer.
- REITS in Australia tend to be non residential property as a landlord (office, retail, industrial, hotels depending on the REIT). Most of the residential exposure (e.g. SGP, MGR, ALZ) are exposed as developers. I'm not aware of any that act as a landlord model for residential property. Probably because the objective metrics are terrible when compared against the objective metrics in the other classes!
- Beware leverage. Most REITS have some internal leverage. Great in boom times, didn't work out so well in the GFC. Particularly relevant if you are thinking of buying with leverage - leverage on leverage gets pretty scary pretty quickly.
-A REIT is a structure, rather than an asset class. For example, there are listed companies (as opposed to REITS) that own property. Two that come to mind are AHD (the Rydges hotels, Thredbo, and a range of cinemas here and in Europe), and UOS, with a portfolio of Malaysian property.
In theory, REITS should help with portfolio theory and smoothing volatility. In practice, over recent years they have been pretty correlated with stocks, so less effective as hedge as property has been in the past.
Post by: travelbug on September 28, 2014, 04:28:26 PM
what a great Aussie thread!
I have a few Qs for you guys who are well-versed in long term investing. I have always invested for short term gain, but we are looking to invest some large sums of money into the share market for the long term to create a passive income stream.
The first step of our moving towards FI, I suppose.
I am looking to purchase 4-5 individual stocks (blue chip, 100% franked) and then have been wondering which index fund you would recommend?
And if I may be so rude; I would like to ask you what annual dividend % are you returning on stocks and index funds (or whatever else you invest in) please? I am calculating our investment return at 5%, but am becoming confused with the return %s on etrade...
Thanks
TB
PS: also been watching the stock market, but have decided to hold due to the drop and G12 summit etc...hoping to pick up some extra shares, fingers crossed! WDYT?
Post by: AustralianMustachio on September 28, 2014, 07:05:59 PM
Edit - for more info, check out the ishares and vanguard websites. You can get past performance figures, comparisons, etc.
Post by: The Falcon on September 29, 2014, 09:31:48 PM
Post by: terrier56 on September 30, 2014, 01:03:28 AM
Anyone doing any topping up at the moment with ASX200 in the 52xx range? I bought some VAS for SMSF and Family trust this morning on open.
I don't keep spare cash for these situations. I just buy each month. Do u think it has bottomed? I guess it looks like a bit of a bargain considering last months price lol.
Post by: The Falcon on September 30, 2014, 01:12:36 AM
Post by: Wadiman on September 30, 2014, 04:49:58 AM
Post by: AustralianMustachio on September 30, 2014, 08:02:06 AM
Whilst on the topic of VAS, can anyone explain why the franking level of the ETF is 77-78%, while the fund version which tracks the same ASX300 index, has dividends which are franked at 90%?
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/viasf.pdf?20140929|093000
https://static.vgcontent.info/crp/intl/auw/docs/etfs/profiles/VAS_profile.pdf?20140929|093000
Post by: Notch on September 30, 2014, 06:04:08 PM
But the average distribution for the past five years is 3.97% for the fund and 4.59% for the ETF.
Post by: superannuationfreak on September 30, 2014, 06:31:31 PM
Post by: The Falcon on September 30, 2014, 09:28:24 PM
Post by: This_Is_My_Username on October 01, 2014, 12:27:46 AM
I have my concerns with australian property as well, I'm just looking into it as a small fraction of my portfolio in the future (hence the interest in REITs rather than an investment property).
If you are a home owner, you probably have a very large percentace of your portfolio in property already - in the form of your primary place of residence (PPOR)
Post by: This_Is_My_Username on October 01, 2014, 12:32:11 AM
(1) I am looking to purchase 4-5 individual stocks (blue chip, 100% franked) and then have been wondering which index fund you would recommend?
(2) PS: also been watching the stock market, but have decided to hold due to the drop and G12 summit etc...hoping to pick up some extra shares, fingers crossed! WDYT?
two concerns here:
(1) picking 4-5 stocks will very probably give you below-average returns.
(2) market timing is a game that cannot be won. This will also very probably give you below-average returns.
Post by: bigchrisb on October 02, 2014, 06:43:10 PM
Anyone doing any topping up at the moment with ASX200 in the 52xx range? I bought some VAS for SMSF and Family trust this morning on open.
I've been dipping in with a couple of small parcels of vas. Better value than there was a month ago, but a long way to drop until there is blood in the streets.
Post by: AustralianMustachio on October 02, 2014, 11:11:11 PM
Post by: superannuationfreak on October 02, 2014, 11:13:25 PM
Post by: AustralianMustachio on October 03, 2014, 12:11:17 AM
This thread once again delivers!
Post by: Primm on October 03, 2014, 01:09:17 AM
Won't make any difference to my strategy, I'm just curious. :)
Post by: terrier56 on October 03, 2014, 01:16:29 AM
Quick question about that, if I bought more VAS on 1st October am I entitled to distributions on those new shares this time around? It wasn't even deliberate, I have a "break even point" where buying ETF's is cheaper than putting money into an index fund so I only buy when I have that amount in my account, and I happened to tip over that when I got paid on 1st October.
Won't make any difference to my strategy, I'm just curious. :)
I believe you must purchase before the ex-dividend date. so you would not be eligible. This shouldn't matter since you saved the equivalent amount on the discounted price.
Post by: Primm on October 03, 2014, 01:58:48 AM
Post by: marty998 on October 03, 2014, 04:36:00 AM
On this statement it will indicate where the shares have been purchased "cum" dividend (meaning you are entitled to it, or "ex" dividend (meaning not) - and purchasing on the ex date means just that, as superfreak says you must be in the day before.
Post by: Wadiman on October 04, 2014, 03:02:16 PM
I'm seeking to model the end results of different super contribution strategies.
There are 1001 different super calculators out there and I've used a few.
No doubt due to different assumptions etc there are wildly different results when you put in the same data.
But - what I can't work out is the result i'm getting from the moneysmart super calculator - which you would think should be the best of the lot.
For example - when I model contributions at $24k per annum after 11 years (from today) with a $227k starting base, and leaving the default settings in place, I get a result of $575k. However, when I model contributions of $29k per annum over the same period with same settings, I only get a result of $608k which is less than the value of the contributions themselves ($33k outcome - $51k contributions). Clearly this is wrong as there should be some serious growth over that time (even allowing for 15% incoming taxation).
So - has anyone else experienced this? Any tried and trusted calculators out there?
Post by: deborah on October 04, 2014, 04:52:48 PM
Hi -I get different figures from you. Are you using https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/superannuation-calculator ?
I'm seeking to model the end results of different super contribution strategies.
There are 1001 different super calculators out there and I've used a few.
No doubt due to different assumptions etc there are wildly different results when you put in the same data.
But - what I can't work out is the result i'm getting from the moneysmart super calculator - which you would think should be the best of the lot.
For example - when I model contributions at $24k per annum after 11 years (from today) with a $227k starting base, and leaving the default settings in place, I get a result of $575k. However, when I model contributions of $29k per annum over the same period with same settings, I only get a result of $608k which is less than the value of the contributions themselves ($33k outcome - $51k contributions). Clearly this is wrong as there should be some serious growth over that time (even allowing for 15% incoming taxation).
So - has anyone else experienced this? Any tried and trusted calculators out there?
I put in 49 and 60 as the ages, left the current salary at $50000 and said $227000 current balance. Put in before tax $24000 per year (this is probably wrong as it doesn't include your employer super) and got a different result.
Post by: terrier56 on October 04, 2014, 05:02:58 PM
ultra conservative would be an understatement. The only reason i could think of them using this calculation is that they do exist (100 div interest only super) and that would also prevent people down the track suing them if they indeed received less in there super fund than stated. Not good reason. Anyone else have any ideas why they would use this?
Post by: deborah on October 04, 2014, 05:33:44 PM
I just used that calculator LOL then cross reference against my own calculations to find that the super fund they use has a ROI of 3.2% PA hahahahahaha.Well they allow you to change it - but it's probably the standard ROI of the most used fund.
ultra conservative would be an understatement. The only reason i could think of them using this calculation is that they do exist (100 div interest only super) and that would also prevent people down the track suing them if they indeed received less in there super fund than stated. Not good reason. Anyone else have any ideas why they would use this?
Post by: terrier56 on October 04, 2014, 06:13:41 PM
I just used that calculator LOL then cross reference against my own calculations to find that the super fund they use has a ROI of 3.2% PA hahahahahaha.Well they allow you to change it - but it's probably the standard ROI of the most used fund.
ultra conservative would be an understatement. The only reason i could think of them using this calculation is that they do exist (100 div interest only super) and that would also prevent people down the track suing them if they indeed received less in there super fund than stated. Not good reason. Anyone else have any ideas why they would use this?
No that can't be true. Statistically I think that given the most people work in healthcare (12.2%) would choose the industry super fund assignned (caresuper). This fund has a return of 8.01% since 1992 using the automatic allocation (balanced). http://www.caresuper.com.au/super/investing-your-super/performance
Post by: terrier56 on October 04, 2014, 06:34:41 PM
Post by: dungoofed on October 06, 2014, 11:21:43 PM
Australian Shares - 1) VAS, 2) STW
Global Shares - 1) IOO, 2) IVV
Emerging Markets - 1) IEM, 2) VGE
Bonds - 1) IAF, 2) VAF
Gold - 1) GOLD, 2) QAU
Stockspot was mentioned in the SMH today, alongside Betterment, Wealthfront, etc. Any comments? They seem to choose more expensive non-Vanguard funds a lot.
Encouraging to see that VAS is their choice for Aussie stocks, but with up to 50% in VAS according to their portfolios plus 10% gold I'd feel this was a little over-exposed to commodities.
Also, Wadiman, if you're still reading this thread then you'll note that Stockspot recommend 10% of your portfolio in gold, which happens to be the same as I suggested for you : P Just sayin'...
Post by: Wadiman on October 07, 2014, 01:20:52 AM
Post by: Primm on October 07, 2014, 01:57:03 AM
I currently have my super 50% each in AU stocks and international stocks. I did this when the AUD was >95c, and so far my paper win has been pretty good.
So now that the AUD has dropped relative to the USD, is now a good time to take that win and change my balance to 100% AU stocks again? Or am I missing something? We can rebalance up to once a month in my super scheme with no penalties or fees, I did this about 6 months ago and my current balance gives me $56,692 in AU stocks and $60,028 in international. They were 50/50 last time I rebalanced (only a few months ago), so as you can see the international side has done considerably better. Or should I leave them as they are and let the international side balance out the potential losses in the AU market over the next little while?
ETA: I just checked, and I rebalanced on 19/8. So this $3,400 difference is in about 6 weeks.
The other thing is, I can choose to rebalance only future investments and leave the current funds as they are. Would this be a better option?
Thoughts?
Post by: potm on October 07, 2014, 03:13:22 AM
If you are thinking about making it 100% Australian shares that would be more akin to trading. Whether that is a good idea or not depends on the future performance.
Be aware that there is a buy/sell spread on the different options so it's costing you a little each time you switch. By only changing the allocations for future investments minimises this.
Post by: dungoofed on October 07, 2014, 05:39:24 AM
1) Decide on a ratio of asset classes with which you are comfortable, and
2) Rebalance when a "rebalance event" is triggered.
So before we even start you need to decide how you want your portfolio to look. 50% Australian stocks and 50% international stocks is quite an aggressive ratio but assuming your age is around 30-35 then this might be fine for now.
Regarding rebalancing, there is a plethora of information as to how this should best be done. The idea is you want to periodically sell off the overperformers and buy more of the underperformers. The main two triggers are a) elapsed time period, and b) percentage drift from your ideal in 1) above. Other complexities include minimising trading costs and tax considerations (though it sounds like neither of these apply to you, provided you limit rebalancing to a max of once a month).
To keep it simple, in your case you might want to rebalance when one of the two asset classes reaches 62.5% of your portfolio, or once every nine months if you haven't rebalanced for the last nine months (either trust the math on these values, or feel free to educate yourself on rebalancing and come up with your own values). Using this, if your international stocks were 73k and Aussie stocks 43k then you'd want to consider rebalancing.
The only other thing I'd mention is that while you may be eligible for one free rebalance per month, depending on the plan there is a chance that you are still losing on each transaction.
Post by: Primm on October 07, 2014, 06:24:58 PM
I need to do some research on the buy/sell spread of my fund, and find out just how much it is actually costing to switch stuff around. And then just fricking do it.
Post by: This_Is_My_Username on October 08, 2014, 04:17:22 AM
I hope not the latter.
Also, you need to be fully cognisant of the fees.
Post by: slothman on October 09, 2014, 06:33:35 AM
Situation at the moment: Dual income no kids
Just started getting serious with investing in the past couple of years and looking forward to being able to retire within the next 10 years.
PPOR - 840K
Debt - 200K
Investment Properties - $2.5M
Debt - $2.0M
Shares outside of super - $100K in LICs: ARG/AUI/MLT. Looking to add some BKI and potentially some international shares at a later stage via ETFs. US market seems a little frothy at the moment so worried to buy in at current valuations. Also, I have a strong domestic bias mostly due to my obsession with franking credits.
Savings/Investing Rate ~55% consisting of paying down PPOR debt, servicing the (negatively geared) investment property portfolio and quarterly purchases of LICs (DCA strategy).
Although I am currently heavily weighted to residential property to quickly grow my asset base, I've started to do more research on ideal asset allocation and how to diversify the portfolio.
In a few years time, hopefully after some strong capital growth, I'd looking to sell down part of the property portfolio to clear debt and move capital into sharemarket/bonds/REITs for diversification and for a stable income stream to replace my wages.
Post by: deborah on October 09, 2014, 06:42:43 AM
Post by: marty998 on October 09, 2014, 03:10:59 PM
Market has the jitters at the moment. And its October LOL. Can you believe 7 years since the ASX peaked at 6800 and we're still below there. Admittedly that was all due to BHP being up around $50 but still, 7 years is longer than any other stretch in history below a peak.
Post by: slothman on October 09, 2014, 03:32:41 PM
Market has the jitters at the moment. And its October LOL. Can you believe 7 years since the ASX peaked at 6800 and we're still below there. Admittedly that was all due to BHP being up around $50 but still, 7 years is longer than any other stretch in history below a peak.
Does this mean the ASX200 is undervalued? What was the P/E ratio at previous peak?
Post by: Notch on October 09, 2014, 07:56:10 PM
Post by: dungoofed on October 09, 2014, 08:10:58 PM
Took some money from a term deposit that vested this week, combined it with the sale of a little each of WXOZ and VAF. Bought VAS.
Post by: The Falcon on October 09, 2014, 08:14:21 PM
Post by: AustralianMustachio on October 09, 2014, 10:27:49 PM
One thing that puts me off is that 8.31% of VAS is BHP, which I don't have a great amount of faith in for the future. Oh well I guess that's priced in at the moment by the market
Post by: potm on October 09, 2014, 10:30:10 PM
Wall Street down 2% overnight. NAB has come out with a profit downgrade and a capital raising to boot. I've always said there is something fundamentally wrong with that bank. Should shut it down, break it up and start again.
Market has the jitters at the moment. And its October LOL. Can you believe 7 years since the ASX peaked at 6800 and we're still below there. Admittedly that was all due to BHP being up around $50 but still, 7 years is longer than any other stretch in history below a peak.
New CEO so he is more than happy to recognise the impairments in 'Cash Earnings'. Makes a mokery of what Cash earnings is, whatever they want it to be I guess. Now he can show a wonderful increase in Cash earnings next year in his first full year as CEO. Dividend is getting increased along with a captial raising at a discount, direct destruction of shareholder value right there. It makes more sense to cut dividends for a year but then the market would have punished it severly so maybe this is the smartest thing to do afterall.
Post by: The Falcon on October 09, 2014, 11:02:56 PM
Post by: deborah on October 10, 2014, 12:29:52 AM
For instance, the US does not have franking credits, so that makes shares less attractive there. The US has very cheap property, which makes it significantly easier to get into the property market, as well as higher rents, which give higher yearly returns per dollar invested. This should also make it more reasonable for someone in the US to buy rather than rent.
As the forum is predominantly US advice, what should we (as Australians) follow, and what doesn't make much sense for us?
Post by: AustralianMustachio on October 10, 2014, 12:33:05 AM
Post by: marty998 on October 10, 2014, 12:52:02 AM
CCL around $8.40 is starting to be of interest...
I'm bearish on CCL long term. One day we are going to wake up, look in the mirror and see what fat fucks we are and that 43 grams of refined sugar in each can of coke, sprite or solo is the culprit.
That and we may also wake up and realise the scam that bottled water is.
I'm not sure if a lack of franking credits necessarily makes US shares less attractive. Yes, they tend to pay less dividends, but that isn't necessarily a bad thing as retaining profits allows businesses to grow. Look at the capital growth of the S&P500 vs the ASX200 over the last ten years.
Preference for franked dividends in Australia is becoming a drag on the economy according to RBA top dog Glenn Stevens. Investors are blinded by the tax benefits from franking in Super, which is leading to Managers not retaining enough earnings to grow and invest.
Market has the jitters at the moment. And its October LOL. Can you believe 7 years since the ASX peaked at 6800 and we're still below there. Admittedly that was all due to BHP being up around $50 but still, 7 years is longer than any other stretch in history below a peak.
Does this mean the ASX200 is undervalued? What was the P/E ratio at previous peak?
P/E ratio is irrelevant (IMHO at this point in time DYOR). As I said, BHP was holding up the entire market in 07.
Post by: marty998 on October 10, 2014, 01:09:10 AM
Wall Street down 2% overnight. NAB has come out with a profit downgrade and a capital raising to boot. I've always said there is something fundamentally wrong with that bank. Should shut it down, break it up and start again.
Market has the jitters at the moment. And its October LOL. Can you believe 7 years since the ASX peaked at 6800 and we're still below there. Admittedly that was all due to BHP being up around $50 but still, 7 years is longer than any other stretch in history below a peak.
New CEO so he is more than happy to recognise the impairments in 'Cash Earnings'. Makes a mokery of what Cash earnings is, whatever they want it to be I guess. Now he can show a wonderful increase in Cash earnings next year in his first full year as CEO. Dividend is getting increased along with a captial raising at a discount, direct destruction of shareholder value right there. It makes more sense to cut dividends for a year but then the market would have punished it severly so maybe this is the smartest thing to do afterall.
Yes, agree 100% with all of that potm.
Post by: potm on October 10, 2014, 05:58:10 AM
Post by: The Falcon on October 10, 2014, 03:22:00 PM
Looking to pick up some QOZ and small cap in coming weeks if this trend continues.
Post by: AustralianMustachio on October 10, 2014, 10:51:22 PM
Post by: The Falcon on October 10, 2014, 11:34:23 PM
Post by: AustralianMustachio on October 11, 2014, 12:25:35 AM
Post by: superannuationfreak on October 11, 2014, 05:03:15 AM
http://superannuationfreak.blogspot.com.au/2014/10/everything-you-need-to-know-about.html
Note that I'm not a personal finance guru so don't think I can add a lot of (extra) value in that part. The suggested savings rate of 15-20% is due to it not being specifically targeted at Mustachians. I suspect most who've made their way to this forum have probably already conquered personal finance or are in the process of doing so.
For reference:
The Dilbert guide to personal finance: https://retirementplans.vanguard.com/VGApp/pe/PubVgiNews?ArticleName=DilbertGuidetoPersonalFinance
If You Can: https://dl.dropboxusercontent.com/u/29031758/If%20You%20Can.pdf
Post by: MsRichLife on October 11, 2014, 10:11:24 PM
Post by: potm on October 12, 2014, 04:36:16 PM
CCL is 30% held by Coke USA.....when the human race moves on from sugar they are in trouble...bear in mind CCL has the Indo bottling operation, 200m people + majority non drinkers, with Jokowi coming in to power, I am bullish on ID in coming decade.. I'm a long term bull on CCL but I'm only playing around the edges of the portfolio as a matter of interest :)
Looking to pick up some QOZ and small cap in coming weeks if this trend continues.
A couple of articles in the AFR today on CCL that touches on the relationship between the 2 coke companies. 30% ownership does not mean their interests are totally aligned.
Post by: The Falcon on October 12, 2014, 07:53:17 PM
Post by: Andy_in_Aus on October 12, 2014, 10:04:40 PM
First time poster, but I've been madly going through the forum trying to get smart. I was introduced to MMM ~6 months ago by someone, and it has quite literally changed my whole perspective on life.
This thread is solid gold, and I've learnt a ton already, superannuationfreak's guide - genius!
Aaaanyway back to money matters... a couple of months ago there was some discussion about LICs, enough to get me interested and investigate further.
Now to introduce my stupid (the reason I haven't posted yet).
- Does a LIC trade at a discount (or premium) until announced otherwise (i.e. is Septembers ASX report still valid for October purchases)?
I'm currently building my knowledge base so I can be best informed when I do jump in.
Thanks for all your wisdom.
Andy
Post by: The Falcon on October 12, 2014, 10:43:46 PM
Post by: Andy_in_Aus on October 12, 2014, 11:10:45 PM
Thanks Falcon,
Now I've overcome the first post jitters... right now I'm reading the prospectus for Perpetual Equity Investment Company (LIC), which is floating on the 21st of Oct. Anyone have any thoughts?
Post by: The Falcon on October 12, 2014, 11:27:34 PM
Post by: deborah on October 12, 2014, 11:54:07 PM
Why???
Thanks Falcon,
Now I've overcome the first post jitters... right now I'm reading the prospectus for Perpetual Equity Investment Company (LIC), which is floating on the 21st of Oct. Anyone have any thoughts?
Post by: AustralianMustachio on October 13, 2014, 12:17:54 AM
Post by: Andy_in_Aus on October 13, 2014, 12:27:05 AM
Because I'm new to this game, and it popped up on a google search. I find documents like these have lots of information that I don't know (procedures and language etc), which I then spear off and research.
It's how I learn things, it's not my primary means of gaining knowledge, but puts an Australian contrext to the (often) U.S. investment books.
I'll get back in my box now...
Post by: The Falcon on October 13, 2014, 12:42:54 AM
Because I'm new to this game, and it popped up on a google search. I find documents like these have lots of information that I don't know (procedures and language etc), which I then spear off and research.
It's how I learn things, it's not my primary means of gaining knowledge, but puts an Australian contrext to the (often) U.S. investment books.
I'll get back in my box now...
No need to get back in your box Andy, we have all been in your position :)
In short, that Perpetual LIC's fees are expensive and its unproven. Have a look at the material on AFIC and ARGO's sites for cheaper alternatives proven over decades of solid after tax performance. For International exposure (Active Management) I'd be inclined to look at the likes of Platinum or Magellan, both LICs are available on the ASX, or you could buy the "mother ships" (the traded operating companies). For Indexes, you have the likes of VTS and VEU on the ASX. At the other end, you can buy NYSE and NASDAQ listed stocks through most Australian brokerages should you wish to do that.
I think as a starting point though, as a buy an hold investment you would be well served by AFI/ARG/MLT (or VAS/VHY) and International ETFs as core and then you can add to that later on should you have convictions about particular stocks.
(Disclosure ; I hold ARG/MLT/VAS/VHY/VEU/VTS among many others)
Post by: abyss on October 13, 2014, 01:02:42 AM
I'm particularly interested in discount broker options and the potential tax implications.
Generally I'm an indexing kind of guy, but there's 1-2 NZ companies that I think would be a small holding in my high growth allocation.
Post by: deborah on October 13, 2014, 01:13:30 AM
Sorry, I didn't want to put you in a box - we are all learning together. I wanted to know why because that is the first question I ask myself if I am thinking of buying something. For instance I am trying to work out the why of Investment Bonds (aka Insurance Bonds) - they seem to be recommended for buying for children because they are tax free after 10 years (including everything you put in after the first year). So they sound like something that someone going for early retirement might want. Of course, the next question is always "why not".
Because I'm new to this game, and it popped up on a google search. I find documents like these have lots of information that I don't know (procedures and language etc), which I then spear off and research.
It's how I learn things, it's not my primary means of gaining knowledge, but puts an Australian contrext to the (often) U.S. investment books.
I'll get back in my box now...
Post by: The Falcon on October 13, 2014, 01:31:02 AM
- 30% Tax rate after 10 years (no good if your personal rate is lower than this)
- Manager risk, will they still be around ? (APRA regulated product so should be ok)
- Fully taxed pre 10 years
- High MERs , usually 2% or so in typical "churney" MF products
That said, they aren't a bad product for the right use, and there are quite a few. I actually have one for my 2 year old daughter.
Post by: slothman on October 13, 2014, 04:37:24 AM
Some brokers maintain spreadsheets that will give them a pretty good idea of current day NTA to assist clients. Personally not seeing a lot of value with the LICs now, AFI and ARG are holding up well compared to the market.
Hi Falcon, do you know if I can get a hold of the spreadsheet or how I might create one for myself? What I've been doing up till now is getting last month's NTA and then using the performance of the XJO to adjust NTA. Pretty coarse way of doing it, but enough for me to make a decision.
I was looking to purchase some more shares given the recent dip in the market, but all the old school LICs are currently trading at a premium to NTA. I've since put in a buy order for Vanguards ETF: VAS.
Post by: AustralianMustachio on October 13, 2014, 05:42:06 AM
I'm not trying to time the market or anything, more than buying in a little extra a week ago. Just musing out of interest more than anything, and keen for the musings of others
Post by: This_Is_My_Username on October 13, 2014, 05:57:49 AM
Some brokers maintain spreadsheets that will give them a pretty good idea of current day NTA to assist clients. Personally not seeing a lot of value with the LICs now, AFI and ARG are holding up well compared to the market.
Hi Falcon, do you know if I can get a hold of the spreadsheet or how I might create one for myself? What I've been doing up till now is getting last month's NTA and then using the performance of the XJO to adjust NTA. Pretty coarse way of doing it, but enough for me to make a decision.
I was looking to purchase some more shares given the recent dip in the market, but all the old school LICs are currently trading at a premium to NTA. I've since put in a buy order for Vanguards ETF: VAS.
i'm looking for the same thing: How can I know which LICs are trading at a premium or a discount to their net tangible assets (NTA) ?
I guess, with yesterday's prices? Or even intra-day ?
Post by: The Falcon on October 13, 2014, 02:44:52 PM
Some brokers maintain spreadsheets that will give them a pretty good idea of current day NTA to assist clients. Personally not seeing a lot of value with the LICs now, AFI and ARG are holding up well compared to the market.
Hi Falcon, do you know if I can get a hold of the spreadsheet or how I might create one for myself? What I've been doing up till now is getting last month's NTA and then using the performance of the XJO to adjust NTA. Pretty coarse way of doing it, but enough for me to make a decision.
You are on the right track, but instead of XJO, look at the LICs top 20 holdings.....yeah a bit of a PITA really !
Post by: bigchrisb on October 13, 2014, 04:21:48 PM
MMMers, whats your opinion on the current ASX fall? Do people think the market will continue to fall, or are we simply in a dip that will soon rebound?
I'm not trying to time the market or anything, more than buying in a little extra a week ago. Just musing out of interest more than anything, and keen for the musings of others
Who knows!
What I do know is that I'd been accumulating cash for most of this year and avoiding buying much of the index (just a few speculative individual shares). In the last month I've started buying back in to the broader market using VAS. Each purchase has only been about 1% of net worth (approx $15k a trade), so not exactly a big market timing attempt. My viewpoint at the moment is that it may fall further. However, as at yesterdays close, the grossed up yield of VAS is just over 6%, and I'm OK if over the next 10 years I get that 6% with nil capital growth.
Given that dividends have typically at least grown with inflation, and that my tax rate investing through the trust is 30%, that gets a 4% real return right. Any capital gain will just be gravy.
Its pretty crude, but I'm intending on dollar cost averaging all savings into the market at the moment, and converting a bit more cash to shares each time the market drops a bit more (crude re-balance). In some ways I'm a bit frustrated that I just used up $200k of cash in a deposit and transaction costs on a house, so have a lot less free cash allocation that I did three months ago.
Post by: AustralianMustachio on October 13, 2014, 07:47:46 PM
I'm sure you've considered this, but if yield is your primary concern, why not go for VHY over VAS? The net yield has been a percent or so higher than VAS, and the franking level on the last distribution was much higher (96% ish for VHY vs 56% ish for VAS)
Is it because it's a much less diversified index? I've seen that it's top 10 holdings constitute 70-80% of the fund
Post by: bigchrisb on October 13, 2014, 08:30:28 PM
Re the franking levels, if you look at the fact sheets on the vanguard Australia site, its about the same for both funds (77-78% for VAS between 2011-2014 and 69%-80% for VHY over the same periods)
To each their own though!
Post by: AustralianMustachio on October 13, 2014, 09:13:07 PM
Post by: AustralianMustachio on October 13, 2014, 09:17:24 PM
QOZ - the one Falcon already mentioned, an ASX200 index ETF based on fundamental weightings vs market cap weightings. Check out the beta shares website for a more detailed explanations of this. Lots of good info on the specific funds available on the website at http://www.betashares.com.au
YMAX - this one’s interesting - an actively managed yield maximiser fund. It seeks to generate a higher yield than the underlying securities, whilst protecting from downside risks by selling calls options against the securities it holds. On the website it says the fund should outperform the ASX during a falling, stagnant or slowly rising market, but under perform in a rising market. The yield has been 9-10% per annum so far, which seems very high. However it’s capital growth has been much less and hence it has under performed vs the ASX200 accumulation index. Since this has been a rising market, this is to be expected. Interesting product if you were more bearish and required consistent income, however.
(Note - What I find confusing with this fund is that it stipulates its not an ETF. Even though it’s listed and traded on the ASX. I thought any fund that was traded on the exchange would be... an exchange traded fund. Am I missing something here?)
Foreign currency funds such as USD. Pretty much tracks the performance of the USD relative to the AUD, in the form of a fund traded on the ASX
Bear fund - this is the most interesting one of them all! A fund that seeks to closely track the complete opposite of the ASX200 index! It provides investors with a way of making money during a falling market. But more importantly I guess it can be used as a hedge.
I suppose if you were worried about a short term crash and you thought you were overexposed to stocks at that point, instead of selling you could buy some bear fund ETF and sell them after the crash materialised. Seems too dicy for me, but very interesting concept!
Post by: dungoofed on October 14, 2014, 03:22:18 AM
http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND
Specifically something with 10+ years remaining. There was one trade today across all products, with the market maker giving outrageous prices. Is there no other option but to suck it up and accept the spread?
Post by: dungoofed on October 14, 2014, 03:28:36 AM
Post by: AustralianMustachio on October 14, 2014, 03:58:02 AM
I'm not planning on buying it myself. Just found it an interesting development in the ETF range!
Post by: johnnydoe on October 14, 2014, 04:15:11 AM
Guys how do I buy one of these things:
http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND
Specifically something with 10+ years remaining. There was one trade today across all products, with the market maker giving outrageous prices. Is there no other option but to suck it up and accept the spread?
@dungoofed I'm not sure of any other way except through a broker... there is more information on the bonds here: http://australiangovernmentbonds.gov.au/
Another option is to go for the Vanguard Index VGB (https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVAGBIE.jsp)
Post by: urbanista on October 14, 2014, 06:54:41 PM
What I do know is that I'd been accumulating cash for most of this year and avoiding buying much of the index (just a few speculative individual shares). In the last month I've started buying back in to the broader market using VAS. Each purchase has only been about 1% of net worth (approx $15k a trade), so not exactly a big market timing attempt. My viewpoint at the moment is that it may fall further. However, as at yesterdays close, the grossed up yield of VAS is just over 6%, and I'm OK if over the next 10 years I get that 6% with nil capital growth.
Given that dividends have typically at least grown with inflation, and that my tax rate investing through the trust is 30%, that gets a 4% real return right. Any capital gain will just be gravy.
Its pretty crude, but I'm intending on dollar cost averaging all savings into the market at the moment, and converting a bit more cash to shares each time the market drops a bit more (crude re-balance). In some ways I'm a bit frustrated that I just used up $200k of cash in a deposit and transaction costs on a house, so have a lot less free cash allocation that I did three months ago.
My strategy is very similar to yours. However, there is one thing that I am unsure about: do you have any data on dividends growing with the inflation? I was under impression that in times of market dips, companies cut their dividends. Simply because the general economic situation is not favourable at times of market dips. For example, NAB has recently announced a large profit downgrade. I bet they will cut their future dividends.
Post by: bigchrisb on October 14, 2014, 07:41:43 PM
- Monthly close of ASX200 (XJO). This data is pretty much everywhere and easy to get.
- Monthly data for the ASX200 accumulation index (XJOAI). This is harder to come by, but is available from the reserve bank stats page and a couple of other places
- For each month, work out the difference in percentage change between the two indices (this is the reinvested dividends, expressed as a monthly yield)
- Determine the payout by applying the yield to the XJO.
Using this approach, over this time period Australian dividends have grown significantly faster than inflation. However it is really volatile, and there are periods where dividends do fall in both real and nominal terms.
The other quick test is to look at the total data over the last 34.75 years (data from the RBA, table F7 http://www.rba.gov.au/statistics/tables/pdf/f07.pdf):
Total return
31 Dec 1979 XJOAI: = 1000
30 Sept 2014 XJOAI = 45717
Compound growth rate = 11.6%
Capital growth:
31 Dec 1979 XJO = 500
30 Sept 2014 XJO = 5293
Compound growth rate = 7%
i.e. over this period dividends averaged 4.6% = about the same yield as today! Dividend yield in 1980 was a touch under 5% (all these ignore franking credits, and the numbers are even better if we include them). If the yield is about the same, then dividends have been growing at about the same rate as the underlying securities, or about 7%.
Using CPI for inflation over the same period (we can argue about the relevance of CPI elsewhere) gets inflation of 425% over the same period, or if compounding over 34.75 years, about 4.25%. So, over this time period, dividends have grown in real terms (but not very smoothly).
This is why I'm reasonably comfortable with dividends increasing with inflation being a reasonably conservative assumption over the 60 years I'm investing for.
Keen to see alternate rationales for a different conclusion though.
Post by: urbanista on October 14, 2014, 11:02:29 PM
http://www.economagic.com/em-cgi/data.exe/rba/FSMSPASX2AI
Post by: potm on October 14, 2014, 11:47:09 PM
I agree that assuming dividend increases at inflation is pretty conservative.
Post by: The Falcon on October 15, 2014, 12:13:36 AM
Post by: bigchrisb on October 15, 2014, 12:31:11 AM
It would be interesting to see some data on payout ratios of the index. I think in recent years it has been the fashion for ASX listed companies to increase their payout ratios. This will affect any increase in dividend measurement and obviously increasing payout ratios is not sustainable long term.http://www.shawstock.com.au/files/LATEST_RESEARCH.pdf has a chart of this through to 2011. With it currently around 70%, its sitting appox 1 standard deviation above the mean, so on the high side, but not all that different from much of the period 1990-2005?
I agree that assuming dividend increases at inflation is pretty conservative.
Post by: banksie_82 on October 16, 2014, 06:43:07 PM
Referring to your research, bigchrisb, regarding historical dividend growth, which had conclusions close to my own, albeit more narrowly focused, analysis (I just looked at what the LIC’s paid out over the last 10-15yrs).
I also found that during the depths of the GFC, the LIC’s dividend absolute payment went down by no more than about 20%. I assume that the ETF’s were about the same but I’m happy to be corrected.
Based on this, what do people think of the following strategy?
Have enough dividend income to be able to live off 80% (coincidently, this is about 4% withdrawal rate assuming a yield of 5%), 75% to be conservative.
Have a bit of a cash buffer, the size is subject to discussion as well as what you actually do with it (bonds, high interest, term deposits – after tax none of these are going to yield much above inflation). But otherwise reinvest the other 20%.
If dividends go up (as they should on average at 7%), increase what you live off so you still spend 80% of the dividends.
If dividends flat line, or go down, only increase your spending by inflation if you must, or preferably not at all. This may involve dipping into the cash buffer mentioned above. Importantly, don’t sell shares to fund spending… this is likely the worst time to sell as it will be the bottom of the market.
Keep spending subdued until such time that it is only 80% of dividend income again.
In theory, over the long term, your spending money should increase by 7% + the yield from what you reinvest. That is far more than not only inflation, but also wage growth. So this differs from the 4% Rule in that your spending money increases much faster once it’s all in place.
What do people think of this? I'm sure there are pitfalls that I haven't thought of that I'd be happy for someone to point out. Or, on the other hand, is it too conservative?
Post by: deborah on October 16, 2014, 07:50:38 PM
Because of this, I think the forum concentrates too much on 4% - there will always be times when dividends don't yield much, or when inflation or deflation strikes. And it doesn't matter which country you belong to, its economy changes over time - certainly the 40+ years we are talking about with ER.
I think is is better to work out what the risks might be, and develop strategies to deal with them when they arise. I would be very interested if we could develop some of this together.
Post by: potm on October 16, 2014, 08:38:03 PM
The market could be vastly overvalued or undervalued at that point in time. Aiming for an arbitary 4% of assets does not make sense to me. Applying the 4% rule at the end of 2007 and at the start of 2009 will have vastly different results.
A better way to compare is with the earnings or dividend yield. If dividends cover your expenses and you assume they go up by inflation then you are covered. Add in a margin of safety like banksie has mentioned of expenses only being 80 or 75% of dividends and combined with the fact that assuming only inflation level growth in dividends will protect you against any falls in the dividend levels, which banksie has also pointed out is a lot less volatile than prices.
I also like to look at earnings yields as well or PEs as companies will have different payout ratios. If your dividends meet your expenses with a portfolio of companies with conservative payout ratios, you are in a better position than if they have high payout ratios.
Then you also have to consider the quality of the earnings reported and prospects for growth as well but that's a whole other issue which is not as relevant at the index level.
Post by: The Falcon on October 16, 2014, 09:06:38 PM
Post by: urbanista on October 16, 2014, 09:42:18 PM
another source: in 2009 during the GFC, dividends were cut
across the market by approximately 29% from their 2008
levels.
Post by: dungoofed on October 17, 2014, 01:02:52 AM
Post by: BattlaP on October 17, 2014, 02:34:42 AM
Post by: Sleeping Lions on October 17, 2014, 04:50:32 AM
Post by: AustralianMustachio on October 17, 2014, 05:53:58 PM
Years ago my parents bought me a tiny parcel of TLS and I was thinking of selling it at some stage and rolling it into my index funds.
Post by: potm on October 17, 2014, 07:18:48 PM
Post by: deborah on October 17, 2014, 11:02:19 PM
Simple question regarding dividend dates - do you simply get paid on the number of securities you were holding up until the ex dividend date, or do you have to be holding those securities up until the pay date as well? I.e can you sell after the ex dividend and still get paid the dividend despite not holding the shares at that precise moment?It's a bit convoluted as you can buy some shares pre-dividend after you have sold shares ex-dividend - on the same day, for the same amount of money (+/- the dividend). This allows you to get twice the franking credits on exactly the same value of shares (obviously there are capital gains/losses involved too). It is one of the lurks that the last budget closed particularly for SMSFs (as SMSFs pay no capital gains tax - so the net result was that they could get twice the franking credits for no extra money) called dividend churning.
Years ago my parents bought me a tiny parcel of TLS and I was thinking of selling it at some stage and rolling it into my index funds.
Post by: AustralianMustachio on October 18, 2014, 03:43:01 AM
But just to clarify - can I sell my shares a few days after the ex-dividend date, and still get paid the dividends a month or so later, even though I'm not holding the shares anymore on the pay date?
Post by: potm on October 18, 2014, 03:58:49 AM
But just to clarify - can I sell my shares a few days after the ex-dividend date, and still get paid the dividends a month or so later, even though I'm not holding the shares anymore on the pay date?
Yes, you can sell on ex dividend date or after and get the dividend.
Post by: deborah on October 18, 2014, 04:46:24 AM
You just need to make sure you are getting the shares you want - companies will have two different prices on the stock exchange during the period when both are available - one with the dividend and one without. These are usually actually the same price if you subtract the dividend itself.But just to clarify - can I sell my shares a few days after the ex-dividend date, and still get paid the dividends a month or so later, even though I'm not holding the shares anymore on the pay date?
Yes, you can sell on ex dividend date or after and get the dividend.
Post by: potm on October 18, 2014, 07:00:49 AM
Post by: deborah on October 18, 2014, 01:13:41 PM
You're talking about dividend washing, which isn't relevant for AustralianMustachio and has been disallowed by the ATO.Yes - that's it's name - but I was saying it only works because shares are available both dividend and exdividend at the same time, and he was asking about the availability of dividends.
Post by: potm on October 18, 2014, 10:46:28 PM
Post by: slothman on October 19, 2014, 07:32:29 PM
http://superannuationfreak.blogspot.com.au/2014/10/everything-you-need-to-know-about.html
hi superannuationfreak, amazing blog post. I've been reading some of your other posts aswell on asset allocation and keen to get my house in order. At the moment I've only got Australian stocks and looking to invest in overseas shares aswell.
Stockspot recommend IOO for global shares exposure, how do you think it compares to WXOZ? What do you think of the respective indexes? (S&P Global 100 vs S&P Developed ex Australia LargeMidCap) (100 holdings vs 352 holdings)
See link here for Stockspot's recommend ETFs:
https://www.stockspot.com.au/how-it-works/our-chosen-etfs/
Keen to have a simple all-in-one global shares ETF rather than having to keep both VTS and VEU. Even if it means paying a little extra in fees.
Post by: superannuationfreak on October 20, 2014, 12:51:57 AM
Stockspot recommend IOO for global shares exposure, how do you think it compares to WXOZ? What do you think of the respective indexes? (S&P Global 100 vs S&P Developed ex Australia LargeMidCap) (100 holdings vs 352 holdings)
Keen to have a simple all-in-one global shares ETF rather than having to keep both VTS and VEU. Even if it means paying a little extra in fees.
Both have their fans, they are both probably fine but I'm not sure either are perfect. I prefer WXOZ for an Australian resident for two main reasons. Firstly, 100 stocks isn't as diversified as I'd like (nor is 350 but they've tracked their larger index pretty well with that). Secondly WXOZ will likely be more tax-efficient. I'm not an expert but here is my understanding:
IOO is actually a US fund cross-listed as a "CHESS Depositary Interests". So the US fund holds the shares and we hold an interest in the US fund. The problem there is that some countries (in addition to the US) withhold tax on dividends. And we aren't able to claim that withholding as foreign tax credits, only the withholding that the US then applies to the distributions of the fund. WXOZ is Australian domiciled so each country will withhold dividends and then, depending on our individual situation, we may be able to use the withheld amount as a foreign tax credit on our Australian tax return.
In most cases I expect that tax advantage plus random tracking error will have a bigger difference than the 0.02% difference in expense ratio. IOO is very slightly more 'tradeable' in terms of historical bid-ask spreads, volume and liquidity but they're still pretty similar on that basis too.
Post by: potm on October 20, 2014, 05:06:46 AM
Post by: dungoofed on October 20, 2014, 07:28:41 AM
Regarding geographic diversity, the companies in IOO are diverse enough to give you the global exposure you want in my opinion. As the wealth of consumers around the globe fluctuates, so does their purchasing of the products sold by the companies in IOO. And even if Apple disappeared today off the face of the planet you'd still only lose 6.24% of your investment in IOO.
Post by: superannuationfreak on October 20, 2014, 01:40:16 PM
Interesting points there superannuationfreak, does the same apply to VTS and VEU in terms of withheld tax as there are CDI as well?
VTS is all US stocks so shouldn't be an issue, I just claimed the foreign tax credit on US withholding. VEU does have this issue though, we're only able to claim the US withholding not any earlier-stage withholding by other nations. We also can't get franking credits on the Australian companies in veu (4%-ish).
Post by: marty998 on October 20, 2014, 06:39:46 PM
As soon my 1000 WBC shares go ex dividend in November I'm going to transfer them to VHY too. An inordinate amount of capital losses carried forward will ensure I won't be paying CGT on the disposal either :)
Post by: Primm on October 20, 2014, 06:51:27 PM
I have an old credit card that I don't use much, it has a $10k limit and I keep it because at some point in the past when I was struggling with debt I rang up to cancel it because I was going to pay it down, but they changed the interest rate to 3.99% on purchases instead, on the condition I didn't close the card! Now it's close to zero, but I've been only making minimum payments while I have been focusing on investments, because 3.99%. Anyway, my hazy recollection of the conversation was that it was for 12 months and then "we'd see", but 5 years later the interest rate hasn't gone up.
So my question is, if I buy ETFs and settle them with this card via Bpay, can I still claim the interest? If I pay it off completely first and then use this card for only share transactions, it will be easy to separate out for the ATO, right? And if I settle with Bpay before my T+3 date then the money won't come out of my settlement account.
I guess it's a form of margin lending, which I am a bit hesitant about, but because it's not connected I will just pay off the credit card separately and won't have to worry about things like margin calls and share market fluctuations.
Thoughts? Good/bad idea?
Post by: marty998 on October 20, 2014, 08:46:21 PM
Sounds like you're on to a winner!
Post by: potm on October 20, 2014, 08:54:52 PM
So I sucked it up, swallowed my pride and after 9 years of losing a bucket of cash on individual stocks I bought 100 VHY a couple of minutes ago.
As soon my 1000 WBC shares go ex dividend in November I'm going to transfer them to VHY too. An inordinate amount of capital losses carried forward will ensure I won't be paying CGT on the disposal either :)
If you have capital losses to use then you may be better off selling before the ex-dividend date to utilise them more. Of course it'll depend on how much the share price moves on that date which we can't know beforehand.
Post by: Primm on October 20, 2014, 08:58:47 PM
Yes you most certainly could claim the interest - if you do pay it off initially and can show all interest is from share purchases.
Sounds like you're on to a winner!
Awesome, thanks! That was my gut, and I couldn't find a reason why it wouldn't work.
Post by: The Falcon on October 20, 2014, 09:27:42 PM
Post by: Primm on October 20, 2014, 09:28:51 PM
Post by: The Falcon on October 20, 2014, 09:30:35 PM
Post by: dungoofed on October 20, 2014, 09:55:40 PM
(just kidding)
I like this particularly as it feels like you are hacking the system.
Marty - sorry to hear about your losses but at least the path forward is a lot clearer.
Post by: Primm on October 20, 2014, 10:05:54 PM
LOL classic! You've got me thinking about going into debt for a while, just so I can get a credit card company to offer me 3.99% on my balance!!
(just kidding)
I like this particularly as it feels like you are hacking the system.
Marty - sorry to hear about your losses but at least the path forward is a lot clearer.
I know, right? That's why I had to check.
Post by: potm on October 20, 2014, 11:34:34 PM
Also by mindful that you might not be able to do a BPAY from your credit card to all billers.
Also that it might be counted as a cash advance so make sure your cash advance rate is also at 3.99%
Post by: Primm on October 20, 2014, 11:40:09 PM
I have yet to find a CC with a 0% rate on purchases, they all seem to offer no interest on balance transfers for a very short (~12 months) time.
My plan firstly is to wait until I have the cash ready to buy another parcel, try and pay for it with my CC, let it cycle through a month of not paying the full CC amount and see 1/ whether the initial transaction works, and 2/ how much they charge me in interest. After that it's game on. Will keep you posted. :)
Post by: potm on October 20, 2014, 11:56:47 PM
I imagine the same thing will apply if you BPAY into your broker account.
Let me know if you get it to work though.
3.99% rate forever is certainly a very good deal.
Post by: nonsequitur on October 21, 2014, 12:03:06 AM
Post by: slothman on October 21, 2014, 12:15:31 AM
Secondly WXOZ will likely be more tax-efficient.
Sorry I'm still not getting through my thick skull this withholding business and US vs AUS domiciled. It's the first time for me buying ETFs and international shares. Is there somewhere I can do more reading?
Post by: marty998 on October 21, 2014, 02:14:49 AM
So I sucked it up, swallowed my pride and after 9 years of losing a bucket of cash on individual stocks I bought 100 VHY a couple of minutes ago.
As soon my 1000 WBC shares go ex dividend in November I'm going to transfer them to VHY too. An inordinate amount of capital losses carried forward will ensure I won't be paying CGT on the disposal either :)
If you have capital losses to use then you may be better off selling before the ex-dividend date to utilise them more. Of course it'll depend on how much the share price moves on that date which we can't know beforehand.
Yes that's true, thankyou. Given my tax bracket I would also rather not have to declare the dividend. We'll see how it goes on the day.
Post by: This_Is_My_Username on October 22, 2014, 04:42:02 AM
(someone else already mentioned this)
let us know how you go.
Post by: Primm on October 22, 2014, 07:24:26 AM
Post by: superannuationfreak on October 22, 2014, 06:49:36 PM
Secondly WXOZ will likely be more tax-efficient.
Sorry I'm still not getting through my thick skull this withholding business and US vs AUS domiciled. It's the first time for me buying ETFs and international shares. Is there somewhere I can do more reading?
This is my non-expert understanding:
IOO is a US domiciled fund which holds (for example) German companies.
When the German company pays dividends to the fund it withholds 15% in German taxes.
When IOO goes to pay a distribution of all the accumulated dividends half-yearly the US government withholds 15% of the distribution (if you fill in the W-8BEN)
That second 15% we can potentially get as a foreign income tax offset on our Australian taxes. The German withholding tax is just lost.
WXOZ is an Australian domiciled fund which holds German companies.
When the German company pays dividends to the fund it withholds 15% in German taxes.
We can potentially get this back as a foreign income tax offset on our Australian taxes.
If you ignore references to RRSP and TFSA the Canadian situation is similar: http://canadiancouchpotato.com/2012/09/17/foreign-withholding-tax-explained/
Post by: potm on October 22, 2014, 07:43:42 PM
I'd also like to note that in both examples that you gave, the original company tax paid by the companies is always lost.
What we are talking about is just the withholding tax on dividends.
Makes Australian shares and fully franked dividends seem so much better and why I maintain a strong home bias in my investing.
Just a quick example, all numbers and rates are hypothitical for illustrative purposes only.
A German company makes $100 dollars profit per share and you have 1 share.
Tax of 30% means $30 of tax and leaves $70 of profit per share.
Assuming that company pays out 100% of the profit as dividend of $70 dollars of which 15% is withheld, so $11.5 in tax and $59.5 in dividend.
Then IOO pays a dividend of which any withheld amounts can be claimed as an offset so don't need to be included.
End result you will receive a $59.5 dividend of which you will have to pay your marginal tax rate on, assumimg 39% means $23.2 of tax and $36.3 leftover.
So from the original $100 of profits the company makes, you only receive $36.3. Of course companies don't pay out 100% of profits, with capital gains being much better tax wise where there is no franking and withhelding taxes lost.
Post by: The Falcon on October 22, 2014, 08:35:50 PM
Post by: AustralianMustachio on October 22, 2014, 10:59:42 PM
Also how do you purchase it in Australia? I went back through the thread and couldn't find mention of that
Post by: The Falcon on October 23, 2014, 01:42:52 AM
Post by: AustralianMustachio on October 23, 2014, 04:20:59 AM
(I'm using an online broker at the moment, nabtrade, as I am banking with them and my accounts are already on their system. I haven't yet been able to find out if buying US stocks is possible via nabtrade, but I will no doubt find an answer soon and report back)
Post by: dungoofed on October 23, 2014, 08:05:34 AM
The liquidity is slightly better for IOO than WXOZ, but considering none of us should be panic-selling it shouldn't matter. Anything else?
Post by: dungoofed on October 23, 2014, 08:57:31 AM
Post by: superannuationfreak on October 23, 2014, 06:31:45 PM
Actually http://canadiancouchpotato.com/2014/09/12/foreign-withholding-taxes-in-international-equity-etfs/ gives another answer, namely that theoretically there are savings when using US-based funds, specifically "Replicating these indexes with individual stocks would be costly, and there is an argument to be made for using highly liquid US-listed ETFs to get the same exposure"
I think of that as a reason to use VTS and VEU instead, not IOO. Neither IOO nor WXOZ are super-liquid.
However, if you want an all-in-one that tries to match the overall Developed-World (ex-Australia) market return WXOZ is where I lean (although personally I hold my Large Cap World ex-Australia allocation in Super).
If you have a strong view that the top 100 world companies will outperform their broader market on a risk-adjusted basis I guess that could be a reason. Historically it has tended to be the opposite, though, and you still have plenty of those top 100 companies in WXOZ (I estimate 40-50% of WXOZ).
Post by: dungoofed on October 23, 2014, 08:50:39 PM
Post by: superannuationfreak on October 23, 2014, 09:11:53 PM
Awesome - thanks. Now I just need to think whether over the long term I'll be better off selling the IOO I already have in exchange for WXOZ or just start accumulating WXOZ and leave the IOO as-is. Leaning towards ripping the proverbial bandaid off.
If you've had IOO a while then capital gains tax could bite so check your cost basis (~buy price) vs current price. I'm not convinced there's so much between them that it's worth a substantial premature tax hit, particularly if you are targeting early retirement where your tax rate may be lower than as while worker. There are also costs in the round-trip.
Post by: dungoofed on October 24, 2014, 02:39:45 AM
Post by: This_Is_My_Username on October 27, 2014, 07:38:17 PM
I'm a strong proponent of indexing, but govt sales are usually good deals. But I don't want to pay CGT while still a salaryman at 39% tax rate.
I'm conflicted.
edit: never mind: http://forum.mrmoneymustache.com/investor-alley/(australia)-medibank-private-ipo/
Post by: slothman on October 27, 2014, 08:25:48 PM
I'd also like to note that in both examples that you gave, the original company tax paid by the companies is always lost.
What we are talking about is just the withholding tax on dividends.
Makes Australian shares and fully franked dividends seem so much better and why I maintain a strong home bias in my investing.
Does this mean there's no difference whether the fund is US domiciled or AUS domiciled? Either way we get foreign income tax offset for the same amount?
Post by: potm on October 27, 2014, 08:39:16 PM
Does this mean there's no difference whether the fund is US domiciled or AUS domiciled? Either way we get foreign income tax offset for the same amount?
No, according to superannuation freak, the AUS fund you'll get the foreign tax offset for dividends paid by the underlying companies while the US fund will only get a foreign tax offset for the witholding tax from the dividend paid by the fund. The AUS fund won't have any withholding tax on the dividend.
Post by: slothman on October 27, 2014, 08:56:05 PM
Makes Australian shares and fully franked dividends seem so much better and why I maintain a strong home bias in my investing.
I look forward to being able to retire from full time work and live off a fully franked dividend stream. For the tax free threshold I'll be able to get the full 5-6% grossed up yields from my aussie LIC portfolio without paying any tax on it.
International ETFs would be for diversification purposes and I can't see myself being able to sustain a lifestyle off its dividends.
Keen to get others thoughts on:
a) Whether the 5-6% grossed up yields will be sustainable going forward
b) What the purpose of international ETFs are for when considering early retirement
Post by: potm on October 27, 2014, 09:45:33 PM
If shares prices were to go up significantly, then it may be hard to keep achieving that level of yield on your purchases. Precisely why for anyone who is still in the accumulation phase, you want share prices to go down.
International shares are for diversification purposes and if you want to invest in industries that aren't available in Australia. Diversification is especially important if you intend to live overseas in retirement spending non-Australian currency.
Dividends make it convenient to produce an income stream for expenditure in retirement but that doesn't mean companies that pay low or no dividends should not be considered for investment. This is especially the case for overseas companies where the tax treatment is much better for capital gains than dividends.
Post by: bigchrisb on October 27, 2014, 09:51:24 PM
Does this mean there's no difference whether the fund is US domiciled or AUS domiciled? Either way we get foreign income tax offset for the same amount?
No, according to superannuation freak, the AUS fund you'll get the foreign tax offset for dividends paid by the underlying companies while the US fund will only get a foreign tax offset for the witholding tax from the dividend paid by the fund. The AUS fund won't have any withholding tax on the dividend.
I still struggle to get my head around the cost/benefit of this, and if it makes sense to pay the higher MER of this fund or not!
The way I see it:
WXOZ = 57% US stocks. I think there will be no difference holding these through an Australian domiciled fund, or a US cross listed fund. Lets represent the US exposure with VTS, which can be bought for 0.05% MER. So, on that portion, we are behind (0.42-0.05)*.57 = 21.1 basis points. For the rest of world part, lets use VEU at .15% MER - so another (0.42-0.15)*.43 = 11.6 basis points. i.e. on costs, we are 0.327% higher than an equivalent mix.
Yield on the non-US stocks is higher (2.5% for the blend, and about 1.83% for the US stocks, so working back off the ratio, the yield on the non-us stocks is about 3.34%). So, of our 2.5%, approx 1.4% comes from the non US stocks. Our fee difference was 0.327%. So, we would need the "tax drag" from the non-US stocks to be greater than 23%
I don't know what the actual number is, but I'm expecting it to be in a similar ballpark. I think its worth watching the fee ratio or yields on the relevant funds over time to see if this becomes more compelling one way or the other, but in the meantime I struggle to split them?
Post by: potm on October 27, 2014, 10:32:14 PM
Found this article for withholding rates from a US perspective.
I would imagine the same rate would apply to Australia for most cases.
http://seekingalpha.com/article/248039-withholding-tax-rates-by-country-for-foreign-stock-dividends
Some of the bigger countries:
UK: 0%
Germany 26.4%
Japan: 10%
Canada: 15%
France: 25%
I guess it would be possible to get an approximately figure if you look more closely at the allocation of stocks. Another thing to consider is if any reduced withholding is available to the funds like how we can get the withholding for US stocks reduced to 15% by filling out a form.
Also your point about full vs partial replication earlier needs to be taken into consideration as well as the lost franking credits on VEU.
WXOZ being World ex-Aus also gives it a plus over having to buy both VEU and VTS, simplfying the portfolio and reducing brokerage cost.
Post by: bigchrisb on October 27, 2014, 11:10:59 PM
Based on that, there isn't much in it, but owning a combination of cross listed funds is marginally cheaper. That said, the difference is so small that if you already own one, its certainly not worth paying capital gains to change!!
Post by: potm on October 27, 2014, 11:42:31 PM
Is anyone here buying US ETF's directly from US exchanges ie VT, VOO etc? If so, what broker are you using?
I've recently started this with optionsxpress. As I'm not planning to purchase/trade frequently they were better value for me (interactive brokers have a minimum $10 per month but their fees are very low so they're very good value if you are purchasing every month, less so if purchasing only a couple of times per year).
They offered me five free trades and live data if I funded my account ($500 minimum) within five days. They also have an Australian bank account you can transfer into and the foreign exchange spread was surprisingly reasonable (0.5 - 1c rather than the 3% or so with an Australian bank). However they will only send out wire transfers in USD (and not to third parties such as ozforex) so think about having a plan to get the money back in a cost-effective manner. For my needs Citibank will probably suffice there.
Digging back through the thread I found this. Can you please tell us why you are buying US listed ETFs. Is it for exposure you can't gain on the ASX or is there another reason?
Also just FYI interactive brokers provides some very good foreign exchange rates, basically the wholesale market rates and you can withdraw cash into your Australian bank account free of charge.
Thanks, that's useful data! Based on a weighted average, that comes out at about 16% for the constituents of VEU. That's already accounting for franking credits with 30% of Australian tax lost, but does not account for any tax treaty discounts done within the fund (i.e. its probably a worst case assessment).
Based on that, there isn't much in it, but owning a combination of cross listed funds is marginally cheaper. That said, the difference is so small that if you already own one, its certainly not worth paying capital gains to change!!
So did you account for the franking credit separately? If there is a 30% withholding tax lost from Australian dividends by VEU then that is off the dividend amount paid, not including the franking credit. If I understand things correctly Australian shares in VEU will pay a dividend to the fund and have 30% withheld so for a 70 dollar dividend, you will only receive 49 dollars (actually less with US withholding as well but u can claim that back). If you held the Australian shares in an Australian fund then you would receive the full 70 dollar dividend along with 30 dollars franking credit so 100 all up.
I think we did the calculation for the benefit of the franking credit lost but that was in some other thread.
Post by: bigchrisb on October 28, 2014, 12:08:38 AM
So did you account for the franking credit separately? If there is a 30% withholding tax lost from Australian dividends by VEU then that is off the dividend amount paid, not including the franking credit. If I understand things correctly Australian shares in VEU will pay a dividend to the fund and have 30% withheld so for a 70 dollar dividend, you will only receive 49 dollars (actually less with US withholding as well but u can claim that back). If you held the Australian shares in an Australian fund then you would receive the full 70 dollar dividend along with 30 dollars franking credit so 100 all up.
I think we did the calculation for the benefit of the franking credit lost but that was in some other thread.
That 30% is the 30% company tax rate. If you are an Australian investor, you get it back. If you are not, you don't. Unfranked dividends are withed at 15% for treaty countries, and nothing is withed for conduit foreign income. See https://www.ato.gov.au/Individuals/International-tax-for-individuals/Investing-in-Australia/Receiving-interest,-unfranked-dividends-and-royalties/
Post by: slothman on October 28, 2014, 12:34:57 AM
Diversification is especially important if you intend to live overseas in retirement spending non-Australian currency.I intend to retire early overseas in a low cost country whilst my portfolio continues to compound, then move back to OZ. If I buy an ETF like WXOZ, wouldn't the dividends get deposited to an Australian bank account which I'll need to convert to foreign currency? Or are you suggesting to open an offshore trading account?
Post by: potm on October 28, 2014, 12:41:35 AM
That 30% is the 30% company tax rate. If you are an Australian investor, you get it back. If you are not, you don't. Unfranked dividends are withed at 15% for treaty countries, and nothing is withed for conduit foreign income. See https://www.ato.gov.au/Individuals/International-tax-for-individuals/Investing-in-Australia/Receiving-interest,-unfranked-dividends-and-royalties/
My mistake, forgot that there is no withholding on fully franked dividends. So it's only the unfranked dividends from Australian companies which will incur a withholding tax loss that can't be reclaimed while the fully franked dividends we'll be losing the franking credit offsets from Australian holdings within VEU.
Diversification is especially important if you intend to live overseas in retirement spending non-Australian currency.I intend to retire early overseas in a low cost country whilst my portfolio continues to compound, then move back to OZ. If I buy an ETF like WXOZ, wouldn't the dividends get deposited to an Australian bank account which I'll need to convert to foreign currency? Or are you suggesting to open an offshore trading account?
I mean diversification is important because if you are living off overseas currency and only hold Australian assets and AUD income then you are exposed to fluctuations in the exchange rate.
Exchanging money can be done quite easily with a citibank plus account, no guarantees such an account will always exist though but I'm sure they'll always be some way to exchange your money without too much cost. There's really no way to avoid exchanging money unless you totally match your income and expenditure currencies.
Post by: superannuationfreak on October 29, 2014, 04:44:10 AM
Is anyone here buying US ETF's directly from US exchanges ie VT, VOO etc? If so, what broker are you using?
I've recently started this with optionsxpress. As I'm not planning to purchase/trade frequently they were better value for me (interactive brokers have a minimum $10 per month but their fees are very low so they're very good value if you are purchasing every month, less so if purchasing only a couple of times per year).
They offered me five free trades and live data if I funded my account ($500 minimum) within five days. They also have an Australian bank account you can transfer into and the foreign exchange spread was surprisingly reasonable (0.5 - 1c rather than the 3% or so with an Australian bank). However they will only send out wire transfers in USD (and not to third parties such as ozforex) so think about having a plan to get the money back in a cost-effective manner. For my needs Citibank will probably suffice there.
Digging back through the thread I found this. Can you please tell us why you are buying US listed ETFs. Is it for exposure you can't gain on the ASX or is there another reason?
Also just FYI interactive brokers provides some very good foreign exchange rates, basically the wholesale market rates and you can withdraw cash into your Australian bank account free of charge.
The main reason is that I had a meaningful lump sum to invest and there is a reasonable probability I'll live in the US in the future. I wanted to reduce the amount of funds that I'd need to sell off if that eventuates (as the IRS will often treat Australian domiciled funds as Passive Foreign Investment Companies). It is likely I could have used the cross-listed funds but I'd rather not take the risk. It was also an excuse to tilt my allocation towards US Small-Value and World ex-US Small Cap so I also gained exposure I can't really gain on the ASX.
Interactive Brokers would probably have been fine too. However I only expect to buy once or twice per year and didn't want to pay minimum monthly fees. Once the question mark over country of residence is resolved in a few years I'll likely either move to Schwab or Vanguard (if in the US) or focus more on Superannuation and just more-or-less leave the US brokerage account to accumulate (if in Australia).
I seem to recall I also did a back-of-the-envelope calculation on withholding taxes and found at current distribution rates that VTS/VEU is probably a bit cheaper than WXOZ even with taxation implications. But there's not a huge amount in it.
Post by: perthdude on November 05, 2014, 06:59:30 PM
For me, the main benefit was to get exposure to a number of different fund managers for 1% p/a, and don't need to invest the normal $50k minimum to invest in the funds, along with a management fee less than what you'd get if you invested in the underlying funds.
I put some funds in soon after listing, and will keep an eye on it to see if it trades under NTA.
Post by: This_Is_My_Username on November 05, 2014, 07:08:38 PM
Post by: perthdude on November 05, 2014, 08:23:52 PM
Post by: superannuationfreak on November 06, 2014, 04:27:00 AM
On a slightly different (than ETF's) thread, has anyone looked at FGX? It's a recently listed LIC that invests in a 14-15 Australian small and mid-cap managed funds. All of the underlying fund managers have waived their management fees and performance fees, and the LIC donates 1% of its assets each year to charity (so basically has a management fee of 1% p/a). Geoff Wilson set it up and is on the Board.
For me, the main benefit was to get exposure to a number of different fund managers for 1% p/a, and don't need to invest the normal $50k minimum to invest in the funds, along with a management fee less than what you'd get if you invested in the underlying funds.
I put some funds in soon after listing, and will keep an eye on it to see if it trades under NTA.
I think it is credible but primarily because there are no cheap small or mid-cap index products that I trust. The Small Ordinaries Index seems to have been outperformed reliably by a large proportion of funds and the Realindex Wholesale small cap fund costs 0.86-0.89%, not far from 1%. This fund includes some apparently successful funds and managers that are otherwise closed to new purchases.
There are a few things to keep an eye on
-If buying after listing note that there are about as many outstanding options at $1.10 as there are shares. So if the LIC performs well there will be potentially material dilution of equity in just under two years (you can buy the options at around 5c each to be in the same position as those who bought during listing).
-I'm hopeful the underlying funds and the allocation to them will stay 'on style' but the LIC management are permitted to follow any strategy they wish. It is possible the allocation towards large caps will creep up (there is a little already) and so diversification benefits will be reduced.
-There isn't that much information available on some of the underlying funds so it is unclear how tax efficient they are. Some of the strategies such as long-short portfolios may have a fair amount of turnover. While the dividends will likely be franked, the LIC itself still pays corporate taxes on distributions and capital gains distributed so turnover in the underlying funds may be a drag on returns.
-As competition increases in the small and mid-cap sectors cheaper options should arrive. We could be 'stuck' with this fund when a RAFI small cap ETF or ASX ex-20 ETF (excluding the top 20 shares) comes out, for instance, due to capital gains tax implications. In this 'worst' case we're donating 1% p.a. to children's charities in lieu of fees so if the fund is performing adequately it would be hard for me to feel particularly bad about it.
This is one of the recent LICs that I have some interest in. The other is QVE, an ex-20 focused LIC from value-oriented manager with current fees around 0.85%+/-. Most of the concerns are the same except that my instinct is that QVE will do more buying-and-holding than the underlying funds held by FGX, so my best guess is that it will suffer less drag from taxes. With QVE it is a fee, though, not a charitable donation (which actually also improves the tax efficiency, sadly, as the donation reduces the taxes paid by FGX and so reduces the franking credits they distribute).
I actually prefer both of these to, for example, the Betashares fundamental ASX ETF QOZ which charges 0.40% p.a. including expenses and does experience a reasonable amount of turnover. The reason is that for 0.40% I can get around 30% FGX or QVE plus 70% VAS and seems likely to be a more substantial 'tilt' to small and mid-caps or value while isolating fund turnover to the smaller component. There goes my indexing cred!
Post by: AustralianMustachio on November 11, 2014, 06:14:44 AM
In response to superannuationfreak's much earlier post - the Market Vectors website states that the turnover for MVW, the equal weighted ASX index fund, is around 25% and also claims this is a normal amount. As I described above, I'm not sure what the direct implications of this are.
Lastly, what do people think of QUAL - another Market Vectors ETF product based on a deliberately created "value index" of large companies on the ASX. The hypothetical performance of such an index over the last 30 odd years is very impressive. I'm a bit skeptical of course.
Also, it claims to be an ETF, but I can't seem to get a price performance chart of it on nabtrade or google finance. Maybe it's because it's just listed
Post by: AustralianMustachio on November 11, 2014, 06:21:45 AM
Post by: perthdude on November 11, 2014, 09:12:11 PM
And in terms of high turnover in a LIC, the negative is obviously that the funds assets are chewed up by trading costs and tax. But yes, if you pay tax you get franking credits, so guess that is an upshot. For an international fund with high turnover you won't get the benefit of the franking credits though. And with a normal fund (i.e. unlisted) then you get amounts of capital gains that you need to declare in your tax return at the end of the year.
Post by: The Falcon on November 16, 2014, 03:04:02 PM
Post by: potm on November 20, 2014, 03:13:58 PM
Vanguard have some new ETFs. Solves the tax problem we were talking about earlier.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVISIFE.jsp
Also a hedged version available. World ex Aus, not a CDI, everything we asked for. The MER is a little high compared to the US ones but this is Australia and .18 isn't too bad. Now all we need is the dow at 10000 and the AUD at 1.05 again haha.
Post by: bigchrisb on November 20, 2014, 04:18:00 PM
Good news people!
Vanguard have some new ETFs. Solves the tax problem we were talking about earlier.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVISIFE.jsp
Also a hedged version available. World ex Aus, not a CDI, everything we asked for. The MER is a little high compared to the US ones but this is Australia and .18 isn't too bad. Now all we need is the dow at 10000 and the AUD at 1.05 again haha.
Yep, a step in the right direction, for sure. Bit annoying that it is developed markets only, and there isn't a low cost way to get emerging markets exposure at the moment (about 0.5%), or wear the cross listing issues with the emerging component in VEU.
Post by: potm on November 20, 2014, 04:38:24 PM
The net dividend reinvestment is interesting, I wonder how that is treated from a Tax perspective.
Post by: dungoofed on November 20, 2014, 06:41:37 PM
Post by: potm on November 20, 2014, 07:40:11 PM
Post by: dungoofed on November 20, 2014, 08:16:37 PM
Post by: slothman on November 20, 2014, 09:44:18 PM
what are some markers to determine a good time to get in? i feel that the US market is overvalued at present, and the AUD dollar has already dropped so much
Post by: superannuationfreak on November 20, 2014, 09:50:17 PM
Good news people!
Vanguard have some new ETFs. Solves the tax problem we were talking about earlier.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVISIFE.jsp
Also a hedged version available. World ex Aus, not a CDI, everything we asked for. The MER is a little high compared to the US ones but this is Australia and .18 isn't too bad. Now all we need is the dow at 10000 and the AUD at 1.05 again haha.
This is a great product, with cost the same as Vanguard's underlying (wholesale) index fund. For most individuals who just want some additional diversification at low cost, this lowers the cost and hassle of international investing to much the same cost as investing in Australian Shares.
Post by: DrowsyBee on November 21, 2014, 01:35:38 AM
If I want to start investing, and contribute money each month, do I need to just either invest straight with Vanguard, or do I need to do it all through a broker?
Sorry, I just don't know where to start and don't want to make my first move a wrong one.
Edit - I probably should have been more clear on this. but what are some of the good brokers to go through, fee wise?
Post by: dungoofed on November 21, 2014, 03:33:35 AM
If it's Vanguard you want, you have the choice of investing direct with Vanguard's retail funds, or by purchasing ETFs on the ASX via a broker.
Discount online brokers are best - the cheaper the better. I think there have been a few suggestions in this thread already.
Personally I use HSBC who use the broker "Third Party Platform" which isn't the cheapest but HSBC's personal banking has served me well and their share trading integrates to an extent with my bank account. Otherwise I don't have any particular loyalty and would move if someone built a better mousetrap.
Post by: DrowsyBee on November 21, 2014, 05:11:07 AM
I'll be looking in to all of this very soon as I've just built up my emergency fund recently and am keen to start investing in the new year.
Post by: AustralianMustachio on November 22, 2014, 01:37:31 AM
I thought some Australians might find this website useful for ideas for constructing their own portfolio using ETFs
https://www.stockspot.com.au/how-it-works/portfolios/
https://www.stockspot.com.au/how-it-works/our-chosen-etfs/
Post by: AustralianMustachio on November 22, 2014, 01:39:45 AM
https://www.stockspot.com.au/insights/etfs-compared/
Post by: deborah on November 22, 2014, 02:40:38 AM
Post by: slothman on November 22, 2014, 03:21:05 AM
Post by: This_Is_My_Username on November 22, 2014, 04:28:28 PM
Good news people!
Vanguard have some new ETFs. Solves the tax problem we were talking about earlier.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVISIFE.jsp
Also a hedged version available. World ex Aus, not a CDI, everything we asked for. The MER is a little high compared to the US ones but this is Australia and .18 isn't too bad. Now all we need is the dow at 10000 and the AUD at 1.05 again haha.
This is a great product, with cost the same as Vanguard's underlying (wholesale) index fund. For most individuals who just want some additional diversification at low cost, this lowers the cost and hassle of international investing to much the same cost as investing in Australian Shares.
With VGS, would we expect to receive approx ~2.4% annual cash dividends (or DRP), similar to WXOZ http://www.spdrs.com.au/etf/fund/fund_detail_WXOZ.html (http://www.spdrs.com.au/etf/fund/fund_detail_WXOZ.html) ?
?
Post by: This_Is_My_Username on November 22, 2014, 04:33:05 PM
I particularly like this list of various ASX ETFs, though I think it's not complete. If anyone has found a more comprehensive list please let me know
this is a convenient and easy site, but the list ist not 100% complete.
http://en.wikipedia.org/wiki/List_of_Australian_exchange-traded_funds
this has the full list, but is slightly more difficult to navigate
http://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm
Post by: deborah on November 22, 2014, 05:07:03 PM
Not 100% complete!!! It only has 55 of them. The full list appears to be 74 - and the pinwheel is supposed to have 75. So maybe the pinwheel is complete?I particularly like this list of various ASX ETFs, though I think it's not complete. If anyone has found a more comprehensive list please let me know
this is a convenient and easy site, but the list ist not 100% complete.
http://en.wikipedia.org/wiki/List_of_Australian_exchange-traded_funds
this has the full list, but is slightly more difficult to navigate
http://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm
Post by: superannuationfreak on November 22, 2014, 06:42:18 PM
Good news people!
Vanguard have some new ETFs. Solves the tax problem we were talking about earlier.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVISIFE.jsp
Also a hedged version available. World ex Aus, not a CDI, everything we asked for. The MER is a little high compared to the US ones but this is Australia and .18 isn't too bad. Now all we need is the dow at 10000 and the AUD at 1.05 again haha.
This is a great product, with cost the same as Vanguard's underlying (wholesale) index fund. For most individuals who just want some additional diversification at low cost, this lowers the cost and hassle of international investing to much the same cost as investing in Australian Shares.
With VGS, would we expect to receive approx ~2.4% annual cash dividends (or DRP), similar to WXOZ http://www.spdrs.com.au/etf/fund/fund_detail_WXOZ.html (http://www.spdrs.com.au/etf/fund/fund_detail_WXOZ.html) ?
This is the factsheet for the underlying fund: https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/visif.pdf?20141119|125200
Looks like we can expect distributions around the 2.5-3.5% range under current conditions.
Re: liquidity, I saw spreads of 14c by the market-maker per roughly $50 share. So we're looking at around 0.25-0.3%, which is about the same as the buy-sell spread on an index fund and about the same as WXOZ. Since spreads on most of the international ETFs remain wide (see the last few pages here: http://www.asx.com.au/documents/products/ASX_Funds_Monthly_Update_-_October_14.pdf ) it may be some time before we see much improvement. Still, not too bad, similar order of magnitude to moderately-sized brokerage costs ($11-20 for $3000-5000 worth of shares).
Post by: AustralianMustachio on November 23, 2014, 01:48:42 AM
Clearly in the short to medium term the unhedged one looks more appealing, with the falling dollar predicted to continue. But for the long term, if one was to contribute regularly over the next decade and more, is it better to go hedged?
At least in the short term, my unhedged holding of VTS has balanced out VAS nicely. As the AUD fell, the "carry trade" appeared less attractive for the international investors, and the banks sold off. This dropped the value of VAS and VHY, but the falling dollar vs the USD also lifted the value of VTS.
Post by: superannuationfreak on November 23, 2014, 02:17:07 AM
What do people think is the better long term option - the hedged or unhedged version of Vanguards new World Ex-Australia ETF?
For the long term I prefer unhedged.
- Hedging is imperfect and does create some drag in returns
- In expectation over the long term a costless perfect hedge should be neither positive nor negative
- Historically for those with a long horizon and less than about 50% international equities results have been stronger without hedging for Australians, providing better diversification (See page 5: https://careers.jpmorganchase.com/jpmpdf/1158630198939.pdf ).
- The currency hedging throws off income so isn't tax efficient
In the past I've split 50:50 hedged to unhedged (which I think will also be fine) but now more than 90% of my international equities are unhedged.
Later note: there's a Vanguard paper discussing the issues of hedging here: https://www.vanguardcanada.ca/documents/to-hedge-or-not-hedge-tlrv.pdf
I haven't read it in detail yet, the overall conclusion suggests there isn't a one-size-fits-all approach for equities (but hedge global bonds, as most funds do).
Post by: dungoofed on November 23, 2014, 04:31:24 AM
Watch Japanese stocks - every time an announcement is made that drives down the value of the yen, stocks immediately respond by shooting through the roof. The value of the underlying business doesn't change.
Post by: AustralianMustachio on November 23, 2014, 05:09:11 AM
Post by: AustralianMustachio on November 24, 2014, 06:58:56 PM
Yeh, just had a look and it's 98% NA, Europe and Japan.
The net dividend reinvestment is interesting, I wonder how that is treated from a Tax perspective.
The fund has 1.9% allocation to "Asia Pacific ex-Australia, Japan." I'm guessing that would have to be South Korea, considering it's a developed markets fund?
I noticed, when comparing our options for emerging market ETFs, that Ishares Emerging Market ETF (IEM) contains a 15% allocation to South Korea, whereas Vanguard's (VGE) doesn't have any South Korea. So I for one am happy it makes it into the VGS allocation, if that's what it is.
VGE came out this year, unlike IEM which has been around since 2003. Perhaps by the time VGE came out South Korea wasn't considered "emerging" anymore
Post by: superannuationfreak on November 24, 2014, 07:28:53 PM
Yeh, just had a look and it's 98% NA, Europe and Japan.
The net dividend reinvestment is interesting, I wonder how that is treated from a Tax perspective.
The fund has 1.9% allocation to "Asia Pacific ex-Australia, Japan." I'm guessing that would have to be South Korea, considering it's a developed markets fund?
I noticed, when comparing our options for emerging market ETFs, that Ishares Emerging Market ETF (IEM) contains a 15% allocation to South Korea, whereas Vanguard's (VGE) doesn't have any South Korea. So I for one am happy it makes it into the VGS allocation, if that's what it is.
VGE came out this year, unlike IEM which has been around since 2003. Perhaps by the time VGE came out South Korea wasn't considered "emerging" anymore
I checked the holdings of the underlying fund for VGS:
https://static.vgcontent.info/crp/intl/auw/docs/funds/holdings/visif_holdings.xls?20141124|095500
No Samsung but it does have Singapore Telecommunications so I think it is just Singapore and Hong Kong, not South Korea.
A tiny little (%-wise) bothersome gap. Vanguard (US) moved to indices allocating South Korea as developed a while back. There is wide variation though (e.g. the various iShares ETFs allocate South Korea to Emerging, while different Schwab ETFs go each way).
Post by: potm on November 24, 2014, 07:52:23 PM
Post by: AustralianMustachio on November 29, 2014, 07:20:17 AM
Post by: AustralianMustachio on November 29, 2014, 07:23:33 AM
I also find it strange the Stockspot idea - they simply buy ETFs for you, and charge you for it. Unless they automatically perform things like tax loss harvesting and rebalancing (ala Betterment in the US) then I can't see the point of paying them fees to do something as easy as buy you a list of ETFs.
Post by: dungoofed on November 29, 2014, 11:03:08 PM
Someone mentioned elsewhere that they rebalance at 15% drift from the targeted holding (so they would rebalance a 10% targeted holding when it was outside 8.5%/11.5% of your portfolio), which seems quite frequent to me, especially seeing as you still pay brokerage. For comparison, Permanent Portfolio suggests rebalance at 25% (so that would be a 7.5%/12.5% band for a 10% target allocation) or once a year, whichever comes sooner.
Regarding 10% gold, I am also a little baffled by it. On the one hand their portfolios have a massive home bias, which I'd say reflects the average Australian investor quite well. But then there's odd 10% gold allocation. All I can think is that they're trying to include something that is not correlated with the other holdings, to give more rebalance opportunities perhaps?
Post by: dungoofed on November 30, 2014, 05:05:07 PM
Post by: Primm on November 30, 2014, 05:44:40 PM
Post by: dungoofed on November 30, 2014, 06:00:24 PM
Gold is down a lot because of the result of the Swiss referendum over the weekend. VAS is lower because of lower commodity prices across the board (starting with oil).
Post by: bigchrisb on November 30, 2014, 08:40:32 PM
Over the last 12 months:
VAS - price approx 0% income approx 5%, total = 5%
VEU - price approx 6% income approx 3% total = 9%
VTS - price approx 23% income approx 2% total = 25%
Over 2 years, the story is even stronger, with VTS up close to 80% plus some dividends.
Means my current purchases have been focused on Australian shares - basically a re balance without capital gains tax
Post by: sirdeets on November 30, 2014, 08:57:31 PM
A bunch of companies I'm interested in in argiculture, health care and resources down 5-10%.
Anyone stocking up?
Post by: potm on November 30, 2014, 09:08:27 PM
While I'm not surprised with the overall market movements, I am surprised at how well my main holding is doing.
I've taken the chance to sell down and buy other companies to diversify my holdings a bit. It still makes up about 45% of my portfolio.
TGA for those interested.
In the process I've increased my dividend income as the other companies I'm buying are higher yielding now. Quite happy about that!
Post by: AustralianMustachio on December 01, 2014, 05:37:22 AM
That being said, I've bought a little bit today
Post by: The Falcon on December 01, 2014, 08:24:31 PM
Post by: bigchrisb on December 03, 2014, 07:49:09 PM
Post by: The Falcon on December 03, 2014, 11:28:48 PM
Post by: AustralianMustachio on December 04, 2014, 04:40:19 AM
From Roger Montgomery's website - http://rogermontgomery.com/a-good-year-for-active-fund-managers-2/
In this article the writer is obviously hinting at using a managed fund, i.e. Montgomery Fund, but that website has had some quite educational material on it in the past for me and I found the article compelling.
The risk of the huge skewing of our index towards the top ten stocks has been shown recently with BHP going downhill along with WOW and a few others. However the higher dividends of Australian shares and attached franking credits are an obvious positive. If it wasn't for those, I'd consider having a "reverse-home bias" and investing a much greater amount in the Vanguard World Ex-Australia ETFs, probably choosing the hedged version if I had very little Australian share exposure.
MVW seems to address this problem nicely, and my interest in it is still very much there, however the lack of liquidity troubles me a little.
What do people think about investing in the ASX as an index, considering it's pretty much gone nowhere this year?
Post by: This_Is_My_Username on December 04, 2014, 04:50:29 AM
meh.. it goes up, it goes down.
4% dividend yield is fairly easy to find, and that will fund FIRE.
so., I don't really care.
Post by: AustralianMustachio on December 04, 2014, 05:09:06 AM
However for me the reality is that higher returns will bring about FIRE much quicker. For instance, if one had invested more in VTS over VAS for instance over the last few years:
https://www.google.com/finance?q=asx%3Avts&ei=IEeAVJGsNcTskAWo4YHYDQ
Post by: potm on December 04, 2014, 05:56:12 AM
Look here for a longer timeframe of performance for various asset classes:
https://www.vanguardinvestments.com.au/retail/ret/investments/managed-funds-retail.jsp#grossperformancetab
Post by: AustralianMustachio on December 04, 2014, 06:47:30 AM
Personally I love that the market is flat because as you say things are cyclical, and part of me thinks it has further up to go! I personally keep looking at the small cap vanguard fund VSO for that very reason - it has gone down over the last three four years, and I wonder now and then if it's time for a rebound! Haha though I'm only partly serious on that - the small caps have probably gone nowhere due to a small cap resource players that either fail or are looking to get squeezed out of the market by the big guys with the falling commodity prices
Post by: cakie on December 04, 2014, 06:02:22 PM
Does it matter if the money comes straight from my pay into his accounts?
Typos fixed! That looked very painful to read before...
Post by: HappierAtHome on December 04, 2014, 06:13:42 PM
I havea basic questipn about tax. If I have a higher income than my partner, shoukd we put all our savings and investment accoumts in his name? Then the tax on the interest/dividenda wi be leas, yeah?
Diea it matter if the money comes straight from my paycheck into hus accoumts?
SOREY FOR THE TYPOS my phone is bwing weird...
I asked this question at an MMM Meetup (where we had some mustachian accountants present) and their answer was that the ATO would view this as tax fraud (or some other kind of illegal tax avoidance... can't remember whether the word fraud was used or not).
My understanding is that the legal way to do this is via a family trust, but I don't know much about those.
Post by: deborah on December 04, 2014, 06:23:51 PM
Anything that is in joint names can be claimed by either person - either as a deduction or income. Secondly, some investments (for instance fully franked dividends) can give you tax benefits, so you need to think this through.I havea basic questipn about tax. If I have a higher income than my partner, shoukd we put all our savings and investment accoumts in his name? Then the tax on the interest/dividenda wi be leas, yeah?
Diea it matter if the money comes straight from my paycheck into hus accoumts?
SOREY FOR THE TYPOS my phone is bwing weird...
I asked this question at an MMM Meetup (where we had some mustachian accountants present) and their answer was that the ATO would view this as tax fraud (or some other kind of illegal tax avoidance... can't remember whether the word fraud was used or not).
My understanding is that the legal way to do this is via a family trust, but I don't know much about those.
Post by: potm on December 04, 2014, 07:19:29 PM
I havea basic questipn about tax. If I have a higher income than my partner, shoukd we put all our savings and investment accoumts in his name? Then the tax on the interest/dividenda wi be leas, yeah?
Diea it matter if the money comes straight from my paycheck into hus accoumts?
SOREY FOR THE TYPOS my phone is bwing weird...
I asked this question at an MMM Meetup (where we had some mustachian accountants present) and their answer was that the ATO would view this as tax fraud (or some other kind of illegal tax avoidance... can't remember whether the word fraud was used or not).
My understanding is that the legal way to do this is via a family trust, but I don't know much about those.
It's definitely legal, some very basic tax planning. Money you earn at your job is attributable to you and taxed under your name. What bank account it goes into doesn't matter. What you do with the money after that is completely up to you. If you buy investments or keep money under your partner's name then income earned on it will be attributable to him and taxed under his name.
Post by: cakie on December 04, 2014, 07:22:13 PM
I asked this question at an MMM Meetup (where we had some mustachian accountants present) and their answer was that the ATO would view this as tax fraud (or some other kind of illegal tax avoidance... can't remember whether the word fraud was used or not).
My understanding is that the legal way to do this is via a family trust, but I don't know much about those.
This was my first assumption, but I couldn't find anything on the ATO website (which is usually helpful for these things). Then I thought about it - in Victoria, lots of people put their assets in their spouse's names (namely real estate), so that if they are sued, they can't lose these assets...if you can do it with real estate, why not other stuff?
Though it sounds like I should be depositing the whole salary in our joint expenses account and then dividing it up from there.
Secondly, some investments (for instance fully franked dividends) can give you tax benefits, so you need to think this through.
Good point, thanks :) To be honest, I still don't understand this well. I know that it means the company has paid tax on the dividends already, but I will go read up some more about the tax side of it now.
Post by: cakie on December 04, 2014, 07:53:35 PM
This article was very useful! It also backs up what potm said:
Quote
Investor 4 might decide to buy the parcel of shares in his spouse’s name who doesn’t earn any income and therefore take advantage of the capacity to gain a full refund of the franking credits instead of him having to pay an extra $176.79 in tax.
Though it's weird that they used male pronouns for that one, while the other lower-income investors (1, 2 and 3) were neutral... :P
My top tax bracket will be 32.5%, but my SO will probably be 19%, unless he magically gets a well paying job...which means for every $100 of interest/dividends, he would keep $79, while I would keep $65.50 and have to pay more towards my HECS.
Well, that answers both my questions then! Thanks everyone :)
Post by: The Falcon on December 05, 2014, 01:59:02 PM
Post by: marty998 on December 05, 2014, 02:53:58 PM
Any charity donations should be made in your name cakie, if you are the higher income earner.
If you have a tax accountant, s/he should bill you only for both returns, not you and your partner.
Post by: HappierAtHome on December 05, 2014, 04:44:56 PM
All of the above is on the money, quite hilarious the extremely poor advice you where given at a MMM meet up.
Ouch! Those people post here too y'know :-) and were answering my question to the very best of their knowledge.
Post by: The Falcon on December 05, 2014, 04:56:58 PM
Post by: dungoofed on December 05, 2014, 06:31:51 PM
edit: just asking, not actually divorcing.
Post by: slothman on December 05, 2014, 06:51:48 PM
I've been slowly dipping my toes into the sharemarket over the past couple of years. Purchases to date have been funded by taking monies out of the home loan offset (PPOR).
I'm starting to get a good feel for the sharemarket and starting to feel more comfortable with gearing.
Rather than continuing to withdraw funds from the home loan offset (and thereby increasing my non-deductible debt), I was thinking to use borrowed funds. I've got some equity from an investment property that I could use to fund further share purchases.
What kind of records do I need to keep to ensure that the interest expenses are deductible? Do I need to silo the shares purchased using own funds vs shares purchased using borrow funds? I couldn't find anything on the ATO website specific to using debt to purchase shares.
Are there any spreadsheets/calculators I can use to model the returns (dividend income + capital growth) vs. interest cost and the net tax position?
Any tips would be greatly appreciated.
edit: If it helps I plan to purchase large low-cost LICs, and Vanguard ETFs such as VAS and VGS.
Post by: The Falcon on December 05, 2014, 10:18:39 PM
Getting a bit off topic here but does it make any different whose name an investment is under when a divorce is initiated?
edit: just asking, not actually divorcing.
Simple answer, all things being equal, from an asset protection stand point, doesn't matter. Assets will be pooled and then apportioned.
Post by: The Falcon on December 05, 2014, 10:24:41 PM
Post by: slothman on December 05, 2014, 11:23:45 PM
Ah Slothman, that's a bugger. Instead of drawing on your offset, you could have taken a line of credit against your PPOR equity and made that debt deductable. Simple answer is make it as clean as possible. Create LOC or sub account, transfer to cmt linked to brokerage account, have divis paid back to cmt, transfer to LOc as required. Keep all records...please note I don't do my own tax!
I know it wasn't the most tax effective approach, but I wanted to develop the mindset to be able to continually purchase and filter out the market noise. I've been able to prove to myself I can do it so I'm ready to go harder now using leverage.
I've already taken out a new loan account against the increased equity of an investment property, and have the funds parked in its own offset account.
Couple of questions:
1) Can I subscribe to have my divs re-invested? Pros/Cons when using borrowed funds?
2) If I choose to receive divs instead of div re-investment, can I transfer from cmt to my PPOR offset account to reduce my non-deductible debt? I currently do this with my rental income(s).
3) When submitting tax return is it as simple as tallying up all the investment income and then subtracting the interest expense?
4) What happens if I purchase additional units using borrowed funds into an existing investment purchased using own funds? Does it matter?
Post by: Avabs on December 06, 2014, 12:31:02 AM
Background:
- 29 and just promoted to 100k a year (pretax)
- Focused on growing investment portfolio
- Currently rent (I'll likely be state hoping in 1-3years)
- Asset allocation is at 90% stocks & 10% bonds
- Stock split is 60AUS/40INT with 65% of international holdings in VTS
- Thus allocation at the moment is approximately 14% ARG, 40% VAS, 23% VTS, 13% VEU & 10% VAF
Concerns:
- Asset allocation, sometimes I feel like my home bias is to high and that I should be holding closer to 70% of my international allocation in US stock to better represent the international market. I rationalise my home bias as my career will likely land me in the top tax bracket and the frank dividends are going to be even sweeter there.
- Diversifying my Australia holdings, it's been discussed a little in this thread, the financial/mining focus is hard to overcome. Part of the reason why I've been investing in ARG to dilute my holdings a little (they hold something like 6% BHP compared to VAS 10% for example). Is it worth getting into VAP? or maybe VHY to further diversify my Australian holdings? I've looked at VSO as well but really not sure.
- Is a financial planner worth it? I've managed to track down a fee-only one near me and got quoted $3k-$5k for a SoA or they charge ~$300/hour for advice. This is something I might want to look at in say 5 years time when I have more assets.
Thanks for any help.
Post by: This_Is_My_Username on December 06, 2014, 04:22:26 AM
http://www.investors.asn.au/education/shares/understanding-shares/franking-credits/
This article was very useful! It also backs up what potm said:QuoteInvestor 4 might decide to buy the parcel of shares in his spouse’s name who doesn’t earn any income and therefore take advantage of the capacity to gain a full refund of the franking credits instead of him having to pay an extra $176.79 in tax.
What is the 30% ownership level for franking credits? WHat does it actually mean? How does it work?
"the franking credit is denied if the resident taxpayer has eliminated 70 per cent or more of the ownership risk through other financial transactions during that period. Hence, the rule also specifies a 30 per cent minimum level of ownership risk."
https://www.ato.gov.au/Business/Imputation/In-detail/Dividends---imputation/Company-tax--franking-credit-trading-rules/Company-tax-franking-credits--overview/
Post by: This_Is_My_Username on December 06, 2014, 04:38:22 AM
some ideas:
1. consider switching to 100% shares for higher returns but higher volatility.
2. There is no correct asset allocation. Excluding (1) diversification, (2) rebalancing, and (3) tax loss harvesting (is that a thing in australia?), There is no way to know if asset allocation A is better than asset allocation B, on a risk adjusted basis. So, just make something up, and surely that will be fine. Worry less about it.
3. You sound like you know what you are talking about, you probably don't need a financial planner. Fee-only is the only realistic option, but 3-5k is a lot of money to tell you what you probably know already.
4. consider borrowing to invest for higher risk and higher expected returns. borrowing at 6% seems about the break-even point between too expensive and worthwhile taking the loan.
Post by: marty998 on December 06, 2014, 05:20:51 AM
http://www.investors.asn.au/education/shares/understanding-shares/franking-credits/
This article was very useful! It also backs up what potm said:QuoteInvestor 4 might decide to buy the parcel of shares in his spouse’s name who doesn’t earn any income and therefore take advantage of the capacity to gain a full refund of the franking credits instead of him having to pay an extra $176.79 in tax.
What is the 30% ownership level for franking credits? WHat does it actually mean? How does it work?
"the franking credit is denied if the resident taxpayer has eliminated 70 per cent or more of the ownership risk through other financial transactions during that period. Hence, the rule also specifies a 30 per cent minimum level of ownership risk."
https://www.ato.gov.au/Business/Imputation/In-detail/Dividends---imputation/Company-tax--franking-credit-trading-rules/Company-tax-franking-credits--overview/
Hard to find an explanation (I tried) but my uninformed view is that this may relate to people who have hedged their capital exposure, for example by buying a put option. The rule appears to be aimed at preventing people picking up risk free franking credits.
Post by: potm on December 06, 2014, 05:35:42 AM
http://www.investors.asn.au/education/shares/understanding-shares/franking-credits/
This article was very useful! It also backs up what potm said:QuoteInvestor 4 might decide to buy the parcel of shares in his spouse’s name who doesn’t earn any income and therefore take advantage of the capacity to gain a full refund of the franking credits instead of him having to pay an extra $176.79 in tax.
What is the 30% ownership level for franking credits? WHat does it actually mean? How does it work?
"the franking credit is denied if the resident taxpayer has eliminated 70 per cent or more of the ownership risk through other financial transactions during that period. Hence, the rule also specifies a 30 per cent minimum level of ownership risk."
https://www.ato.gov.au/Business/Imputation/In-detail/Dividends---imputation/Company-tax--franking-credit-trading-rules/Company-tax-franking-credits--overview/
Hard to find an explanation (I tried) but my uninformed view is that this may relate to people who have hedged their capital exposure, for example by buying a put option. The rule appears to be aimed at preventing people picking up risk free franking credits.
Yep, that's it. Otherwise it would be easy to buy a share before a dividend and short using a CFD to perfectly hedge. Even after transaction costs and any spread the franking credit gives you profit.
Post by: marty998 on December 06, 2014, 05:41:51 AM
Because when you short you have to pay the value of the dividend when it goes ex-div. It offsets the dividend you receive on your long exposure, and therefore in theory puts you in a nil profit position, but you have the franking credit as the cream you lick off the top.
Post by: deborah on December 06, 2014, 07:59:38 AM
The FIS is run by Centrelink, though you do not need to be a Centrelink recipient to take advantage of their service. They run a lot of seminars on different subjects, like how to budget and what levels of Aged Care are available, and they also have one on one consultations (they say that they do not give financial advice - but you can ask questions about your finances and they can come up with interesting ideas) over the phone or face to face. I have been to a number of their seminars (usually about 2 hours - mainly in the capital cities, but they do give some at regional centres). All of this is free. Unfortunately, the seminars have probably finished for the year, so the web site won't have much information about the seminars.
NICRI is the National Information Centre on Retirement Investments based in Canberra, and they also do phone consultations (again, they stress that they are not Financial Planners). I have met them at the FIS seminars (I don't know if this happens everywhere, but in Canberra they often speak for half the FIS seminar, from a slightly different perspective).
The FIS people are willing to come and speak to clubs etc. about whatever topic the club chooses, so I think a Mustashian meetup may be able to have them along. FIS is supposed to be independent of Centrelink, but they can advise Centrelink if they think someone is trying to defraud Centrelink.
Anyway, these services are set up to provide financial information relevant to a particular person, and are currently FREE. So they might be worth talking to. Both sets of people obviously spend all day every day discussing people's finances, so they do have experience.
Post by: deborah on December 06, 2014, 05:22:58 PM
As well as looking at investments it profiles investors - giving the returns if the investments are held in super, top marginal tax rate and bottom tax rate. Even more interestingly, it also looks at the returns with/without 50% gearing. I was surprised to see how little difference gearing made over 25 years.
Post by: potm on December 06, 2014, 05:32:31 PM
Post by: deborah on December 06, 2014, 08:40:24 PM
Post by: Avabs on December 06, 2014, 09:25:28 PM
Avabs, good of you to join in, the more the merrier. I'm in a similar situation to you.
some ideas:
1. consider switching to 100% shares for higher returns but higher volatility.
2. There is no correct asset allocation. Excluding (1) diversification, (2) rebalancing, and (3) tax loss harvesting (is that a thing in australia?), There is no way to know if asset allocation A is better than asset allocation B, on a risk adjusted basis. So, just make something up, and surely that will be fine. Worry less about it.
3. You sound like you know what you are talking about, you probably don't need a financial planner. Fee-only is the only realistic option, but 3-5k is a lot of money to tell you what you probably know already.
4. consider borrowing to invest for higher risk and higher expected returns. borrowing at 6% seems about the break-even point between too expensive and worthwhile taking the loan.
Thanks for the responses.
1. I have been considering this, it also kind of plays into the high earnings potential in my career which might see me in the top bracket. Shares have the added bonus of delaying taxes (or franking credits) where as fixed interest is going to be taxed at my marginal tax rate which is already high and only going up.
2. I think worry less is definitely important here. I'll try to relax.
3. Still on the fence, I think maybe in 5-10years it would be nice to get my situation analysed by a professional to help find some holes. Hopefully $3-5k will be nothing in a decades time!
4. I think I'm way to rise averse to consider borrowing to invest, but thanks for the suggestion.
Post by: Primm on December 07, 2014, 03:06:58 AM
Has anyone else looked at the Murray report?
Not yet, just the sound bites I've heard on the news. Have you?
Post by: This_Is_My_Username on December 07, 2014, 04:03:13 AM
Even more interestingly, it also looks at the returns with/without 50% gearing. I was surprised to see how little difference gearing made over 25 years.
is the reason that a margin loan has a rate of roughly -8%, while shares return roughly 9% pa?
so the benefit is quite small ?
Post by: marty998 on December 07, 2014, 04:29:11 AM
Has anyone else looked at the Murray report?
Seen the headlines. The banks knew it was coming and would have already factored it into their business plans.
I thought it was actually quite tame to be frank. Banking is far too easy and far too insulated from competition and loss in this country.
The vertically integrated model of banking, finance and wealth management milks customers easily. It needs a shake up through a combination of better targeted regulation, raising the collective public knowledge of money management and breaking down competition barriers.
Until then, super will remain a gravy train and we'll continue to pay higher interest rates than necessary.
Post by: idjces on December 07, 2014, 01:18:56 PM
Ah Slothman, that's a bugger. Instead of drawing on your offset, you could have taken a line of credit against your PPOR equity and made that debt deductable. Simple answer is make it as clean as possible. Create LOC or sub account, transfer to cmt linked to brokerage account, have divis paid back to cmt, transfer to LOc as required. Keep all records...please note I don't do my own tax!
I know it wasn't the most tax effective approach, but I wanted to develop the mindset to be able to continually purchase and filter out the market noise. I've been able to prove to myself I can do it so I'm ready to go harder now using leverage.
I've already taken out a new loan account against the increased equity of an investment property, and have the funds parked in its own offset account.
Couple of questions:
1) Can I subscribe to have my divs re-invested? Pros/Cons when using borrowed funds?
2) If I choose to receive divs instead of div re-investment, can I transfer from cmt to my PPOR offset account to reduce my non-deductible debt? I currently do this with my rental income(s).
3) When submitting tax return is it as simple as tallying up all the investment income and then subtracting the interest expense?
4) What happens if I purchase additional units using borrowed funds into an existing investment purchased using own funds? Does it matter?
I came across this in my researching, good to keep in mind for what you want to attempt
http://www.smh.com.au/articles/2004/05/28/1085641713197.html?from=storylhs
I think the article above basically summarizes as any income generated from the loans investment must go towards the interest payments, and any shortfall must be covered out of your own pocket. (I assume the excess you can use as you please)
Also from what i've read, its good to keep any tax deductible loans entirely seperate from private loans, and you want to be able to prove the funds were directly transferred to the account used to purchase the investment.
I just refinanced my ppor mortgage with various sized splits. I plan to pay a split down to $0 then redraw the funds entirely to my brokerage account
I enquired into LOC's, every bank i spoke to said splits would achieve the same purpose
Post by: deborah on December 07, 2014, 01:42:16 PM
Loaded down the 350 pages yesterday, and read the fact sheets, which were interesting - the report can be found here http://fsi.gov.au/publications/Has anyone else looked at the Murray report?
Not yet, just the sound bites I've heard on the news. Have you?
Post by: terrier56 on December 07, 2014, 03:04:58 PM
I found this and decided to post it here instead of opening something in the anti-mustashian. It's referencing australians so i think this is a good home for it.
Post by: AustralianMustachio on December 09, 2014, 05:52:28 AM
One interesting part given the prior discussion of whether or not to hedge international exposure. Unhedged international shares were by far the worst performing investment for the twenty years up till 2011, with negative returns. Makes sense to me with the AUD rising in that period, and the lack of availability of broad ETFs such as those we have now. I wonder what sort of international shares they were (I just skimmed through it)
At the moment with the rising USD unhedged seems a lot more appealing
Post by: bigchrisb on December 09, 2014, 02:38:52 PM
I found this http://www.asx.com.au/documents/resources/russell_asx_long_term_investing_report_2011.pdf (an ASX report on the long term returns on various investments in Australia) today. It is based upon returns in the 25 and 10 years prior to 2011.
As well as looking at investments it profiles investors - giving the returns if the investments are held in super, top marginal tax rate and bottom tax rate. Even more interestingly, it also looks at the returns with/without 50% gearing. I was surprised to see how little difference gearing made over 25 years.
The 2014 version is available at http://www.russell.com/au/assets/pdfs/insights/R_RPT_ASX_Report_V1F_1405_WEB-1.pdf
This is one of the documents I try to have a look at each year.
Post by: deborah on December 09, 2014, 02:59:03 PM
And why did it change from 25 years to 20 years?
Post by: dungoofed on December 09, 2014, 03:24:09 PM
Thanks for that report you posted deborah, interesting read.
One interesting part given the prior discussion of whether or not to hedge international exposure. Unhedged international shares were by far the worst performing investment for the twenty years up till 2011, with negative returns. Makes sense to me with the AUD rising in that period, and the lack of availability of broad ETFs such as those we have now. I wonder what sort of international shares they were (I just skimmed through it)
At the moment with the rising USD unhedged seems a lot more appealing
I think it becomes important to distinguish between a one-time investment (either 10 or 20 years ago, as per the report), or periodic investments over the course of the 10 or 20 year period. Most reports tend to focus on the former, but if you have been cheaply increasing your holdings of unhedged overseas stocks over this time then you are most likely reaping the rewards this year.
Note that I don't believe the reverse is true (ie that one should be investing in hedged products now). Of course it depends on one's strategy but for periodic investments I believe unhedged will win out over the long term.
Post by: Wadiman on December 11, 2014, 01:37:24 AM
I have a variety of etfs, lics and direct shares in my portfolio within super. I also have a simple five etf portfolio that I am building outside of super.
I have been thinking about how to optimise allocations across these two different vehicles.
For those of you that do this - how have you approached this?
In my approach I use the super for mainly direct shares across a wide range of sectors including a few longer term plays and want to keep the outside of super investments strictly focused on a limited number of etfs.
Post by: lolzmonster on December 11, 2014, 05:06:24 AM
when you say allocations you mean diversify across the holdings? or you mean transfer amounts from outside super into super?
If you just want to make post-tax contributions to super or transfer assets into super im pretty sure its possible up to a cap of 180k in value.
Personally, being a younger person I contribute minimum to super and maximize external savings through VAS, VGBS and VGB. Between those three I feel quite safe atm, and plan to convert from ETF to the actual index fund once my holdings exceed 150k.
If you were nearing the age of 55, consider reading up on re-contributions to see how you can turn the taxable component of your superfund into tax-free money? ( When i say this I mean you can withdraw a limit of up to 185k in taxable super money if you are >55 this year without incurring tax or penalties, and re-contribute this as tax-free money so that it doesn't get taxed if you plan to take it out).
Hope this helps? I dont know if i quite answered your question
Post by: Wadiman on December 11, 2014, 01:51:57 PM
Thanks for your thoughts.
I should have made the post a little clearer.
I have maximized my super contributions and the savings outside of super are there to do two things: 1) Provide a source of income between my planned retirement age and preservation age - a 3-6 year gap. 2) Provide a buffer against legislative risk if the preservation age is increased (a small but possible risk).
What I'm not sure about is whether to:
1) Work out an overall (global) allocation that pools the investments in each sector (ie it then doesn't matter whether a particular sector is represented within the super account or ex-super account as long as the overall percentage allocations to each sector are correct).
2) Apply separate investment strategies to each account (I have a specific strategy for the ex-super account - 5 ETFs only) to diversify overall holdings (eg I could structure the super account to focus on longer term capital appreciation or focus on yield via direct shares with higher dividend streams).
Post by: deborah on December 11, 2014, 03:00:40 PM
Post by: Wadiman on December 11, 2014, 04:03:34 PM
Post by: bigchrisb on December 11, 2014, 04:10:02 PM
- Self managed super fund
- Family trust
- Company beneficiary of the trust
- Myself.
I have a broad overall asset allocation target. But I don't care which is in which holding entity. So, the way this has worked out is:
- Self managed super - low tax environment, so the high yield stuff goes in here. Its mostly large cap ASX or LICs
- Own name - High tax. Low yield, hold forever stuff (international ETFs, CSL, CPU etc and some mostly tax deferred REITS). I also gear this as much as possible - works out cash flow negative (negative gearing)
- Company - medium tax, but no capital gains discount. Medium to high yeild, hold forever stuff.
- Family trust - everything else. I stream capital gains and tax deferred income to myself and ordinary income (dividend, interest etc) to the company
That works for me as a reasonably tax efficient holding structure. But its probably only became worth the running costs with a total of $1m+ in investable assets.
Post by: This_Is_My_Username on December 11, 2014, 04:14:21 PM
LolzM -
Thanks for your thoughts.
I should have made the post a little clearer.
I have maximized my super contributions and the savings outside of super are there to do two things: 1) Provide a source of income between my planned retirement age and preservation age - a 3-6 year gap. 2) Provide a buffer against legislative risk if the preservation age is increased (a small but possible risk).
What I'm not sure about is whether to:
1) Work out an overall (global) allocation that pools the investments in each sector (ie it then doesn't matter whether a particular sector is represented within the super account or ex-super account as long as the overall percentage allocations to each sector are correct).
2) Apply separate investment strategies to each account (I have a specific strategy for the ex-super account - 5 ETFs only) to diversify overall holdings (eg I could structure the super account to focus on longer term capital appreciation or focus on yield via direct shares with higher dividend streams).
assuming you have enough outside of super to last until preservation age, you probably want to put the maximum possible in to super to minimise tax.
However, australian income tax rates are 0%(0 to 18,200) and 19% (18,201 to 37,000). If your annual income post-retirement is less than 37k, there is less benefit in relying on super because it can be taxed on withdrawl at 15%. Unless you are able to receive tax-free withdrawls?
Also, there is a mandatory withdrawl rate from super, which starts at 4%, and increases as you age.
Also, you want to have unrealised capital gains in your outside-super investments, and dividend investments within super.
You also need to consider if you are eligible for a part-pension.
yes, it can become very complicated.
Post by: deborah on December 13, 2014, 02:06:44 AM
Actually, I think you are incorrect. Currently preservation age is between 55 and 60, so you can start getting your super before you are 60. There are three types of super - untaxed (everything added before tax and that the super fund didn't pay tax on - this is usually only government pensions, and I won't say anything more about this), taxable (everything you added before tax - salary sacrifice, employer contributions... - the superannuation fund has paid 15% tax on these when they entered the fund) and tax-free (everything you added after tax). When you take anything out of super, it is assumed to come proportionally from the three components.LolzM -
Thanks for your thoughts.
I should have made the post a little clearer.
I have maximized my super contributions and the savings outside of super are there to do two things: 1) Provide a source of income between my planned retirement age and preservation age - a 3-6 year gap. 2) Provide a buffer against legislative risk if the preservation age is increased (a small but possible risk).
What I'm not sure about is whether to:
1) Work out an overall (global) allocation that pools the investments in each sector (ie it then doesn't matter whether a particular sector is represented within the super account or ex-super account as long as the overall percentage allocations to each sector are correct).
2) Apply separate investment strategies to each account (I have a specific strategy for the ex-super account - 5 ETFs only) to diversify overall holdings (eg I could structure the super account to focus on longer term capital appreciation or focus on yield via direct shares with higher dividend streams).
assuming you have enough outside of super to last until preservation age, you probably want to put the maximum possible in to super to minimise tax.
However, Australian income tax rates are 0%(0 to 18,200) and 19% (18,201 to 37,000). If your annual income post-retirement is less than 37k, there is less benefit in relying on super because it can be taxed on withdrawal at 15%. Unless you are able to receive tax-free withdrawals?
Also, there is a mandatory withdrawal rate from super, which starts at 4%, and increases as you age.
Also, you want to have unrealised capital gains in your outside-super investments, and dividend investments within super.
You also need to consider if you are eligible for a part-pension.
yes, it can become very complicated.
Tax-free has already paid tax, so you don't have to pay any tax on it when you withdraw.
Taxable has only paid 15% tax. If you are under 60 you pay some tax on it when you withdraw, but because it has already been taxed at 15%, you pay less, to a maximum of 21.5%. However, as soon as you are over 60 you also withdraw this tax free.
So most people pay no tax on their super when they withdraw it. I expect this to change some time.
Post by: marty998 on December 13, 2014, 04:25:35 AM
To take advantage of the tax advantages of super you would tend to put all the high dividend investments into super and the low income investments outside super. When you reach preservation age, you can always put everything into super (if it's less than $450k - using the bring forward rule).
Contribution cap is actually currently $540,000 under the 3 year bring forward rule. The non-concessional cap of $180k is set at 6 times the concessional cap of $30k, which rises by inflation rounded to the nearest $5,000 each year.
Post by: deborah on December 15, 2014, 03:18:52 PM
Post by: potm on December 15, 2014, 03:49:17 PM
Here is one:
https://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=3&ved=0CC0QFjAC&url=https%3A%2F%2Fstatic.vgcontent.info%2Fcrp%2Fintl%2Fauw%2Fdocs%2Fliterature%2Fresearch%2Frole-home-bias-global-asset-allocation-decisions.pdf%3F20130819%257C151400&ei=82SPVPi_Nc7s8AX_v4LoDQ&usg=AFQjCNFVPIusCHvfykXYn9XPwIHyNo2m_w&bvm=bv.81828268,d.dGc
Post by: deborah on December 15, 2014, 04:55:13 PM
However, it suggests that the average Australian has a 25%Int/75%Aus split, but it doesn't say what the normal recommendations actually are. From looking at funds, I am beginning to think that a 40%Int/60%Aus is about what is normally recommended.
What sort of share split do you go for, and why?
Post by: bigchrisb on December 15, 2014, 06:11:34 PM
Thanks very much for that article Potm - it helps you to work out what your actual split should be which is very useful.
However, it suggests that the average Australian has a 25%Int/75%Aus split, but it doesn't say what the normal recommendations actually are. From looking at funds, I am beginning to think that a 40%Int/60%Aus is about what is normally recommended.
What sort of share split do you go for, and why?
As usual, I'll be controversial and avoid the canned "rule of thumb" on international/domestic asset allocations. Instead of looking at what stock exchange my investments are based on (which is totally arbitrary, and probably driven more by international tax and policy than fundamentals), I prefer to dig through the annual reports for each company I own to find the regions in which revenue is generated.
For example, some Australian listed companies have a massive proportion of their earnings overseas - of stocks I own, some quick examples are WFD (US/Europe plus others), CSL (US, Germany), CPU (Mostly US), UOS (all Malaysia), AHD (German cinemas) and so on. I have about 30% of investments in foreign ETFs, but once you add in the overseas earnings of my ASX stocks, its more like 70% of earnings are out of Australia. Even the big AUS stocks have non-trivial overseas earnings - for example 35% of ANZ's profit came from outside Australia.
Post by: deborah on December 15, 2014, 06:30:50 PM
Post by: This_Is_My_Username on December 15, 2014, 09:28:34 PM
Post by: dungoofed on December 15, 2014, 09:30:14 PM
As Bigchrisb mentioned it's a moving target, and exposure in Australian equity doesn't include exposure through say holdings in gold, property, AUD, nor the fact that anyone who has a job in Australia also has massive exposure to the Australian economy. In fact, there is probably a fair argument for never investing in Australian stocks whatsoever.
Bigchrisb and the Vanguard also mentioned tax treatment, among other factors. My thoughts on this are that the reason for diversification in the first place is so that you can weather any storm, and that diversity should be your goal first and foremost, provided the costs are justified.
I'd never begrudge someone choosing VTS, IVV, or IOO over WXOZ/VGE for their international exposure. Especially VTS with it's low MER.
So why have anything invested in Australian equity at all? Well, I would have hated to have been an Australian fully exposed to the overseas market in 2007, looking to retire in 2008.
Post by: dungoofed on December 15, 2014, 09:34:57 PM
Post by: dungoofed on December 15, 2014, 09:38:41 PM
Post by: The Falcon on December 17, 2014, 12:06:50 AM
Post by: AustralianMustachio on December 17, 2014, 01:39:52 AM
Post by: AustralianMustachio on December 17, 2014, 01:46:13 AM
If anyone has success please let me know
Or perhaps it's only something you get via a full service broker.
Post by: This_Is_My_Username on December 17, 2014, 04:22:44 AM
here is the commsec international brokerage brochure:
https://www.commsec.com.au/content/dam/EN/PDFs/Product/International/Brochure/internationalsecuritiestrading
Post by: potm on December 17, 2014, 06:12:05 AM
Don't bother with commsec, fees are stupid.
Post by: dungoofed on December 17, 2014, 04:30:42 PM
You're a braver man than I dungoofed. From what I've been reading it's definitely getting to "blood on the streets" territory! The currency plunging ten percent in a night, etc
I've decided to hold off a little for a couple of reasons, specifically:
1) I need to set up a proper brokerage account (thanks potm, and thanks AustralianMustachio for asking the question),
2) I'm not quite at a point financially where I can throw money into what is essentially a speculative trade. I need to do more of the "boring" investing for a while first,
3) (keeping in mind it is a completely speculative, un-mustachian trade) Yesterday the index bounced back quite a bit, indicating there are still quite a few bulls in the market. I need it to crash a little yet.
Post by: bigchrisb on December 17, 2014, 08:07:14 PM
Post by: MsRichLife on December 17, 2014, 08:47:59 PM
I sold out of Santos when it hit my 20% stop loss. Tumbled another 25% afterwards, so I'm happy I harvested those tax losses when I did.
Post by: This_Is_My_Username on December 17, 2014, 10:08:10 PM
I want AFIC or ARGO, but they are trading at a premium to Net Tangible Assets.
So, probably VAS or VHY
Post by: AustralianMustachio on December 17, 2014, 11:36:38 PM
I found it surprising since its a very large move for a fixed interest fund. And also suprising because it's made up of Australian bonds, not American, so one would think RBA comments would have a greater impact than the fed. I ask as I am only just learning about bonds, and don't really understand them yet
Post by: deborah on December 18, 2014, 12:07:27 AM
Post by: potm on December 18, 2014, 12:47:08 AM
Australian goverment bond yields have fallen significantly in recent times, anticipating that the RBA are more likely to lower benchmark interest rates than raise them.
Post by: AustralianMustachio on December 18, 2014, 12:53:11 AM
Traditionally stocks go up and bonds go down and vice versa
Yeah, which is why I was confused that they moved together today.
If it's an Australian bond fund then it will go up when Australian interest rates go down.
Australian goverment bond yields have fallen significantly in recent times, anticipating that the RBA are more likely to lower benchmark interest rates than raise them.
Ah, so it could just be a movement by the bond market in anticipation
Post by: dungoofed on December 18, 2014, 01:34:37 AM
Post by: MsRichLife on December 18, 2014, 01:36:05 AM
Post by: AustralianMustachio on December 18, 2014, 02:16:39 AM
I was wondering why the return was lower up till this point on vaf vs vgb, as corporate bonds are supposedly a bit riskier and therefore should give a pay more return.
Post by: AustralianMustachio on December 18, 2014, 05:51:28 PM
Post by: Wadiman on December 21, 2014, 04:50:46 PM
I'm sure many of you are across this but I've just set up an account to track my ETFs.
http://www.sharesight.com.au/
It's free for a portfolio of 10 equities or less and imports trades and dividend payments etc from most brokers.
If you're not aware of it it's worth your while to check it out.
Post by: marty998 on December 22, 2014, 06:11:46 PM
My order for 500 VHY is sitting in the queue at $63.48, I don't think it will get hit before end of year (barring 2% fall in the markets - unlikely with light Christmas holiday trade), but it might be a good idea to wait until it goes ex-div at the start of Jan and try and pick it up around $62....
hmm happy to sit with a credit in the margin loan balance whilst I wait.
Post by: deborah on December 22, 2014, 06:46:30 PM
Fudge. Sold my WBC shares a day early and cost myself $700.Look at it this way - is it a significant % of your net worth?
Post by: AustralianMustachio on December 23, 2014, 02:33:31 AM
Also sitting on a nice profit on some gold stocks I bought very low. Unfortunately, I also lost a bit of money on them when I got cold feet and sold half my holding during a crashing price day in November (after OPEC announced). I am up about 20% on one stock, but since I effectively freaked out and sold at the bottom that day, my overall gain will only be around 5-8%. I learnt a lesson that day that having a significant % of my money in trading shares or individual shares isn't for me, and the appeal of the index fund really came into it's own.
Bought some NAB at the bottom, probably gonna sell that soon too for a little profit. Was considering today, but think there might be a few more days left in the Christmas jump.
Post by: dungoofed on December 23, 2014, 03:42:34 PM
Post by: AustralianMustachio on December 23, 2014, 10:06:41 PM
Disclaimer - I know this isn't very mustachian banter
Post by: dungoofed on December 24, 2014, 12:14:24 AM
Post by: marty998 on January 01, 2015, 02:27:31 AM
When the impact of lower oil prices starts washing through we should see a pick up in activity and consumer spending.
On the other hand, lower iron ore prices will most certainly see a tougher federal budget with a larger deficit.
We've had one very flat year on the ASX, I see the markets picking up and the index heading back towards 6000 by 31 Dec 2015, driven by the banks, who will continue to churn out record bumper profits.
Post by: terrier56 on January 01, 2015, 07:03:16 PM
So what will be the economic theme of 2015 influencing the markets?
When the impact of lower oil prices starts washing through we should see a pick up in activity and consumer spending.
On the other hand, lower iron ore prices will most certainly see a tougher federal budget with a larger deficit.
We've had one very flat year on the ASX, I see the markets picking up and the index heading back towards 6000 by 31 Dec 2015, driven by the banks, who will continue to churn out record bumper profits.
6000 would be very nice indeed. Makes me want to buy more immediately but then i remind myself this is not a race and the market will always go up. The aussie market is on a little sale since the drop in oil and iron affected every other sector (got to love irrational investors).
The coming months will likely see VHY and VAS get a beating by my bank account. Iron ore demand looking to rise slightly after chinese winter finishes. Looking at a new equalibrium price of 80ish. oil to be down for the next 6 months but factors could change this. long term you could not be happier investing in oil companies. I feel the VAS, IVV probably has enough of them to keep me happy.
Post by: AustralianMustachio on January 01, 2015, 09:56:24 PM
- The highest returning asset class in Australia in 2014 was government bonds. https://twitter.com/David_Scutt/status/547192876719804416/photo/1
- The highest returning ASX sector was healthcare. Some great companies in this sector. However, things are getting expensive
- Falling AUD vs USD. I've made a decent return in the last few months purely from buying the USD ETF. I suspect theres a bit more to go in this fall. Possibly quite a lot more. People have made a lot of money in things like VTS, and USD exposed ASX stocks
- US - from most sources I've read - sometime in the first half of 2015, the US indices which have been on an unstoppable run have been predicted to have a decent correction, bringing down the ASX with it. This will give a great buying opportunity for anyone with spare cash. Of course this is irrelevant if one simply averages in with an index fund.
- Europe and Japan most likely doing QE will be supportive for their asset prices. However I wonder if their respective currencies will also fall and cancel out the benefit of an unhedged ETF. Anyone care to shed some light on this?
- I think the falling Iron ore and oil price could go on much longer than people are guessing. However, for people who are patient, there is probably some good value around
Post by: dungoofed on January 02, 2015, 12:03:28 AM
If I'm going to have a punt,... ok first let's have a look at what the big macro stories for 2014 were. Locally, austerity became a policy, Medibank floated (gov commitment to continued privatisation), we joined the US in a war against ISIS, property continued to boom, the dollar dropped to 81c or so and we finished the year with oil/commodities prices lower. Internationally, I'd pick as a decent cross-section of big stories the China and Europe slowdown, the failure of Abenomics as a policy, the US Fed not increasing interest rates, the Russia story, oil, US's ostracism due to FATCA coming into effect, Bitcoin, maybe the US economy's bumper year for stocks and the continued slide of the price of gold.
With this in mind, I think the big story of 2015 is going to center around the continued weak consumer spending globally. The world is more connected (read: less ignorant) these days and in the developed world even a quote-unquote uptick in the economy over the last two years has inspired neither consumers nor companies to dip into their savings. Going forward global growth will largely be driven by consumer spending growth in China, India and a little bit of SE Asia. Maybe a little in LATAM. But it's not going to be much.
Now, whether this weak consumer spending or an increase in US interest rates is going to be enough to trigger the correction that all the talking heads seem to think is inevitable in 2015,... I'd give it a 15% chance of happening (and it doesn't change my strategy regardless).
Oil is the wildcard! I have no idea which way it is going to go during 2015 but it will affect absolutely everything globally. If one thing is certain it's that politicians globally will blame oil for the country's woes while taking credit for the places where oil has provided a little relief. Even so, the individual impacts will be small. $20 oil would be a different story.
I'm also bearish on USD hegemony long term, but I doubt the house of cards is going to fall apart in 2015.
Australia-specific, I think it's going to be another flat year, maybe slightly down. Oil/commodities/China narrative aside, my biggest "wildcard" concern for the ASX 200 is possible disruption in the banking sector. Payments are already under attack from Bitcoin and the technologies that harness the bitchain, robo-investing is putting downward pressure on the entire sector, meanwhile Australian politicians continue to alienate voters by signing in legislation such as GATCA (global FATCA), driving up demand among consumers for alternatives. It'll be a shame to see a massive chunk of this business go overseas to US technology firms but the Australian economy isn't exactly known for Silicon Valley-level innovation.
The other things I'd keep an eye on locally are changes to Superannuation legislation, negative gearing legislation and interest rates. But this has been the same for the last several years so should already be factored into one's strategy.
Actually, that reminds me of another thing: will 2015 be the year AGBs finally come of age in Australia?
**edit: I see AustralianMustachio posted about government bonds while I was typing. Maybe their heyday has arrived! (but I think they have just been pushed up by wealthy Chinese purchasing Australian residency/passports in 2014; it'll take changes to negative gearing legislation to really get the domestic bond market pumping).
Post by: marty998 on January 02, 2015, 12:57:37 AM
Should have bought NZ. Baaaaa
I reckon interest rates will stay on hold until well into 2016. The economy is simply just spluttering along and with nominal GDP growth exceptionally weak leading to much lower tax receipts and lower than expected bracket creep, the Gubbmint is going to have a gigantic headache passing even bigger cuts through the upper house.
I may be a leftard, but money doesn't grow on trees. It comes out of my pay @ $500 a week. The Senate should just pass the cuts, let everyone bitch and moan for a year and then we can all get on with life.
Post by: AustralianMustachio on January 02, 2015, 03:56:53 AM
**edit: I see AustralianMustachio posted about government bonds while I was typing. Maybe their heyday has arrived! (but I think they have just been pushed up by wealthy Chinese purchasing Australian residency/passports in 2014; it'll take changes to negative gearing legislation to really get the domestic bond market pumping).
I very much agree here. Home bias aside, Australian super accounts aren't diversified enough. It's all property and equities for the average SMSF, and not enough fixed interest. Part of the problem is a lack of fixed interest products here that compare to overseas.
I think the main problem is, as you mentioned, is the favourable tax treatment of property (via negative gearing) and equities (franking credits) vs fixed interest. We need a broader and better bond market in Australia, and right now the demand simply isn't there due to the superior tax treatment of the riskier asset classes.
Post by: Rustycage on January 02, 2015, 09:22:13 PM
What structure does the MMM Australian investor use for shares?
I'm fairly young with a small super balance so a SMSF doesn't seem to be a benefit right now. I have a small amount of holdings in Vanguard ETFs.
I'm single but starting to think about creating a discretionary trust to hold my share investments, since I will be adding to my holdings on a regular basis from this point. No dependents or spouse at the moment but I think a trust would be a good structure for that in the future ....
Any thoughts?
Post by: steveo on January 03, 2015, 03:13:18 AM
What structure does the MMM Australian investor use for shares?
My approach is as follows:-
1. Pay the bare minimum into super.
2. Pay off the house.
3. Save into vanguard or similar ETF's under personal accounts.
4. Diversify when we have a fair amount in point 3.
5. Once we reach point 4 I think we will start to work less in the form of less days per week or increased holidays. Once we have enough diversification then I assume that I will retire. I think my wife will work less earlier than myself.
I have no issues with just using an industry super fund basically because they follow a low cost index fund approach. I also have no issues with just buying shares under my personal name. I don't think we will have a large income when we retire so I don't think there will be significant tax implications.
I'm not sure if in Australia it makes sense to buy a house because the costs are freaken ridiculous however its the choice that we have made. I suppose the benefits from my perspective is that we should always have a roof over our head and our house will be our buffer if things go wrong.
Post by: marty998 on January 03, 2015, 04:50:35 AM
**edit: I see AustralianMustachio posted about government bonds while I was typing. Maybe their heyday has arrived! (but I think they have just been pushed up by wealthy Chinese purchasing Australian residency/passports in 2014; it'll take changes to negative gearing legislation to really get the domestic bond market pumping).
I very much agree here. Home bias aside, Australian super accounts aren't diversified enough. It's all property and equities for the average SMSF, and not enough fixed interest. Part of the problem is a lack of fixed interest products here that compare to overseas.
I think the main problem is, as you mentioned, is the favourable tax treatment of property (via negative gearing) and equities (franking credits) vs fixed interest. We need a broader and better bond market in Australia, and right now the demand simply isn't there due to the superior tax treatment of the riskier asset classes.
As well the Fixed Interest products that do exist do not offer an adequate margin above the cash rate and/or term deposits.
Many a retiree has seen their savings blow up in Fincorp, Bridgecorp and various other "safe" fixed interest investments.
We just don't trust them. After all, if a property developer / business / scheme etc can't get finance from a bank, then why should you lend them your money?
Post by: Wadiman on January 03, 2015, 02:03:19 PM
I have been pretty happy with the performance (approx 5%) of my semi-govt bond (RSM) ETF since purchase (six months ago) and like the allocation to state govt treasuries. I see that the return for VGB is similar as well - the main difference appears to be that it has comm govt holdings. Both have fairly low fees - 0.26 and 0.2% respectively.
Post by: dungoofed on January 03, 2015, 05:40:40 PM
I can see a reason for banks to buy bonds in a company however, especially if the only other option is for the company to default on their loans.
Having said that, Australian government bonds are also more tightly coupled to the Australian economy than say the in US. We could decouple somewhat by lowering corporate income tax.
Post by: dungoofed on January 03, 2015, 05:47:58 PM
Post by: BattlaP on January 03, 2015, 07:34:12 PM
I get the announcements and summaries but I'd like to see at a glance what the % return is without having to get each cents per unit and figure it out manually.
Post by: marty998 on January 03, 2015, 08:19:29 PM
Hi marty998 - to be clear I am talking specifically about government bonds. I suppose you can expand the list of issuers to include the government, but I'm assuming you're talking about corporate bonds. To be honest I've never seen the appeal of corporate bonds either - the risk of losing your principal is correlated to the risk of the company (same as buying stock in the company) but the returns are typically better to buy stock.
I can see a reason for banks to buy bonds in a company however, especially if the only other option is for the company to default on their loans.
Having said that, Australian government bonds are also more tightly coupled to the Australian economy than say the in US. We could decouple somewhat by lowering corporate income tax.
Yes but why would you hold a government bond when cash in a high yield bank savings account gets you the same or better return with no risk of capital loss (up to the $250k deposit guarantee per financial institution)?
Remember that the 1996-2007 Liberal Government essentially eliminated the Sovereign Bonds Market by paying down all Federal debt, about 30billion was the total pool of bonds outstanding at one stage IIRC. Too small a market for everyone to be chasing.
It wasn't until the Labor 07-13 administration started borrowing again heavily that the asset class came back to life (we can debate the merits of this till Daisy The Cow comes home, but I'm trying not to be too political. FWIW my view is that the deficits from 08 to 12 were necessary, but Labor started losing the plot with NDIS, Gonski, Pensions, school kids bonuses and expenditure tied to a mining tax that came in 5 years too late and, though economically sound and rational, would be another 15 years before raking in serious money).
I'm getting off topic as usual,
btw the reason I hold AGBs is not just for the return, but for the speculative uptick when something like a GFC next rears its head, and investors run to safety. It helps makes sure you always have something to sell and scoop up the bargain-basement shares.
Anything that is exposed to variation in returns is by definition not risk-free (in a pure portfolio theory sense). Therefore again I make the point, why would you invest in a government bond*, instead of leaving money in cash?
* Some bonds that the federal and state governments issue are inflation-linked bonds, which, put simply, means your capital is preserved in real terms. This is probably a better bet than buying a 30 year non-inflation linked bond, which you would hope to be compensated for with a higher interest rate. Doesn't always happen in times of inverse yield curves.
Post by: marty998 on January 03, 2015, 08:29:16 PM
Long-time lurker, first-time poster checking in
What structure does the MMM Australian investor use for shares?
I'm fairly young with a small super balance so a SMSF doesn't seem to be a benefit right now. I have a small amount of holdings in Vanguard ETFs.
I'm single but starting to think about creating a discretionary trust to hold my share investments, since I will be adding to my holdings on a regular basis from this point. No dependents or spouse at the moment but I think a trust would be a good structure for that in the future ....
Any thoughts?
Rusty - who will be trustee of your trust? You cannot be both trustee and beneficiary, though there are ways around this if you have a corporate trustee. The real question is why? It really depends on a number of factors - what you tax rate is, whether you have a business/professional practice, how comfortable you are deferring income in a trust or company, how likely you are to marry a gold digger, whether you are trying to avoid land tax on property purchases? List goes on.
Post by: dungoofed on January 03, 2015, 10:24:14 PM
Hi marty998 - to be clear I am talking specifically about government bonds. I suppose you can expand the list of issuers to include the government, but I'm assuming you're talking about corporate bonds. To be honest I've never seen the appeal of corporate bonds either - the risk of losing your principal is correlated to the risk of the company (same as buying stock in the company) but the returns are typically better to buy stock.
I can see a reason for banks to buy bonds in a company however, especially if the only other option is for the company to default on their loans.
Having said that, Australian government bonds are also more tightly coupled to the Australian economy than say the in US. We could decouple somewhat by lowering corporate income tax.
Yes but why would you hold a government bond when cash in a high yield bank savings account gets you the same or better return with no risk of capital loss (up to the $250k deposit guarantee per financial institution)?
Remember that the 1996-2007 Liberal Government essentially eliminated the Sovereign Bonds Market by paying down all Federal debt, about 30billion was the total pool of bonds outstanding at one stage IIRC. Too small a market for everyone to be chasing.
It wasn't until the Labor 07-13 administration started borrowing again heavily that the asset class came back to life (we can debate the merits of this till Daisy The Cow comes home, but I'm trying not to be too political. FWIW my view is that the deficits from 08 to 12 were necessary, but Labor started losing the plot with NDIS, Gonski, Pensions, school kids bonuses and expenditure tied to a mining tax that came in 5 years too late and, though economically sound and rational, would be another 15 years before raking in serious money).
I'm getting off topic as usual,btw the reason I hold AGBs is not just for the return, but for the speculative uptick when something like a GFC next rears its head, and investors run to safety. It helps makes sure you always have something to sell and scoop up the bargain-basement shares.
Anything that is exposed to variation in returns is by definition not risk-free (in a pure portfolio theory sense). Therefore again I make the point, why would you invest in a government bond*, instead of leaving money in cash?
* Some bonds that the federal and state governments issue are inflation-linked bonds, which, put simply, means your capital is preserved in real terms. This is probably a better bet than buying a 30 year non-inflation linked bond, which you would hope to be compensated for with a higher interest rate. Doesn't always happen in times of inverse yield curves.
Hi marty998 -
Appreciate the Australia-specific intelligent discussion. If possible, could you help me think through the following two low-likelyhood scenarios:
Scenario 1: A bank implodes and the Australian Government doesn't have the cash on hand to pay depositors.
Scenario 2: The Australian Government lowers the $250K guarantee back down to $100K.
In the first scenario I'd imagine the Government would have to issue debt in order to pay back depositors (I'd like to think there would be a government document outlining how they'd go about this but haven't managed to find anything).
In the second, I'd expect we'd see a fair movement of cash back into AGBs. But would appreciate your thoughts on both cases.
Regarding TIBs, the problems I see are 1) you have to trust the inflation figures provided by the government, and 2) TIBs are more correlated to other asset classes. I know 1) sounds like conspiracy theory but there is an ongoing incentive for the government to under-report inflation. Regarding 2), if bonds were the only asset you were allowed to purchase then there is an argument for inflation-adjusted bonds but I think there is more value in being invested long term in a less-correlated asset class ie regular TBs/AGBs. Same reason I'd choose VGB over VAF, despite the liquidity - the latter is too correlated with regular stocks.
Post by: AustralianMustachio on January 03, 2015, 10:42:45 PM
Anything that is exposed to variation in returns is by definition not risk-free (in a pure portfolio theory sense). Therefore again I make the point, why would you invest in a government bond*, instead of leaving money in cash?
* Some bonds that the federal and state governments issue are inflation-linked bonds, which, put simply, means your capital is preserved in real terms. This is probably a better bet than buying a 30 year non-inflation linked bond, which you would hope to be compensated for with a higher interest rate. Doesn't always happen in times of inverse yield curves.
Well maybe I'm missing something here, but aren't the returns on bonds a fair bit better than cash?
Vanguard's Index Diversified Bond Fund has grossed a return of 7.68% since it started in 2000.
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vidbf.pdf?20141226|091500
In 2011 it returned over 10%, in the same year that their Australian Shares fund lost more than 10%. Isn't this the main reason, that shares and bonds tend to be uncorrelated asset classes?
I know that's true in the US, and the 2011 example seems to back it up for AUS, but not sure about long term correlations. I saw some US data that simply adding a small amount of bonds to your portfolio reduces risk whilst increasing returns, which seemed quite appealing
Post by: marty998 on January 04, 2015, 02:59:46 AM
Anything that is exposed to variation in returns is by definition not risk-free (in a pure portfolio theory sense). Therefore again I make the point, why would you invest in a government bond*, instead of leaving money in cash?
* Some bonds that the federal and state governments issue are inflation-linked bonds, which, put simply, means your capital is preserved in real terms. This is probably a better bet than buying a 30 year non-inflation linked bond, which you would hope to be compensated for with a higher interest rate. Doesn't always happen in times of inverse yield curves.
Well maybe I'm missing something here, but aren't the returns on bonds a fair bit better than cash?
Vanguard's Index Diversified Bond Fund has grossed a return of 7.68% since it started in 2000.
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vidbf.pdf?20141226|091500
In 2011 it returned over 10%, in the same year that their Australian Shares fund lost more than 10%. Isn't this the main reason, that shares and bonds tend to be uncorrelated asset classes?
I know that's true in the US, and the 2011 example seems to back it up for AUS, but not sure about long term correlations. I saw some US data that simply adding a small amount of bonds to your portfolio reduces risk whilst increasing returns, which seemed quite appealing
Ahh but it's 6.88%* after management costs and the composition of that return was 5.81% income and 1.07% capital growth. The returns should be better than cash because you should be compensated for bearing the risk of losing capital.
I don't have to hand what the average RBA cash rate was for 2000-2014, but if it is 5.81% or higher, or higher than the government bond rate then it would neatly prove my point :)
* That fund also includes corporate bonds and foreign government bonds, so is not directly comparable to pure Aust Government bond returns
Post by: AustralianMustachio on January 04, 2015, 03:08:55 AM
But yeah if the cash rate was that high then I'd totally agree with what's the point. Tho I guess the uncorrelated feature would still stand - if shares fell then you'd benefit from the capital growth you identified.
On the other hand it might be better to have cash on hand in a crash - you could scoop up the bargains in the share market and set yourself up nicely for the future!
Post by: marty998 on January 04, 2015, 03:28:49 AM
Hi marty998 -
Appreciate the Australia-specific intelligent discussion. If possible, could you help me think through the following two low-likelyhood scenarios:
Scenario 1: A bank implodes and the Australian Government doesn't have the cash on hand to pay depositors.
Scenario 2: The Australian Government lowers the $250K guarantee back down to $100K.
In the first scenario I'd imagine the Government would have to issue debt in order to pay back depositors (I'd like to think there would be a government document outlining how they'd go about this but haven't managed to find anything).
In the second, I'd expect we'd see a fair movement of cash back into AGBs. But would appreciate your thoughts on both cases.
RE: #1. The big 4 collectively hold about $500 billion in liquid assets. There's also an emergency credit facility with the RBA that banks can tap if required.
In times of stress, the preferred method of bailout is to be acquired by another bank. This was the case with Westpac acquiring St George, and CBA acquiring Bankwest. Both SGB and BW would likely have failed had they not been taken over. Regarding the big 4, it's extremely unlikely one would fail, though given their relative sizes, either CBA or WBC could potentially swallow NAB if required. I would consider given the way that CBA and WBC are managed it would take the wholesale destruction of the entire East Coast for one of those 2 to fall over.
In ANZ's 2014 results presentation the bank made the point that the average dynamic LVR (i.e. the current LVR, not the starting LVR at loan origination) of its residential property loan portfolio was hovering around 40%
So in the event the economy goes to shit and if property prices crashed say 30%, the bank would still recover substantially all of the outstanding loans and borrowers would still walk away with some equity. Sure shareholders may take a hit but the bank would still be standing.
In summary a lot of dominoes would have to fall over before the taxpayer is required to bail out a bank. If it did have to happen, we'll all have bigger problems than worrying about how to fund it.
Edit to add: to fully answer your question - the government cannot run out of money. Now that the debt ceiling has been abolished, the Government can issue an unlimited amount of debt to fund itself.
RE#2. The guarantee is per institution. If you had a million dollars in cash (unlikely, because if you had that net worth you'd be investing it) you could split that between 10 different banks and still be covered fully.
The guarantee is more of a confidence thing. It was made available if required, but not a single dollar has ever had to be paid.
Interestingly by charging the banks a fee to have it in place, the Government since 2007 has actually made a profit on it. The banks recover the cost by upping your home loan interest rate a couple of basis points. Another case of government intervention/reassuring the punters/vote-buying putting up the prices for everyone.
Post by: AustralianMustachio on January 04, 2015, 04:06:53 AM
Post by: AustralianMustachio on January 04, 2015, 06:02:04 PM
I don't have to hand what the average RBA cash rate was for 2000-2014, but if it is 5.81% or higher, or higher than the government bond rate then it would neatly prove my point :)
Also, if the RBA cash rate for that time was 5.81% or higher, then IMO that would more be an argument not to invest in anything. Vanguard's Aus share fund returned 8.33% over that period. 2.5% above cash doesn't seem great for all the volatility of shares over that period.
Of course the last 14 years is a poor point of reference for shares - starting at the year 2000 top and including both the tech bubble crash and the GFC crash.
Post by: dungoofed on January 06, 2015, 08:00:29 AM
What's interesting for me is that while if you were US-centric, you'd have been much better off in stocks last year, but that's not the case for Australian investors.
Looking ahead to 2015, when you're hearing things like "markets are overvalued" or "gold is going to continue to slide," remember it probably doesn't apply to Australia.
(TL;DR stick to your strategy)
Post by: deborah on January 06, 2015, 02:37:12 PM
Post by: LonerMatt on January 06, 2015, 03:56:16 PM
I'm thinking I need more international exposure (since many of my other assets are in AUD), any recommendations for global index funds?
I really need to clean up my investing stuff.
Ugh, maybe in ten years.
Post by: dungoofed on January 06, 2015, 04:29:37 PM
The chart doesn't say which colour is which - I assume the blue is USD gold, the black is AUD gold and the green is VAS?
OMG sorry! Charts 101 FAIL! Yes, that is correct.
Post by: AustralianMustachio on January 06, 2015, 05:57:29 PM
So I am going to buy a chunk of stocks by the end of the month, I remember we previously had a conversation about different index funds.
I'm thinking I need more international exposure (since many of my other assets are in AUD), any recommendations for global index funds?
I really need to clean up my investing stuff.
Ugh, maybe in ten years.
VGS / VGAD might be what you're after. All world ex-Australia index ETFs through Vanguard. Look back through the last few pages of this thread to see discussion regarding them
Post by: dungoofed on January 06, 2015, 07:00:37 PM
VGS: Vanguard MSCI Index International Shares (New. So-so liquidity. Australian-domiciled, dividends reinvested, 0.18% MER)
WXOZ: SPDR S&P World ex Australia (So-so liquidity, Australian-domiciled)
IOO: iShares S&P Global 100 (Good liquidity, US-domiciled)
VTS: Vanguard US All Market (Good liquidity. Low MER. US companies only)
IVV: iShares S&P 500 (Good liquidity. US companies only)
Post by: MsRichLife on January 07, 2015, 01:53:14 AM
Was wondering whether anyone else found the attached chart interesting. It's 2014 relative performance for gold in USD (decreased 2%), gold in AUD (increased 7%) and VAS (increased 2%).
What's interesting for me is that while if you were US-centric, you'd have been much better off in stocks last year, but that's not the case for Australian investors.
Looking ahead to 2015, when you're hearing things like "markets are overvalued" or "gold is going to continue to slide," remember it probably doesn't apply to Australia.
(TL;DR stick to your strategy)
Thinking that the USD was going to become stronger against AUD I decided to invest reasonably heavily in GOLD during the slump in October/November. It's paid off reasonably well so far. I intend to keep buying the dips when they occur as part of my strategy to diversify towards somewhat of a 'permanent portfolio'.
Post by: dungoofed on January 07, 2015, 05:08:55 AM
It's paid off reasonably well so far.
It paid off 2.5% today
Post by: Ascotillion on January 07, 2015, 04:16:49 PM
Post by: terrier56 on January 07, 2015, 04:22:30 PM
After seeing the US recovery in recent year I believe this will give them the green light to start QE which should solve both deflation and weak euro economies (chance for Germany to over inflate). For this reason I will be loading up on VEU over the next couple of months.
Post by: deborah on January 07, 2015, 04:41:12 PM
I was absolutely sure you were crazy for buying gold, but I was obviously completely WRONG. Sorry for doubting you MsRichLife!
Thinking that the USD was going to become stronger against AUD I decided to invest reasonably heavily in GOLD during the slump in October/November. It's paid off reasonably well so far. I intend to keep buying the dips when they occur as part of my strategy to diversify towards somewhat of a 'permanent portfolio'.
Post by: MsRichLife on January 07, 2015, 05:07:40 PM
I was absolutely sure you were crazy for buying gold, but I was obviously completely WRONG. Sorry for doubting you MsRichLife!
Thinking that the USD was going to become stronger against AUD I decided to invest reasonably heavily in GOLD during the slump in October/November. It's paid off reasonably well so far. I intend to keep buying the dips when they occur as part of my strategy to diversify towards somewhat of a 'permanent portfolio'.
It's only been a couple of months, so time will tell. I'm sure it will have it's ups and downs, but I always plan to have GOLD in my portfolio so the dips will be good buying opportunities.
Post by: AustralianMustachio on January 07, 2015, 05:51:17 PM
I guess the attraction is that it's supposedly inversely correlated with equities. If things take a downward spiral over the next few months in equity world, owning gold will probably be a good trade short / medium term. Of course this sort of thing makes no difference to long term investors / people who use a dollar cost averaging approach
Post by: dungoofed on January 07, 2015, 08:51:29 PM
Post by: terrier56 on January 08, 2015, 04:59:04 PM
https://static.vgcontent.info/crp/intl/auw/docs/resources/index_chart.pdf?20150102|091500
Post by: Jim from QLD on January 14, 2015, 06:15:59 AM
Was wondering whether anyone else found the attached chart interesting. It's 2014 relative performance for gold in USD (decreased 2%), gold in AUD (increased 7%) and VAS (increased 2%).
What's interesting for me is that while if you were US-centric, you'd have been much better off in stocks last year, but that's not the case for Australian investors.
Looking ahead to 2015, when you're hearing things like "markets are overvalued" or "gold is going to continue to slide," remember it probably doesn't apply to Australia.
(TL;DR stick to your strategy)
My takeaway from this is hedge according to where you want to spend your retirement. I know general wisdom is to try and get into
international markets due to the ASX being a small chunk of the investable market and very finance/commodity focused, but I seem to prefer australian companies, the franking is hard to pass up!
It's also my belief that the franking regime encourages aussie equities to act more income-investment like rather than capital growth investment (which is not to say that capital growth doesn't occur, just that tax regimes like the US where dividends are taxed more than capital gains are conducive to low yield high volatility markets). I prefer the income-investment nature as it is steady and predictable.
Post by: AustralianMustachio on January 14, 2015, 06:29:53 AM
It's also my belief that the franking regime encourages aussie equities to act more income-investment like rather than capital growth investment (which is not to say that capital growth doesn't occur, just that tax regimes like the US where dividends are taxed more than capital gains are conducive to low yield high volatility markets). I prefer the income-investment nature as it is steady and predictable.
I agree that Australian investors certainly treat investing in equities as if they're income investments. And that's been the theme for years now. However they're not actually income investments in my opinion, and I'm not so sure they actually will continue to behave like income investments forever.
For one thing equities are far more risky and volatile than traditional income investments such as bonds. For example, take Woodside Petroleum - people are treating this as an income stock. In fact, it is the highest holding in Vanguard's High Yield ETF VHY last time I checked. However with the oil price volatility, it has fallen around 18% over the last few months. Losing 18% of your capital doesn't sound like an income play to me.
However with rates still very low, the hunt for yield continues unabated. To illustrate this, VHY has massively outperformed VAS over the last few years. I don't believe it will last forever though.
Post by: sirdeets on January 14, 2015, 06:38:32 PM
I just read an article focused on US investors regarding contributing to tax effective "super" like accounts, but being able to access them early.
As I understand it - with our superannuation system - unless you are under severe hardship and can prove it, you can't touch it until you are over 55. Not very helpful for me and others who want to retire from full time work in my 30s.
Things I have done in the past:
- First Home Savers Account - no longer available but was a good way to get a 20% guaranteed return
- First home buyer concessions (state dependent) - can sometime swing the "rent v buy" equation, depending on the area. Australia housing I see as overvalued overall but helped in my particular market (Gold Coast, QLD - worst performing real estate over the last 5 years:) )
- Tax returns - deserves a thread of its own but lots of deductions are possible, especially if you are working from home at all, study in an area directly related to your employment (I did this - claimed on TAX even though the money went onto my HELP debt - legal and defers payments while getting tax refunds now)
- Make the most of the credit card balance transfer deals and pay off in full
- Use a no annual fee citi bank signature card for all expenses and pay off in full.. get money in offset for a bit longer and the rewards can be used to buy coles gift cards..
- Online gambling bonus arbitrage
- Take advantage of any employee share plans that offer discounts to market value
- Salary sacrificing FBT exempt items are your workplace
- Something I haven't done - but Tax lost harvesting. I.e. STW tanks in a year, you sell it, and buy VAS straight away. You then claim the loss on STW sale to offset any other capital gains in portfolio immediately. Yes - your cost basis for VAS is now a lot lower - but paying tax in the future is better than now.
- Getting private health insurance to save money (avoid surcharge on tax return)
- Something I haven't done - but in your last year of HECS/HELP - timing the payment so you get a discount
Any other things that young people can do to take advantage of the system?
Post by: dungoofed on January 14, 2015, 09:18:12 PM
My takeaway from this is hedge according to where you want to spend your retirement. I know general wisdom is to try and get into international markets due to the ASX being a small chunk of the investable market and very ｆinance/commodity focused, but I seem to prefer australian companies, the franking is hard to pass up!
Hi Jim - A few weeks back Bloomberg writer William Pesek wrote that Australia might also be staring down the barrel of a "lost decade" a la Japan (http://www.smh.com.au/business/the-economy/australia-adrift-lost-decade-beckons-as-good-fortune-wanes-20141209-1239ix.html)
Now, any talk about Pesek involving lost decades are to be taken with a pinch of salt as he's the author of "Japanization: What the World Can Learn from Japan's Lost Decades"(http://www.amazon.com/Japanization-World-Japans-Decades-Bloomberg/dp/1118780698). He obviously has bias as a "lost decade guru," and a correct prediction would galvanise his fate as people line up to ask him "O Pesek! Pray tell which country shall next be affected by a lost decade!"
But it deserves some thought: if we could go back in time 20 years to the start of Japan's lost decade (sic) what would be the best strategy for Japanese investors? It turns out that Japanese investors have even more home bias than Australians, with most of them long JGBs and maybe a few Japanese stocks.
Now, here is where it gets interesting. At first glance you'd think that these Japanese investors should have piled into international stocks (and by extension, Australians in the same position now). But the reality is that when you look at things in terms of standard of living you find out that the Japanese haven't done too badly over the last 20 years, despite what you have been hearing on the news.
The takeaway for Australians? I think it's a "soft" recommendation to diversify a part of your portfolio into international stocks if you haven't done so already. But if you don't, and you plan to retire in Australia, then you will still be fine with 100% in Australian stocks/property.
Post by: journey2financialfreedom on January 15, 2015, 06:30:26 PM
Post by: JLR on January 24, 2015, 03:27:37 AM
Looking at buying some Vanguard ETFs in the near future. Have some money earmarked for it, and have my Etrade account ready to go, but am just waiting to make sure my husband still has a job next month before I pull the trigger and buy.
Post by: marty998 on January 24, 2015, 04:32:02 AM
Hi Jim - A few weeks back Bloomberg writer William Pesek wrote that Australia might also be staring down the barrel of a "lost decade" a la Japan (http://www.smh.com.au/business/the-economy/australia-adrift-lost-decade-beckons-as-good-fortune-wanes-20141209-1239ix.html)
Been there, done that. Already had the lost decade. The ASX is exactly where it was 10 years ago.
Post by: dungoofed on January 25, 2015, 06:10:24 AM
Post by: dungoofed on January 27, 2015, 07:44:55 AM
I'm not particularly keen for extra exposure to Australian miners in excess of VAS holdings but I was looking at the Australian companies in the SPDR S&P Pan Asia Dividend Aristocrats ETF[1] and MND and BHP stand out as massive potential bargains (I'll be looking at SUL and WOW in further detail too). Also Fortescue.
I know Bigchrisb mentioned he was scooping up some miners but I couldn't remember whether these were large or small ones. The small cap miners have taken bigger hits than the above three (despite very fancy web sites).
Actually that's another thing I have noticed - a lot of Australian blue chips need to get a web designer in to bring their sites into the 21st century.
[1] For your information the Australian holdings according to the prospectus were:
Ansell (ANN)
APA Group (APA)
BHP Bilton (BHP)
Coca Cola Amatil (CCL)
Cochlear (COH)
Monadelphous Group (MND)
Ramsay Health Care (RHC)
Super Retail Group (SUL)
Woolworths (WOW)
Post by: bigchrisb on January 27, 2015, 04:02:04 PM
Things I've bought in the last 6 months:
- $20k of BHP.
- $10k of Santos.
- $10k of AGL
- $10k of UOS
- $10k of VEU
- $10k EAX
- $5k of CIN
- $45k of VAS when the market was in the 5100-5200 range. Not trying to pick winners, but happy to index in at lower values.
These are in my "bottom drawer" allocation. i.e. businesses / ETFs I see as things I can happily hold forever, and are currently at what I think is a good price.
The next are very much specualtive buys, that I'm happy to trade. Compared to the $ above, its really play money.
$5k ARI
$5k ANG
$5k GRB
I've also got open positions with NWH, DCG and FMG, all of which were speculations that I've lost significant $$ on (20%-70%), gambling too early. Fortunately, overexposure to REITS over the same period has offset these. The REITS I mostly picked up while they were smashed up during the GFC, so a "value" attempt several years ago. I'm hopeful that the energy and materials stocks will seem the same in hindsight, but its painful in the meantime!
Post by: misterhorsey on January 27, 2015, 09:25:08 PM
I had a question regarding Vanguard ETFs, but as it I didn't want to hijack the thread I set up another post. But I also wanted to acknowledge all the goodness contained in this thread that prompted me to start rethinking my investment strategy.
Post by: dungoofed on January 27, 2015, 11:49:55 PM
The other sector-related stock I've been keeping an eye on is Ausdrill.
The thing is I think I'm doing it the wrong way around, in that I should probably choose a few stocks from a shortlist based on research, and then just wait for them to come down in price, instead of starting with a shortlist of potential bargains and then starting to do the research. By the time I've finished reading annual statements and whatnot the window of opportunity may well have passed.
Then again, some like ARI are trading a P/B of 0.08. In a few years people looking back will no doubt point out that it was a no-brainer to buy at the time.
Post by: potm on January 27, 2015, 11:56:19 PM
Impairments can quickly show you how meaningless it is.
Just because something has fallen a lot, does not make it cheap and good value.
Post by: marty998 on January 28, 2015, 02:47:08 AM
ARI could well be dead in a years time.
Post by: marty998 on January 28, 2015, 02:51:48 AM
Ignore me lol.
Meanwhile at the pointy end of the market, CBA hit another record high today. Not a bad idea to just pour all your money into it. Pretty soon it will be half the market anyway.
Post by: AustralianMustachio on January 28, 2015, 06:04:25 AM
I have been a little, and it's paid off pretty well so far. Made 10% in a couple of months.
Some people might say at these levels "oh you've missed the best part of the trade already" and that would be true. However, unless I'm drastically misunderstanding things, a fall from 80 to 70 would be worth more than the fall from parity to 90. And a fall from 70 to 60, even more so.
Of course, you could just buy VTS and be buying US shares at the same time. I know this is "timing the market", but I can't help but feel a correction is coming in US equities in the next few months....
Post by: FFA on January 28, 2015, 09:10:11 AM
Indeed, I was studying these same ETFs 6 months ago and keen for yield. Was close to investing in VHY until I noticed WPL as the top holding which made me lose confidence in the methodology completely so I just stuck with the basic VAS.It's also my belief that the franking regime encourages aussie equities to act more income-investment like rather than capital growth investment (which is not to say that capital growth doesn't occur, just that tax regimes like the US where dividends are taxed more than capital gains are conducive to low yield high volatility markets). I prefer the income-investment nature as it is steady and predictable.
I agree that Australian investors certainly treat investing in equities as if they're income investments. And that's been the theme for years now. However they're not actually income investments in my opinion, and I'm not so sure they actually will continue to behave like income investments forever.
For one thing equities are far more risky and volatile than traditional income investments such as bonds. For example, take Woodside Petroleum - people are treating this as an income stock. In fact, it is the highest holding in Vanguard's High Yield ETF VHY last time I checked. However with the oil price volatility, it has fallen around 18% over the last few months. Losing 18% of your capital doesn't sound like an income play to me.
However with rates still very low, the hunt for yield continues unabated. To illustrate this, VHY has massively outperformed VAS over the last few years. I don't believe it will last forever though.
Post by: FFA on January 28, 2015, 09:19:45 AM
Of course, you could just buy VTS and be buying US shares at the same time. I know this is "timing the market", but I can't help but feel a correction is coming in US equities in the next few months....Yeah i have the same feeling, maybe not a bad time to rebalance VTS. I expect more volatility in coming months as expectations for US interest rate rises approach.
The global economy still seems out of sorts to me with govt bond yields for 5+ yrs for Germany, Switzerland, Japan etc below 0.5% or even negative in some cases!
Post by: deborah on January 28, 2015, 09:58:57 PM
http://www.canberratimes.com.au/money/super-and-funds/early-retirement-looks-attractive-but-is-it-a-goer-20150129-1310nj.html
Post by: FFA on January 29, 2015, 09:04:24 AM
George Cochrane is at it again about retiring early - it's his whole column this week!He seems to make the traditional assumption about needing a percentage of preretirement income. It is not necessarily the case maybe they are living on $34k or less now. Perhaps he should read this MMM blog!
http://www.canberratimes.com.au/money/super-and-funds/early-retirement-looks-attractive-but-is-it-a-goer-20150129-1310nj.html
" to stretch $1 million over that time period, you could only spend around $34,000 a year.... I suspect this will require a significant drop in living standards given your current combined incomes of $180,000 a year before tax."
Post by: happy on January 29, 2015, 03:40:24 PM
What struck me is that with a mustachian way of life, both those cases are quite possible.
Post by: happy on January 29, 2015, 03:44:54 PM
1. What do people use to track the market? Do you look at "market watch" on asx.com.au? Or something else? Do you look at asx200 or all ords or something else?
2. What is the simplest way to do this in your opinion?
Post by: potm on January 29, 2015, 04:24:14 PM
If you want to keep track of the index then just follow XJO for the ASX 200.
I have watchlists set up for companies I want to keep track of that I may be interested in buying if the opportunities present themselves.
If you are asking about the actual sites or apps to use then I use Commsec. I have an account with them, no longer have any holdings with them. They have high fees but their website and app are very good.
Post by: AustralianMustachio on January 29, 2015, 04:26:16 PM
It's free and has lots of useful stuff on there, can compare companies with charts, indexes, etc. The data is real time for the US market, but 20mins delayed for the ASX I think.
Post by: dungoofed on January 29, 2015, 09:25:09 PM
1) Dividends vs expenditure (aka FIRE-ometer)
2) "You have $5000 sitting idle in your bank account. Invest it."
3) "Investing some money? You're underweight in xxxxxx."
4) "Need some cash? The best investment to sell would be yyyy."
5) "The market is crashing"
6) "Consider selling AAA to buy some more BBB" - ie you are so far from your target allocation that you might benefit from inflicting some capital gains tax and selling an overperformer.
7) "You need to sell these bonds, and buy these ones"
8) "zzzz on your watchlist is cheap right now" (HT: potm)
I currently implement 7 by putting a reminder in Google Calendar for, say, 15 years later, each time I buy a bond that needs to be long term.
Post by: happy on January 29, 2015, 10:07:54 PM
What are you looking to track and for what reason?
At some point in the future I will have a lump sum to invest and I'm trying to prepare myself now or I may move to self funded super. I started watching my super balance daily to try to get an idea of how it fluctuated, and to gauge my emotional responses when it went up or down. Just familiarising myself basically. I soon realised however that since it is in a big fund, its widely diversified and doesn't really reflect movements in say the ASX200. So I set out to find out how to monitor "the market", and went to the ASX page but got a bit overwhelmed by the detail. I realise after reading the responses that even saying "the market" is too loose - i.e. which part of the market etc. So I guess I'm asking if there's a summarised format somewhere that I can check daily and say "ah the market is up" FWIW.
As I type this I wonder, well what is it worth? What is the point of doing that? I wonder if its time for me to get some skin in the game in a small way. At my age I don't need too much outside super, and don't want to earn more income that will be highly taxed, but maybe I should take some small positions in some index funds just so I can see how it all works.
Post by: potm on January 29, 2015, 10:49:30 PM
I've been thinking about portfolio tracking a bit lately too. Currently putting together a tool that tells me just a few basic things:
8) "zzzz on your watchlist is cheap right now" (HT: potm)
Commsec has an alerts feature in the app that can give you a push notification when a share reaches a certain price.
As I type this I wonder, well what is it worth? What is the point of doing that?
I think that is the question you have to answer, what are you aiming to achieve. What will your strategy be to invest the lump sum. I think reading some investment books would be of more benefit than to watch the market each day.
Post by: FFA on January 29, 2015, 11:38:45 PM
I've been thinking about portfolio tracking a bit lately too. Currently putting together a tool that tells me just a few basic things:I just use an excel spreadsheet.
1) Dividends vs expenditure (aka FIRE-ometer)
2) "You have $5000 sitting idle in your bank account. Invest it."
3) "Investing some money? You're underweight in xxxxxx."
4) "Need some cash? The best investment to sell would be yyyy."
5) "The market is crashing"
6) "Consider selling AAA to buy some more BBB" - ie you are so far from your target allocation that you might benefit from inflicting some capital gains tax and selling an overperformer.
7) "You need to sell these bonds, and buy these ones"
8) "zzzz on your watchlist is cheap right now" (HT: potm)
I currently implement 7 by putting a reminder in Google Calendar for, say, 15 years later, each time I buy a bond that needs to be long term.
Inputs: balances from online trade account / superannuation / bank balances
Outputs: net worth, income yield, asset allocation actual vs target and delta to rebalance.
In separate tabs in the same s/sheet I keep a record of all share trades, super contributions, dividends, etc
Agree with potm "what are you aiming to achieve. What will your strategy be to invest the lump sum. I think reading some investment books would be of more benefit than to watch the market each day."
I'm a recent convert to the boglehead / passive approach.... If you give up on market timing and stock picking, then portfolio tracking becomes much more simplified towards measuring what you have versus the plan, and there's not so much need for alerts/watchlists/ratios/charts etc
Post by: happy on January 30, 2015, 04:08:20 PM
Quote
I think that is the question you have to answer, what are you aiming to achieve. What will your strategy be to invest the lump sum. I think reading some investment books would be of more benefit than to watch the market each day.
Yes I agree I definitely have more theory to learn. My problem is that I'm good at reading and theorising and planning, but not very good at implementation. I stand and watch for a long time before I do anything ( hence I'm "watching the market"). My head is swimming with theory about bogleheads, canadian couch potato, permanent portfolios, dividend investing etc etc. If I'm not careful I'll read forever and never do anything. So as well as the theory I'm trying to learn what to actually do, since this will be a point of weakness for me. Lack of familiarity with the practical process is likely to paralyse me, so as I say I'm trying diminish this possibility. Some things you just have to do to learn about ( e.g. you can read about a new piece of software, but you actually have to use it to develop skill).
Post by: potm on January 30, 2015, 04:57:17 PM
Post by: happy on January 30, 2015, 05:58:55 PM
Seems like you're following the theory of passive investing, which would advocate not watching the market. There really is no skill involved in it. Just get off your ass and create a brokerage account. In fact you don't need to even get off your ass. CMC is good for low cost brokerage if you don't already have an account.
Yes agreed. Not intending to pick individual stocks or trade.
Thanks to those who offered practical tips/sites etc
Post by: FFA on January 30, 2015, 09:03:44 PM
Yup just do it like Nike.Seems like you're following the theory of passive investing, which would advocate not watching the market. There really is no skill involved in it. Just get off your ass and create a brokerage account. In fact you don't need to even get off your ass. CMC is good for low cost brokerage if you don't already have an account.
Yes agreed. Not intending to pick individual stocks or trade.
Thanks to those who offered practical tips/sites etc
A few further thoughts. 1. I'd say limited skill rather than no skill. An example is averaging a lump sum over perhaps 3-6 months to your target AA. Depending how big your portfolio is, but it's a much more gentle entry and avoids losing confidence / giving up in case entry timing unlucky. 2. Try hard to focus on process not outcomes. Be happy if you follow your plan even if portfolio down. Be annoyed with yourself when you break rules, eg decide to skip a scheduled rebalance, even if it resulted in a profit. Easier said than done, but this general mindset is very important I believe.
Good luck
Post by: potm on January 30, 2015, 09:59:32 PM
Post by: dungoofed on January 31, 2015, 07:12:02 PM
I've been thinking about portfolio tracking a bit lately too. Currently putting together a tool that tells me just a few basic things:
8) "zzzz on your watchlist is cheap right now" (HT: potm)
Commsec has an alerts feature in the app that can give you a push notification when a share reaches a certain price.
Just wondering whether you or anyone else had considered selling puts to accumulate a position in a stock.
Post by: potm on January 31, 2015, 07:27:57 PM
Just wondering whether you or anyone else had considered selling puts to accumulate a position in a stock.
The intention of writing puts would be to earn some extra income and under a bad scenario you end up accumulating a position in a stock.
The option market in Australia is a lot less liquid so I have not looked into it. I doubt I would be tempted even if it was liquid anyhow. I buy good businesses when they are selling at an attractive price. The basic overall strategy is pretty simple.
I don't mean any offense but I'd like to point you to one of your posts which makes a very good point:
Coming off the back of devastating losses like I had there is massive temptation to do anything you can that will give you an edge. Needless to say this can be a very dangerous way of thinking if it results in you taking on greater risk, and in the worst case it can be a gateway to a slippery slope of riskier and riskier investments, similar to how a gambler steps up their bets on a losing streak.
I can't help but think your judgement is being skewed by your desire to make back your losses, just a reminder to keep a clear head.
Post by: dungoofed on January 31, 2015, 10:54:27 PM
The risk is that the price drops well through the price of the put you sell, and you have to pay more for the stock than it is currently trading at. But if I had decided that say BHP is worth $30, and I'd be overjoyed to buy it at $25, then selling a put at that price (or at that price plus the premium, because the premium is effectively a discount on the price you pay) strikes me as no worse off than putting a limit order at the same price. In both cases you're going to be left paying for and holding a stock that is now worth a lot less. This shouldn't matter under normal circumstances, but it's the black swan event of the company folding or being bought out at a lower stock price, locking in the loss, that would make it painful.
I can however see the advantage of having BHP on a watch list at $25 as opposed to having a limit order or selling a put at $25. You can take the time to see whether whatever is pushing the price down is worth considering or whether your initial analysis still holds true. On the other hand, if the price just touched $25 before going back up then you may have missed an opportunity.
Post by: potm on January 31, 2015, 11:15:30 PM
If you write the put, if the price goes up then you miss out on buying BHP for a little option income. If it goes down then you buy BHP for a lot higher than you could have. Neither are ideal outcomes.
The point of writing options is always in the hope that the contract expires out of the money and you get yourself a little income. The strategy you are suggesting hedges the exposure by your willingness to buy the share if the price does drop. Still, the aim of the strategy is for that not to happen though.
Another way to do it is to write calls for shares you already own.
It's more popular in the US as the option market is a lot more liquid and its a way to earn some extra income with the low yields on the companies there.
There is no free lunch though.
Post by: Meat Popsicle on February 01, 2015, 12:37:06 AM
I've been following this thread with interest and now have an Australian orientated question about a EFT for gold.
The motivation is for diversification and I'm trying to figure out the best way for exposure to to gold, with relative ease of liquidation (for portfolio rebalancing) ...also personally I have zero interest in physically holding it!
The solution that jumps out at me is ASX traded EFT, however if there's a more effective solution someone can suggest I'm all ears :)
Anyway, the question I have is PMGOLD a sound option?
(Brief comparison with a popular gold EFT is GOLD)
GOLD MER is 40 basis points whilst PMGOLD is only 15 basis points.
PMGOLD is 1/100th troy ounce of the shiny stuff, whilst GOLD seems just under that.
PMG is issued by Gold Corporation (trading as The Perth Mint), a statutory authority of the Government of Western Australia.
GOLD is backed by physical allocated gold held by HSBC Bank USA (the custodian).
PMGOLD is listed on the ASX site structured product, whilst GOLD is a share (unsure what the difference is there)
The viewpoint I've arrived at is that there's not a great difference in the implementation, only the MER – am I missing something here, why does anyone use the other ETF that are all at least quarter of a percent MER higher?
http://www.perthmint.com.au/investment_gold_asx.aspx
http://www.etfsecurities.com/institutional/au/en-gb/products/product/etfs-physical-gold-gold-asx
Post by: dungoofed on February 01, 2015, 09:16:42 AM
The point of writing options is always in the hope that the contract expires out of the money and you get yourself a little income. The strategy you are suggesting hedges the exposure by your willingness to buy the share if the price does drop. Still, the aim of the strategy is for that not to happen though.
Keep in mind I am specifically referring to the case where you believe a stock is valued at $30, but would like to buy at $25. I'm not interested in making a small stream of income selling naked puts - I actually plan to buy the stock if it comes down. Selling a put would mean you could own the stock when it came down in price and the premium you collect is just the icing.
However as you mentioned the market isn't particularly liquid. I might try it for one trade to see how it works in practice, but not rushing to get started with options just yet.
Post by: dungoofed on February 01, 2015, 09:30:20 AM
If you've already read the PMGOLD prospectus I suggest your next stop is here: http://goldchat.blogspot.jp/
The main difference, and the reason PMGOLD is so much cheaper, is because it is a call on unallocated gold. Let me break this down into its two components for you.
1) it's a call on physical gold, which means that at any time you can contact Gold Corporation and request the physical gold to which you have claim be sent to you. There will be a charge for this but from what I have seen it is not unreasonable.
2) they don't actually have gold set aside for people making the claims above. While this may sound bad, especially compared to GOLD which is supposedly an allocated ETF, it is the reason they can keep their MER low. In the case of the ETF there are multiple transactions as they have to request the custodian to purchase/sell gold to cover their risk as the price of gold changes. In the worst case scenario for PMGOLD, you would have to wait a little if everyone suddenly decided to do a run on gold and claim their calls at once. The reason is because there is a constant flow of gold into the Perth Mint from mining companies. So even if they don't have your gold today, under most situations they should be receiving a new shipment shortly anyway, and you'll receive your physical out of that.
Regarding which one you choose to purchase, it will come down to the reasons you are looking to get PMs exposure. The other options are unallocated ETFs that just track the price but have no actual gold, onshore physical and offshore physical.
Post by: FFA on February 01, 2015, 07:27:00 PM
: ) yes none taken - you are correct and thanks for the reminder (and the reminder that I need to update my journal!)i think your logic makes sense, if you are going to place a "set in stone" limit order, then why not enter the trade via a put option and capture an extra discount. However most limit orders are not set in stone, and a bit like your watchlist approach, still have the flexibility to cancel the order if there is major market upheaval or a company specific event that changes your desire to invest, provided of course you cancel before the order gets hit.
The risk is that the price drops well through the price of the put you sell, and you have to pay more for the stock than it is currently trading at. But if I had decided that say BHP is worth $30, and I'd be overjoyed to buy it at $25, then selling a put at that price (or at that price plus the premium, because the premium is effectively a discount on the price you pay) strikes me as no worse off than putting a limit order at the same price. In both cases you're going to be left paying for and holding a stock that is now worth a lot less. This shouldn't matter under normal circumstances, but it's the black swan event of the company folding or being bought out at a lower stock price, locking in the loss, that would make it painful.
I can however see the advantage of having BHP on a watch list at $25 as opposed to having a limit order or selling a put at $25. You can take the time to see whether whatever is pushing the price down is worth considering or whether your initial analysis still holds true. On the other hand, if the price just touched $25 before going back up then you may have missed an opportunity.
The motley fool guy has been writing about this strategy in recent months and giving the specific example of how he acquired BHP around $27 or thereabouts.
But for sure, it's a complex strategy and you really need to know what you're doing in detail, and understand all the risks. Not something i would personally be doing at this point but can see it might be of interest to explore for others. A small trial trade might be a good approach to test it out for real and appreciate all the practical issues like liquidity, hidden transaction costs, etc...
Post by: dungoofed on February 01, 2015, 09:41:29 PM
Post by: Meat Popsicle on February 02, 2015, 01:02:11 AM
Post by: marty998 on February 02, 2015, 01:38:57 AM
I hear UGL is in a spot of bother too.
CBA and TLS are the big ones to watch next week.
RBA board meeting tomorrow - I'll be astounded if rates are cut, they are already at 0% adjusted for inflation.
Post by: deborah on February 02, 2015, 02:08:15 AM
Post by: DrowsyBee on February 02, 2015, 08:47:05 PM
RBA board meeting tomorrow - I'll be astounded if rates are cut, they are already at 0% adjusted for inflation.
Picked your jaw up off the floor yet, marty?
Post by: terrier56 on February 02, 2015, 09:04:16 PM
RBA board meeting tomorrow - I'll be astounded if rates are cut, they are already at 0% adjusted for inflation.
Picked your jaw up off the floor yet, marty?
He's probably smiling still asx200 on track to hit 5700
Post by: DrowsyBee on February 02, 2015, 09:10:41 PM
RBA board meeting tomorrow - I'll be astounded if rates are cut, they are already at 0% adjusted for inflation.
Picked your jaw up off the floor yet, marty?
He's probably smiling still asx200 on track to hit 5700
Haha, and here I was thinking "I'll just see what's good after the Interest Rate decision" like a sucker. That'll teach me for timing the market.
Post by: FFA on February 02, 2015, 09:17:36 PM
onwards and upwards for shares and property it seems! but I can't help but feel a bubble is being stoked. hugely stimulative interest rates plus oil prices very low.RBA board meeting tomorrow - I'll be astounded if rates are cut, they are already at 0% adjusted for inflation.
Picked your jaw up off the floor yet, marty?
He's probably smiling still asx200 on track to hit 5700
Central banks making further cuts to interest rates even because of the oil price fall. this feels a mistake to me, the oil price fall is a one-off temporary deflation effect. just let it pass. the oil price will stabilize and inflation return to norm in the next quarter. the overall economic effect of low oil is expansionary, so it shouldn't need a further monetary boost on top. Anyway let the party roll on for some time yet.
While I don't really "get it", i'm also smiling as it's lucky for me if it continues just a little longer.... I'm relocating back in the coming month and become a tax resident once again after a long time. I'll be most happy for a low AUD and high ASX in the next month, to boost value of money transferred back as well as the price of assets on return (deemed CG acquisition cost)...... fingers crossed !
Post by: potm on February 02, 2015, 09:47:29 PM
When the music is playing, you have to get up and dance lol.
If the dollar keeps dropping to 60c, it might be time to think of moving overseas to work.
Post by: AustralianMustachio on February 02, 2015, 09:57:08 PM
Oh and still not planning on selling my USD ETF yet. Really liking that trade so far, and guessing it could go a fair bit further.
Thank you RBA?
Post by: dungoofed on February 02, 2015, 10:33:07 PM
US stocks bought before the US started tapering was the carry trade of the past few years.
Post by: FFA on February 02, 2015, 10:50:56 PM
For another Aussie expat view, VAS's increase is offset by the lower AUD so it makes no difference to me (except for the AUD I had bought in advance to hedge a move in the other direction - d'oh!)hi dungoofed, I guess it depends what currency you define your portfolio / net worth in. I always measure in AUD despite living away more than a decade, because I knew i'd always head back one day and live long-term in oz. So the way I tend to look at it is VAS up increases net worth and AUD down helps increase money flow from income earnt overseas transferred back to oz.
US stocks bought before the US started tapering was the carry trade of the past few years.
hi potm, not necessarily saying we're in a bubble yet, but a bubble being stoked perhaps, agree keep dancing but stay on your toes.... "If the dollar keeps dropping to 60c, it might be time to think of moving overseas to work." -- just the opposite of what i'm doing ha, pls don't get me back into OMY paralysis again hahaha
Post by: dungoofed on February 02, 2015, 11:10:54 PM
Although if the goal is more dividend income from less investment then we really want VAS to go down in price. Net worth doesn't really mean much if you never plan to sell.
Post by: marty998 on February 03, 2015, 03:11:53 AM
I kept laughing at the US/Euro dummies in charge of the central banks and their hairbrained wacky ideas behind zero or negative interest rates and printing stupid amounts of money.
Used to think the land of Oz was better than that. Now we are going down the same path.
What was the point of that decision from the RBA? Households have already got an injection into their budgets of the equivalent of 2 interest rate cuts from the falls in the price of petrol and electricity.
If these falls didn't happen over the last few months, it seems the RBA boffins would have you believe they would have cut rates by 75bps today!
As someone who personally benefits from lower rates, I still find it a slightly mad.
Watch for the dollar to collapse below 70, and head towards 60. Rest of the world will be moving to a tightening bias, whereas we are moving to an easing bias.
In some respects the chickens are coming home to roost. Our economy did not undergo the structural changes it needed to in 08/09 to remove the deadwood. It's happening now with falls in commodities back to more reasonable long term price trends, slowdowns in mining, sackings in manufacturing, etc.
Meanwhile, the US economy is abut 5 years ahead, having already gone through this phase.
If Abbott survives this week he will be gone by the end of the year. Budget will have to be tough, people will revolt, economy will get worse before it gets better
He could end up being dumped not because of unpopularity but because he'll be the first PM to preside over a recession in 24 years. How is that for irony for someone who campaigned on being a good economic manager.
my 2c rant fwiw
Post by: deborah on February 03, 2015, 03:34:53 AM
Post by: AustralianMustachio on February 03, 2015, 08:31:56 AM
Which is the main point IMO - our rates aren't high, but they are higher compared to the rest of the world, and that's what can have an effect.
On Abbott / the budget - people seem to have this vague idea that "Liberals must be good with the economy" and it is completely baseless. I for one am not surprised at all that Abbott hasn't turned out to be an economic genius. This satirical article pretty much summarises my thoughts whenever someone touts out that tired old cliche:
Quote
"This REACHer constantly rails against, “Labor’s mess” that left Australia the economic envy of the world wreck that it is. Like a harpy, the REACHer screeches “deficit” up and down the hallowed halls of sandstone universities everywhere, never actually explaining why the deficit’s a bad thing, but ready to sputter, “because we’d end up like Greece” when pressed. “Well, if you put it like that…” you may wonder, “how then do we avoid ending up like a country bankrupted by the government allowing massive corporate tax evasion to happen?”. “By electing a government that allows massive corporate tax evasion to happen” is their chin-raised response. It’s as logical as this REACHer’s announced relationship status on Facebook with a woman far less groomed than he is, followed by the next status update about being about how much he loves, “The Real Housewives of Melbourne”."http://www.sbs.com.au/comedy/article/2015/01/30/how-aspirational-class-are-voting-wrong-party
Post by: dungoofed on February 03, 2015, 01:41:56 PM
Ok this thread is bordering on getting political. I'm fine with that because, well, I'm Australian and love to talk politics as much as the next bloke/sheila but I just thought I'd point it out because I don't want this thread to lose it's status as possibly the best "Australian Investing Thread" on the Internet right now.
With that out of the way, I wanted to talk about two things unique about the Australian economy: deficit = bad, surplus = good mantra, and whether we squandered the biggest resource boom since the 1800s.
(unfortunately I haven't got much time so will just lay it out there and come back later to clean up the mess. I'll try and tie it in with the rate cuts and what the politicians are trying to do here)
So basically, during the 90s we had this budget surplus AND a strong economy. Unfortunately people fallaciously assumed that the budget surplus was the cause of the strong economy and the politicians of the time (happened to be Howard government but could have been anyone) did nothing to dispel this myth. The reality is nothing is confirmed in this regard, and if anything the Keynsians are currently in the lead with their "government deficit spending helps prop up the economy in times of softness." Anyway, what that means is that the Australian public who lived through the 90s, hearing that we now have a budget deficit, are concerned that this means the economy is in the shitter. But even worse are the politicians who are happy to run with this in order to implement their policies, cut budgets, etc.
The reality, as Marty pointed out, is that we are finally consolidating and clearing out the inefficiencies in the Australian markets, something which the US did back in 2008 (banks being the major exception), while Europe and Japan still refuse to go through this process. Even so, lowering rates yesterday is a sign that the government is somewhat committed to propping up certain industries in the short-to-medium term, in particular exporters.
Secondly, as you know we have just come out of a massive resource boom, the likes of which only come around every 200 years or so. I'm trying to find the details of the last one but from memory it was like a wheat or wool boom or something in the 1800s. The rough question I want to ask is "did we squander it?" but a more appropriate question might be "should we have created a sovereign wealth fund from the spoils?"
Lets look at OPEC nations quickly. They realise that they have this finite resource underneath desert. Once that is gone they're basically fucked. But for now the going is good! So they're happily exploiting their natural resources and buying up huge parts of the world economy. So that one day when they run out of oil the country should in theory be able to just live on the dividend cheques for the rest of eternity.
An example more similar to Australia might be Norway, who found massive oil deposits nearby and decided "the spoils of these resources belong not just to us but to all future Norwegians" and set up a similar sovereign wealth fund.
I naively googled "Australia's sovereign wealth funds" recently expecting to find a massive list of different ways we have been putting away money for the future, making sure the natural spoils of our country have been well managed, setting some aside for future generations.
Anyone who has done the same google search knows where this is heading. There are like two - one is a Western Australia-only fund, and the other is this piddly little education fund that I think Howard set up.
Ok so then what happened to the massive windfall that we no doubt received from this resource boom?? Besides making mining magnates into politicians and either fatter (in the case of males) or uglier (in the case of females and Palmer).
Well, we basically propped up the middle class for about eight years. We didn't let swaths of home owners experience default on their loans by keeping unemployment more or less constant (I'm comparing with the US in this case. Bear with me). In the end, this is what we have to show for it. Not a constant stream of dividends from the greatest companies in the world, as we would have had if we directed the cream from the mining boom into a sovereign wealth fund.
Now, whether this was a good use of opportunity will remain a question for the ages, and is academic now. For me, without a home, the thought of home ownership is even more of a far off dream these days than it was 10 years ago. But more importantly, we still have all these inefficient businesses in our economy. Marty mentioned it above, the impending recession is something that the US got over and done with quickly, whereas Australia has chosen to do it a little differently. Is this better or worse? Who knows. What I do know is that my strategy doesn't change - continue to purchase assets classes which are currently undervalued, and assume that in the end it will all revert back to the mean.
Post by: AustralianMustachio on February 03, 2015, 05:16:56 PM
http://www.theguardian.com/commentisfree/2014/sep/04/oil-tax-norway-could-teach-australia-a-thing-or-two-about-managing-wealth
Post by: AustralianMustachio on February 03, 2015, 05:19:02 PM
Post by: dungoofed on February 03, 2015, 06:04:38 PM
On the sovereign wealth fund idea - it sounds cynical, but I think the reality is most Australians either aren't economically savvy enough or forward thinking enough, to have wanted to set something like this up.
http://www.theguardian.com/commentisfree/2014/sep/04/oil-tax-norway-could-teach-australia-a-thing-or-two-about-managing-wealth
Thanks for ruining my morning. Seriously feel like crying after reading that.
Post by: potm on February 03, 2015, 10:16:55 PM
Investors have benefited greatly from the reduction in interest rates from highs of 17% on rising asset values. Unfortunately we're approaching a point where it can't go much further (although negative interest rates in the euroland?!) so all the easy gains will be gone when we have reached that point. If interest rates ever reverse their course then it will have the opposite affect on asset prices. Things could go a lot higher first though and who knows how long interest rates will stay low.
Post by: FFA on February 03, 2015, 10:51:55 PM
I'm certainly concerned about complacency, excessive monetary stimulation (globally, not just Australia) and how all this QE will finally resolve. Eurozone and Japan looks as fragile as ever (what's the next step after QE, in case that fails too??). India is a brighter spot these days and China seems to land softly, so far. But really it seems the world is once again riding on the back of the US. Can it keep up the momentum against a rapidly rising USD though?
Anyway for now the trend is certainly onwards and upwards. Don't fight the central banks, as they say!
For my portfolio, i'm glad to have discovered and adopted the boglehead way recently. So am not worrying too much about all of the above, just trying to focus on what i can control and keep my asset allocations at the targeted levels.... A lot less stressful this way :)
Post by: pancakes on February 04, 2015, 03:54:06 AM
I still need to go back and read over from page 1 so maybe this has been covered but I'd love to hear how some of the more experienced posters got started.
Post by: This_Is_My_Username on February 04, 2015, 04:04:22 AM
Quote
"Australia's sovereign wealth funds"dungoofed, you should have found the Future Fund, which has $105bn, plus the EIF, BAF, and HHF, making $115bn in total.
http://www.futurefund.gov.au/
Post by: dungoofed on February 04, 2015, 04:55:27 AM
I hadn't heard of those other three - thanks.
Post by: MammaStash on February 07, 2015, 06:40:43 PM
Very happy to find this thread. I have a lot of learning to do. Will be reading from start along with other investing reading over the next couple months.
In theory I'll be receiving a lump sum to invest sometime later this year and I need to get it right.
I take from what I have read so far you are all pretty happy with the Aussi Vanguard eft products? I'll have some specific questions later - have been a little confused about the range of options.
So pleased to see Aussie discussion - our retirement, taxation and fx issues are so diff than US it's good to get some local thoughts and references.
Stash on :-)
Mamma
Post by: FFA on February 08, 2015, 07:38:04 PM
In theory I'll be receiving a lump sum to invest sometime later this year and I need to get it right.Hi MammaStash, i'm only a recent investor in VAS/VTS/VEU etf's, but happy so far. From what I could see vanguard is lowest cost (although blackrock ishares not far behind) and that was a key factor. Liquidity or buy/sell spread could be better, but if you're a buy and hold (possibly forever) investor then it doesn't matter much really, lower cost is more important.
I take from what I have read so far you are all pretty happy with the Aussi Vanguard eft products? I'll have some specific questions later - have been a little confused about the range of options.
For lump sums, assuming you've decided the desired asset allocation, then the other key consideration is timing, whether you go in all at once, or dollar cost average (DCA) to smooth out purchase level. Which depends on the size of the lump sum relative your overall portfolio, and your risk tolerance/psychology. Based on your comment "need to get right", I suggest you consider DCA approach as a safer option. It's a very tough task to pick a single day when markets are at good value, especially if there's a lot of pressure riding on it...
Post by: DrowsyBee on February 08, 2015, 07:50:15 PM
Post by: marty998 on February 08, 2015, 08:22:24 PM
That Future Fund is funded by taxes to pay the superannuation obligations of civil servants. Not quite what I was referring to (but probably prudent nonetheless. And I don't know how I missed it).
I hadn't heard of those other three - thanks.
Yeah it's not quite a sovereign wealth fund in the conventional sense. It's money set aside to pay for Commonwealth Public Servants's defined benefit obligations.
Most of the money in the future fund was raised from the sale of Telstra.
There are currently 3 other "satellite" funds: Building Australia Fund (BAF), Health and Hospitals Fund (HHF) and Education Investment Fund (EIF). These are funds set aside to pay for major capex requirements. Labor appears to be opposed to BAF, HHF and EIF on the basis that if the money is there it should be spent (think they ran down the capital quite quickly out of those funds when in office). Long term planning is not a strong suit for them.
It's probably about time that capex was removed from the federal budget income statement (surplus/deficit argument), but no, all capex is "expensed" in the year incurred, which always makes the current year look worse than it should.
A Disability Care Fund for the NDIS and Medical Research Fund are in place (or will be in place pending passing of budget measures?)
ASX is having a down day today. After 12 days straight of gains it was probably due. Valuations looking a bit stretched on forward P/E basis.
Post by: dungoofed on February 08, 2015, 10:46:34 PM
Does anyone here see any benefit in buying both VGS and VTS, or is it just a waste of time to get exposure to the US market twice?
There are a number of differences between the two - treatment of dividends, MER and global diversification come to mind immediately.
If someone held VTS and were thinking instead that VGS would be better for their international exposure then unless it was in their super I'd tell them not to bother selling their VTS, just start accumulating VGS. But that's me.
Top 10 holdings the only notable omissions from VTS are Nestle and Novartis. Fantastic companies I'm sure but I wouldn't lose any sleep just because I was more exposed to the American versions.
Post by: dungoofed on February 08, 2015, 10:51:28 PM
Post by: MammaStash on February 09, 2015, 05:07:25 AM
I'll be watching this thread as I read up and work out my choices. Thx all :)
Post by: FFA on February 09, 2015, 08:14:42 AM
Does anyone here see any benefit in buying both VGS and VTS, or is it just a waste of time to get exposure to the US market twice?usually vts is paired with veu to give global shares, in a ratio of 45/55% or thereabouts to roughly match relative mkt caps. There will be a small overlap with your oz shares as veu also includes oz, but it's small.
Since vgs was recently introduced you can have a single etf for global shares ex oz, so it's a neater and more practical solution. However as dungoofed mentioned diversification is less in vgs with approx a quarter of the companies indexed versus vts/veu combined. Vgs mer appears higher on the surface but Im not sure it's that much different after adjusting for withholding taxes.
Hope this helps.
Post by: marty998 on February 09, 2015, 02:24:11 PM
& thanks again Marty. See, why wouldn't the government issue bonds for major capex projects, and use tax money from mining to purchase VGS or equivalent? Anyway, it's got me wanting to watch The Dish again.
Because Tony Abbott says debt is bad. Labor tried to do that with NBN. They set up a separate company which borrowed to fund most of the capex.
The Liberals screamed blue murder about it and said that all the debt borrowed by NBN should be listed as an expense in the budget and added to total debt on the government books.
They conveniently forgot to mention that whilst NBN Co would have ended up with $40billion debt, it would also have a $40 billion asset, worth even more as more households connected to it.
Of course if Labor had been allowed to complete it, I would have no doubt the Liberals would have privatised it at the earliest opportunity, and claimed the sale proceeds as a "surplus".
Post by: MMMaybe on February 09, 2015, 08:31:35 PM
Post by: bigchrisb on February 09, 2015, 09:26:59 PM
I'm watching the USD/AUD rate closely as I am hoping to transfer money to Aus. What do you think will be the tipping point for the AUD to start heading down to 70 and below? Seems pretty firm at 78c for now.
When the moon is full in Sagittarius?
I'm terrible at forecasting currency. My gut feel is that there has been an awakening in the last couple of months about Australia softening, including from the RBA - hence the rate cut. However, there is a fair likelihood that its pretty priced in already.
Given that its a whole lot better than it used to be, why not take a dollar cost averaging approach and spread your transfers over a period of time, rather than trying to time the currency market?
Post by: FFA on February 09, 2015, 09:29:42 PM
I'm watching the USD/AUD rate closely as I am hoping to transfer money to Aus. What do you think will be the tipping point for the AUD to start heading down to 70 and below? Seems pretty firm at 78c for now.Hi Francesca, personally I've given up trying to predict FX.... suggest you try not to watch the chart too closely, I find the closer I watch the more I get confused! Please also don't completely discount the possibility that it could go the other way too. Certainly it would be against most forecasts and expectations, but forecasts are not so reliable from what I can tell...
I guess the above is not what you're looking for, so let me add : If I was still trying to predict FX, I would be keeping an eye on the relative interest rates (any hint/speculation of further RBA cut to 2% will greatly help your objective, and if the Fed keeps on track for lift off around mid year, which seems a reasonable bet after the strong jobs number recently), and commodity prices (if they stabilize/rebound it could spur some recovery on the AUD and go against you).
I would second bigchrisb's suggestion to dollar cost average your transfer if possible/practical.
Post by: dungoofed on February 09, 2015, 10:28:20 PM
The people making money on currency trades are the ones moving 10s of millions each time the market moves (and they're getting squeezed out these days too). You're welcome to keep it in USD and try to time the market but please just recognise it for what it is ie speculating.
Post by: AustralianMustachio on February 09, 2015, 10:28:49 PM
I think it's simpler to have VTS with VEU (and these ETFs came out at a similar time), or get VGS/VGAD with VGE (emerging markets). Obviously if you do the latter you need to think about how much you want to allocate to emerging markets and probably weight VGE much lighter.
Second what dungoofed said about if you already have one, just start buying the other, rather than selling
& thanks again Marty. See, why wouldn't the government issue bonds for major capex projects, and use tax money from mining to purchase VGS or equivalent? Anyway, it's got me wanting to watch The Dish again.
Because Tony Abbott says debt is bad. Labor tried to do that with NBN. They set up a separate company which borrowed to fund most of the capex.
The Liberals screamed blue murder about it and said that all the debt borrowed by NBN should be listed as an expense in the budget and added to total debt on the government books.
They conveniently forgot to mention that whilst NBN Co would have ended up with $40billion debt, it would also have a $40 billion asset, worth even more as more households connected to it.
Of course if Labor had been allowed to complete it, I would have no doubt the Liberals would have privatised it at the earliest opportunity, and claimed the sale proceeds as a "surplus".
+1
Post by: DrowsyBee on February 10, 2015, 12:22:22 AM
I read someone in this thread saying they thought it was a good idea to have a small proportion of the hedged VGAD with a larger proportion of VGS. But I also wanted a bit more exposure to the US market and get a small proportion of VGE in there.
From what I gather, however, this might be a weirdly complex way to have index funds.
Post by: AustralianMustachio on February 10, 2015, 12:59:55 AM
Post by: DrowsyBee on February 10, 2015, 01:21:17 AM
Post by: FFA on February 10, 2015, 01:21:53 AM
If you can keep your ratios clear so you can stick to them easily, and it's not overly complex to you, then go for it
+1. Definitely strive for simple, practical and consistent
Personally, I like to start with the high-level AA which is to decide what percentage domestic vs global shares. I feel this is the most important thing to get right.
After that, I view it as second order optimization to tweak the global share exposure : US vs non US; developed vs emerging; hedged vs unhedged. I get a sense most people focus on the first two, but I actually am more keen on the hedging component. The logic being most default portfolios are skewed towards domestic market, in part to minimize FX risk. Given the small scale and lack of diversity in the ASX, I would prefer to have a larger weight on global shares (in the first order AA mentioned above). So including a global (hedged) allocation intends to strike a compromise between these issues.
Post by: FFA on February 10, 2015, 01:27:00 AM
Haha, should have known the answer would be the old mustachian belief of "dude, if it works for you, just do it however you want".
I also came around to this view that what you do finally is not so critical. The important part is to make sure it's compatible with you (risk tolerance, beliefs, etc) and that you stick to it rigidly (rebalance). The first part (compatibility) greatly improves the chances of the second part (discipline).
Post by: Wadiman on February 10, 2015, 04:21:32 AM
http://www.finsia.com/docs/default-source/Retirement-Risk-Zone/how-safe-are-safe-withdrawal-rates-in-retirement-an-australian-perspective.pdf?sfvrsn=2
Long and short of it - the 4% 'heuristic' is not too bad for Aus. Interesting data re asset allocation results vs portfolio failure over time.
Got it off the Whirlpool forum which I know some of you check out from time-to-time
Post by: deborah on February 10, 2015, 04:49:04 AM
Post by: Ozstache on February 10, 2015, 05:49:14 AM
I agree that it starts out giving the 4% rule a good run for its money in an Australian context, but gee it gets pessimistic in the final few pages of the report. I was half expecting finsia to finish it up with how finsia financial advisors can help you navigate the stormy 4% waters, but it peters out before it gets to that. Still, some pretty good guff in there for us Aussies (and New Zealanders, Japanese, Italians and the Dutch).
Post by: Minion on February 10, 2015, 03:02:43 PM
Not sure how many of you have seen/read this but it is brilliant!
http://www.finsia.com/docs/default-source/Retirement-Risk-Zone/how-safe-are-safe-withdrawal-rates-in-retirement-an-australian-perspective.pdf?sfvrsn=2
Long and short of it - the 4% 'heuristic' is not too bad for Aus. Interesting data re asset allocation results vs portfolio failure over time.
Got it off the Whirlpool forum which I know some of you check out from time-to-time
Thanks for this. Can you add the Whirlpool thread link too please?
Post by: Wadiman on February 10, 2015, 07:02:11 PM
http://forums.whirlpool.net.au/forum/150
The discussions range from very insightful to humorous!
Post by: MsRichLife on February 10, 2015, 11:13:51 PM
Post by: Wadiman on February 11, 2015, 02:26:41 AM
Post by: dungoofed on February 12, 2015, 03:23:18 PM
http://betashares.com.au/products/name/ftse-rafi-u-s-1000-etf/
0.30% MER, also it's not a cross-listed ETF so no US tax forms. Nothing in the holdings that gives me heart burn (ok, maybe 1.5% in Apple heh).
Post by: AustralianMustachio on February 12, 2015, 07:24:38 PM
I think for US exposure you can't really go past VTS. The total stock market index it's based upon has also outperformed the S&P500 over the last decade or so. All for .05% MER.
QUS looks good, but 25 basis points (difference in MER between VTS and QUS) is significant over the long term. It was the size of the latest RBA rate cut!
Post by: FFA on February 12, 2015, 07:44:23 PM
Looks good, but probably just another like a "smart beta" on the US stock exchange.
I think for US exposure you can't really go past VTS. The total stock market index it's based upon has also outperformed the S&P500 over the last decade or so. All for .05% MER.
QUS looks good, but 25 basis points (difference in MER between VTS and QUS) is significant over the long term. It was the size of the latest RBA rate cut!
Thanks for sharing dungoofed. I must admit I had the same thought as above and inclination to stick with VTS.... For my money, I'm not convinced by alternate index approaches (including VHY) if the extra MER and portfolio complexity is worthwhile.
Post by: Lynn52 on February 13, 2015, 10:42:02 PM
I'm in suburbs of Melbourne - great to be reading an Australian thread on MMM.
I'm aiming to retire in just over a year, at 50 and trying to think through safe withdrawal rates and interested in what views are for Australia.
Best I have come up with for my situation so far is:
- Any superannuation (employer and industry fund between myself and my partner) plan on 4% drawdown
Any shares owned outright plan on income being what ever the dividend actually is.
Have a one-off separate amount for some planned expenditures in first two years.
I'm trying to get to 25% of my planned annual income from dividends and the rest from 4% drawdown on super.
If I end up with more assets than what I require (given this recent surreal increase on the ASX it is actually possible but I'm not counting on it at all), I'll just plan to take out a lower percentage from super, such as 3.9% or whatever it works out to be.
I expect that when we have some down years, we will have to reduce expenditure, which will be challenging. I'm aiming for the AFSA comfortable standard for a couple, which currently is about $58kpa. Initially this seemed really hard to get my expenses that low -- I have ongoing medical costs, travel to the US every 18 months to visit my parents who are in their 80s, and have to pay about $1k each year just to get my US taxes filed) -- but we have been working hard on expenses following the Your Money or Your Life approach (loosely) and are now comfortably there.
My partner is some 10 years older than me. We might get a small amount of pension given the age difference with my super not being accessible for at least 10 years, but that will be offset by my having to pay tax on my super in the US as I withdraw it. So, we aren't counting on any Australian pension income.
Am I off with the fairies or does this seem like a reasonable plan?
Thanks.
Lynn
Post by: dungoofed on February 13, 2015, 11:49:38 PM
Post by: happy on February 14, 2015, 12:34:33 AM
Hi,
I'm in suburbs of Melbourne - great to be reading an Australian thread on MMM.
I'm aiming to retire in just over a year, at 50 and trying to think through safe withdrawal rates and interested in what views are for Australia.
Best I have come up with for my situation so far is:
- Any superannuation (employer and industry fund between myself and my partner) plan on 4% drawdown
Any shares owned outright plan on income being what ever the dividend actually is.
Have a one-off separate amount for some planned expenditures in first two years.
I'm trying to get to 25% of my planned annual income from dividends and the rest from 4% drawdown on super.
If I end up with more assets than what I require (given this recent surreal increase on the ASX it is actually possible but I'm not counting on it at all), I'll just plan to take out a lower percentage from super, such as 3.9% or whatever it works out to be.
I expect that when we have some down years, we will have to reduce expenditure, which will be challenging. I'm aiming for the AFSA comfortable standard for a couple, which currently is about $58kpa. Initially this seemed really hard to get my expenses that low -- I have ongoing medical costs, travel to the US every 18 months to visit my parents who are in their 80s, and have to pay about $1k each year just to get my US taxes filed) -- but we have been working hard on expenses following the Your Money or Your Life approach (loosely) and are now comfortably there.
My partner is some 10 years older than me. We might get a small amount of pension given the age difference with my super not being accessible for at least 10 years, but that will be offset by my having to pay tax on my super in the US as I withdraw it. So, we aren't counting on any Australian pension income.
Am I off with the fairies or does this seem like a reasonable plan?
Thanks.
Lynn
As well as SWR, you also need to consider cash flow.
If you were born in 1966, then the earliest you can withdraw from super is age 60. There is a minimum withdrawal rate from super which is age based - at 60 you must withdraw at least 4%. And rises as you get older. You can find rates and calculators at Moneysmart (Or ATO)https://www.moneysmart.gov.au/superannuation-and-retirement (https://www.moneysmart.gov.au/superannuation-and-retirement)
So you need to have a strategy to get you from 50 to 60 - i.e. enough dividends or sell some shares, or have another income source to fund all your needs. I wasn't quite sure how you were going to do this from your post. Once you hit 60 you can access your super and cover some or all of your expenses.
Is 4% a SWD for Australia? - maybe , but Wade Pfaus research indicated it was a bit lower http://wpfau.blogspot.com.au/search?q=australia+safe+withdrawal+rate (http://wpfau.blogspot.com.au/search?q=australia+safe+withdrawal+rate) - 3.5%.
Post by: deborah on February 14, 2015, 12:44:51 AM
See the following (only a few posts back) for Australian SWR.
Not sure how many of you have seen/read this but it is brilliant!
http://www.finsia.com/docs/default-source/Retirement-Risk-Zone/how-safe-are-safe-withdrawal-rates-in-retirement-an-australian-perspective.pdf?sfvrsn=2
Long and short of it - the 4% 'heuristic' is not too bad for Aus. Interesting data re asset allocation results vs portfolio failure over time.
Got it off the Whirlpool forum which I know some of you check out from time-to-time
Dungoofed - see https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Gifts,-inheritances-and-deceased-estates/Deceased-estate-and-CGT/
Post by: happy on February 14, 2015, 04:18:21 AM
Lynn52, there are minimums that you must take out of super each year - until 65 it is 4%, then it goes up to 5%... ending at about 13% when you are rather old and decrepit. These are the minimums from your super that is in pension phase. You can leave some of your super in accumulation phase if you want (you can't take anything out until it is converted to pension phase) but that has 15% tax on earnings, whereas money in pension phase doesn't. And you probably won't be able to put anything into super after you are 65. The government wants your superannuation to run out while you are living - but not quickly enough for you to need a pension.
Yes Deborah is correct : If you don't want as much as 4% of the whole sum you have, just leave some in the accumulation phase.
Post by: marty998 on February 14, 2015, 05:23:23 AM
Tax system is quite generous in that as a couple you could earn $40k outside of super and still not pay tax.....
Post by: deborah on February 14, 2015, 01:39:08 PM
Post by: Lynn52 on February 15, 2015, 04:09:23 AM
As well as SWR, you also need to consider cash flow.
If you were born in 1966, then the earliest you can withdraw from super is age 60. There is a minimum withdrawal rate from super which is age based - at 60 you must withdraw at least 4%. And rises as you get older. You can find rates and calculators at Moneysmart (Or ATO)https://www.moneysmart.gov.au/superannuation-and-retirement (https://www.moneysmart.gov.au/superannuation-and-retirement)
So you need to have a strategy to get you from 50 to 60 - i.e. enough dividends or sell some shares, or have another income source to fund all your needs. I wasn't quite sure how you were going to do this from your post. Once you hit 60 you can access your super and cover some or all of your expenses.
Is 4% a SWD for Australia? - maybe , but Wade Pfaus research indicated it was a bit lower http://wpfau.blogspot.com.au/search?q=australia+safe+withdrawal+rate (http://wpfau.blogspot.com.au/search?q=australia+safe+withdrawal+rate) - 3.5%.
Thanks Happy for your reply.
Good question - for money until I am 60 we will be drawing down from my partner's super (who is some 10 years older) and using directly held share dividends. When my partner's super account runs dry, I will be in my 60s and will then access my super.
Thanks for the Wade Pfau reference -- I've read some of his stuff and find it very interesting, but hadn't read that one. Sounds like from his research an Australian 50% stock / 50% bond portfolio having a withdrawal rate of 3.5% works - it will be interesting to see what the SAFEMAX will be for retirees after 1981 (given that he couldn't go any further as writing in 2011). That's very encouraging given that I will retire in Australia.
I am aiming for a higher stock weighting, a75% stock/infrastructure through direct stocks and super and 25% fixed interest through a diversified fixed interest through Australian Super. Thinking about it, 1/3 of the stocks/infrastructure are international shares, so I'm holding more shares but not as much in Australia as compared to Pfau's article. So not sure if on balance that still lands me, based on Pfau's research, at about the 3.5%.
Lynn52, there are minimums that you must take out of super each year - until 65 it is 4%, then it goes up to 5%... ending at about 13% when you are rather old and decrepit. These are the minimums from your super that is in pension phase. You can leave some of your super in accumulation phase if you want (you can't take anything out until it is converted to pension phase) but that has 15% tax on earnings, whereas money in pension phase doesn't. And you probably won't be able to put anything into super after you are 65. The government wants your superannuation to run out while you are living - but not quickly enough for you to need a pension.
See the following (only a few posts back) for Australian SWR.Not sure how many of you have seen/read this but it is brilliant!
http://www.finsia.com/docs/default-source/Retirement-Risk-Zone/how-safe-are-safe-withdrawal-rates-in-retirement-an-australian-perspective.pdf?sfvrsn=2
Long and short of it - the 4% 'heuristic' is not too bad for Aus. Interesting data re asset allocation results vs portfolio failure over time.
Got it off the Whirlpool forum which I know some of you check out from time-to-time
Thanks for your reply Deborah. Okay, sounds like keeping my partner's accumulation account open will be a good idea so that if we withdraw more than our target spend we can put it back into accumulation as long as my partner is still under 65, or into mine once my partner is over 65. I will have to check on contributions to super from a U.S. tax perspective when I am not working as I'm not sure I will be able to defer tax on earnings on that portion if the contribution didn't come from earned income. The whole US-tax-on-Australian-super is just so complex that so I find it hard to plan tax effectively for my super, but I do have a good Aust-US tax preparer, which helps somewhat.
And thanks for bringing up the "How Safe are Safe Withdrawal Rates in Retirement? An Australian Perspective". It is interesting that over 40 years in Australia 75% stocks/25% bonds etc has gotten an 88% success rate at 4%. And a 95% SAFEMAX is 4% over 30 years. Based on this research, if I could just bring myself to go 100% Australian stocks, in theory I would have a better chance of having my funds last as long as they need to. I'm not sure I'm quite that brave. Is any one else that brave.
George Cochrane's latest post http://www.canberratimes.com.au/money/super-and-funds/whats-my-best-tax-move-before-i-go-20150211-13ax1z.html includes some interesting stuff on a dual citizen going back to the US, and changing an SMSF to company rather than individual ownership
I read that article in The Age this morning and it immediately made me feel faint and stressed --I've been through the "getting right with Uncle Sam" process and found it really really stressful -- I feel really sorry for the individual writing in if they aren't already working with a good US-Australia tax consultant. For U.S. tax reasons, I am more grateful than I can describe that I have not married my partner, do not have an SMSF, am not running a business overseas, do not have capital gains on my residence of more than USD$250k, and do not own Passive Foreign Investment Company shares (LICs, trust companies listed on ASX, or companies that have not paid a dividend for a year or two). Expat US Tax is a great service for US citizens in Australia.
Thanks Marty998. I hadn't realised a couple could earn $40k per year outside of super and not have to pay tax. I will have to research that more as next financial year my partner will start selling some stocks that are outside of super and purchasing them inside super -- but have to manage it to avoid paying too much tax -- sounds like I'll need to do more research there.
---
Based on Pfau and the Australian Perspective report, seems like 3.5% is pretty much safe for Australia, and 4% may also work but I will need to be very vigilant in keeping track of how I'm going at 4%. I think I need to formalise some of my thinking about rules to to use in adjusting drawdown amount each year when market returns are poor.
Thanks again for all the replies and suggestions - all of them really got me thinking more. Great to get Australian perspectives since I am Australian.
Post by: FFA on February 16, 2015, 12:43:13 AM
http://www.towerswatson.com/en-AU/Insights/Newsletters/Asia-Pacific/view/2014/How-important-are-your-investment-and-spending-strategies (http://www.towerswatson.com/en-AU/Insights/Newsletters/Asia-Pacific/view/2014/How-important-are-your-investment-and-spending-strategies)
Pls note: I've never used Towers Watson (so don't take it as a recommendation) and I don't have any connection to them whatsoever.
Actually I found this in the weekly vanguard smart investing email I subscribe to. It's refreshing to see the focus on the spending side of the equation, instead of just looking at investment options !
Post by: bigchrisb on February 17, 2015, 09:55:00 PM
I got a very unexpected letter from them today. They have been ordered by ASIC to refund the net fees an interest to retail clients. That means the total fees an interest, less any statutory costs, and the total margin interest less the cost of funds.
For me, this means that for a few years of my investments, I'm getting back about 85% of my brokerage costs, and about 93% of the margin interest that I'd paid. For someone with leverage over a few years, its a non-trivial windfall - think about getting back a few years of interest on your home loan.
If you had an account with them over this period, I suggest you check back with them and see if you are in the same situation. It does make me wonder about the solvency of their Australian operations too - I'd hate to think what impact repaying three years gross revenue would have on my business - it would most likely drive an insolvency.
Post by: marty998 on February 17, 2015, 10:15:25 PM
ASIC media release (http://asic.gov.au/about-asic/media-centre/find-a-media-release/2014-releases/14-336mr-asic-investigation-leads-to-interactive-brokers-refunding-15-million-to-australian-customers/). IB didn't have a licence to issue margin loans so they've been forced to refund all related revenue.
If your refund is non-trivial, you must have been their biggest client! Total pool being refunded is only $1.5 million.
Post by: bigchrisb on February 17, 2015, 10:30:56 PM
I'm surprised that the amount is that low - at $1.5M across 3000 accounts, I was certainly bigger than average.
Goes to show that remaining a retail client is worth something? One of the tricks I used to get a lower interest rate offer in my last margin negotiations was to provide the competitor with proof of wholesale status (accountant's letter for control of over $2.5M of assets, or >$250k income last two financial years). My existing lender (which is a retail account) then price matched it. I wonder what the level of "insurance" from ASIC oversight etc is actually worth in terms of basis points?
Post by: bigchrisb on February 17, 2015, 10:43:23 PM
I've got about $1000 of foreign income tax offsets that the ATO didn't give back this year. The rationale is that they are a "non-refundable" tax offset, unlike AU franking credits, which are fully refundable.
I had this happen a couple of years ago, and after I protested it, I eventually got them back. Basically, the argument I used was:
- The credits are not refundable - this means they cannot take the amount of tax paid negative.
- However, the credits can be used to lower the total tax paid
- I still paid $$$$ in total tax (despite getting some of the over payments refunded).
Its annoying to have to go through it though.
Anyone else had this issue?
Post by: potm on February 18, 2015, 06:24:29 AM
Post by: bigchrisb on February 18, 2015, 03:42:58 PM
Are you sure it's 93% of the interest you paid? It should be interest charged to you, plus brokerage, less their cost of funds and some fees.
Yep, the 93% was from dividing the two numbers on the statement of refund from them. I borrowed mostly USD in my IB account, paying about 1.5% interest. From their refund document, their cost of funds on USD over this period was almost zero. Guess that's where a lot of the QE printing money ended up!
Post by: dungoofed on February 18, 2015, 11:31:48 PM
http://www.smh.com.au/money/planning/nestegg-needs-hard-to-calculate-20150217-13dtz2.html
Any idea what they are trying to do over at http://www.eviser.com.au ?
Post by: happy on February 19, 2015, 02:45:39 AM
Post by: deborah on February 19, 2015, 03:11:41 AM
Thanks for the link dun goofed. Figures in the article are all over the shop in terms of withdrawal rate.I actually tried to replicate them at the MoneySmart site and couldn't - usually I can! The comfortable retirement assumes you will get the pension, whereas the other doesn't, so the figures should be a bit all over the shop anyway.
Post by: travelbug on February 19, 2015, 04:03:24 PM
I love this thread, but I have two newbie questions for the more experienced among us please.
1. Do you invest in Vanguard Index funds by buying them directly with your etrade account? Or have you set up an account directly with Vanguard. (looking at VTS and VEU at the moment as a small parcel of 20k, will be looking to invest 600k+ later this year)
2. What percentage of your portfolio is invested in index funds versus individual shares?
I have always invested in individual shares and was looking to fund our retirement with dividends from the blue chip brigade, after researching index funds they look like a good way to stay in the market long term with a bit more of a safety net.
Thanks
TB
Post by: Ozstache on February 19, 2015, 04:38:51 PM
Hi everyone,
I love this thread, but I have two newbie questions for the more experienced among us please.
1. Do you invest in Vanguard Index funds by buying them directly with your etrade account? Or have you set up an account directly with Vanguard. (looking at VTS and VEU at the moment as a small parcel of 20k, will be looking to invest 600k+ later this year)
2. What percentage of your portfolio is invested in index funds versus individual shares?
I have always invested in individual shares and was looking to fund our retirement with dividends from the blue chip brigade, after researching index funds they look like a good way to stay in the market long term with a bit more of a safety net.
Thanks
TB
1. I invest in Vanguard index funds through NAB Trade
2. 100%. I trust the broader market more than I trust my own emotions with individual stocks and the returns are more than satisfactory.
Post by: happy on February 19, 2015, 05:00:10 PM
Hi everyone,
I love this thread, but I have two newbie questions for the more experienced among us please.
1. Do you invest in Vanguard Index funds by buying them directly with your etrade account? Or have you set up an account directly with Vanguard.
Thanks
TB
I'm interested in this too. If one was only buying vanguard, is it necessary to do it through a broker? Any pluses or minuses to setting up a direct account v doing through a broker? Presumably cheaper without a middleman?
Post by: AustralianMustachio on February 19, 2015, 05:40:51 PM
Unlisted funds you buy directly through Vanguard, but the MER tends to be a fair bit higher unless you have a large amount of money to invest
Post by: travelbug on February 19, 2015, 05:52:06 PM
So if I was to purchase VTS or VEU or even VGE with my etrade account as I usually purchase WOW or CBA etc, that would be me buying into the index fund that MMM and so many here invest in?
TB
Post by: This_Is_My_Username on February 19, 2015, 09:40:46 PM
Post by: marty998 on February 19, 2015, 09:51:05 PM
If you want your high dividend payers without the resources/mining exposure of BHP/RIO then look at VHY.
4 banks, TLS, WOW, WES and WPL, with a smattering of other industrials like Transurban and Sydney Airport.
One word of caution, there is no "market depth" as such with an index fund. A market maker (typically a big investment bank) sets a moving market depth around about the theoretical unit price, depending on intraday movement of the constituent index. Units in the fund are not traded like shares in other listed companies where they must be sold to another buyer. Units in an ETF are created/destroyed when you buy and sell.
You will likely end up paying away a small entry/exit type fee this way, but thats the price we pay for convenience. The upshot is that you never have to worry about liquidity, your order will always be 100% filled if the market maker accepts your price.
Post by: dungoofed on February 19, 2015, 11:05:52 PM
https://personal.vanguard.com/us/faces/JSP/Funds/Tools/FundsToolsEtfCostPurchInfoContent.jsp
I haven't seen one. I think you could finagle something similar if you find ETFs with similar MER though, YMMV.
Post by: travelbug on February 20, 2015, 02:56:57 AM
yes
If you want your high dividend payers without the resources/mining exposure of BHP/RIO then look at VHY.
4 banks, TLS, WOW, WES and WPL, with a smattering of other industrials like Transurban and Sydney Airport.
One word of caution, there is no "market depth" as such with an index fund. A market maker (typically a big investment bank) sets a moving market depth around about the theoretical unit price, depending on intraday movement of the constituent index. Units in the fund are not traded like shares in other listed companies where they must be sold to another buyer. Units in an ETF are created/destroyed when you buy and sell.
You will likely end up paying away a small entry/exit type fee this way, but thats the price we pay for convenience. The upshot is that you never have to worry about liquidity, your order will always be 100% filled if the market maker accepts your price.
Thank you so much. That makes sense. I appreciate everyone's help.
Post by: FFA on February 20, 2015, 05:30:52 PM
I'm also with Nabtrade.Hi everyone,
I love this thread, but I have two newbie questions for the more experienced among us please.
1. Do you invest in Vanguard Index funds by buying them directly with your etrade account? Or have you set up an account directly with Vanguard. (looking at VTS and VEU at the moment as a small parcel of 20k, will be looking to invest 600k+ later this year)
2. What percentage of your portfolio is invested in index funds versus individual shares?
I have always invested in individual shares and was looking to fund our retirement with dividends from the blue chip brigade, after researching index funds they look like a good way to stay in the market long term with a bit more of a safety net.
Thanks
TB
1. I invest in Vanguard index funds through NAB Trade
2. 100%. I trust the broader market more than I trust my own emotions with individual stocks and the returns are more than satisfactory.
I'm 100% index for global shares and about 60% index for oz (excluding super, would be higher with super as that's all index). I decided to hold some direct asx blue chips for dividends and since they are buy and hold forever, and as the Asx index is relatively concentrated anyway.
Post by: DerringerJones on February 20, 2015, 09:53:14 PM
I've found that there is a lot of acronyms and terms that I know nothing about.
That being the case, I was wondering if anyone could recommend some reading material to help me get up to speed, as I'm super excited to get in on all this.
Preferably something that can explain the very basics so I can work my way up.
Thanks
Derringer
Post by: steveo on February 21, 2015, 10:21:07 PM
I'd like to ask a favor of all the Australian posters. I work for one of the big banks and we have to do a training course on experimentation. My idea was to create something like Betterment in Australia.
If we had that would you use the service assuming it was exactly the same - low fees, automatic asset allocation and tax loss harvesting ?
I can't see any of the big banks ever offering this service as I think it would cut their profits in other areas of financial advice/services too much but it'd be interesting if there was a demand for a service like that.
Post by: deborah on February 21, 2015, 11:40:26 PM
Hey, I'm just starting out and I've read a decent chunk of this thread.Just ask what the terms are - sometimes this thread is talking about specific ETFs (Exchange Traded Funds - an index that is traded on the stock exchange) such as VTS or VEU or VGE - which are the three letter names for the ETF on the ASX (Australian Stock Exchange). Many of the other three letter acronyms are shares (WOW - Woolworths, BHP - BHP Billiton...). I guess if you looked up the acronym on the ASX you would probably find just about every one.
I've found that there is a lot of acronyms and terms that I know nothing about.
That being the case, I was wondering if anyone could recommend some reading material to help me get up to speed, as I'm super excited to get in on all this.
Preferably something that can explain the very basics so I can work my way up.
Thanks
Derringer
Post by: dungoofed on February 22, 2015, 01:07:50 AM
http://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm#9124-content
Make sure you're on the ETP tab in the table. Otherwise you might have to start googling or as deborah said just ask us : )
Post by: dungoofed on February 22, 2015, 01:31:38 AM
Hi everyone.
I'd like to ask a favor of all the Australian posters. I work for one of the big banks and we have to do a training course on experimentation. My idea was to create something like Betterment in Australia.
If we had that would you use the service assuming it was exactly the same - low fees, automatic asset allocation and tax loss harvesting ?
I can't see any of the big banks ever offering this service as I think it would cut their profits in other areas of financial advice/services too much but it'd be interesting if there was a demand for a service like that.
Hi Steveo -
I assume you have already seen www.stockspot.com.au. They are "partnered" with Macquarie, though no mention of whether they are an investor. Would like to get Chris from StockSpot to comment but my impression is that it's still quite manual when compared to Betterment/etc.
I think it's just a matter of time before the American robo-investors arrive in Australia in earnest and disrupt the entire industry. If Stockspot or someone else could do it first and do it better then there would be a massive opportunity here, albeit with lower margins.
(although I've been wrong with similar predictions before. I'm still waiting for sub-$1 buy trades, like they have in Canada*)
Personally I wouldn't use it if it were the same as Betterment - the fees are still too high, and I like the control (real or imagined) of my current setup. But I could see myself recommending it to friends/relatives one day that were trying to get started in investing.
* edit: specifically Questtrade
Post by: DrowsyBee on February 22, 2015, 02:38:52 AM
Post by: Sunnymo on February 22, 2015, 02:57:49 AM
I'll throw out one question about acronyms. What are all the different names for their family members like DH and DD?
DH = Dear husband
DW = Dear wife
DP = Dear partner
DF = Dear fiance
SO = Significant other
DD(1)/DS(1) = Dear Daughter/Son 1, 2, 3
I hope this is what you meant
Post by: DrowsyBee on February 22, 2015, 03:04:30 AM
Yes, that helps, thanks.
Post by: Sunnymo on February 22, 2015, 03:06:02 AM
Post by: FFA on February 22, 2015, 03:50:23 AM
I'll throw out one question about acronyms. What are all the different names for their family members like DH and DD?
DH = Dear husband
I must tell my wife this. I think she often has an alternative one in mind :)
Post by: Sunnymo on February 22, 2015, 04:26:37 AM
I'll throw out one question about acronyms. What are all the different names for their family members like DH and DD?
DH = Dear husband
I must tell my wife this. I think she often has an alternative one in mind :)
Lots of words that start with 'D'!
Post by: steveo on February 22, 2015, 05:47:22 AM
Hi everyone.
I'd like to ask a favor of all the Australian posters. I work for one of the big banks and we have to do a training course on experimentation. My idea was to create something like Betterment in Australia.
If we had that would you use the service assuming it was exactly the same - low fees, automatic asset allocation and tax loss harvesting ?
I can't see any of the big banks ever offering this service as I think it would cut their profits in other areas of financial advice/services too much but it'd be interesting if there was a demand for a service like that.
Hi Steveo -
I assume you have already seen www.stockspot.com.au. They are "partnered" with Macquarie, though no mention of whether they are an investor. Would like to get Chris from StockSpot to comment but my impression is that it's still quite manual when compared to Betterment/etc.
I think it's just a matter of time before the American robo-investors arrive in Australia in earnest and disrupt the entire industry. If Stockspot or someone else could do it first and do it better then there would be a massive opportunity here, albeit with lower margins.
(although I've been wrong with similar predictions before. I'm still waiting for sub-$1 buy trades, like they have in Canada*)
Personally I wouldn't use it if it were the same as Betterment - the fees are still too high, and I like the control (real or imagined) of my current setup. But I could see myself recommending it to friends/relatives one day that were trying to get started in investing.
* edit: specifically Questtrade
Thanks for the comments. I'd like more feedback from other posters. Cmon would you use it or not.
I'll give my feedback. I personally would prefer to do it myself simply by investing in index etf's if the fees are a little lower.
Post by: FFA on February 22, 2015, 07:24:00 PM
Hi Steveo,Hi everyone.
I'd like to ask a favor of all the Australian posters. I work for one of the big banks and we have to do a training course on experimentation. My idea was to create something like Betterment in Australia.
If we had that would you use the service assuming it was exactly the same - low fees, automatic asset allocation and tax loss harvesting ?
I can't see any of the big banks ever offering this service as I think it would cut their profits in other areas of financial advice/services too much but it'd be interesting if there was a demand for a service like that.
Hi Steveo -
I assume you have already seen www.stockspot.com.au. They are "partnered" with Macquarie, though no mention of whether they are an investor. Would like to get Chris from StockSpot to comment but my impression is that it's still quite manual when compared to Betterment/etc.
I think it's just a matter of time before the American robo-investors arrive in Australia in earnest and disrupt the entire industry. If Stockspot or someone else could do it first and do it better then there would be a massive opportunity here, albeit with lower margins.
(although I've been wrong with similar predictions before. I'm still waiting for sub-$1 buy trades, like they have in Canada*)
Personally I wouldn't use it if it were the same as Betterment - the fees are still too high, and I like the control (real or imagined) of my current setup. But I could see myself recommending it to friends/relatives one day that were trying to get started in investing.
* edit: specifically Questtrade
Thanks for the comments. I'd like more feedback from other posters. Cmon would you use it or not.
I'll give my feedback. I personally would prefer to do it myself simply by investing in index etf's if the fees are a little lower.
It's funny you mention this, I have had the exact same idea recently and given it some thought already
At 0.15% MER (for $100k plus) I would be tempted to give it a look, but frankly i'd probably end up DIY too in the end. 0.15% is still 0.15% and over 40+ years it adds up.
Personally I would be keen if someone made a low cost investment portal (basically like an industry super fund available for non-super). Vanguard is heading in this direction, but their MER's are on the high side especially for small portfolio balances, and the wholesale is inflexible unless you have a huge portfolio. So for mid sized folks, it ends up being easier to tinker with a spreadsheet and executing etf's via online broker.
Re: Betterment, I haven't looked in too much detail, but i'm not a huge fan of the heavy engineering/ statistical portfolio optimisations. I don't know how much this contributes to their MER. I would advocate a simple questionnaire to determine risk tolerance, then some basic portfolios (conservative, balanced, growth etc). And maybe an option for automatic age adjustment (e.g. "age in bonds" type heuristic) so it can be a long-term / set and forget / one fund solution for those truly passive investors who want to focus their time elsewhere safe in the knowledge their funds are being invested in an efficient and disciplined manner.
The key thing for Australia is it's such a niche / small scale market. I'm not sure if a betterment (or equivalent) would fly. Nonetheless I think the banks will be experiencing severe disruption to their fin. advice / fund mgmt businesses regardless, which will come from the passive investment/etf. With Vanguard / iShares already in the market and growing, this trend can continue and accelerate rapidly if Australia follows the US. And traditional active retail fund managers will face the same challenges as Fidelity to retain market share.
Post by: FFA on February 22, 2015, 08:15:08 PM
I assume you have already seen www.stockspot.com.au. They are "partnered" with Macquarie, though no mention of whether they are an investor. Would like to get Chris from StockSpot to comment but my impression is that it's still quite manual when compared to Betterment/etc.Thanks dungoofed for this link I hadn't heard of stockspot. Am going to check it out in more detail but my first click to the fees page.... was excited for a few seconds to see 0.044% (platinum >$500k) until I realized it's monthly :(
So then, 0.53% p.a. and upwards MER... i'm sure I won't be going for this, but keen to explore what they are offering nonetheless.
Once again, I think the big problem for Oz is the sub scale. This is a niche within a niche. The volumes will always be small and therefore the costs will never be cheap. And the target market is index investors who tend to be cost sensitive, so it seems to me a tough challenge to work.
Post by: steveo on February 22, 2015, 08:23:44 PM
I also hadn't heard of stock spot. Its basically the same thing as what I was thinking about.
FFA - for this to be a successful product I believe like you that you have to offer a really low MER. I can't see one of the big banks (who I work for) ever taking this up however I still think its a good idea for a training exercise.
Post by: FFA on February 22, 2015, 08:58:50 PM
Thanks for the comments. It'd be good to get a bunch more comments.Agree not a big bank. But it could be an industry super fund or Vanguard, basically a Not For Profit business model is needed. IMO it would be hard to compete with Vanguard and I understand they are investing more to grow in Oz (focused towards super I think). Their diversified funds MER 0.35%, and they are experimenting now elsewhere with low cost financial advice. It is easy to imagine a simple package of low cost advice plus these diversified funds that will be hard for others to match. Realistically this is the likely disruptive threat to the Australian funds management industry. i guess the days of 2% MERs for CFS etc are numbered.
I also hadn't heard of stock spot. Its basically the same thing as what I was thinking about.
FFA - for this to be a successful product I believe like you that you have to offer a really low MER. I can't see one of the big banks (who I work for) ever taking this up however I still think its a good idea for a training exercise.
p.s. Yes good idea for training exercise and nifty approach to get us all to help you complete it too ;)
Post by: steveo on February 22, 2015, 09:09:39 PM
p.s. Yes good idea for training exercise and nifty approach to get us all to help you complete it too ;)
I'm meant to interview people. This is so much easier. Help me out more dudes. It'll be over soon.
Post by: bigchrisb on February 22, 2015, 10:15:34 PM
Personally, I wouldn't pay a brass razoo for this. I'm pretty cost sensitive - with about $2.5M under my management, one basis point is $250 a year to the bottom line. Even paying myself $100 an hour, saving a basis point is worth two and a half hours of my time. I'm also the kind of investor that has swapped from IVV to VTS to get from 0.07 to 0.05% (when the cost basis worked out too, for CGT). I'm probably not the ideal profit centre for wealth management.
Heck, even my low cost ETFs and LICs (which average about 15 basis points) are costing me close to a months expenses every year.
Post by: AustralianMustachio on February 22, 2015, 10:19:41 PM
Post by: dungoofed on February 22, 2015, 10:26:49 PM
I think if it were done well it could be as big as Betterment in the US. But the problem is making it profitable. The word on the street is that Betterment/Wealthfront/etc are not profitable, but just positioning themselves for when the big banks need to play catchup and buy out someone.
Post by: steveo on February 22, 2015, 11:44:56 PM
Pretty sure those loitering on these boards are deep into the DIY quadrant (financial or otherwise), so probably a somewhat skewed response.
Personally, I wouldn't pay a brass razoo for this. I'm pretty cost sensitive - with about $2.5M under my management, one basis point is $250 a year to the bottom line. Even paying myself $100 an hour, saving a basis point is worth two and a half hours of my time. I'm also the kind of investor that has swapped from IVV to VTS to get from 0.07 to 0.05% (when the cost basis worked out too, for CGT). I'm probably not the ideal profit centre for wealth management.
Heck, even my low cost ETFs and LICs (which average about 15 basis points) are costing me close to a months expenses every year.
This makes sense to me. I'm not in your financial position however I would probably prefer to invest directly rather than through a company like Betterment.
Post by: steveo on February 22, 2015, 11:46:10 PM
haha
I think if it were done well it could be as big as Betterment in the US. But the problem is making it profitable. The word on the street is that Betterment/Wealthfront/etc are not profitable, but just positioning themselves for when the big banks need to play catchup and buy out someone.
I agree with these comments. I can only imagine a big bank going for this as a way to retain market share and hopefully increase expenses at a later point in time.
Post by: potm on February 22, 2015, 11:48:09 PM
For everyone else, they'll be on their 2%+ MER. There's not much market demand for it.
I think firstly there needs to be more demand and competition in the ETF space so that their MERs get lowered. Unfortunately our market is so small. What we do have is a big pool of investments in super, if only the government would put some real reform into place for that instead of this mySuper or whatever it is they have done.
Post by: bigchrisb on February 25, 2015, 10:42:40 PM
What this means is that you surrender $x in the ETF in exchange for the direct underlying holdings. I reckon ETFs make a lot of sense during the accumulation, but the MER becomes non trivial eventually. For example, the redemption unit on VAS is about $1.5M. That means, if you have $1.5M of VAS, you can redeem it for the underlying $1.5M of securities (and a one off fee of approx $1250 - refer the PDS).
If I had 1.5M sitting there at a MER of 0.15%, I'm paying someone $2250 a year to "manage" the shares. As its a market cap ETF, this really only means trading when shares are created or destroyed - and not just because of price changes. I figure once a portfolio gets to that sort of size, the effort of dealing with dividend details from 300 individual stocks would start to be paid for by the cost savings.
Anyone else looked at this path before? I'm still to figure out the CGT treatment of an in-specie redemption too. There would be some bonus opportunities available from tax loss harvesting too.
I guess what I'm trying to say is that is there a point at which it makes sense to run your own index fund, rather than have someone else running it for you?
Post by: dungoofed on February 26, 2015, 12:03:38 AM
http://www.sharesight.com.au/2015/02/24/where-is-the-uber-of-australian-wealth-management/
Post by: happy on February 26, 2015, 01:39:15 AM
Post by: Ozstache on February 26, 2015, 01:59:02 AM
Speaking of managing MERs on a portfolio of size, has anyone else considered redeeming their ETFs in specie?
What this means is that you surrender $x in the ETF in exchange for the direct underlying holdings. I reckon ETFs make a lot of sense during the accumulation, but the MER becomes non trivial eventually. For example, the redemption unit on VAS is about $1.5M. That means, if you have $1.5M of VAS, you can redeem it for the underlying $1.5M of securities (and a one off fee of approx $1250 - refer the PDS).
If I had 1.5M sitting there at a MER of 0.15%, I'm paying someone $2250 a year to "manage" the shares. As its a market cap ETF, this really only means trading when shares are created or destroyed - and not just because of price changes. I figure once a portfolio gets to that sort of size, the effort of dealing with dividend details from 300 individual stocks would start to be paid for by the cost savings.
Anyone else looked at this path before? I'm still to figure out the CGT treatment of an in-specie redemption too. There would be some bonus opportunities available from tax loss harvesting too.
I guess what I'm trying to say is that is there a point at which it makes sense to run your own index fund, rather than have someone else running it for you?
Regardless of how much I end up with in index funds, I don't mind paying 0.15% of whatever that amount is to keep my management effort to a minimum, the paperwork simple for tax time and to stop me fiddling with the mix to build a better index!
Post by: potm on February 26, 2015, 02:59:25 AM
Hopefully in the long run our MERs will reduce to be closer to 0.05 like in the US.
On another note, the odds of another interest rate cut next month have once agin shifted to more likely than not. If not next month then it seems almost certain we'll get one in the next few months.
There'll be a bit of a lag effect but I can see lots of new money pouring into the market once term deposits mature and people realise they are getting less than 3%.
Post by: MsRichLife on February 26, 2015, 03:19:09 AM
There'll be a bit of a lag effect but I can see lots of new money pouring into the market once term deposits mature and people realise they are getting less than 3%.
Yep. I'm one of them. My term deposits that were earning a reasonable return are maturing and I'm looking to move the funds into the market. If I'm thinking this way, I can imagine a lot of others are too.
Post by: dungoofed on February 26, 2015, 02:48:30 PM
All the usual measures (Shiller PE Ratio, lack of Graham Number stocks, rolling 12 month # of IPOs, etc) are indicating the US and Australian markets are currently overpriced. I'm not saying we're in bubble territory but I'd be quite cautious trying to find value in today's market.
Post by: MsRichLife on February 26, 2015, 04:20:03 PM
Post by: bigchrisb on February 26, 2015, 05:34:44 PM
Its nice that vanguard seem to do this proactively, and pass it on to their investors.
While 1 basis point may not seem like much, I have about $240k in VEU, so this is a straight transfer of $24 a year from Vanguard back to me. Happy days to the investors in VEU!
Post by: AustralianMustachio on February 26, 2015, 10:33:36 PM
I don't hold any term deposits though. I feel for the retirees. I am also scared for the typical Australian SMSF's asset allocation, loaded up with equities. I hope all this "rates lower for longer" stuff is on the money, and no gigantic shocks in the market occur. Many retirees in Australia will get badly burnt. My baseless hunch is that the next big shock will be in property, but not for a while
Post by: potm on February 26, 2015, 11:44:54 PM
Call me a contrarian market timer but wouldn't this be a good time to be stocking up on defensive assets (bonds, money market, cash, term deposits, maybe some gold)?
All the usual measures (Shiller PE Ratio, lack of Graham Number stocks, rolling 12 month # of IPOs, etc) are indicating the US and Australian markets are currently overpriced. I'm not saying we're in bubble territory but I'd be quite cautious trying to find value in today's market.
Bonds are the most overpriced assets of all at the moment, which makes shares, although at very high prices, not that overpriced relatively.
We're in unprecidented situations with central banks going berserk, driving down interest rates, printing massive amounts of money. So much hinges on what actions they take from here.
It's very hard to predict how other people will behave to ride the market ups and downs successfully. Indexing just gives you the average. I prefer to buy good companies, with earnings which will not be too impacted by an economic downturn.
Post by: dungoofed on February 27, 2015, 12:34:57 AM
Post by: AustralianMustachio on February 27, 2015, 07:27:30 AM
Agree bonds have flipped upwards in recent weeks but not as much as stocks have.
Thinking in months and years though, not weeks, and stocks are nowhere near as overpriced as bonds are.
In Europe plenty of interest rates now have a negative yield on them. I heard this recently, some media pundit quoting a bond trader: "People tell me... oh come on, you can't make money on a bond at 0%! And I reply: Really? people told me that at half a percent, and I've made a fortune since then..."
Post by: potm on February 27, 2015, 07:55:29 AM
Post by: FFA on February 27, 2015, 09:52:36 AM
Speaking of managing MERs on a portfolio of size, has anyone else considered redeeming their ETFs in specie?I think there's definitely a point, and especially so if you're prepared to hold asx20 (which probably covers two thirds or more of the asx 300 mkt cap anyway). Compromise some diversification but much easier on the admin, and most of these large caps are high yield stocks too. Basically this is what I did for roughly half my oz shares. I'd rather this than vhy ...
What this means is that you surrender $x in the ETF in exchange for the direct underlying holdings. I reckon ETFs make a lot of sense during the accumulation, but the MER becomes non trivial eventually. For example, the redemption unit on VAS is about $1.5M. That means, if you have $1.5M of VAS, you can redeem it for the underlying $1.5M of securities (and a one off fee of approx $1250 - refer the PDS).
If I had 1.5M sitting there at a MER of 0.15%, I'm paying someone $2250 a year to "manage" the shares. As its a market cap ETF, this really only means trading when shares are created or destroyed - and not just because of price changes. I figure once a portfolio gets to that sort of size, the effort of dealing with dividend details from 300 individual stocks would start to be paid for by the cost savings.
Anyone else looked at this path before? I'm still to figure out the CGT treatment of an in-specie redemption too. There would be some bonus opportunities available from tax loss harvesting too.
I guess what I'm trying to say is that is there a point at which it makes sense to run your own index fund, rather than have someone else running it for you?
Post by: andystkilda on February 27, 2015, 02:55:37 PM
...or am I the only one stupid enough?
Post by: dungoofed on February 27, 2015, 07:27:49 PM
While 1 basis point may not seem like much, I have about $240k in VEU, so this is a straight transfer of $24 a year from Vanguard back to me. Happy days to the investors in VEU!
Yeah most important is whether other ETF providers feel pressure to lower their own MERs. There are a lot of ETFs for which I look at the MER and think "You guys are just pulling numbers out of a hat." I understand that there are costs for running an ETF but 0.3% on a RAFI ETF, yes there's a formula involved but it's still just a formula, no different to VAS etc.
I guess conversely if local providers were really overcharging then overseas providers would see it as an opportunity to muscle in, which they haven't.
Regarding redeeming ETFs in specie, I think I'll probably be a stock picker like FFA well before my VAS holding reaches that level. But you're right it is a fair saving at that level, and it's something you can do now instead of waiting for Vanguard/etc to lower their fees.
Post by: dungoofed on February 27, 2015, 07:56:24 PM
What you have to understand is that bond prices move inversely with interest rates. The longer the duration, the more the impact. All time record low interest rates means all time high bond prices. Anyone buying bonds now for a 'safe' investment may be in for a rude shock. But as AustalianMustachio mentions, we still have some room to move in Australia.
Hi potm - I guess my point was that anyone with a stocks/bond ratio target allocation (eg 70/30) who was about to invest right now would almost certainly be buying bonds instead of stocks simply because they would currently be overweight in stocks due to recent outperformance (both US and Australian markets). And I don't think this is a bad thing if 30% of your portfolio in bonds is what you're committed to.
Of course this begs the question, is 30% (or any percent) of your portfolio in bonds actually a good strategy? (yes, we have discussed this before on this thread. Deja vu)
Post by: FFA on February 27, 2015, 08:09:56 PM
A concern I have is if the usual diversification benefit of negative correlation might break down this time. Reason being the distortion of QE and ultra low monetary policy. Traditional biz cycle theory, interest rates are hiked as the share mkt peaks to cool the economy and vice versa at the trough. The current cycle is shares being pushed up by low interest rates. So at the moment share and bond prices are moving together and they might not hedge each other as well as they have before...What you have to understand is that bond prices move inversely with interest rates. The longer the duration, the more the impact. All time record low interest rates means all time high bond prices. Anyone buying bonds now for a 'safe' investment may be in for a rude shock. But as AustalianMustachio mentions, we still have some room to move in Australia.
Hi potm - I guess my point was that anyone with a stocks/bond ratio target allocation (eg 70/30) who was about to invest right now would almost certainly be buying bonds instead of stocks simply because they would currently be overweight in stocks due to recent outperformance (both US and Australian markets). And I don't think this is a bad thing if 30% of your portfolio in bonds is what you're committed to.
Of course this begs the question, is 30% (or any percent) of your portfolio in bonds actually a good strategy? (yes, we have discussed this before on this thread. Deja vu)
I'm also not at all keen on bonds for the time being.
Post by: dungoofed on February 27, 2015, 08:15:44 PM
Post by: AustralianMustachio on February 27, 2015, 08:31:45 PM
I personally think holding some cash is a good strategy as a hedge. For the buying opportunities in severe market downturns, if nothing else.
Post by: dungoofed on February 27, 2015, 09:50:57 PM
http://www.bloombergview.com/articles/2014-11-11/theres-more-to-qe-than-krugman-thinks
Post by: potm on February 28, 2015, 12:41:15 AM
Post by: dungoofed on February 28, 2015, 02:08:19 AM
My brother warned me about drag due to hedging against too many black swans. You've pointed out that bonds don't return enough to warrant the risk. I'd argue that with everyone bearish on AGBs they should be a bargain right now. But the reality is that no-one knows for sure, and the best we can do is understand the underlying and invest accordingly.
Post by: potm on February 28, 2015, 07:13:56 AM
Post by: alsoknownasDean on February 28, 2015, 08:42:35 AM
Has anyone invested significant funds in oil (through ETFs or shares that are highly exposed to the price of crude oil)?
...or am I the only one stupid enough?
Haha, I've considered the same thing. I've found an oil ETF that had taken a battering in the last year and was thinking that it's more likely to rise in the medium term.
Still, I'm probably better off putting my money into more conservative investments at first :)
Post by: FFA on February 28, 2015, 09:04:02 AM
I didn't read the link. I just hope you understand how bonds work. Long dated bonds have significant price risk. They are not 'safe' assets. What they hedge against is falling interest rates. Not much else to say so I'll leave it at that.potm, how do u consider term deposits? Just curious. I feel the same way, have a fair cash allocation and very little FI. Recently put some of this cash (less than 15%) in a 5 yr TD at 4.15%... Would u consider this safe? To me it is, but then in some ways it's no different to a long dtd bond except you don't really reprice your TD when rates change.
Dungoofed, maybe u can consider such TD instead of AGB's ? To me anyway they make better sense the yield is more than 1% higher and they are also govt backed up to 200k...
Post by: qwerty8675309 on February 28, 2015, 04:51:35 PM
40% VAS and STW (I'm trying to unwind my STW holding and move it over to VAS because of the fees, but don't want to pay CGT, so I'm waiting for a market drop)
10% AFI, ARG or MLT (Invested depending on the LIC with the biggest NTA discount)
30% VTS (for exposure to the US)
20% VEU (for exposure to rest of the world)
Also have $35k in an emergency fund, but I've been thinking about reducing it to $15k (because my yearly expenses are around $15k a year). I'm not sure about the US, but here in OZ, if I lose my job, the redundancy payout is fairly substantial (worked mine out to be around $36k based on the schedule at fairwork.gov.au). Part of this is tax free as well. Essentially, if I factored this into my emergency fund, I could probably have a $0 emergency fund (or an amount that is substantially lower than I have now). What do all of you think?
Post by: potm on February 28, 2015, 06:06:07 PM
potm, how do u consider term deposits? Just curious. I feel the same way, have a fair cash allocation and very little FI. Recently put some of this cash (less than 15%) in a 5 yr TD at 4.15%... Would u consider this safe? To me it is, but then in some ways it's no different to a long dtd bond except you don't really reprice your TD when rates change
[/quote]
Yes, term deposits are much better than bonds in terms of yield at the moment. 5 years is not too long a timeframe so you are not as exposed to changes in interest rates. Bonds give you longer exposure though, which protects you against falling interrst rates. This would have been good for all the retirees who were too scared to invest and are now struggling. If they had gotten themselves some long dated bonds back when rates were high they would have been protected.
As to your term deposit. Do you value that 4.15% yeild highly enough to want to lock it in for 5 years. Personally I would rather keep cash. You can spend cash on neccesities or investments when the opportunities arise.
Post by: FFA on March 01, 2015, 08:20:19 AM
But the other point I was getting at maybe TD seems safer since it doesn't have mtm repricing. Eg soon after I locked mine in the bank reduced to 4% (yay), but unlike a bond there is no 2ndary mkt and therefore no increase above face value due to the rate cut.
Post by: potm on March 01, 2015, 01:54:42 PM
Post by: DrowsyBee on March 01, 2015, 05:40:59 PM
From yesterday's Canberra Times. I'm guessing this Net Worth is from property and people finally paying off their PPOR/Investment Properties with such low interest rates. Looks like we are on track to have over 1 million millionaires in this country in the near future, according to the article.
"The largest barrier preventing rich investors from taking up investment advice was the preference for control." - Ain't that a funny problem, if you've got a million dollars without Financial Advice, why would you need it after you've got $1 million? With a background in marketing, if I wanted to target these millionaires, I'd do more articles about millionaires and impending doom and gloom to make millionaires think they need professional help to maintain their net worth. So, probably expect more articles mentioning the r-word that sell financial advice in the near future.
Post by: FFA on March 02, 2015, 02:20:56 AM
This is a great thread! Thought I'd just say hi and introduce myself. 31yo from Melbourne. Have just under $300k in various ETFs and LICs:Personally I would keep enough to live for a year and not rely on any redundancy or other assistance, treat them as bonuses if and when you get them.
40% VAS and STW (I'm trying to unwind my STW holding and move it over to VAS because of the fees, but don't want to pay CGT, so I'm waiting for a market drop)
10% AFI, ARG or MLT (Invested depending on the LIC with the biggest NTA discount)
30% VTS (for exposure to the US)
20% VEU (for exposure to rest of the world)
Also have $35k in an emergency fund, but I've been thinking about reducing it to $15k (because my yearly expenses are around $15k a year). I'm not sure about the US, but here in OZ, if I lose my job, the redundancy payout is fairly substantial (worked mine out to be around $36k based on the schedule at fairwork.gov.au). Part of this is tax free as well. Essentially, if I factored this into my emergency fund, I could probably have a $0 emergency fund (or an amount that is substantially lower than I have now). What do all of you think?
Separate from this emergency fund, you may consider if you want to be 100% equities (very high risk tolerance needed) or have some cash/fixed interest allocation. I'm not sure if you have already, or what you've shown is your entire portfolio in the shares. Some people use age related rules of thumb e.g 110 minus your age, which would imply in your case 79% shares /21% bonds-term deposits-cash.
Your share allocations and logic all seem very sensible.
Post by: deborah on March 02, 2015, 03:24:24 AM
There are a lot of other things that can happen besides redundancy! Even a redundancy is not guaranteed (or at least not immediately). If a company goes under, it often hasn't paid employees' superannuation (companies can legitimately be a quarter behind in this, and when companies are about to go under, they are usually further behind), let alone the redundancy and holiday payments owed. There are schemes for these circumstances, but they are not going to give you everything. For instance http://www.theaustralian.com.au/news/nation/firm-has-to-cash-up-and-pay-workers-superannuation/story-e6frg6nf-1225891380508 was the first case where the federal General Employee Entitlement and Redundancy Scheme was used.Also have $35k in an emergency fund, but I've been thinking about reducing it to $15k (because my yearly expenses are around $15k a year). I'm not sure about the US, but here in OZ, if I lose my job, the redundancy payout is fairly substantial (worked mine out to be around $36k based on the schedule at fairwork.gov.au). Part of this is tax free as well. Essentially, if I factored this into my emergency fund, I could probably have a $0 emergency fund (or an amount that is substantially lower than I have now). What do all of you think?Personally I would keep enough to live for a year and not rely on any redundancy or other assistance, treat them as bonuses if and when you get them.
Quite some years ago, I was injured when a double decker bus rammed my car, and could only work part time for three years. Because I didn't have a work history of 6 months in the type of work I was doing, I couldn't claim for the enormous amount of money I missed out on earning. This is just one instance where there are cracks that you can fall between. Your emergency fund is for those types of unpredictable things. By all means, pare it down to 1 year's spending, but I wouldn't go without it entirely.
Post by: qwerty8675309 on March 02, 2015, 04:42:22 AM
Personally I would keep enough to live for a year and not rely on any redundancy or other assistance, treat them as bonuses if and when you get them.
Separate from this emergency fund, you may consider if you want to be 100% equities (very high risk tolerance needed) or have some cash/fixed interest allocation. I'm not sure if you have already, or what you've shown is your entire portfolio in the shares. Some people use age related rules of thumb e.g 110 minus your age, which would imply in your case 79% shares /21% bonds-term deposits-cash.
Your share allocations and logic all seem very sensible.
Giving this some more thought, you are definitely correct - there is always the chance that there won't be a redundancy payment, particularly if the company goes under or refuses to pay. I think I'll stick with a years worth of expenses in my emergency fund.
I know it seems risky, but yes - excluding my emergency fund, 100% my investments are in equities. My investment strategy is to stay 100% in equities until 25 years before retirement, and then to increase my bond holding by 2% a year until retirement. This is based on a Vanguard article I read a while back. It said that over 25-30 years, equities have a very high chance of returning a positive return (from memory it was something like 99%) based on historical market returns, even if you included the great depression over that 30 year period. I also see bonds as being a bit of a drag on my portfolio at my age (just a personal preference) because the income is not franked, and the average returns are generally lower than with equities. I do see the advantage of holding bonds as a re-balancing strategy though, so I can take advantage of stock market corrections, but given the correlation between bonds and equities lately, I'm not sure how much of an advantage this will actually be.
Post by: dungoofed on March 02, 2015, 07:21:12 PM
On another note, the odds of another interest rate cut next month have once agin shifted to more likely than not. If not next month then it seems almost certain we'll get one in the next few months.
Indeed, the talking heads have gone from "will the RBA cut rates?" to "the RBA will cut rates, but here are the reasons why it's a bad idea..."
Not sure how this is all going to turn out. Frustrating that as a country the only tool in our tookit is interest rates.
Post by: AustralianMustachio on March 02, 2015, 08:38:16 PM
RBA cuts are pretty good for existing portfolios of index funds - domestic shares go up and the AUD goes down, driving up international holdings.
Haha after glancing at the news, looks like i jinxed myself
Post by: FFA on March 05, 2015, 06:06:38 PM
This is worth a read
Post by: urbanista on March 05, 2015, 06:41:07 PM
I could probably have a $0 emergency fund (or an amount that is substantially lower than I have now). What do all of you think?
What if you get sick and need an urgent surgery but the public hospital would not be able to book you in immediately? Our uncle had to have an emergency heart by-pass surgery. Public system said he had to wait, and he had inadequate private cover so they didn't cover it. Eventually, he was able to use family connections to get surgery done in the public hospital quickly. I have no such connections, so prefer to keep cash ready. Also, he run up $10K bill just for special tests - that's out of pocket.
Post by: dungoofed on March 05, 2015, 09:54:19 PM
http://www.rba.gov.au/speeches/2015/sp-dg-2015-03-05.html (http://www.rba.gov.au/speeches/2015/sp-dg-2015-03-05.html)
This is worth a read
One area where low interest rates do appear to be having the broadly expected effect is on asset prices: global equity markets have been strong; property prices are again recording solid gains in some countries; and bond prices have increased substantially. However, for these increases in asset prices to boost the global economy, households and businesses need to respond by increasing their spending. While in the United States there are now some signs that this is happening, on the whole the response of private spending to higher asset prices has been muted.
Overall, looking at this experience, I find it difficult to escape the conclusion that changes in interest rates are not affecting decisions about spending and saving in the way they might once have done. Undoubtedly, low interest rates are helping to repair balance sheets by lowering debt-servicing costs and by pushing up asset prices. In so doing, they are helping lay the foundations for future growth in consumption and investment. But, while this repair process is taking place, consumption is weaker than it otherwise would be. In turn, subdued consumption growth is feeding through to a more subdued business climate and weaker investment.
Maybe people have become more mustachian!
Post by: FFA on March 05, 2015, 10:18:28 PM
On a serious note though I find this cautionary and from a credible source... basically admitting that monetary policies are not really working as intended anymore, have substantially propped up shares and property, and we are in unchartered territory.
Post by: potm on March 05, 2015, 11:11:50 PM
Post by: englyn on March 05, 2015, 11:27:16 PM
Consider possible scenarios.
1) Most likely - nothing bad happens. In which case your money's better off invested.
2) Somewhat likely - small bad thing happens, like unexpected major car expenses. In which case, a zero balance zero fee credit card is your friend, until you have the chance to pay it off from wages/cash allocation/if all else fails share sales.
3) Extremely unlikely - something really terrible happens. For which I have credit cards, health insurance (because it's less than the medicare levy surcharge), income protection/TPD insurance. And if all else fails I can sell shares and get the cash in a few days.
The opportunity cost of having money out of the market is way more than the tiny chance of potential cost of having to sell shares at a suboptimal time IMO.
Post by: FFA on March 06, 2015, 08:07:48 AM
Why would a Mustachian with share investments have a non-zero emergency fund?Depends on your risk tolerance and personal situation. Ten years ago I thought the same way. Nowadays since becoming FI and having two young kids I became much more risk averse. Basically it's all about 3). If my wife or child gets in any kind of serious problem I want to have cash on hand if needed.
Consider possible scenarios.
1) Most likely - nothing bad happens. In which case your money's better off invested.
2) Somewhat likely - small bad thing happens, like unexpected major car expenses. In which case, a zero balance zero fee credit card is your friend, until you have the chance to pay it off from wages/cash allocation/if all else fails share sales.
3) Extremely unlikely - something really terrible happens. For which I have credit cards, health insurance (because it's less than the medicare levy surcharge), income protection/TPD insurance. And if all else fails I can sell shares and get the cash in a few days.
The opportunity cost of having money out of the market is way more than the tiny chance of potential cost of having to sell shares at a suboptimal time IMO.
Post by: deborah on March 06, 2015, 04:28:57 PM
Why would a Mustachian with share investments have a non-zero emergency fund?I do agree that an "emergency fund" is somewhat unnecessary, but I always have a year of cash lying around that I can get at very easily, and is used for all my day to day costs. After all, in the mustashian world, this is a fairly small amount of money, gaining reasonable interest, which stops me from having to sell shares or other long term investments in a low market. If I need it for an emergency, I will just need to buy less as the dividends etc. slowly increase the pool back to what I want. It also enables me to take advantage of investment opportunities.
Consider possible scenarios.
1) Most likely - nothing bad happens. In which case your money's better off invested.
2) Somewhat likely - small bad thing happens, like unexpected major car expenses. In which case, a zero balance zero fee credit card is your friend, until you have the chance to pay it off from wages/cash allocation/if all else fails share sales.
3) Extremely unlikely - something really terrible happens. For which I have credit cards, health insurance (because it's less than the medicare levy surcharge), income protection/TPD insurance. And if all else fails I can sell shares and get the cash in a few days.
Post by: DrowsyBee on March 06, 2015, 04:46:06 PM
Post by: FFA on March 06, 2015, 04:57:09 PM
Can't we easily explain the lack of increase in spending by the...you know...incredibly low rates that people are taking advantage of to pay off their house quicker than normal?Normal expected behavior people will pay off faster when interest rates are high, and their repayments will be bigger anyway due to the interest component. With low rates people might let the loan sit and interest components are less. More important the impact on new borrowings to spend/invest, which are incentivized by low rates and discouraged by high rates. That's the usual theory but it's not working so well this time around.
Post by: Minion on March 06, 2015, 05:05:00 PM
Post by: happy on March 07, 2015, 03:17:18 PM
Post by: Astatine on March 08, 2015, 12:07:26 AM
Re emergency funds: I always want to have about a year's worth of expenses as my emergency fund. I plan on using online bank accounts with the ok-ish interest rates (or in combination with rolling term deposits). At the moment our emergency fund is in our redraw account. Takes a maximum of 3 business days to access it and we have a credit card to fill in any of the gaps.
Anyone who thinks that insurance is all you need is possibly being a little naive or optimistic. Claiming from insurance is not quick or easy, and requires a lot of evidence. How do I know this? A friend recently had to fill out the paperwork to claim money from her income protection insurance while processing the fact she might not see her 35th birthday, and navigating complex treatment options, while fuzzy headed from chemo and radiation is not easy. And you don't get payment immediately. Meanwhile, not everything is covered in the public health system, and if your life is at risk, waiting is not really a choice, and chemo and the various tests all add up to the thousands of dollars very quickly.
Yes, the likelihood is low, but the consequences are major. Ditto for non-elective surgery, emergency repairs to your house, or being involved in an accident. A compromise might be 3 months worth of expenses in a liquid emergency fund. But $0 is quite optimistic that everything can be covered by a credit card (including rent or mortgage, bills and so on).
Post by: qwerty8675309 on March 09, 2015, 04:12:55 AM
1. Reduces portfolio value fluctuations, making large market drops easier to stomach
2. Provides opportunities to rebalance (reversion to the mean, correlation, etc)
3. Helps to reduce the impact to your portfolio if you are forced to sell part of it (http://forum.mrmoneymustache.com/investor-alley/why-would-i-be-in-anything-other-than-100-stocks/msg541404/#msg541404)
Points 1 and 2 are very good reasons to hold at least some portion of your portfolio in bonds, but I think I've underestimated the impact of having to sell part of my portfolio if my emergency fund ever runs out. Take the following scenario - lets say I have 6 months of expenses in an emergency fund, and I have 100% of my portfolio in stocks. The market drops 30% over a few months, and I lose my job (I think the risk of this happening increases during market downturns). I burn through my 6 months of emergency funds, but I still don't have a job. I would be forced to start selling my stocks when they're 30% down until I find another job.
Lets take the same scenario, but mix up the asset allocation a bit. I still have 6 months of expenses in an emergency fund, but now I also have 12 months worth of expenses in bonds. The remainder of my portfolio would be in stocks. The market drops 30% over a few months, and I lose my job. I burn through my 6 months of emergency funds, but instead of selling stocks that would be down 30%, I would start to sell just my bonds (which have kept their value during the downturn). Once I've found a job, I would rebuild my emergency fund and bond position until they are back to the original allocation. This way, I wouldn't be forced to sell my stock position when it is 30% down.
Maybe I'm mad, but has anybody else thought that a bond allocation should be a fixed amount (relative to expenses) during the accumulation phase instead of a percentage of your total portfolio?
Post by: dungoofed on March 09, 2015, 04:56:08 AM
I think it was mentioned in the other thread but one of the best defenses against having to sell in a downturn is having a low COL to begin with. Of my friends here who lost their job post-Lehman, there was one guy whose expenses were so low that he didn't panic at all when he lost his six-figure salary job, he just went out and did some part time jobs and some English teaching for, like, a year in order to tide himself over. He could have benefited from keeping his job and continued piling more money into the market, sure, but all things considered things worked out ok for him.
Post by: marty998 on March 09, 2015, 02:33:10 PM
Only if you stick to government bonds can you say for sure they will hold their value.
Post by: slothman on March 09, 2015, 06:27:12 PM
Only if you stick to government bonds can you say for sure they will hold their value.
What's the advantage of holding bonds over cash? My thinking is to keep over a years living expenses in a high interest savings account and the rest in LICs/ETFs.
Post by: quidgy on March 09, 2015, 08:47:08 PM
Post by: qwerty8675309 on March 10, 2015, 02:34:11 AM
What's the advantage of holding bonds over cash? My thinking is to keep over a years living expenses in a high interest savings account and the rest in LICs/ETFs.
The average return for bonds is higher when compared to cash; however a bond can fluctuate in value because of interest rates and other factors, so it is not capital stable.
I think from the perspective of an emergency fund, it would be prudent to hold most, if not all of your emergency fund in cash. I'm just asking whether there would be advantages in holding some bonds in addition to your emergency fund instead of 100% in stocks during the accumulation phase. This would give you an additional buffer - you could sell down these bonds instead of selling stocks during a market correction if you happen to burn through your emergency funds.
Post by: marty998 on March 10, 2015, 04:57:08 AM
1) cash in home mortgage offset account
2) cash in investment offset account
3) cash in high interest online saver account
4) cash in transaction account
Of course, your first option for an emergency should be using a 55 day interest free credit card.
Post by: Coach on March 15, 2015, 09:39:26 PM
I've been doing a lot of reading about portfolio balance for different goals, and most of the rationale for the different (passive) strategies make sense to me. What I still haven't got my head around is why even the most aggressive fund options still put around 10% in bonds and/or other fixed-interest instruments. If you've opted for a passive aggressive strategy you're looking at the very long term, only care about growth, and are ignoring volatility, so why have anything at all in bonds?
To make some guesses:
1. As discussed here, it gives you something to sell in an emergency without taking a hit if the market is in a downturn. But in that case (and aside from the bonds vs cash argument) is a fixed percentage of your portfolio necessary instead of just a dollar amount (that could be held in fixed interest investments or even just a good savings account).
2. It's just another bit of diversification. But is it wasteful diversity if you already have good diversification in equities across sectors and countries?
3. People have calculated that (on average and over time) the return of a bond allocation of that size during a downturn is greater than the return it would otherwise provide?
I get principle of negative correlation and why it makes sense for a number of portfolio types - when you need to produce regular income, for example - but wondered if it was worth the opportunity cost if you were going to set-and-forget an aggressive portfolio for thirty years. I presumed you'd move a portion into bonds several years before needing your portfolio to produce an income and weather a downturn, but until then go for growth alone.
Post by: This_Is_My_Username on March 16, 2015, 05:50:25 PM
Quote
What I still haven't got my head around is why even the most aggressive fund options still put around 10% in bonds and/or other fixed-interest instruments. If you've opted for a passive aggressive strategy you're looking at the very long term, only care about growth, and are ignoring volatility, so why have anything at all in bonds?
you are correct.
for me, in the accumulation phase, I am 100% shares.
This could potentially get too scary for me as I approach FIRE, so I might change the asset allocation to include fixed interest, or term deposits, or bonds.
Post by: slothman on March 16, 2015, 05:52:58 PM
for me, in the accumulation phase, I am 100% shares.
100% property and shares for me. With plenty of leverage to boot.
Post by: This_Is_My_Username on March 16, 2015, 08:50:16 PM
does anyone know where I can get a margin loan at/near 5% ?
I have already fully borrowed up to 80% LVR on my house, and make interest-only payments.
Post by: Coach on March 16, 2015, 08:54:36 PM
you are correct.
for me, in the accumulation phase, I am 100% shares.
This could potentially get too scary for me as I approach FIRE, so I might change the asset allocation to include fixed interest, or term deposits, or bonds.
Thanks, I presume then that funds just don't want the headache of offering too many different allocation strategies.
Post by: dungoofed on March 16, 2015, 09:31:58 PM
http://forum.mrmoneymustache.com/investor-alley/why-would-i-be-in-anything-other-than-100-stocks/
http://forum.mrmoneymustache.com/investor-alley/the-case-against-100-stocks/
(I believe the former has even more links)
Post by: superannuationfreak on March 16, 2015, 09:33:19 PM
I've been doing a lot of reading about portfolio balance for different goals, and most of the rationale for the different (passive) strategies make sense to me. What I still haven't got my head around is why even the most aggressive fund options still put around 10% in bonds and/or other fixed-interest instruments. If you've opted for a passive aggressive strategy you're looking at the very long term, only care about growth, and are ignoring volatility, so why have anything at all in bonds?
A key reason is that most investors do not really know their own risk appetite. In particular, an investor who has not been through a substantial downturn with a substantial "chunk of change" at risk doesn't really know if they can ignore volatility. If we can, that's great. If we can't, better-off being honest with yourself, recognising it and setting your asset allocation accordingly rather than selling in a panic during an inevitable periodic downturn.
Post by: Coach on March 16, 2015, 10:27:09 PM
Post by: dungoofed on March 16, 2015, 10:30:44 PM
Post by: MsRichLife on March 17, 2015, 04:52:43 AM
I've been doing a lot of reading about portfolio balance for different goals, and most of the rationale for the different (passive) strategies make sense to me. What I still haven't got my head around is why even the most aggressive fund options still put around 10% in bonds and/or other fixed-interest instruments. If you've opted for a passive aggressive strategy you're looking at the very long term, only care about growth, and are ignoring volatility, so why have anything at all in bonds?
A key reason is that most investors do not really know their own risk appetite. In particular, an investor who has not been through a substantial downturn with a substantial "chunk of change" at risk doesn't really know if they can ignore volatility. If we can, that's great. If we can't, better-off being honest with yourself, recognising it and setting your asset allocation accordingly rather than selling in a panic during an inevitable periodic downturn.
This is true. I thought I had a high risk tolerance....until 2008 when I lost a huge chunk of change.
Some of the cavalier attitudes I read on the MMM forum make me squirm.
Post by: Sunnymo on March 17, 2015, 10:48:34 PM
I thought I had a high risk tolerance....until 2008 when I lost a huge chunk of change.
Some of the cavalier attitudes I read on the MMM forum make me squirm.
I actually think my risk tolerance is higher than I give myself credit for but I wouldn't go so far as describing myself as cavalier - more like rational over the emotional.
I track the value of my direct share portfolio and managed funds each fortnight and just went back through it. Direct shares fell from a pre GFC peak of $72k to a low of $46k (break even of $75k). Managed funds fell from all time high of $115k to $64k with $8.5k of my own money thrown in from my own pocket to provide a buffer against a margin call.
I recall feeling concerned but never panicked about the market direction. I also bought throughout the downturn and practice selective reinvestment of divs and the shares are now sitting at $143k and the managed funds at $130k.
Post by: marty998 on March 18, 2015, 01:19:51 AM
Can't really call it a minor spin-off - at $22 billion valuation it'll still be a top 20 company easy.
Accountants, Lawyers and Investment Bankers have had a field day with this one, upwards of $700 million in fees and expenses. Makes you wonder whether safeguarding shareholder's interests is still the main game, as opposed to keeping white collar workers in jobs :)
Post by: deborah on March 18, 2015, 03:00:49 AM
Post by: dungoofed on March 18, 2015, 05:47:40 AM
(http://www.riverbendnelligen.com/dreaming.jpg)
Post by: dungoofed on March 18, 2015, 05:48:43 AM
Post by: Sparkie on March 18, 2015, 06:05:08 PM
EDIT: I did post about salary sacrifice but got a decimal point in the wrong place so it was all a bit sill in the end. Disregard :)
Apologies
Post by: dungoofed on March 22, 2015, 04:04:16 PM
Looks like there could be some opportunities here for people who know what they're doing.
Post by: deborah on March 22, 2015, 04:46:06 PM
There are a lot of businesses being squashed by technology. A friend (who owns a business) was talking about her brother who has a news agency and wants to retire - can't sell a news agency for anything these days (particularly as post office news agencies are all saying they are losing money on the post office side of their business). Her business has gone from four shops to two over the past few years although you would think the business they are in would be technology proof. The huge scaling down of the public service has hit Canberra businesses hard.
People went into these businesses, worked hard, made the business work and give them a livelihood, and now, when they need to sell the business to fund their retirement, the business simply can't sell.
Post by: TJEH on March 23, 2015, 09:34:32 PM
MMM is a very recent find for me, very happy to discover it! I'm hoping to get some insight into developing an investment strategy, so here goes......
I have some equity investments already, made up of individual ASX stocks (NAB, CBA, CSL, COH, BWP), LIC's (AFI, ARG, CTN) and ETF's (VAP). All up ~100k, so fairly small holdings in each as I just got started a few years ago and have been dabbling. I also have ~18KUSD split evenly between ETF's VOO (S&P500) and VXF (US Extended Market) and Berkshire-B, all held via a US broking account.
I'm now at the point where I want to develop a strategy (rather than continue the dabbling!) and ramp up the investments considerably. I have a lump sum in cash that I want to invest and I'm finding it difficult to put together a good plan. I've had some introductory chats to some financial advisers that has more or less confirmed that I probably won't use them!
The ETF and\or LIC path still appeals, I just need to figure out the strategy and breakdown. I read the greaterfool.ca blog, although Canadian there seems to be some relevance to Australia, and (at least for me) his thoughts seems to resonate.
He often mentions a portfolio as follows, with re-balancing (I think a couple of times a year), along the lines of:
60% Growth: ETF's, comprising a small REIT holding, then one third evenly split between ASX, US, and international markets. Mix of large cap and smaller cap in each.
40% Defensive: ETF's, Half in bonds and half in preference shares.
A couple of links for reference:
http://www.greaterfool.ca/2015/02/03/surprise-9/
http://www.greaterfool.ca/2015/02/13/the-motivator/
Before getting into how such a portfolio breakdown might look, I'd be interested to know your thoughts on the strategy. One part in particular I'm unsure about (uneducated perhaps!) is how the growth and balance components offset each other. I know the idea is that when equities are down, the fixed income will be up, and vice-versa, but in practice it's unclear how this will help me (FYI I'm planning to hold my portfolio long term and live off the income in the not too distant future, perhaps in < 5 years).
I've got a basic understanding how moves in interest rates affect bond prices and yields but I'm unsure how this is a good thing for the portfolio - e.g. do I care that bond prices (ETF's) go up in a market downturn.....I'm not planning on selling anyway. And if I buy them in a downturn it would suggest I'm paying for something that is going to decline in value, as well as getting a low yield. As I said, it's fair to say I don't understand this well.....
There is probably lots more to add, but I'd be appreciative of your thoughts.
Post by: Sunnymo on March 24, 2015, 04:32:27 AM
http://www.brisbanetimes.com.au/business/banking-and-finance/lump-sum-superannuation-payments-for-retirees-could-end-20150324-1m6nou.html (http://www.brisbanetimes.com.au/business/banking-and-finance/lump-sum-superannuation-payments-for-retirees-could-end-20150324-1m6nou.html)
I like the idea of not being able to take Super as a lump sum. So often I hear of people deliberately spending down the lump sum in order to qualify for the pension (or at least a part). It will be interesting to see if/how this develops but would work better for those that have had access to Super for their full working life rather than those that haven't.
Post by: sirdeets on March 24, 2015, 07:42:59 PM
That is purely using historical information on price on and volume to understand "trends", and profit from them?
Post by: bigchrisb on March 24, 2015, 07:56:43 PM
Do you guys think technical analysis works?
That is purely using historical information on price on and volume to understand "trends", and profit from them?
No, I don't. My basis:
- I've got a degree in econometrics
- Played with it over about 10 years (in the thousands of hours), with a mix of real and play money
- My results did not generate any risk adjusted alpha when used for real trades. Back testing looked super rosy!
My conclusion:
- Either it doesn't work; OR
- I'm not very skilled using it (and after that much time, unlikely to improve); Hence
- I'm better off putting my time into something with a higher productivity, or with a better leisure value.
I still use a bit of value/fundamental analysis, but in the main I'm a passive buy and hold investor.
Post by: This_Is_My_Username on March 24, 2015, 09:38:41 PM
Quote
60% Growth: ETF's, comprising a small REIT holding, then one third evenly split between ASX, US, and international markets. Mix of large cap and smaller cap in each. 40% Defensive: ETF's, Half in bonds and half in preference shares
TJEH, that looks fine. There is no "Correct" asset allocation, and your 60/40 idea seems fair. The main considerations are your (1)years-to-retirement and (2)risk appetite. If these 2 things are lower, you need a less risky asset allocation.
Quote
is how the growth and balance components offset each other. (buy and hold)
"Growth" assets will be worth more in the long run, but have lots of ups-and-downs every year.
"Defensive" assets will be worth less in the long run, but have less ups-and-downs every year.
a 60/40 portfolio averages out the growth and volatility.
asset values will have modertately good improvement, with moderate volatility.
cash income (dividends) will have moderately good growth with moderate volatility.
compare this to a 10/90 portfolio which has very shitty growth and almost zero volatility. Or a 100/0 portfolio which has excellent growth with wild volatility fluctuations.
TJEH let me know if you have any questions?
Post by: dungoofed on March 25, 2015, 12:02:10 AM
Do you guys think technical analysis works?
That is purely using historical information on price on and volume to understand "trends", and profit from them?
No, I don't. My basis:
- I've got a degree in econometrics
- Played with it over about 10 years (in the thousands of hours), with a mix of real and play money
- My results did not generate any risk adjusted alpha when used for real trades. Back testing looked super rosy!
My conclusion:
- Either it doesn't work; OR
- I'm not very skilled using it (and after that much time, unlikely to improve); Hence
- I'm better off putting my time into something with a higher productivity, or with a better leisure value.
I still use a bit of value/fundamental analysis, but in the main I'm a passive buy and hold investor.
+1 (though without the degree in econometrics)
I have seen firsthand how little institutional traders rely on it. They talk it up a lot (especially candlestick here in Japan), and are quick to attribute certain movements to it after the fact. But 90% of their profit comes from a combination of long term positions and short term flow trading around market announcements.
Post by: TJEH on March 27, 2015, 07:28:55 AM
Quote60% Growth: ETF's, comprising a small REIT holding, then one third evenly split between ASX, US, and international markets. Mix of large cap and smaller cap in each. 40% Defensive: ETF's, Half in bonds and half in preference shares
TJEH, that looks fine. There is no "Correct" asset allocation, and your 60/40 idea seems fair. The main considerations are your (1)years-to-retirement and (2)risk appetite. If these 2 things are lower, you need a less risky asset allocation.Quoteis how the growth and balance components offset each other. (buy and hold)
"Growth" assets will be worth more in the long run, but have lots of ups-and-downs every year.
"Defensive" assets will be worth less in the long run, but have less ups-and-downs every year.
a 60/40 portfolio averages out the growth and volatility.
asset values will have modertately good improvement, with moderate volatility.
cash income (dividends) will have moderately good growth with moderate volatility.
compare this to a 10/90 portfolio which has very shitty growth and almost zero volatility. Or a 100/0 portfolio which has excellent growth with wild volatility fluctuations.
TJEH let me know if you have any questions?
Thanks This_Is_My_Username - sorry for my slackness in replying!
Your comments re growth and volatility make sense.
I suppose, perhaps fortunately, I haven't been invested in the market throughout any significant downturns, hence the importance of bonds are not as clear as they could be.
I'm trying to decide how to invest the defensive part of my portfolio. Previously I've just used high interest accounts and term deposits. I'm trying to see how bonds could help me.
As naive as this sounds, if I'm relying on my investments for my income, should things turn pearshaped on the equities front, theoretically the bonds would be up in value, giving me something to sell in order to generate some income? Maybe.....
Thanks for your reply
Post by: JamesSyd on March 28, 2015, 12:29:06 AM
I am looking for some advice on the best setup and approach to build and structure my investments. I am way too heavy on cash (I've been spending disproportionate amounts of time earning the money rather than investing it wisely).
My current situation:
I am 30 y.o with a wife (whose not working) and baby. High income job (~500k p.a. net but can fluctuate quite a lot year to year). Living in Sydney and renting so cost of living isn't that low ($700 rent p/w) but otherwise rather frugal. I would like to be able to move onto something more chilled within say 2- 5 years (it's hard to do this when you find yourself in such a good job), and be setup for life (and future generations too if possible).
Trust:
- Approx $400k worth of shares in private company I work for (ownership is tied to my employment with them) and yields ~$60k in dividends which are distributed to my wife who isn't working (this is the reason why they are in a trust otherwise I probably wouldn't have set it up).
Super:
- $80k (in super) AUS stocks
Personal:
- Approx $250k in public stocks (mostly US stocks), not too happy with these holdings either, and think i should just get rid of most of it even if it incurs some CGT, albeit much less than it should be :(
- $1.5m cash
Wife's Name:
- $20k of AUS stocks
- $50k cash (I know, she should hold all the cash, as her marginal tax rate is lower, I'm in the process of doing this now)
Net worth approx $2.3M
After reading through this whole thread, there are several things I want to do, and would really appreciate your input:
- I need to figure out the best way to structure everything:
- should I buy all the ETFs, LICs etc in the trusts name, or should we just buy these in my wifes name? (trust is more flexible on distributing earnings but has the added admin overhead) What are the things to consider other than that? What is the CGT treatment of assets held in trust? i.e. do you get the 50% exemption if held for greater than 1 year?
- Should I contribute the full concessional amount to super (I have to pay 30% on contributions because of high income)?
- I have AMP for my super and am pretty clueless about it. Should I switch to a low cost one? Or should I consider an SMSF? (btw, the reason I don't have more in super is that I've only been working in australia for 3 years). Is there any point in contributing the non-concessional amount?
- Clean up my portfolio and just concentrate on getting similar returns to the market instead of stock picking (so that probably means selling all the random stock positions I have)
- Move more of my cash position into equities overtime (I'm quite annoyed I didn't come to this realisation a year ago before the markets had rallied :p)
- Have a clear investment approach something like:
- $200k cash/bonds (I don't think I need more as my job security is pretty uncorrelated (probably negatively correlated) to a market downturn
- And split the rest as 40% aussie, 60% foreign equities
- What do you guys thing about property? I don't like that I'm missing out on the CGT exemption on PPOR, but I feel it's very expensive but have thought that for the last 3 years since moving here and despite this it has gone up in price a lot in Sydney in those 3 years. I feel like I've missed the boat on this as well and am hoping for a big correction so I can get something at a reasonable price but this is probably foolish as there is so much incentive for the governments to prop up property prices and still a decent amount of room to lower rates to avoid people defaulting on their mortgages.
I would really appreciate your thoughts on my situation, thanks!
Post by: deborah on March 28, 2015, 01:20:34 AM
If you have only been in Australia for 3 years, what is your citizenship (I'm guessing US), and where do you plan to live in retirement (or in the future)? Obviously $1.5M cash is not optimal, but where you should put it depends upon where you intend to call home.
Post by: JamesSyd on March 28, 2015, 02:24:05 AM
Quote
AMP is just about the worst place to have super - get it into somewhere else!
If you have only been in Australia for 3 years, what is your citizenship (I'm guessing US), and where do you plan to live in retirement (or in the future)? Obviously $1.5M cash is not optimal, but where you should put it depends upon where you intend to call home.
Hi deborah, thanks for replying. I will get to work on moving my super from AMP, any recommendations? ING Direct have a low cost super fund I believe.
I'm actually Australian, but started my first job in Europe so that's why I've only been working here for 3 years. There is a chance we move back there at some point (say 20% chance).
Post by: This_Is_My_Username on March 28, 2015, 08:16:13 PM
I suppose, perhaps fortunately, I haven't been invested in the market throughout any significant downturns, hence the importance of bonds are not as clear as they could be.
I'm trying to decide how to invest the defensive part of my portfolio. Previously I've just used high interest accounts and term deposits. I'm trying to see how bonds could help me.
As naive as this sounds, if I'm relying on my investments for my income, should things turn pearshaped on the equities front, theoretically the bonds would be up in value, giving me something to sell in order to generate some income? Maybe.....
try VGB or VAF.
but I can't really comment on bonds. for me personally, I am 100% shares and 100% bravery.
Post by: This_Is_My_Username on March 28, 2015, 08:18:56 PM
Do you guys think technical analysis works?
That is purely using historical information on price on and volume to understand "trends", and profit from them?
"A random walk down wall street" says no.
academics have studied the results of technical analysts, and they are worse than the market index in the long run.
academics have studied the predictions of technical analysts, and they are worse than the market index in the long run.
Of course, some strategies or plans will get lucky for several years in a row, but that is just luck. Like flipping 8 tails in a row.
Post by: deborah on March 28, 2015, 08:31:24 PM
I will get to work on moving my super from AMP, any recommendations? ING Direct have a low cost super fund I believe.http://www.superguide.com.au/how-super-works/top-performing-super-funds-for-2014-10-years
Post by: sirdeets on March 31, 2015, 05:13:49 AM
Do you guys think technical analysis works?
That is purely using historical information on price on and volume to understand "trends", and profit from them?
No, I don't. My basis:
- I've got a degree in econometrics
- Played with it over about 10 years (in the thousands of hours), with a mix of real and play money
- My results did not generate any risk adjusted alpha when used for real trades. Back testing looked super rosy!
My conclusion:
- Either it doesn't work; OR
- I'm not very skilled using it (and after that much time, unlikely to improve); Hence
- I'm better off putting my time into something with a higher productivity, or with a better leisure value.
I still use a bit of value/fundamental analysis, but in the main I'm a passive buy and hold investor.
Thanks Chris and others for your input. Great to hear some real word feedback. Being exposed to the academic point of view (being a finance major myself) - I'm aware that its got a bad reputation. It just sounds ridiculous when people start talking on youtube about shooting stars and other random patterns appearing.
One guy managed to convince me where it may have merit. If you know how the big end of town work - i.e. how they buy or sell a large amount of shares or fx - you may be able to get in and out with some kind of positive expected value. For example, you're a country who needs $100m of a particular currency, who starts putting in buy orders a particular way.
But, i'm sure the people who are making these trades will adapt, and how to get a signal of this happening may be difficult, with false positives etc.
In any case I have an 13week course at Uni where I need to actively day trade according to a trading strategy i set up now. We can use fundamental or technical, or a combination. With such a short period, I didn't see a whole lot of point in investing in value, so going to give the technicals a whirl. We get a lot of speakers coming in from industry who are day traders. So how is this industry around if it doesn't work ? I suppose for a lot of them the client is footing the bill, so as long as you can convince the client it works, they get their cut..
Post by: marty998 on March 31, 2015, 02:57:57 PM
QuoteAMP is just about the worst place to have super - get it into somewhere else!
If you have only been in Australia for 3 years, what is your citizenship (I'm guessing US), and where do you plan to live in retirement (or in the future)? Obviously $1.5M cash is not optimal, but where you should put it depends upon where you intend to call home.
Hi deborah, thanks for replying. I will get to work on moving my super from AMP, any recommendations? ING Direct have a low cost super fund I believe.
I'm actually Australian, but started my first job in Europe so that's why I've only been working here for 3 years. There is a chance we move back there at some point (say 20% chance).
JamesSyd...what on earth kind of job do you have as a 30yo that pays 500k per year?
Post by: deborah on March 31, 2015, 10:27:16 PM
Look at how much Tattslotto and any other form of gambling is rigged against you, and how many people indulge in it each week.Do you guys think technical analysis works?
That is purely using historical information on price on and volume to understand "trends", and profit from them?
No, I don't. My basis:
- I've got a degree in econometrics
- Played with it over about 10 years (in the thousands of hours), with a mix of real and play money
- My results did not generate any risk adjusted alpha when used for real trades. Back testing looked super rosy!
My conclusion:
- Either it doesn't work; OR
- I'm not very skilled using it (and after that much time, unlikely to improve); Hence
- I'm better off putting my time into something with a higher productivity, or with a better leisure value.
I still use a bit of value/fundamental analysis, but in the main I'm a passive buy and hold investor.
Thanks Chris and others for your input. Great to hear some real word feedback. Being exposed to the academic point of view (being a finance major myself) - I'm aware that its got a bad reputation. It just sounds ridiculous when people start talking on youtube about shooting stars and other random patterns appearing.
One guy managed to convince me where it may have merit. If you know how the big end of town work - i.e. how they buy or sell a large amount of shares or fx - you may be able to get in and out with some kind of positive expected value. For example, you're a country who needs $100m of a particular currency, who starts putting in buy orders a particular way.
But, i'm sure the people who are making these trades will adapt, and how to get a signal of this happening may be difficult, with false positives etc.
In any case I have an 13week course at Uni where I need to actively day trade according to a trading strategy i set up now. We can use fundamental or technical, or a combination. With such a short period, I didn't see a whole lot of point in investing in value, so going to give the technicals a whirl. We get a lot of speakers coming in from industry who are day traders. So how is this industry around if it doesn't work ? I suppose for a lot of them the client is footing the bill, so as long as you can convince the client it works, they get their cut..
Post by: terrier56 on March 31, 2015, 10:29:10 PM
QuoteAMP is just about the worst place to have super - get it into somewhere else!
If you have only been in Australia for 3 years, what is your citizenship (I'm guessing US), and where do you plan to live in retirement (or in the future)? Obviously $1.5M cash is not optimal, but where you should put it depends upon where you intend to call home.
Hi deborah, thanks for replying. I will get to work on moving my super from AMP, any recommendations? ING Direct have a low cost super fund I believe.
I'm actually Australian, but started my first job in Europe so that's why I've only been working here for 3 years. There is a chance we move back there at some point (say 20% chance).
JamesSyd...what on earth kind of job do you have as a 30yo that pays 500k per year?
I think the job title is "be born in the 1%" LOL. of-course i could be wrong, no offence intended.
Post by: JamesSyd on April 01, 2015, 04:06:42 AM
QuoteAMP is just about the worst place to have super - get it into somewhere else!
If you have only been in Australia for 3 years, what is your citizenship (I'm guessing US), and where do you plan to live in retirement (or in the future)? Obviously $1.5M cash is not optimal, but where you should put it depends upon where you intend to call home.
Hi deborah, thanks for replying. I will get to work on moving my super from AMP, any recommendations? ING Direct have a low cost super fund I believe.
I'm actually Australian, but started my first job in Europe so that's why I've only been working here for 3 years. There is a chance we move back there at some point (say 20% chance).
JamesSyd...what on earth kind of job do you have as a 30yo that pays 500k per year?
I think the job title is "be born in the 1%" LOL. of-course i could be wrong, no offence intended.
Nah, not born in the 1%.
But I do consider myself very lucky. I'm very fortunate to be in the position I am and to have found such a job.
I'd rather not disclose the job for privacy reasons (you can PM me if you'd really like to know).
Post by: TJEH on April 03, 2015, 05:02:28 AM
but I can't really comment on bonds. for me personally, I am 100% shares and 100% bravery.
Ha, I admire that :)
I haven't decided if bonds are right for me, more reading required to understand them. There is definitely some decision paralysis with my portfolio construction at the moment!
Post by: dungoofed on April 03, 2015, 03:16:17 PM
QuoteAMP is just about the worst place to have super - get it into somewhere else!
If you have only been in Australia for 3 years, what is your citizenship (I'm guessing US), and where do you plan to live in retirement (or in the future)? Obviously $1.5M cash is not optimal, but where you should put it depends upon where you intend to call home.
Hi deborah, thanks for replying. I will get to work on moving my super from AMP, any recommendations? ING Direct have a low cost super fund I believe.
I'm actually Australian, but started my first job in Europe so that's why I've only been working here for 3 years. There is a chance we move back there at some point (say 20% chance).
JamesSyd...what on earth kind of job do you have as a 30yo that pays 500k per year?
I think the job title is "be born in the 1%" LOL. of-course i could be wrong, no offence intended.
Nah, not born in the 1%.
But I do consider myself very lucky. I'm very fortunate to be in the position I am and to have found such a job.
I'd rather not disclose the job for privacy reasons (you can PM me if you'd really like to know).
1% owns much, earns little.
Post by: This_Is_My_Username on April 06, 2015, 06:05:25 AM
That use an indexing method that is not based on market capitalisation?
:
Also, is this a topic that is worth pursuing? Are there any performance benefits, or risk benefits, or diversification benefits?
Cheers
Post by: JamesSyd on April 06, 2015, 06:20:28 AM
Are there any Australian ETF's or LIC's or Manged Funds, or foreign investments listed on the ASX, etc,
That use an indexing method that is not based on market capitalisation?
:
Also, is this a topic that is worth pursuing? Are there any performance benefits, or risk benefits, or diversification benefits?
Cheers
MVW is an equal weight index.
They have a whitepaper on their website that goes through some of the benefits of such a methodology which i found quite interesting http://www.marketvectors.com.au/strong-foundations-have-equal-footings/
Only problem is that the MER is more than VAS for example
Post by: AustralianMustachio on April 06, 2015, 08:49:17 PM
However due to Australia's preponderence of miners, I believe MVW is a good idea. I also don't have a particularly high income, so tax is less of a concern. So I hold about 1/3rd MVW to 2/3 VAS.
I'm still hanging out for Vanguard or someone to come up with an Australia Shares Ex Resources ETF!
Post by: dungoofed on April 06, 2015, 08:56:17 PM
Even better, ex-resources, ex-financials
Post by: slothman on April 06, 2015, 09:05:59 PM
Post by: This_Is_My_Username on April 06, 2015, 09:36:22 PM
VAS has $9,200m
does that concern anyone?
Post by: AustralianMustachio on April 06, 2015, 09:59:20 PM
Might aswell be ex-australia if thats the case
Haha very true. Yeah even though banks are viewed as "defensive" and clearly are not, I'm more ok with them making up a large proportion of the index vs the resources sector which has no real control over their profits.
Quote
MVW has only $20m in the fund ?!
VAS has $9,200m
does that concern anyone?
This is what I was talking about above. I'm not crystal clear on this, but I believe this is the explanation: Because it's so small, it can't benefit from economies of scale to the same degree, and this will cause a high degree of churn. I.e. a higher proportion of buying and selling and thus worse after tax implications for the investor.
Post by: marty998 on April 07, 2015, 03:58:33 AM
Slightly on a tangent, but a little known issue with master trusts is the problem of being the "last man standing". If a fund is suffering from a mass of redemptions, the remaining unitholders are the ones who may have to bear the tax liability of crystallised capital gains, due to all the selling that has to be done within the portfolio to meet those redemptions.
LIC's will raise a deferred tax liability provision on unrealised gains, because a LIC, being a Company is liabile for tax at 30% on gains (eventually) with no CGT discount.
Trusts (and hence most managed funds) are another matter - as trust income is taxable in the hands of the beneficiary, the trust won't have the tax position built into the exit unit price. If you are the last person to leave the trust, you may find yourself quite screwed indeed.
_ _ _ _
Separate issue, the RBA held the cash rate steady today...quite obvious what the market was betting - index immediately fell 1% at 2:30pm.
Statement from the Governor was that the Bank is still leaning to an easing bias but is being patient for now.
_ _ _ _
Also today Atlas Iron put itself in voluntary suspension after the IO price fell 24% in March. The reason cited was that the financial outlook for the business has materially changed since the HY results were released (no shit sherlock), and, reading between the lines, that it just might be all over for them.
If that is the case, expect there to be a similar outcome for BCI, MGX and probably even FMG. In the words of my Scottish friends, "they're all fooked".
Post by: slothman on April 07, 2015, 04:15:34 AM
Are they overexposed to resource/energy?
Post by: marty998 on April 07, 2015, 04:17:51 AM
Post by: slothman on April 07, 2015, 04:20:23 AM
Post by: marty998 on April 07, 2015, 04:58:17 AM
They either start doing buybacks, in which their size and scale gets reduced meaning higher average ongoing fees, or if the discount is great enough a corporate raider comes in, buys up a chunk on the cheap, sacks the manager, installs themselves and runs the fund for their own benefit and not necessarily yours.
Unlikely to happen with the established larger ones like AFI but small ones can and do get ripped up every now and again.
Post by: This_Is_My_Username on April 07, 2015, 09:00:44 PM
Quote
Sorry I meant relative to it's NTA. It's trading at a discount to NTA whereas it's been at a premium for a while now (last couple of years if my memory serves me correct).
from what I can tell, today AFI is only 2% cheaper than NAV. (?)
Post by: Emjay on April 09, 2015, 03:21:26 AM
A technical question - I have VTS shares bought through Vanguard Aust. I have filled out the W-8BEN form to have only 15% tax taken out by USA. I know I can claim the tax against any tax due in Aust, but the issue is that I currently don't pay tax (SAHM, just started working part time, Prob below the $18k tax free threshold this financial year). So as time goes on I will pay tax and this issue will resolve in those years, BUT my husband and I are not planning to draw more than about $18k each when we FIRE in 8 years and then if my income is all VTS I will still pay the 15% tax to US and can't get it back here as won't owe any tax in Aust.
Any suggestions on how I should proceed? Can I do a US tax return?
The plan at the moment is for me to create a passive income so that we can earn similar amounts when we FIRE to reduce tax generally.
Hope this makes sense?
Thanks in advance for any suggestions which I can then research further.
Emjay
Post by: Wadiman on April 09, 2015, 04:50:17 AM
Post by: Emjay on April 11, 2015, 01:31:20 AM
Cheers Emjay
Post by: potm on April 11, 2015, 02:44:46 AM
Post by: Emjay on April 11, 2015, 03:16:47 AM
I do appreciate input, even if I already know the info, it still might make me think of something from a different perspective or educate another reader!
Thanks for sharing.
Post by: potm on April 11, 2015, 05:26:31 AM
Investing in Australia is just so much more tax effective, especially if you are on a low income.
Post by: This_Is_My_Username on April 11, 2015, 06:02:41 AM
Quote
Investing in Australia is just so much more tax effective, especially if you are on a low income.
thats true, but diversification...
I am torn.
Post by: Emjay on April 11, 2015, 06:43:51 AM
We have been on a huge learning curve, but obviously there is so much to learn and we are may keen to learn from those who get the possibilities of FIRE.
Emjay
Post by: dungoofed on April 11, 2015, 04:24:40 PM
QuoteInvesting in Australia is just so much more tax effective, especially if you are on a low income.
thats true, but diversification...
Also, we may very likely see in our lifetimes a change to the franking credits system. And if this pulled us more in line with the US system then it's not beyond the realm of possibility that we could see full refund/credit on US witholding tax.
Post by: frugaljo on April 11, 2015, 05:34:49 PM
I enjoy reading about MMM journey into it and would love to loan people money in a way we both prosper...
Post by: marty998 on April 11, 2015, 06:04:58 PM
When interest rates start to rise and economic conditions turn you'll be glad you didn't 'invest' in these things.
Why do you think borrowers have to turn to P2P?...they get knocked back by the usual bank channels of course...
Post by: frugaljo on April 11, 2015, 06:44:54 PM
Not really, I don't wish to see it normalised. We currently live in a rather benign period in terms of default rates. People have very short memories.thanks for the response Marty from what I have read they run the same credit checks as banks through veda, and the appeal is a lover interest rate for the borrower. (using http://www.societyone.com.au/ (http://www.societyone.com.au/) as reference.
When interest rates start to rise and economic conditions turn you'll be glad you didn't 'invest' in these things.
Why do you think borrowers have to turn to P2P?...they get knocked back by the usual bank channels of course...
I looked at these type of lending 10 years ago and looked alot less stable financial planners were setting up borrowers and investors through their practices no credit checks that I could see.
Companies like Society one and ratesetter use the same credit checks as the bank veda.
With the steady stable success in the US and England over past ten years. why can't it work in australia?
Post by: andystkilda on April 13, 2015, 03:52:05 AM
Don't need to be sophisticated to invest (lend) with them. In fact you can be a very sophisticated moron and lend all your money on there.
Post by: marty998 on April 13, 2015, 06:03:43 AM
If your money is in a term deposit with a bank you are somewhat protected by bank deposit guarantees. With P2P lenders you can lose chunks of capital and never see it again. You would hope to be substantially compensated for that risk.
Every company can cite "no defaults, no history of loss". Until it happens. Then you're left with just glossy marketing and no money.
I'm not against the concept - there is a place for it, and if it stirs up competition and innovation in the financial sector then that is a good thing. However, I'm not game to invest in it.
Post by: Wadiman on April 13, 2015, 06:05:52 AM
Post by: deborah on April 13, 2015, 11:46:33 PM
It is interesting that Marcus Padley (who I have more time for) has also written an article comparing shares and property - http://www.canberratimes.com.au/money/investing/short-term-or-long-whichever-fits-best-20150414-1mi3fq.html
Post by: superannuationfreak on April 14, 2015, 02:02:39 AM
My starting points:
- I'm aware of the likelihood of tax changes over the coming decades but not paranoid about it. "They" are not coming for my Super any more than my other assets. The plausible worst cases are restrictions or additional taxes on lump sums, or slightly later access-age but as I am planning to live a long life and will have assets outside super these make only a marginal difference. So for example, while my partner is still far from retirement and making a decent income, I think it is worth her salary sacrificing as much as possible to take advantage of the lower tax rate but we don't make much in after-tax contributions.
- I'm assuming a desire for diversification, both across countries (Australian and International Shares) and asset classes (including some bonds or cash). If we keep everything 100% in Australian Shares, for example, then there aren't so many asset location decisions to make (although if some of our assets are less passive then keeping those in super can reduce tax costs).
- I'm not focused on gearing. For those whose whose preferences and situation are such that they are willing to trade off a (hopefully small) risk of complete loss of capital for an accelerated path to financial independence only the parts on International and Australian Shares will probably be relevant. If I was borrowing for direct property (and I'm not) then I'd be inclined to do it outside Super. The costs and regulatory risks seem much higher in Super and the tax deductibility of lending more effective on a high marginal tax rate outside Super.
- I'm assuming we will also have assets outside Super. An early retiree will likely need them to ensure a desired (even if frugal) lifestyle until Superannuation "preservation age".
Those caveats out of the way, what is asset location and how does it differ from asset allocation? Asset allocation is the proportion of Australian Shares, International Shares, cash, etc. across all our accounts and is a substantial driver of risk and return in a portfolio. Asset location is figuring out which assets to put in Super and which should be held outside Super.
Once we hit preservation age, we can more-or-less freely substitute money inside and outside super. But even before then, as long as we have enough to meet current needs there is a degree of fungibility. We can, for instance if we need access to cash for spending, sell shares outside super and buy similar equities in super while keeping our overall asset allocation static.
Why should asset location matter? Largely due to different tax treatment and to a lesser extent due to the availability of online savings accounts. Briefly on the latter, online savings accounts, while not as attractive as in the past, currently give us an expected yield higher than 10-year Australian government bonds but with much lower volatility. Sure, if interest rates fall further bonds will experience capital gains but equally if interest rates rise bonds will fall in value in the short term. By being relatively small we're able to access the government guarantee on deposits which large super funds cannot. This may not continue forever but it is a good deal right now and relaxes some of the arguments below for keeping fixed interest in Super.
What are the different tax treatments?
Australian Shares: Franking Credits on Dividends, Capital Gains discount if held > 12 months.
A-REITs: A bit messy, but typically not much in the way of franking credits.
Cash and Bonds: Taxed as ordinary income.
International Shares: Withholding tax credits on Dividends, Capital Gains discount if held > 12 months.
Crudely,
Australian Shares get tax advantages inside and outside Super.
A-REITs are a pain to keep track of for tax purposes and usually get tax advantages inside Super.
Cash and Bonds get tax advantages only inside Super (while your marginal tax rate is positive).
International get tax advantages both inside and outside Super (while your marginal tax rate is positive).
Given a desired asset allocation and a current value of our Super vs. Non-Super assets where would I start. I assume a reasonable income gives a current marginal tax rate above 30% so that the tax benefits of Super can be substantial.
I'd start with any A-REITs in Super (and extend this to unlisted property and infrastructure as well as any tax-inefficient alternatives).
At the other end I'd start with Australian Shares outside Super (particularly passive index or buy-and-hold-forever strategies).
For fixed interest, if I hold Bonds I'd hold them second after REITs in Super, if Cash I'd consider the after-tax return of an online savings account vs. something close to the RBA cash rate after 15% tax (which is what our Super will probably earn in their Cash option). Cash is also handy in that you can spend it when needed without any taxable sales required, so I lean towards a decent amount outside Super.
If I have space left after REITs and considering fixed interest then International Shares are interesting for early retirement. If we are not frugal at all then either inside or outside Super is fine, as we will potentially get back withholding tax and be eligible for capital gains discounts. It may be a hassle/may not be possible to claim back more than $1,000 in foreign tax credit so I'd lean towards holding some International Shares in Super if possible.
If we are at the Senior Mustachian end of the frugality spectrum then having more of our International Shares in Super makes even more sense to me. The reason is that if we become financially independent with many years until we have access to Superannuation then our tax arrangements can invert if we stop working. That is, after capital gains discounts and franking credits, we may end up with a 0% tax rate outside Super but are still paying 15% p.a. inside Super. We cannot get back foreign withholding taxes on dividends if we don't pay any tax but our Super fund still can.
I also haven't touched on Investment, Insurance, or Imputation Bonds. These require some more individual calculations to judge their worth, particularly for early retirees where you may be on a low or 0% individual tax rate after retirement. There are pitfalls you should look into using these, and the fees are not as competitive as index ETFs or low-cost Super funds, but my understanding is when they are used correctly the tax paid within the structure (on dividends, say) is 30% minus any credits, but after 10 years there is no Capital Gains Tax payable. It seems they may be suited for high-income earners' International Share allocation with a roughly 10 or more year timeframe to retirement so I'd be interested in hearing others' views.
TL;DR, we still have a muddle which depends on individual tax situations (how long until retirement, how much taxable income needed after retirement). But for many people with early retirement planned for the next decade, say, my rule of thumb (with International Shares and Cash the main areas of doubt; maybe do a mix of both if borderline).
REITs/Alternatives first in Super
Bonds second in Super
International Shares third in Super [But some Cash or a mix may be better]
Cash in Super and/or online savings account outside Super
Australian Shares last in Super
Once in early retirement, having more of any Cash allocation outside Super may make sense, particularly if you are frugal and so have a 0% tax rate outside Super.
Post by: bigchrisb on April 14, 2015, 02:21:33 AM
For example, my holdings of GPT have been almost tax free over the last 5 years.
In reality, the best place for these investments is in a trust - that way you can stream the tax deferred income (typically 50-80%) to yourself, and leave any ordinary income at company tax rates.
Agree on most of the rest.
Post by: superannuationfreak on April 14, 2015, 02:54:57 AM
Disagree 100% on the location of A-REITS. This is because of the tax deferred and capital gains distributions received from them. If holding for the long term, these can be some of the most tax effective investments, and as such if you have to have investments in a high tax entity (such as yourself), then these are a great candidate.
For example, my holdings of GPT have been almost tax free over the last 5 years.
Thanks, perhaps I need a masterclass on the tax side! Does this work for all REITs/REIT funds/ETFs or did you select more tax-efficient individual ones? For passive REIT investments I thought most of the distributions were taxed as ordinary income, e.g. Vanguard: http://www.asx.com.au/asxpdf/20150402/pdf/42xpbp37szp067.pdf
Post by: bigchrisb on April 14, 2015, 03:16:21 AM
Also worth giving some thought to how much realised income different assets give, vs unrealised income. For example, I put my high yielding stocks in my super fund, as these are going to have income to deal with each year. Where as my low yield securities (international ETFs and low yield Aus stocks (the likes of CSL, computershare etc) in my own name, as I can choose if and then the capital gains are realised.
Post by: slothman on April 14, 2015, 04:37:34 AM
Post by: bigchrisb on April 14, 2015, 05:02:30 AM
Post by: TJEH on April 14, 2015, 06:28:06 PM
A fund of $20m is not economic for a fund manager to run, index or no index.
Hey marty998, what are your thoughts on the necessary size for a fund? I'm looking for a way to diversify away from the usual suspects that make up such a huge % of the asx200. I don't have the skill\time\inclination to try and pick individual stocks, so MVW has piqued my interest.....
Post by: superannuationfreak on April 14, 2015, 10:35:59 PM
A fund of $20m is not economic for a fund manager to run, index or no index.
Hey marty998, what are your thoughts on the necessary size for a fund? I'm looking for a way to diversify away from the usual suspects that make up such a huge % of the asx200. I don't have the skill\time\inclination to try and pick individual stocks, so MVW has piqued my interest.....
I've given some thought to ways of diversifying within the broad Shares asset class. The more rational part of my brain prefers using International Share ETFs, particularly Small Cap and/or Value. But I also suffer from some home bias and can't fully embrace this idea (although I have more International than Australian Shares exposure at present so I guess I'm some of the way there). So what to do within Australian Shares?
I originally was interested in equal or fundamentally-weighted Large Cap Index ETFs such as MVW or QOZ. But then I though more about it (and I think read a related post on the alphaarchitect blog, for full disclosure) and realised that with the products available in Australia we're actually paying a lot for not-very-much diversification (and mediocre tax efficiency if held outside Super, I expect, when the portfolio rebalances which may realise capital gains). If we look at the names and weights we're still heavily weighted towards the usual suspects, so having a little in these products isn't going to move the diversification dial much.
If the fees are 0.35-0.40% p.a. as with these ETFs, then adding a mix of 70-80% VAS and 20-30% in something 'more different' charging 1% p.a. or less is about the same cost and can get you greater diversification (in my opinion). I've used FGX and QVE for this on a very small scale (as discussed here: http://forum.mrmoneymustache.com/investor-alley/australian-investing-thread/msg445457/#msg445457 ) (but in no way endorse these; I'm not sure FGX is transparent enough for me or will be tax-efficient within the fund even though dividends will likely be franked, so may exit my small holding) and imagine the lower-cost choices will continue to grow (that's my biggest concern, actually, being 'trapped' with a large position by capital gains if/when lower-fee alternatives come along).
Post by: steveo on April 17, 2015, 06:05:09 AM
I'm starting to think I should have some foreign shares in my portfolio but I'm not sure of the best option.
Post by: DrowsyBee on April 17, 2015, 06:42:56 AM
That being said I have VTS and planning on getting VEU because I think they have a wider range of the market? That is, >200 stocks, so, >VTS.
One way I personally looked for foreign shares, actually, was to look at Malcolm Turnbull's conflict of interest register to see what he thought were good buys.
Post by: marty998 on April 17, 2015, 08:04:27 AM
A fund of $20m is not economic for a fund manager to run, index or no index.
Hey marty998, what are your thoughts on the necessary size for a fund? I'm looking for a way to diversify away from the usual suspects that make up such a huge % of the asx200. I don't have the skill\time\inclination to try and pick individual stocks, so MVW has piqued my interest.....
2 schools of thought on this. Big funds have the economies of scale necessary to reduce fees.
Small funds are nimble enough to take advantage of mispricing in the market. The ASX 200 is actually quite efficient and concentrated around the top 10 - it's very difficult for a manager to outperform over the long term. Managers generally have to go beyond the 200 in order to find opportunities. Because the market caps are so low for companies outside the 200, there's less ability for larger funds to take advantage. This is where smaller funds come into their own.
Depends what the Manager is trying to achieve... there's enough (probably too much) choice out there to meet almost any investor requirement.
If a fund carries a passive strategy, you'd want it to be as big as possible. If a fund is small, then you'd better spend some time researching the Manager's track record.
Post by: DrowsyBee on April 19, 2015, 06:49:22 PM
http://www.smh.com.au/business/the-economy/superannuation-alert-1-million-isnt-enough-to-retire-in-comfort-20150419-1modsc.html (http://www.smh.com.au/business/the-economy/superannuation-alert-1-million-isnt-enough-to-retire-in-comfort-20150419-1modsc.html)
Most retirees that are about to access their super should already have paid off homes, right? So I'd say the $40k you could get every year would be enough for a comfortable retirement. However, I'm frugal and don't even expect my Super balance to get that big, since I'm doing the bare minimum and keeping investments outside super. I'll hopefully be doing $40k a year retirement 20 years before I can even access my Super.
Post by: JamesSyd on April 20, 2015, 06:15:10 AM
Hilarious Article in the Canberra Times today.
http://www.smh.com.au/business/the-economy/superannuation-alert-1-million-isnt-enough-to-retire-in-comfort-20150419-1modsc.html (http://www.smh.com.au/business/the-economy/superannuation-alert-1-million-isnt-enough-to-retire-in-comfort-20150419-1modsc.html)
Most retirees that are about to access their super should already have paid off homes, right? So I'd say the $40k you could get every year would be enough for a comfortable retirement. However, I'm frugal and don't even expect my Super balance to get that big, since I'm doing the bare minimum and keeping investments outside super. I'll hopefully be doing $40k a year retirement 20 years before I can even access my Super.
Haha, I also saw that on one of the morning shows this morning and also thought it was pretty funny, the guy basically recited the conclusions of the article, and talked about how you need income from super to be the same amount you were earning pre-retirement. I wonder how that's meant to be possible with 9.5% contributions (haven't done the maths but seems very unlikely)
EDIT: i did the maths and with 3.5% equity risk premium, 15% contribution tax, and contributing 9.5% of salary, it would take a working career of roughly 70 years to have 25 times your income in super (assuming constant salary for entire career)
Post by: Ozstache on April 20, 2015, 06:49:30 AM
Post by: TJEH on April 20, 2015, 06:54:58 AM
I've given some thought to ways of diversifying within the broad Shares asset class. The more rational part of my brain prefers using International Share ETFs, particularly Small Cap and/or Value. But I also suffer from some home bias and can't fully embrace this idea (although I have more International than Australian Shares exposure at present so I guess I'm some of the way there). So what to do within Australian Shares?
I originally was interested in equal or fundamentally-weighted Large Cap Index ETFs such as MVW or QOZ. But then I though more about it (and I think read a related post on the alphaarchitect blog, for full disclosure) and realised that with the products available in Australia we're actually paying a lot for not-very-much diversification (and mediocre tax efficiency if held outside Super, I expect, when the portfolio rebalances which may realise capital gains). If we look at the names and weights we're still heavily weighted towards the usual suspects, so having a little in these products isn't going to move the diversification dial much.
If the fees are 0.35-0.40% p.a. as with these ETFs, then adding a mix of 70-80% VAS and 20-30% in something 'more different' charging 1% p.a. or less is about the same cost and can get you greater diversification (in my opinion). I've used FGX and QVE for this on a very small scale (as discussed here: http://forum.mrmoneymustache.com/investor-alley/australian-investing-thread/msg445457/#msg445457 ) (but in no way endorse these; I'm not sure FGX is transparent enough for me or will be tax-efficient within the fund even though dividends will likely be franked, so may exit my small holding) and imagine the lower-cost choices will continue to grow (that's my biggest concern, actually, being 'trapped' with a large position by capital gains if/when lower-fee alternatives come along).
superannuationfreak, completely agree with exposure to International ETF's. Regarding the Australian market, I have to say I'm not finding it easy to convince myself to go for an ASX200\300 index ETF. I like the notion of index investing, but all I see is impact of the top 10-20 companies and I get cold feet! Maybe I should be looking at it by thinking if those companies go downhill big time, then we are screwed anyway :)
I remember reading about equal weight S&P500 index ETF's some time ago, which is perhaps why MVW is on my radar. I thought that the equal weighting in MVW would go some way towards taking the tilt away from the usual suspects, but Interestingly enough there still seems to be ~32.7% exposure to financials and ~17.7% to materials though (VAS has 39.9% and 15.4%). Wasn't really expecting that, though I suppose it's not an equal weight ASX200\300 index (MVW is ~60 companies). Wonder how the sector breakdown would look with an equal weight ASX 200\300 index.
FGX is an interesting alternative, but much more complex than I am used to. I agree re the transparency issue, though must admit I haven't got a good handle on how my super is invested (only know that it's in growth and fi.....what's happening under the covers is unclear). Note to self! I had a peek at QVE, but need to read up a bit more.
Who know's what options are around the corner re low cost alternatives - would like to think there are more on the way but you never know how long we would be waiting.
Thanks for sharing your thoughts. Be interested to know if anyone else has my ASX200\300 index aversion!
Post by: FFA on April 20, 2015, 06:56:01 AM
I'm starting to think about the principles of asset location for the Australian prospective early-retireeHi superannuationfreak, interesting topic i never really cleared my thoughts on this and how important it is versus other areas to optimise. A few thoughts :
.....
1. Adds most value at the beginning. For people with large portfolios you might be stuck with large shifting costs, eg stamp duty, cgt etc
2. Worth adding company vs joint vs individual name for location of non super assets?
3. I focus alot on practical issues too, like holding my international shares (hedged) allocation in super since its easiest and lower cost to add regularly in small chunks.
4. Best not to skew too far as you still want adequate diversification in each bucket especially for FIRE you cant access the super til much later.
5. IMHO asset allocation is more important to get right than location.
Post by: TJEH on April 20, 2015, 07:06:54 AM
A fund of $20m is not economic for a fund manager to run, index or no index.
Hey marty998, what are your thoughts on the necessary size for a fund? I'm looking for a way to diversify away from the usual suspects that make up such a huge % of the asx200. I don't have the skill\time\inclination to try and pick individual stocks, so MVW has piqued my interest.....
2 schools of thought on this. Big funds have the economies of scale necessary to reduce fees.
Small funds are nimble enough to take advantage of mispricing in the market. The ASX 200 is actually quite efficient and concentrated around the top 10 - it's very difficult for a manager to outperform over the long term. Managers generally have to go beyond the 200 in order to find opportunities. Because the market caps are so low for companies outside the 200, there's less ability for larger funds to take advantage. This is where smaller funds come into their own.
Depends what the Manager is trying to achieve... there's enough (probably too much) choice out there to meet almost any investor requirement.
If a fund carries a passive strategy, you'd want it to be as big as possible. If a fund is small, then you'd better spend some time researching the Manager's track record.
Thanks marty998, appreciate your thoughts. I'm currently sifting through some ETF's and LIC's for some more exposure outside the top 10. Will post an update if I ever get around to making a choice!
Post by: FFA on April 20, 2015, 07:11:50 AM
I prefer the basic low cost etfs eg vas and ioz. Limited diversity in the asx leads me to hold more international shares.
I've given some thought to ways of diversifying within the broad Shares asset class. The more rational part of my brain prefers using International Share ETFs, particularly Small Cap and/or Value. But I also suffer from some home bias and can't fully embrace this idea (although I have more International than Australian Shares exposure at present so I guess I'm some of the way there). So what to do within Australian Shares?
I originally was interested in equal or fundamentally-weighted Large Cap Index ETFs such as MVW or QOZ. But then I though more about it (and I think read a related post on the alphaarchitect blog, for full disclosure) and realised that with the products available in Australia we're actually paying a lot for not-very-much diversification (and mediocre tax efficiency if held outside Super, I expect, when the portfolio rebalances which may realise capital gains). If we look at the names and weights we're still heavily weighted towards the usual suspects, so having a little in these products isn't going to move the diversification dial much.
If the fees are 0.35-0.40% p.a. as with these ETFs, then adding a mix of 70-80% VAS and 20-30% in something 'more different' charging 1% p.a. or less is about the same cost and can get you greater diversification (in my opinion). I've used FGX and QVE for this on a very small scale (as discussed here: http://forum.mrmoneymustache.com/investor-alley/australian-investing-thread/msg445457/#msg445457 ) (but in no way endorse these; I'm not sure FGX is transparent enough for me or will be tax-efficient within the fund even though dividends will likely be franked, so may exit my small holding) and imagine the lower-cost choices will continue to grow (that's my biggest concern, actually, being 'trapped' with a large position by capital gains if/when lower-fee alternatives come along).
superannuationfreak, completely agree with exposure to International ETF's. Regarding the Australian market, I have to say I'm not finding it easy to convince myself to go for an ASX200\300 index ETF. I like the notion of index investing, but all I see is impact of the top 10-20 companies and I get cold feet! Maybe I should be looking at it by thinking if those companies go downhill big time, then we are screwed anyway :)
I remember reading about equal weight S&P500 index ETF's some time ago, which is perhaps why MVW is on my radar. I thought that the equal weighting in MVW would go some way towards taking the tilt away from the usual suspects, but Interestingly enough there still seems to be ~32.7% exposure to financials and ~17.7% to materials though (VAS has 39.9% and 15.4%). Wasn't really expecting that, though I suppose it's not an equal weight ASX200\300 index (MVW is ~60 companies). Wonder how the sector breakdown would look with an equal weight ASX 200\300 index.
FGX is an interesting alternative, but much more complex than I am used to. I agree re the transparency issue, though must admit I haven't got a good handle on how my super is invested (only know that it's in growth and fi.....what's happening under the covers is unclear). Note to self! I had a peek at QVE, but need to read up a bit more.
Who know's what options are around the corner re low cost alternatives - would like to think there are more on the way but you never know how long we would be waiting.
Thanks for sharing your thoughts. Be interested to know if anyone else has my ASX200\300 index aversion!
My aversion to these etfs is more about cost actually, so i do hold many of the asx20 directly simply because i intend to hold forever (40+ yrs hopefully) and dont want to pay 0.15% p.a.
Post by: TJEH on April 20, 2015, 07:44:33 AM
I prefer the basic low cost etfs eg vas and ioz. Limited diversity in the asx leads me to hold more international shares.
superannuationfreak, completely agree with exposure to International ETF's. Regarding the Australian market, I have to say I'm not finding it easy to convince myself to go for an ASX200\300 index ETF. I like the notion of index investing, but all I see is impact of the top 10-20 companies and I get cold feet! Maybe I should be looking at it by thinking if those companies go downhill big time, then we are screwed anyway :)
I remember reading about equal weight S&P500 index ETF's some time ago, which is perhaps why MVW is on my radar. I thought that the equal weighting in MVW would go some way towards taking the tilt away from the usual suspects, but Interestingly enough there still seems to be ~32.7% exposure to financials and ~17.7% to materials though (VAS has 39.9% and 15.4%). Wasn't really expecting that, though I suppose it's not an equal weight ASX200\300 index (MVW is ~60 companies). Wonder how the sector breakdown would look with an equal weight ASX 200\300 index.
FGX is an interesting alternative, but much more complex than I am used to. I agree re the transparency issue, though must admit I haven't got a good handle on how my super is invested (only know that it's in growth and fi.....what's happening under the covers is unclear). Note to self! I had a peek at QVE, but need to read up a bit more.
Who know's what options are around the corner re low cost alternatives - would like to think there are more on the way but you never know how long we would be waiting.
Thanks for sharing your thoughts. Be interested to know if anyone else has my ASX200\300 index aversion!
My aversion to these etfs is more about cost actually, so i do hold many of the asx20 directly simply because i intend to hold forever (40+ yrs hopefully) and dont want to pay 0.15% p.a.
Thanks FFA. Your comments have made me think I might be focusing too much on how to get diversification within the ASX, rather than looking at the bigger picture. Perhaps I should just accept the ASX 200/300 indexes for what they are and (and invest accordingly), but up my allocations to international shares.
Post by: FFA on April 20, 2015, 06:30:04 PM
I view index investing as consistency over accuracy. Less important how you define the index, but more important to keep method the same forever. Therefore I gravitate to the lowest cost generic index etf and not so keen on smarter etfs or style based. I would rather just directly invest a small portion of my funds myself!
Post by: steveo on April 22, 2015, 06:43:07 AM
Spot on TJEH, that's precisely what i was trying to point out but much better articulated!
I view index investing as consistency over accuracy. Less important how you define the index, but more important to keep method the same forever. Therefore I gravitate to the lowest cost generic index etf and not so keen on smarter etfs or style based. I would rather just directly invest a small portion of my funds myself!
I agree with this however I couldn't really be bothered to try and directly invest any funds myself.
I'm still struggling though over what to be outside of the ASX and how much. Does anyone have any thoughts on this - I know that you recommended I think 50/50 but do you think the hedge Vanguard Fund options are better than the unhedged funds. Do you invest solely in the US or the world ?
Is 50/50 too much an Australia allocation. If you go 50/50 or less though are you missing out on the benefits of franked dividends.
Post by: FFA on April 22, 2015, 07:48:59 AM
For the aus part i take a low cost index etf. Eg vas or ioz. Easy.
The global is trickier. So far i have veu/vts split 55/45. I did this before vanguard introduced vgs and vgad. For my future global contributions, im inclined to go for vgs. If you want to tweak some fx hedging and emerging mkts, maybe split it vgs/vgad/ vge : 70/20/10. This could be over optimising.
In short, a simple approach vas/vgs : 50/50 is IMHO a good starting point for any hands off (lets not say lazy) investor. if you accumulate an investable size say every 3 months just alternate between these etfs. Reinvest dividends if youre still accumulating and dont need them yet as income.
Post by: steveo on April 22, 2015, 03:25:08 PM
hi steveo, i still prefer 50-50 personally.
For the aus part i take a low cost index etf. Eg vas or ioz. Easy.
The global is trickier. So far i have veu/vts split 55/45. I did this before vanguard introduced vgs and vgad. For my future global contributions, im inclined to go for vgs. If you want to tweak some fx hedging and emerging mkts, maybe split it vgs/vgad/ vge : 70/20/10. This could be over optimising.
In short, a simple approach vas/vgs : 50/50 is IMHO a good starting point for any hands off (lets not say lazy) investor. if you accumulate an investable size say every 3 months just alternate between these etfs. Reinvest dividends if youre still accumulating and dont need them yet as income.
Good points. I also think ASX allocation is easy - I'd just go VAS. I'm not a fan of over optimising and I prefer a simple approach so the 2 fund idea sounds pretty good. The only thing I don't like is the advantage of franked dividends that you get with VAS and the more overseas allocation that you have the less you get of this advantage.
I'm still thinking this all through. I'm not even ready to start making a call on this just yet as the mortgage is still being paid off but I do want a fairly clear plan by the end of this year.
My Super is a 70/30 allocation and I'm thinking of changing that to a 90/10. It splits the Australian market and the os markets about 50/50.
Post by: FFA on April 22, 2015, 03:49:42 PM
i also try to hold higher aus shares outside super and higher global in super. As per other posts on asset location.
Post by: slothman on April 22, 2015, 09:56:22 PM
There's no scientific solution
If I wanted to do more reading....is there an optimal split? Right now im 75 aus (LICs and VAS) : 25 overseas (VGS)....
P.S. when are you going to start posting on your blog again? :)
Post by: potm on April 22, 2015, 10:33:59 PM
Post by: potm on April 22, 2015, 10:36:27 PM
Post by: FFA on April 23, 2015, 01:56:24 AM
Hi Slothman, aiming to start writing again in May.... still surrounded by boxes here, our sea container arrived last week. Mmm forum has been a welcome procrastination from the joys of unpacking. I thought we werent materialistic people but i am dismayed by the amount of stuff we accumulated!There's no scientific solution
If I wanted to do more reading....is there an optimal split? Right now im 75 aus (LICs and VAS) : 25 overseas (VGS)....
P.S. when are you going to start posting on your blog again? :)
Post by: dungoofed on April 23, 2015, 03:18:09 AM
https://www.stockspot.com.au/how-it-works/portfolios/
Scroll down to the bottom, if you remove bonds and gold, the ratios for the most and least aggressive portfolios would be:
Topaz: 67% / 33% (Aussie/International)
Amethyst: 46.5% / 53.5%
To me this seems quite heavy home bias. My stock holding targets 33% Australian stocks, but I often think it is way too high considering the Australian stock market makes up 2% of the global market.
Post by: superannuationfreak on April 23, 2015, 06:04:44 AM
I'm starting to think about the principles of asset location for the Australian prospective early-retiree3. I focus alot on practical issues too, like holding my international shares (hedged) allocation in super since its easiest and lower cost to add regularly in small chunks.
.....
5. IMHO asset allocation is more important to get right than location.
Broadly agree with your last point, although there are some assets that aren't worth holding when 'taxable'.
On 3. I forgot about hedged funds, thanks; currency hedged international is definitely best held in Super as the hedging income is taxed as ordinary income in my experience. It came as a shock the first time I saw it, from memory the value of my holdings actually went down (due to share market fluctuations) but I still had to pay tax on the hedging income.
Two things related to other parts of the thread.
On ASX diversification, in Super I've considered the Colonial Wholesale version of the Realindex Australian Small Companies fund. It's definitely pricier than I'd like at 0.89% p.a. (Super version) and I think/hope cheaper alternatives will arrive over time. But it is the closest we have to a Small Value Index fund and if held in Super the fee 'lock-in' is mitigated (if something cheaper comes along and you switch your super you don't directly pay the capital gains tax in a pooled fund, it effectively gets spread over the remaining unit holders).
On International diversification there really isn't a correct answer. For maximal diversification, aim for only a few % in Australia. For maximal tax advantages a higher amount makes sense. The (expected) efficient frontier would lie somewhere in between. I personally wouldn't be comfortable with less than 30% of my equities being International, or more than 60% International. 50/50 is a pretty usable rule of thumb but whatever you choose needs to be a strategy you can stick with.
Post by: slothman on April 23, 2015, 07:23:25 AM
50/50 is a pretty usable rule of thumb but whatever you choose needs to be a strategy you can stick with.
But VGS only spits out 2% without franking credits :(
Edit: Just to confirm is the 4% SWR based on selling part of your portfolio every year to fund the difference between the 2% divs and living expenses?
Post by: steveo on April 23, 2015, 03:18:36 PM
50/50 is a pretty usable rule of thumb but whatever you choose needs to be a strategy you can stick with.
But VGS only spits out 2% without franking credits :(
Edit: Just to confirm is the 4% SWR based on selling part of your portfolio every year to fund the difference between the 2% divs and living expenses?
The 4% rule is about withdrawing that amount of money every year from your portfolio. It doesn't matter if its dividends or selling down your portfolio.
Australia though has relatively high dividends that are also franked so you might receive dividends of say $5k plus a potential tax rebate of say $2k. I think that is pretty significant.
I'm still leaning towards a 50/50 split however I can see the advantage of just doing 100% VAS.
Post by: slothman on April 23, 2015, 04:01:27 PM
I'm still leaning towards a 50/50 split however I can see the advantage of just doing 100% VAS.
I can see the advantage of international diversification but having a tough time reconciling ~5.7% gross yields offered by the ASX vs 2% yields of international index fund (VGS).
This is from the perspective of early retirement (investments held outside of super, and never having to sell assets to fund lifestyle).
I might need to overcome my fear of selling if I want to maintain a decent level of diversification and not having to amass a bigger stache than i would've if I was 100% LICs/VAS.
Edit: 5.7% grossed up yield based on 4% fully franked divs (e.g. AFI)
Post by: slothman on April 23, 2015, 04:29:42 PM
Figure 2 in the article below seems to indicate a large portion of returns from US and Japan are from capital growth.
https://www.credit-suisse.com/ch/en/asset-management/news-and-insights/insights.article.html/article/pwp/en/asset-management/2013/a-decent-dividend-yield-please.html
Post by: FFA on April 23, 2015, 05:02:09 PM
Would it be safe to say that markets like the US have a higher share price growth potential? Hence in exchange for a lower yield I can expect higher capital growth, a portion of which I can sell to fund lifestyle?yes, with much bigger sectors like IT and also healthcare. Based on history too, the breakdown of returns is more CG and less dividend in the US.
Figure 2 in the article below seems to indicate a large portion of returns from US and Japan are from capital growth.
https://www.credit-suisse.com/ch/en/asset-management/news-and-insights/insights.article.html/article/pwp/en/asset-management/2013/a-decent-dividend-yield-please.html
Australia is heavily tilted to dividends, I think due to heavy financial sector weighting (mature companies). Also i'm sure it's been pumped up further lately with companies maximising dividends at all costs to keep yield hungry investors happy.
Post by: Roundabouts on April 23, 2015, 05:22:24 PM
http://rogermontgomery.com/costly-dividends/
It is also a common theme among retirees, so there's plenty out there on the benefits and drawbacks of investing primarily for income (sorry, I don't have anything to hand).
Post by: potm on April 23, 2015, 05:42:21 PM
There is concessional treatment of dividends but it is not as good as franking credits.
Post by: slothman on April 23, 2015, 09:05:08 PM
There is concessional treatment of dividends but it is not as good as franking credits.
What kind of concessions and how does it get treated on our tax returns?
Post by: bigchrisb on April 23, 2015, 09:26:00 PM
I don't have any per-market stats on how effective it is for companies to pay out profits vs reinvesting them, but Roger Montgomery has been running a series on it recently.
http://rogermontgomery.com/costly-dividends/
It is also a common theme among retirees, so there's plenty out there on the benefits and drawbacks of investing primarily for income (sorry, I don't have anything to hand).
Its an underlying issue with dividend imputation, which means income distributed from a company gets treated at a taxpayers marginal rate. For a zero tax payer, they would be far better off getting a dividend than having profit reinvested in the company. For a high rate taxpayer, they are better off with it not distributed, and hence reinvested at the company tax rate.
For example:
A company makes $1 of profit. It pays 30 cents tax, leaving 70 cents. It can either distribute all, part or none of this 70 cents.
The company chooses to distribute the 70 cents, with a 30 cent franking credit.
Our zero tax payer (say a super fund in pension mode) gets the 70 cents, and then gets the franking credit refunded. It then has $1.00 it can spend or reinvest.
Our 49% taxpayer (high income earner) gets the 70 cents. The taxpayer owes 49 cents in tax on this money. They get a credit for the franking credit of 30 cents, and pay the remaining 19 cents. They are left with 51 cents to spend or reinvest.
Instead, our company chooses not to pay a dividend, and invests the 70 cents. The price of a share goes up by 70 cents. Our shareholders would have to sell shares to access the funds.
Our zero tax payer would sell 70c of shares. As they pay no tax, they don't pay any capital gains. They have 70 cents to spend or invest. They are worse off than if the dividend was paid.
If our 49% taxpayer wants to reinvest the money in the company (not sell the shares), they have invested 70c. They are better off than getting the dividend. If they want to spend the money, they would have 70c of capital gain to declare. Say they wait a year for the 50% discount. They would pay 17c in tax (70*.5*.49), keeping 53 cents. They are better off than being paid the dividend.
So, if your tax rate is below the company tax rate, you want the dividends to be paid. If your tax rate is above the company tax rate, you want earnings retained.
For the Australian market, the value of super funds is about the same as the total market cap. i.e. they are one of the largest and most vocal investor classes, and have tax rates well below corporate tax rates. Hence there is a strong incentive in the Australian market to have a high payout ratio, as it makes your stock more tax effective for one of your largest investor groups. Indeed, you see a lot of large cap stocks running high payout ratios, while using DRPs to provide capital for expansion.
That's a significant part of my theory as to why payout ratios in Australia are substantially higher than other jurisdictions.
Post by: dungoofed on April 23, 2015, 10:27:31 PM
One further effect is that you should see investment in growth stocks that may one day become dividend-spewing blue chips (or be bought out by an incumbent) during the accumulation phase. Indeed, I think potm has a strategy similar to this.
Post by: Roundabouts on April 23, 2015, 10:36:06 PM
Post by: steveo on April 24, 2015, 02:20:00 AM
I can see the advantage of international diversification but having a tough time reconciling ~5.7% gross yields offered by the ASX vs 2% yields of international index fund (VGS).
I'm struggling with this as well.
Post by: potm on April 24, 2015, 03:22:32 AM
A company makes $1 of profit. It pays 30 cents tax, leaving 70 cents. It can either distribute all, part or none of this 70 cents.
The company chooses to distribute the 70 cents, with a 30 cent franking credit.
Our zero tax payer (say a super fund in pension mode) gets the 70 cents, and then gets the franking credit refunded. It then has $1.00 it can spend or reinvest.
Our 49% taxpayer (high income earner) gets the 70 cents. The taxpayer owes 49 cents in tax on this money. They get a credit for the franking credit of 30 cents, and pay the remaining 19 cents. They are left with 51 cents to spend or reinvest.
Instead, our company chooses not to pay a dividend, and invests the 70 cents. The price of a share goes up by 70 cents. Our shareholders would have to sell shares to access the funds.
Our zero tax payer would sell 70c of shares. As they pay no tax, they don't pay any capital gains. They have 70 cents to spend or invest. They are worse off than if the dividend was paid.
If our 49% taxpayer wants to reinvest the money in the company (not sell the shares), they have invested 70c. They are better off than getting the dividend. If they want to spend the money, they would have 70c of capital gain to declare. Say they wait a year for the 50% discount. They would pay 17c in tax (70*.5*.49), keeping 53 cents. They are better off than being paid the dividend.
So, if your tax rate is below the company tax rate, you want the dividends to be paid. If your tax rate is above the company tax rate, you want earnings retained.
The capital gains calculation is not correct. You would only pay capital gains on the 70c you sold minus the cost base, not the entire amount. This may actually be a capital loss and decrease the amount of tax you have to pay on other gains. Still, the original 30c the company paid to the ATO is not ultilised in this scenario unless the company finds a way (see 2 lines below).
General dividends are better for ppl on lower tax brackets than higher but whether a dividend or selling shares to provide cash is more tax effective depends on the circumstance.
Overall, the most effective way for a company to distribute surplus cash is through buy backs at a discount to market value with a fully franked dividend component. This ultilises franking credits and provides them to those who can make most use of them and thus are willing to pay the highest price for the buyback, benefiting all share holders.
There's other factors to consider besides tax. It may not be tax effective to receive a dividend if you are on high income but it's still a hell of a lot better than the company blowing the surplus money on an overpriced acquisition that flops. Also dividends tend to be more stable than share prices (most of the time). This is important if you are relying solely on shares to provide your income to live. If the world goes totally insane tomorrow and share prices drop by 90%. It would be hard if you were selling shares regularly to fund your life. If the company is still able to generate profits and pay dividends as usual, then you are fine. of course shares dropping by 90% might affect the company's profits or some other event would have caused both prices and profits to go down together. We know that markets can be very irrational though, paying drastically different amounts for a dollar of earnings at different times.
Dividends are good but you shouldn't use the div yield as the only factor in judging an investment. Overseas countries tend to pay lower dividends because the tax incentives are different and as Chris mentioned, there isn't as significant ownership by lower tax bracket beneficiaries. Overall though, it is true that US stocks are more expensive than Australian shares at the moment. That may be justified based on higher growth prospects but who knows. It's hard enough to judge the growth prospects of a single company, let alone hundreds in an index. It was supposed to be passive index investing remember.
Post by: FFA on April 24, 2015, 04:35:37 AM
Share prices jump on any surprise dividend increment, or plummet on any dividend disappointment, as per bhp's previous results. What would you do if you were a ceo ? even the resources stocks who should conventionally be growth companies with high re-investment, are trying to recast themselves as dividend plays....
I really don't know if the tax considerations are such a big driver of corporate strategy, or more an afterthought. Anyway, most of the MNC's use aggressive tax minimisation to lower their tax rate to negligible :(
CSL is a great example of a growth company, well managed over the *long* term. Pays a small dividend, completely unfranked, but still a market favourite for the growth it has consistently delivered. The US market has loads of CSL's. The ASX has ..... well just CSL and perhaps a few more. If you know their names please let me know, I need some investment ideas ! :)
Post by: marty998 on April 24, 2015, 07:50:24 PM
One additional theory I have is that US executives are a little bit more entrepreneurial than their antipodean counterparts. They hence retain more profits to reinvest and grow their businesses...
Depends of course on the size of the company, it's sector, and stage of its lifecycle as FFA pointed out.
CSL is a great example of a growth company, well managed over the *long* term. Pays a small dividend, completely unfranked, but still a market favourite for the growth it has consistently delivered. The US market has loads of CSL's. The ASX has ..... well just CSL and perhaps a few more. If you know their names please let me know, I need some investment ideas ! :)
Apart from CSL we really lack quality science, tech and biotech companies.
CSL used to be a government entity - Commonwealth Serum Laboratories. Since listing on the ASX if I recall correctly it's gone on to be a 100 bagger.
I know there was a big blowup last year about budget funding for the CSIRO....perhaps if the government privatised that one... well you never know if one day it could match the phenomenal performance of CSL.
Post by: AustralianMustachio on April 26, 2015, 08:17:23 AM
However for me I'm thinking much more about an early semi retirement if anything, not a complete retirement. I do creative work which I love, however in the main it's not always paid well and I have to choose jobs I like a lot less, which pay a lot better. So I wouldn't be living 100% off the income, it would just be there to support me to choose the jobs based on what I really like and not consider the money aspect.
For my situation, and I'm sure many others are like me in the stashing stage, my portfolio is almost 100% shares. I can't see why I over the very long term, I wouldn't just be able to "safely withdraw" the dividend yield, and allow any capital gains to keep my portfolio growing over time. Yes, it will grow less than if I reinvested the dividends, but it's not going to go backwards over the long term.
In that case, with an 100% shares portfolio (say 70% Australian Shares and 30% International) with a grossed up yield of around 5%... the safe withdrawal rate should be... 5%?
So if I'm looking to semi retire with a portfolio of shares, I can actually work with a higher safe withdrawal rate, due to the franking component.
Sure, if there was a crash, the dividends might go down or dry up. But I I've read interviews with bankers etc. that in general, the companies on the ASX "know the deal" and will rather fire people than cut dividends. And if the dividends really did stop completely, it would be unlikely to affect me beyond having to pick up some less enjoyable work to make up for the lost income. Capital loss won't affect me because I'm not looking to sell down my portfolio to fund my lifestyle. All the while the portfolio is growing, and once I get older and closer to full retirement, I would gradually switch the asset classes over to more stable income assets.
So this sounds great in theory. And makes my semi retirement goal seem closer. Anyone care to point out any holes with this idea?
Post by: FFA on April 26, 2015, 08:45:34 AM
Not a hole but a clarification :
As I understand SWR it is real not nominal (after inflation), i.e. if you're assuming 5% return on investment assets and 2% inflation, then your SWR is 3%. SO when people talk 4% SWR as a rule of thumb, I understand this to be 6-7% investment return (dividend plus capital growth) minus 2-3% inflation.
Post by: slothman on April 26, 2015, 03:25:23 PM
In that case, with an 100% shares portfolio (say 70% Australian Shares and 30% International) with a grossed up yield of around 5%... the safe withdrawal rate should be... 5%?
So if I'm looking to semi retire with a portfolio of shares, I can actually work with a higher safe withdrawal rate, due to the franking component.
From what I gather the concept of SWR is based on selling down a small portion of shares to fund lifestyle. I don't feel 100% comfortable with this so I'm going to base my retirement on pure dividends only (including tax benefits of franking credits) with a cash buffer for GFC-type events.
The benefit of the franking credits is dependent on your marginal tax rate. Assuming your taxable income is less than $20k (ie your creative gig and dividends), you'll get 100% of the franking credit back as a tax refund.
Post by: happy on April 26, 2015, 03:43:16 PM
Post by: DrowsyBee on April 26, 2015, 05:36:59 PM
Post by: FFA on April 26, 2015, 06:26:20 PM
If you are confident in your assumption that companies won't backtrack on div yields, then it seems to make some sense.
Just be mindful it's an aggressive asset allocation, and you really need to be committed to stay the course. If you are unlucky and have a GFC like event around the time you are planning to retire, then that is the big risk you face. Cast your mind back 7/8 years. Are you comfortable with this risk and is it worth it for the extra 1-1.5% SWR ? That's the question i'd be asking myself....
Post by: AustralianMustachio on April 26, 2015, 06:55:34 PM
Slothman what you said was pretty much the strategy I outlined, I believe - just live off dividends and never sell.
Re: margin of safety. Using this, over the very long term I believe my margin of safety was pretty conservative - all I'm assuming is that the share portfolio grows in line with inflation over the long term. Historically they grown much more than that.
And yes this is my strategy to support me in semi retirement / the late stage of my career. When the time came for full retirement, which is still 30+ years away for me, I would look at changing the strategy to a more conservative allocation.
Also good point bringing up super. I think that would indeed provide a pretty good margin of safety. However due to being self employed now, studying for a long time before, and just working part time jobs here and there... my super is very minimal at this stage. I checked an account and it had actually gone to 0! I have to decide how I want to proceed with super being a self employed person. But I'm thinking I will try keep almost all of my portfolio outside of super, that way I can access it for my semi retirement plans, and just contribute a pretty small amount here and there and allow it to compound for a few decades before I hit the relevant age to access it.
Post by: bigchrisb on April 26, 2015, 08:06:56 PM
Slothman what you said was pretty much the strategy I outlined, I believe - just live off dividends and never sell.
Re: margin of safety. Using this, over the very long term I believe my margin of safety was pretty conservative - all I'm assuming is that the share portfolio grows in line with inflation over the long term. Historically they grown much more than that.
Basically my strategy too, with a couple more margins of safety. I'm probably over-egging the safety however.
Core FIRE income: - live off 50% of passive income (dividends / net rents) from my investments outside of super.
Safety net 1: Reinvesting 50% of passive income (dividends/net rents) outside super. If we hit financial turbulence, I'll erode some of this 50% to maintain my standard of living - i.e. maintain nominal income. Will not start increasing FIRE income again until I'm back at 50%.
Safety net 2: Assumption that dividends only increase with inflation. Historically, they have done better than that. If this continues, it will provide a real increase in FIRE income.
Safety net 3: Generate a bit of side income from some work that I find interesting, but not necessarily well paid.
Safety net 3: Super. I've been contributing the full concessional contribution to my SMSF, and intend to keep doing so until I cease employment. This will sit compounding in the background, and provide a boost if I need it come preservation age.
Safety net 4: Capital gain / capital sell down. If the above three fail, I'm yet to touch any principal. I can tap into this if needs be - hopefully it will never come to this.
Note - edited to try to come across less like bragging.
Post by: DrowsyBee on April 26, 2015, 08:53:11 PM
Post by: Coach on April 26, 2015, 10:13:39 PM
Post by: steveo on April 26, 2015, 11:24:22 PM
Couldn't we consider Superannuation as a margin of safety for early retirees? If things do go bad, odds are we'll have a few extra hundred thousand to top up with when we reach preservation age, if need be.
I definitely don't think so as I think we should all be including super in our assets for when we FIRE. If you aren't including it then I think you should be.
Post by: DrowsyBee on April 26, 2015, 11:54:11 PM
Couldn't we consider Superannuation as a margin of safety for early retirees? If things do go bad, odds are we'll have a few extra hundred thousand to top up with when we reach preservation age, if need be.
I definitely don't think so as I think we should all be including super in our assets for when we FIRE. If you aren't including it then I think you should be.
I disagree. I'm 25 and won't be able to access my superannuation for 35 years. If I were to take advantage of how superannuation is taxed and just put a bunch of money straight into super, my net worth might be a whole lot, but it sure as shit won't help me retire early. For the purposes of ER, I don't think I'll start considering it part of my net worth until I'm about 50 years old. I even think of it in some way as a large inheritance. It's something I kind of expect to come my way in the future, but I don't know how much it'll end up being or when I'll ever get it. I've seen so many changes to Super over my first 25 years of my life, and now I have to go through another 25 + 10 before I can touch it.
If I become Financially Independent and still work, I'll definitely contribute to super because there's a lot of benefit to it, but right now I don't see it as a part of my net worth.
Post by: potm on April 26, 2015, 11:57:27 PM
Achieve a passive income amount sufficient for me to live off about 50% of it and investing the other 50% and continue to max out of the concessional contribution cap in retirement.
Another thing to consider when using a dividend target is the payout level of your investments. It's very different if you're holding something like CSL compared to YMAX.
Post by: bigchrisb on April 27, 2015, 12:19:35 AM
A good reminder of the reasons for staying diversified and long in our investments!
Post by: AustralianMustachio on April 27, 2015, 01:07:36 AM
It seems a few people have similar goals to me. Using this as a strategy, the higher the dividend yield of your portfolio, the lower the actual amount of capital needs to be, and hence the time it takes to reach this amount (and FIRE) is reduced. This makes Australian high yielding shares seem much more appealing than international. However we then run into the problem of diversification.
This has been discussed at length here. I think most people concluded that somewhere between 25-50% international exposure would be enough. However 25% is obviously more appealing, since 75% Australian shares gives a much better dividend yield than 2%, and hence you don't need to amass as much capital. Even more so if you include some VHY instead of VAS.
How dangerous would it be to not have much international exposure? I know many SMSFs probably have extremely minimal international holdings. What is the risk really - that Australia enters a recession while the rest of the world's businesses do really well? I know in the other thread about mustachian philosophy in Australia, Dodge was advising that as Australians we should underweight Australia. However over the last hundred years or so the ASX has done well along the rest of the world, so along with the dividend yield, the home bias appears to be calling me!
Post by: steveo on April 27, 2015, 01:15:30 AM
Couldn't we consider Superannuation as a margin of safety for early retirees? If things do go bad, odds are we'll have a few extra hundred thousand to top up with when we reach preservation age, if need be.
I definitely don't think so as I think we should all be including super in our assets for when we FIRE. If you aren't including it then I think you should be.
I disagree. I'm 25 and won't be able to access my superannuation for 35 years. If I were to take advantage of how superannuation is taxed and just put a bunch of money straight into super, my net worth might be a whole lot, but it sure as shit won't help me retire early. For the purposes of ER, I don't think I'll start considering it part of my net worth until I'm about 50 years old. I even think of it in some way as a large inheritance. It's something I kind of expect to come my way in the future, but I don't know how much it'll end up being or when I'll ever get it. I've seen so many changes to Super over my first 25 years of my life, and now I have to go through another 25 + 10 before I can touch it.
If I become Financially Independent and still work, I'll definitely contribute to super because there's a lot of benefit to it, but right now I don't see it as a part of my net worth.
Maybe you can answer some questions to help clarify your approach.
1. Do you consider becoming FI means that you don't have to work for life ?
2. Do you believe that you will live past 60 ?
If the answer to both questions is yes then I think you have to include super. If the answer to the second question is no then super is probably meaningless for you and you shouldn't include it. If the answer to question 1 is no then I suppose you can cut it however you want too.
Post by: steveo on April 27, 2015, 01:20:55 AM
It seems a few people have similar goals to me. Using this as a strategy, the higher the dividend yield of your portfolio, the lower the actual amount of capital needs to be, and hence the time it takes to reach this amount (and FIRE) is reduced. This makes Australian high yielding shares seem much more appealing than international. However we then run into the problem of diversification.
This has been discussed at length here. I think most people concluded that somewhere between 25-50% international exposure would be enough. However 25% is obviously more appealing, since 75% Australian shares gives a much better dividend yield than 2%, and hence you don't need to amass as much capital. Even more so if you include some VHY instead of VAS.
How dangerous would it be to not have much international exposure? I know many SMSFs probably have extremely minimal international holdings. What is the risk really - that Australia enters a recession while the rest of the world's businesses do really well? I know in the other thread about mustachian philosophy in Australia, Dodge was advising that as Australians we should underweight Australia. However over the last hundred years or so the ASX has done well along the rest of the world, so along with the dividend yield, the home bias appears to be calling me!
I find this a really tough issue at this point. I lean towards a significant home bias due to the increased dividend yield and franking credits. I'm starting to think that the quickest and possibly safest path to FI is to utilise predominantly VAS and then post FI redistribute my assets more towards bonds and overseas shares.
Say I invested completely in VAS outside of super and then went for a cash back-up and then over the course of being retired put a little more into bonds and os shares. I think that this approach would be pretty robust. It might be more risky with regards to a lack of geographical diversification but the pay off for the lack of geographical diversification might mean getting to FI earlier.
Post by: terrier56 on April 27, 2015, 01:37:35 AM
Couldn't we consider Superannuation as a margin of safety for early retirees? If things do go bad, odds are we'll have a few extra hundred thousand to top up with when we reach preservation age, if need be.
I definitely don't think so as I think we should all be including super in our assets for when we FIRE. If you aren't including it then I think you should be.
I disagree. I'm 25 and won't be able to access my superannuation for 35 years. If I were to take advantage of how superannuation is taxed and just put a bunch of money straight into super, my net worth might be a whole lot, but it sure as shit won't help me retire early. For the purposes of ER, I don't think I'll start considering it part of my net worth until I'm about 50 years old. I even think of it in some way as a large inheritance. It's something I kind of expect to come my way in the future, but I don't know how much it'll end up being or when I'll ever get it. I've seen so many changes to Super over my first 25 years of my life, and now I have to go through another 25 + 10 before I can touch it.
If I become Financially Independent and still work, I'll definitely contribute to super because there's a lot of benefit to it, but right now I don't see it as a part of my net worth.
Maybe you can answer some questions to help clarify your approach.
1. Do you consider becoming FI means that you don't have to work for life ?
2. Do you believe that you will live past 60 ?
If the answer to both questions is yes then I think you have to include super. If the answer to the second question is no then super is probably meaningless for you and you shouldn't include it. If the answer to question 1 is no then I suppose you can cut it however you want too.
I think the main concern is if you are drawing down on 4% of total (Stash + Super) will this cause your stash to expire before you reach preservation age.
This is a legitimate question and one that effects me. I have runs some numbers and come up with this.
The stash to super ratio is the key.
Retire at 30 and you need a minimum stash to super ratio of 3.02 (Investment accounts outside of super > 3.02*super)
35 - 2.32
40 - 1.74
45 - 1.25
50 - 0.86
55 - 0.54
If you get to these amounts then you are out of the woods when it comes to not drawing your stash dry.
Post by: happy on April 27, 2015, 03:55:28 AM
Currently I'm running 50:50 Aussie:international shares in my super fund. This year I'm planning to change to SMSF…think I've learnt enough to feel up to the job. I'm appreciating the conversation about this. My desired proportion of Aussie dividend shares is one thing I'm considering. At the moment I don't even know what makes up "Aussie shares" with any accuracy. The other annoying thing is that I can't readily tell how much return I'm getting in dollar terms unless I calculate it, because the fund tells me x is returning y%PA, and does not clarify the amount in $terms with regard to capital gain/dividend yield on my statement. I can do the math to calculate return, but not see what it is made up of.
edit last 2 sentences to more clearly reflect the issue
Post by: DrowsyBee on April 27, 2015, 05:59:08 AM
Maybe you can answer some questions to help clarify your approach.
1. Do you consider becoming FI means that you don't have to work for life ?
2. Do you believe that you will live past 60 ?
If the answer to both questions is yes then I think you have to include super. If the answer to the second question is no then super is probably meaningless for you and you shouldn't include it. If the answer to question 1 is no then I suppose you can cut it however you want too.
1. Yes
2. Yes
The thing that gets me is exactly what Terrier56 said. For myself, I want to be able to do things like eventually buy a house and have access to my investments. It would be unwise to put as much as possible into super, but I need a stash that lasts, for instance, the years between 40/45-60. Maybe it requires a lot of running the maths. This brings me to the next post.
I think the main concern is if you are drawing down on 4% of total (Stash + Super) will this cause your stash to expire before you reach preservation age.
This is a legitimate question and one that effects me. I have runs some numbers and come up with this.
The stash to super ratio is the key.
Retire at 30 and you need a minimum stash to super ratio of 3.02 (Investment accounts outside of super > 3.02*super)
35 - 2.32
40 - 1.74
45 - 1.25
50 - 0.86
55 - 0.54
If you get to these amounts then you are out of the woods when it comes to not drawing your stash dry.
So, say I need $500,000 to retire at 45 with $20,000 a year, this would mean I need the total stash + super to equal $500,000. Then I'd need >$325,000 in investments and $250,000 in super?
Post by: happy on April 27, 2015, 06:07:43 AM
Post by: This_Is_My_Username on April 27, 2015, 06:09:08 AM
It seems a few people have similar goals to me. Using this as a strategy, the higher the dividend yield of your portfolio, the lower the actual amount of capital needs to be, and hence the time it takes to reach this amount (and FIRE) is reduced. This makes Australian high yielding shares seem much more appealing than international. However we then run into the problem of diversification.
This has been discussed at length here. I think most people concluded that somewhere between 25-50% international exposure would be enough. However 25% is obviously more appealing, since 75% Australian shares gives a much better dividend yield than 2%, and hence you don't need to amass as much capital. Even more so if you include some VHY instead of VAS.
How dangerous would it be to not have much international exposure? I know many SMSFs probably have extremely minimal international holdings. What is the risk really - that Australia enters a recession while the rest of the world's businesses do really well? I know in the other thread about mustachian philosophy in Australia, Dodge was advising that as Australians we should underweight Australia. However over the last hundred years or so the ASX has done well along the rest of the world, so along with the dividend yield, the home bias appears to be calling me!
I find this a really tough issue at this point. I lean towards a significant home bias due to the increased dividend yield and franking credits. I'm starting to think that the quickest and possibly safest path to FI is to utilise predominantly VAS and then post FI redistribute my assets more towards bonds and overseas shares.
Say I invested completely in VAS outside of super and then went for a cash back-up and then over the course of being retired put a little more into bonds and os shares. I think that this approach would be pretty robust. It might be more risky with regards to a lack of geographical diversification but the pay off for the lack of geographical diversification might mean getting to FI earlier.
I'm in the same spot. I love australia's high dividend yields + franking. It makes my FIRE target lower.
ASX will be fine, surely nothing bad will happen. : |
Post by: This_Is_My_Username on April 27, 2015, 06:18:48 AM
here is an example: from the attachment.
At age 40, you spend 32,094 per year. So your FIRE number is 802,353.
You could have 802,353 outside super and you are FIRE.
But instead you could also have 457,819 Outside, and 374,485 Inside super. This is easier to acquire than 802,353 outside super.
Plagiarised from Notch
Post by: steveo on April 27, 2015, 07:03:52 AM
For myself, I want to be able to do things like eventually buy a house and have access to my investments. It would be unwise to put as much as possible into super, but I need a stash that lasts, for instance, the years between 40/45-60. Maybe it requires a lot of running the maths. This brings me to the next post.
.....
So, say I need $500,000 to retire at 45 with $20,000 a year, this would mean I need the total stash + super to equal $500,000. Then I'd need >$325,000 in investments and $250,000 in super?
The point is that your total stash remains the same. You just need a certain amount outside of super.
This is easier to acquire than 802,353 outside super.
Yep. This is a key point. You may as well use super. You just can't have all your money in there.
Post by: steveo on April 27, 2015, 07:05:39 AM
I'm in the same spot. I love australia's high dividend yields + franking. It makes my FIRE target lower.
ASX will be fine, surely nothing bad will happen. : |
There is an advantage isn't there. As for something bad happening to the ASX it could definitely happen. The question is though what is the chance of the ASX going bad whilst the rest of the world is fine. I think that is pretty unlikely.
Post by: FFA on April 27, 2015, 07:28:25 AM
on the issue of super, I approached it like drowsybee. retiring pre-40, I exclude super from my NW and treat it as safety margin. Conservative, but that's in my nature.
on the issue of dividend investing and asset allocation. I do agree the high asx yield and franking credits make it attractive to home bias, the difficult part is by how much.... however i'd caution against allocating based on dividend yield alone to bring forward FIRE dates. Need to consider overall returns, ie. capital growth, as well as exchange rate risk, diversification, etc. Yes we have discussed this at length already!
I noticed sunsuper recently came out with some revised asset allocations for their diversified mixes and have increased ratio of international:asx.
Post by: slothman on April 27, 2015, 12:07:28 PM
on the issue of super, I approached it like drowsybee. retiring pre-40, I exclude super from my NW and treat it as safety margin. Conservative, but that's in my nature.
I'm more of a realist. Preservation age will likely get raised to something like 65 with a whole bunch of new access restrictions added in. I too am looking to be FIRE pre-40, and as such exclude super from my NW.
I'll have a very strong home bias due to higher yields and franking credits but will still have an allocation (likely 25-30%) of unhedged international shares for diversification and rebalance yearly if it falls out of target allocation range.
Have a look at page 12 for risk/return of various allocations.
https://static.vgcontent.info/crp/intl/auw/docs/resources/plain-talk-guides/ptg_realisticexpectations.pdf?20150422|114500
Have a look at the table on page 4 for which asset class performed the best over previous years:
https://www.vanguardinvestments.com.au/adviser/adv/campaign/index_chart.pdf
Also it's great to see that major international markets don't have a strong correlation with Australia, e.g. USA/UK/Japan. see figure 1 :
https://static.vgcontent.info/crp/intl/auw/docs/literature/research/the-role-of-global-equities-for-australian-investors-brief.pdf
International/US shares have outperformed Australian shares from about 2012-2014. Would've been great to ride that boom and sell some of the gains during the yearly rebalance to divert some funds towards Aussie shares that have been lagging (but still produce good yields).
Post by: happy on April 27, 2015, 03:21:17 PM
see the attachment for an easy calculation of inside/outside super.Thanks TIMU, this makes more sense to me.
here is an example: from the attachment.
At age 40, you spend 32,094 per year. So your FIRE number is 802,353.
You could have 802,353 outside super and you are FIRE.
But instead you could also have 457,819 Outside, and 374,485 Inside super. This is easier to acquire than 802,353 outside super.
Plagiarised from Notch
Post by: dungoofed on April 27, 2015, 04:22:46 PM
I can see many reasons not to. But their passing if it happened today could possible catapult one into FIRE immediately, or at the worst case it throws a lot of the numbers off, including the "how much to have in super" figure.
Post by: DrowsyBee on April 27, 2015, 04:28:31 PM
Except that 325 +250 is 575k i.e. @4%WR = 23k/yr, but @3.5% its pretty close to 20k. But as far as the math goes, yes thats the way I read terriers post.Thanks. My calculation was done in bed and I couldn't be bothered to find anything closer to $500k at that ratio. All right, this is starting to make sense.
see the attachment for an easy calculation of inside/outside super.Wow, thanks for this. I might have to tinker with this spreadsheet for a while to find some different figures, etc. But this is great.
here is an example: from the attachment.
At age 40, you spend 32,094 per year. So your FIRE number is 802,353.
You could have 802,353 outside super and you are FIRE.
But instead you could also have 457,819 Outside, and 374,485 Inside super. This is easier to acquire than 802,353 outside super.
Plagiarised from Notch
The point is that your total stash remains the same. You just need a certain amount outside of super.Ok, for the most part I now consider you right, Steveo, and I'm definitely thinking of contributing money to super, as I've always understood the part about accumulating wealth in super rather than out of. However, there is still the uncertainty of the preservation age. Definitely going to put some working on this subject into my journal now.This is easier to acquire than 802,353 outside super.Yep. This is a key point. You may as well use super. You just can't have all your money in there.
But, for those familiar, this is my month where I'm not checking anything to do with my current net worth. So I'm putting this on hold for two days. Good talk.
Post by: DrowsyBee on April 27, 2015, 04:42:13 PM
Grim question, do you guys include your share of your parents' estate in any of your FIRE calculations?Nope. Impossible to predict timing or amount. I want my philosophy towards FIRE to be of my own doing, and while it would definitely boost numbers, I don't want to think of myself as having relied on someones estate to get there. The only thing I can think I would add regarding early retirement and the passing of parents would be that, if I haven't already, something like that would certainly trigger early retirement, if I'm not there yet.
I can see many reasons not to. But their passing if it happened today could possible catapult one into FIRE immediately, or at the worst case it throws a lot of the numbers off, including the "how much to have in super" figure.
Post by: FFA on April 27, 2015, 05:31:30 PM
International/US shares have outperformed Australian shares from about 2012-2014. Would've been great to ride that boom and sell some of the gains during the yearly rebalance to divert some funds towards Aussie shares that have been lagging (but still produce good yields).a big driver is the AUD falling back to earth, giving international shares (unhedged) a huge tailwind in recent years. It might have some way to fall further yet, but I would expect the majority of the move is done now. Therefore less FX assistance to international going forwards.
Dungoofed, parent's estate : nope. Logically it might make sense to incorporate, but yeah it's grim and unpleasant. Another one I just throw in the safety margin...
Post by: bigchrisb on April 27, 2015, 05:43:40 PM
Grim question, do you guys include your share of your parents' estate in any of your FIRE calculations?
I can see many reasons not to. But their passing if it happened today could possible catapult one into FIRE immediately, or at the worst case it throws a lot of the numbers off, including the "how much to have in super" figure.
I don't. My parents are comfortable in their retirement, and naturally frugal. At the moment I'm trying to encourage them to enjoy more of their funds - both my sister and I are able to take care of ourselves. Never the less, there will likely be some form of inheritance at some stage. My intent is to have that invested and passed through to the next generation. I don't need it, and if I counted it in my FIRE metrics, I'd probably be lazier than I am.
Interested to see others viewpoints.
Post by: potm on April 27, 2015, 06:07:01 PM
The higher payout ratio is not by itself an advantage, the franking tax treatment is though.
With salary sacrificing into super, from what I've seen, it takes about two weeks from my pay date until the contribution hits my super account. From what I understand the concensional limit counts on when the money actually enters the super fund. This can potentially make it tricky to max out super contributions exactly each year. Anyone have any experiences?
Post by: FFA on April 27, 2015, 06:25:49 PM
Quote
I said at the beginning that the ‘search for yield’ continues. There is a line of discussion that tackles this issue from a cyclical point of view, thinking about how the balance sheet measures taken by the major central banks are affecting markets, the extent and nature of cross-border spillovers, what happens when the US Federal Reserve starts to tighten policy at some point and so on. I’ve spoken about such things elsewhere and have nothing to add today.- Glenn stevens in a speech today
There is another conversation, however, that tends to take place at a lower volume, but which definitely needs to be had. That conversation is about what all this means for the retirement income system over the longer run. The key question is: how will an adequate flow of income be generated for the retired community in the future, in a world in which long-term nominal returns on low-risk assets are so low? This is a global question. Just about everywhere in the world the price of buying a given annual flow of future income has gone up a lot. Those seeking to make that purchase now – that is, those on the brink of leaving the workforce – are in a much worse position than those who made it a decade ago. They have to accept a lot more risk to generate the expected flow of future income they want.
The problem must be acute in Europe, where sovereign yields in some countries are negative for significant durations. But it is also potentially a non-trivial issue in our own country. In a conference about wealth, this might be a worthy topic of discussion
Post by: potm on April 27, 2015, 10:42:14 PM
In fact they'll be the greatest beneficiaries of inflated asset prices if they had been buying over the course of their careers.
Higher asset prices hurt those who still have a lot of accumulating to do the most as well as those who have just stayed in cash and are trying to retire on interest from cash.
Post by: happy on April 27, 2015, 10:55:27 PM
Post by: terrier56 on April 27, 2015, 11:52:35 PM
QuoteI said at the beginning that the ‘search for yield’ continues. There is a line of discussion that tackles this issue from a cyclical point of view, thinking about how the balance sheet measures taken by the major central banks are affecting markets, the extent and nature of cross-border spillovers, what happens when the US Federal Reserve starts to tighten policy at some point and so on. I’ve spoken about such things elsewhere and have nothing to add today.
There is another conversation, however, that tends to take place at a lower volume, but which definitely needs to be had. That conversation is about what all this means for the retirement income system over the longer run. The key question is: how will an adequate flow of income be generated for the retired community in the future, in a world in which long-term nominal returns on low-risk assets are so low? This is a global question. Just about everywhere in the world the price of buying a given annual flow of future income has gone up a lot. Those seeking to make that purchase now – that is, those on the brink of leaving the workforce – are in a much worse position than those who made it a decade ago. They have to accept a lot more risk to generate the expected flow of future income they want.
The problem must be acute in Europe, where sovereign yields in some countries are negative for significant durations. But it is also potentially a non-trivial issue in our own country. In a conference about wealth, this might be a worthy topic of discussion
I think it's funny that the only thing that is considered to support retirees are low risk low return assets. I guess it's right if they can't simply go back to work like some of us will be able to..
- Glenn stevens in a speech today
Post by: dungoofed on April 28, 2015, 12:26:08 AM
For example, I don't think I'd ever buy REITS or property because like many baby-boomers in Australia my parents (and therefore me too, by proxy) have sufficient exposure.
Also, while there are certain features of superannuation that make it more predictable (until it's not - heh), the way you think about an inheritance has some overlap with the way you think about superannuation. One is the "sudden windfall" aspect of both. For some people the amount bequeathed would be much larger than what they expect to be able to have in super at preservation age. This money has the ability to make a massive difference in your life, especially among the MMM/ERE crowd.
I guess like super, it probably will influence certain decisions but ultimately no absolute decisions can be made based on the amount tied up in either.
Post by: This_Is_My_Username on April 28, 2015, 02:48:40 AM
It could be taken into account if there was more certainty, e.g. an annual 'gifting' plan from the parents.
Post by: steveo on April 28, 2015, 04:57:11 AM
No to including any possible inheritance. Yes to grim and unpleasant. Could be very little and I don't know when. I like to look after myself, and if there is a little something, I'll invest it to pass on to my offspring at some point.
I don't include inheritance but my in-laws would have like $20 million easy to be split amongst 4 kids. My parents would have say $2-3 million amongst 3 kids. If I include it I'd be reverse mortgaging and partying right now.
It could all though disappear so I don't trust it one little bit.
Post by: AustralianMustachio on April 28, 2015, 10:33:34 PM
Vanguard international shares numbers since inception:
Hedged
Gross: 6.04 Distribution: 5.67 Growth: -0.58
Unhedged
Gross: 4.24 Distribution: 1.25 Growth: 2.06
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/viisf.pdf?20150428|091500
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vihisf.pdf?20150428|091500
Post by: superannuationfreak on April 28, 2015, 11:26:41 PM
Talking of dividend yields, can anyone explain why the hedged version of Vanguard's International Shares have paid out such a higher proportion of dividends vs the unhedged? I thought international shares paid out much less dividends than Australian shares. Is it to something do with the hedging, that some of the return gets converted to income?
Yes, the hedging of the hedged funds is done using currency derivatives and such gains in the fund are (in my experience) usually taxed as ordinary income. As mentioned earlier in the thread, currency hedged international shares are best held in Super.
Post by: dungoofed on April 29, 2015, 05:23:50 PM
http://www.gocurrycracker.com/go-curry-cracker-2014-taxes/
he talks about two things, and I want to know whether there is something similar in Australia.
1) Moving money from Traditional Roth to Roth IRA ("Roth Conversion"). This would be similar to taking money out of Super before preservation age and being taxed on it now, except because your marginal tax rate is zero you don't pay any tax.
2) Capital gains harvesting. From what I understand this is selling and re-purchasing stock in taxable accounts in order to increase the cost basis, but paying no CGT.
My first thought is that these two tweaks are specific to the US and that capital gains in Australia are never taxed at marginal tax rates, but would be keen to have this confirmed.
Post by: This_Is_My_Username on April 30, 2015, 12:24:56 AM
Quote
1) Moving money from Traditional Roth to Roth IRA ("Roth Conversion"). This would be similar to taking money out of Super before preservation age and being taxed on it now, except because your marginal tax rate is zero you don't pay any tax.
2) Capital gains harvesting. From what I understand this is selling and re-purchasing stock in taxable accounts in order to increase the cost basis, but paying no CGT.
(1) is impossible for australians, except in exceptional circumstances. see here:
http://www.superguide.com.au/accessing-superannuation/accessing-super-early/legal-reasons-to-cash-your-super
(2) That is a wash sale and is illegal in Australia. Also, if it was legal, CGT would be payable.
http://law.ato.gov.au/atolaw/view.htm?DocID=TPA/TA20087/NAT/ATO/00001
Post by: FFA on April 30, 2015, 12:37:30 AM
[ edit to strikeout after reading the ato link more closely ]
Post by: dungoofed on April 30, 2015, 12:43:57 AM
Post by: superannuationfreak on April 30, 2015, 06:04:06 AM
Regarding CG harvesting
The main way tax gain harvesting can be useful is if you have a very low income tax year, for example if taking time off for travel, study or family.
One thing we don't get from tax loss harvesting that the US does is they can deduct 3000p.a. in capital losses from their ordinary income. We can only offset against capital gains. It can be useful for rebalancing I guess (which I'd still often prefer to do in super), but generally I'd like those capital gains to keep compounding before I pay tax on them.
Post by: FFA on April 30, 2015, 07:31:20 AM
rebalancing, yeah best done in super and also by reallocating new funds to losers so you avoid selling anything
Post by: nonsequitur on April 30, 2015, 10:27:23 PM
Quote
2) Capital gains harvesting. From what I understand this is selling and re-purchasing stock in taxable accounts in order to increase the cost basis, but paying no CGT.
(2) That is a wash sale and is illegal in Australia. Also, if it was legal, CGT would be payable.
http://law.ato.gov.au/atolaw/view.htm?DocID=TPA/TA20087/NAT/ATO/00001
I looked at the link in (2) and it seems to be only illegal in the case of a loss. In the ATO ruling TR 2008/1,
Quote
8. The class of persons to which this Ruling applies are all taxpayers that obtain a taxation benefit in the form of:.
(i)
a capital loss; or
(ii)
an allowable deduction,
in connection with a wash sale.
Avoiding capital gains is not a capital loss. But maybe there's something in the actual Act (which I haven't read), which contradicts this. Also, it's important to note that the ATO wash-sale examples rely on judgment of intent to determine a wash sale. In the US, re-purchasing the same asset after 30 days eliminates the wash sale condition.
Post by: deborah on April 30, 2015, 11:19:01 PM
Post by: AustralianMustachio on May 01, 2015, 12:47:03 AM
"Impact of house price falls on other assets"
https://www.nabtrade.com.au/insights-and-ideas/insights/news/2015/04/impact_of_house_pric
Post by: misterhorsey on May 01, 2015, 03:28:11 AM
Found this article quite interesting. The table at the bottom about how a fall in house prices of around 20% would affect other asset classes, i found especially interesting. Drives home the case for investing internationally, if such an event where to materialise
"Impact of house price falls on other assets"
https://www.nabtrade.com.au/insights-and-ideas/insights/news/2015/04/impact_of_house_pric
My gut feeling is that there will be some kind of negative correction for property in real terms, over time. Nominal prices may stay the same for an extended period. My justification is that it will simply be an eventual reversion to the mean, aided by eventual increase in interest rates to a more normal setting - eventually.
This has motivated me to lock in some profits on my (relatively small) direct holdings in banks and shift more of my investments offshore via the vanguard wholesale high growth fund, which includes some 40% international shares.
Will I be right about the property market? Who knows?
Is my strategy to diversify away from Australia a good strategy? I think it is. So even if my initial rationale could be like soothsaying and ultimately misguided, I think it is motivating me to make some sensible decisions re: diversification.
Post by: DrowsyBee on May 01, 2015, 11:49:43 PM
Does everyone here have accountants to do their taxes and whatnot? If so, how much does it generally cost?
I'm thinking about using one this year to help with dealing with franking credits and to give me pointers for future tax returns. Is this something they do?
Post by: marty998 on May 02, 2015, 01:51:57 AM
Your dividend statements for each payment will show the components - franked, unfranked and franking credits.
In the dividend section of etax just input those components in and it will work it all out for you.
The franking credits are added to your cash dividend income and form part of your "total income". After deductions you get your taxable income which you are taxed on.
The franking credit is then offset against your total tax payable (much like your PAYG tax on salary).
Nuttin' to it!
Post by: DrowsyBee on May 02, 2015, 03:11:10 AM
The main thing is I don't know what I don't know.
Post by: bigchrisb on May 02, 2015, 04:08:00 AM
Between my own returns, my trust, company, and SMSF, I spend a few thousand a year with him. Its certainly not cheap, but I feel I get value from it for now.
Post by: marty998 on May 02, 2015, 05:08:58 AM
I use an accountant. However, each year I've done my returns prior to taking them to the accountant. Most years I've also come up with a list of ideas and strategies I'd like to implement. Most of the things I come up with are within the tax law, some cross the line. I pay my accountant to tell me when I'm getting too close to the line, and to keep myself legal/compliant. To be fair, my accountant has also contributed a few significant ideas and concepts too.
Between my own returns, my trust, company, and SMSF, I spend a few thousand a year with him. Its certainly not cheap, but I feel I get value from it for now.
Only a few thousand? So I guess that means you're not one of those 75 people who have total incomes over a million and have reduced their taxable incomes to nil with the "cost of managing tax affairs" deduction? :)
The main thing is I don't know what I don't know.
If you've only got "individual" tax affairs, then there's enough info on the ATO website to get you through. Add in a Company, Trust, business etc and yeah there's a need to start getting experts involved.
Gotta find an accountant who is good at structuring your tax affairs, and not one who is just happy to sort out tax returns after the fact.
Most people only talk to their accountants in July-October. The right time to do it is April-June, because there's never a lot of scope to back-date transactions into a prior financial year.
Post by: JamesSyd on May 02, 2015, 09:22:58 PM
http://www.smh.com.au/nsw/the-creeping-danger-of-australian-households-love-affair-with-credit-20150501-1mx5a5.html
Post by: misterhorsey on May 03, 2015, 12:50:08 AM
A fun read from the Sydney morning Herald:
http://www.smh.com.au/nsw/the-creeping-danger-of-australian-households-love-affair-with-credit-20150501-1mx5a5.html
Woah
Post by: steveo on May 03, 2015, 02:09:05 AM
Post by: JamesSyd on May 03, 2015, 02:24:03 AM
Those figures are a little funny. I don't believe that is the average in Sydney. That is for people who are financially stressed and I think its predominantly because of the low income.
Yeah, I agree. I thought the income was on the low side in that example slideshow thing.
Although the more meaningful numbers are probably from the Wesley Report: Facing Financial Stress:
"The proportion of technically insolvent households had increased from three in 10 to almost four in 10 between 2010 and 2014"
I'm not exactly sure what they mean by "technically insolvent," but I assume it means household net income is less than expenses. That is kind of scary, 40%!
Post by: steveo on May 03, 2015, 02:32:42 AM
Those figures are a little funny. I don't believe that is the average in Sydney. That is for people who are financially stressed and I think its predominantly because of the low income.
Yeah, I agree. I thought the income was on the low side in that example slideshow thing.
Although the more meaningful numbers are probably from the Wesley Report: Facing Financial Stress:
"The proportion of technically insolvent households had increased from three in 10 to almost four in 10 between 2010 and 2014"
I'm not exactly sure what they mean by "technically insolvent," but I assume it means household net income is less than expenses. That is kind of scary, 40%!
I don't like those figures or the article because it doesn't explain the situation in the right detail so it becomes meaningless. If it stated this is the average scenario from families that are coming to use for assistance then it makes sense.
Post by: marty998 on May 04, 2015, 01:53:53 AM
Too early to say the good times are over but it seems like a pretty odd result given the run-up in investor loans (WBC getting the lions' share of them). I can't seem to work it out - analyst pack of 140 pages said nothing basically.... lots of pretty graphs, no real explanation why there was no profit growth.
ANZ and NAB to report this week, are the good times over?
Post by: potm on May 04, 2015, 02:06:08 AM
First result is a freeby, wasn't your fault.
Post by: bigchrisb on May 04, 2015, 02:07:16 AM
Post by: marty998 on May 04, 2015, 04:54:40 AM
Contrast it with CBA when Ian Narev took over... profits went up more
Post by: Eamesy on May 04, 2015, 05:44:25 AM
Post by: AustralianMustachio on May 04, 2015, 06:01:48 AM
I haven't looked at WBC's result but have a pretty good explanation. New CEO. Gotta leave some room for growth in the future.
First result is a freeby, wasn't your fault.
Are you guys suggesting he deliberately delivered a bad result to begin with, in order to give himself some breathing space later?
Wow
Post by: DrowsyBee on May 04, 2015, 06:15:03 AM
Post by: dungoofed on May 04, 2015, 08:06:58 AM
Post by: potm on May 04, 2015, 11:37:40 PM
Sharemarket initially spiked up then quickly did a u-turn.
I'm happy about it though, lower interest on my loan as well as more spending power on my money.
Post by: bigchrisb on May 04, 2015, 11:59:31 PM
While this is curious, its not going to change my strategy - the saving on interest will just get tipped into the stash (debt paydown).
What I don't understand is how wide the yield differential is between stocks and home loans at the moment. I'm borrowing money at 4.04% after this cut. The yield on the broad Australian stock market is currently about 4.4%. Add in the franking credits, and its just over 6%. So, borrowing money to invest in stocks nets 2% positive income. I can't see how that is sustainable - either prices will be bid up to close that gap, or Mr Market is expecting a) dividends to fall, b) interest rates to rise, or c) pricing in a high likelihood of capital loss.
I'm fully intending on sticking with the DRP/BSPs, and knocking down my debt load with my savings.
Post by: potm on May 05, 2015, 01:44:42 AM
Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will continue to assess the case for such action at forthcoming meetings.
Most likely the reason for the reversal on the sharemarket and aud. We'll probably be on 2% for a while now.
Post by: marty998 on May 05, 2015, 04:59:17 AM
Cash rate with a 1 in front of it is probably more likely to scare the punters (oh no the economy really is collapsing) rather than stimulate them to spend more.
Post by: JamesSyd on May 05, 2015, 05:39:51 AM
Yep, I'm also somewhat perplexed - interest rate down, stocks down, currency up. Not the standard reaction!
While this is curious, its not going to change my strategy - the saving on interest will just get tipped into the stash (debt paydown).
What I don't understand is how wide the yield differential is between stocks and home loans at the moment. I'm borrowing money at 4.04% after this cut. The yield on the broad Australian stock market is currently about 4.4%. Add in the franking credits, and its just over 6%. So, borrowing money to invest in stocks nets 2% positive income. I can't see how that is sustainable - either prices will be bid up to close that gap, or Mr Market is expecting a) dividends to fall, b) interest rates to rise, or c) pricing in a high likelihood of capital loss.
I'm fully intending on sticking with the DRP/BSPs, and knocking down my debt load with my savings.
I think a) and c) are pretty much the same thing. If corporate profits fall one or both will happen.
Do you have any historical numbers of the difference between a mortgage rate and stock market yield? I'd be interested to see, should be somewhat related to equity risk premium.
To me the difference doesn't seem that attractive atm. I would not want to take the risk of borrowing money at 4% for a very flakey 2% extra yield given the state of the economy and how shaky things are starting to feel. But I'm probably just paranoid.
Post by: slothman on May 05, 2015, 05:54:43 AM
What I don't understand is how wide the yield differential is between stocks and home loans at the moment. I'm borrowing money at 4.04% after this cut. The yield on the broad Australian stock market is currently about 4.4%.
Hi bigchrisb, I'll be borrowing at 4.16% after the cut. Your 4.04% is dang impressive!
Just wondering where you got the 4.4% dividend from, because according to the "Average P/E ratios and average dividend yield" on the following link
http://www.afrsmartinvestor.com.au/share-tables/
All Ords appear to be yielding < 4%. Additionally, the large LICs such as AFI/ARG/MLT are also < 4% net yields. I agree with you point about current yields and mortgage rates though. Still positive cashflow after taking into account franking credits.
Seems like everyone is using the easy money to bid up property prices. Whereas I've been releasing equity from my property portfolio to invest into shares...seems as though I'm swimming against the tide. Could be a good thing, or I could get wiped out. Fingers crossed I'm onto a good thing!
edit: make that 4.21% after the cut! greedy CBA only passing on 0.20% of the RBA cut
Post by: FFA on May 05, 2015, 07:42:47 AM
Maybe its a good thing rba now signals 2 might be a bottom, if not i fear the asset bubbles steadily building everywhere and ever wider income inequality.
Personally im holding a decent cash balance despite interest being a pittance. I could be wrong, but i expect some market wobbles in the next year or two as this unconventional monetary policy inevitably unwinds....
Post by: dungoofed on May 05, 2015, 10:33:09 AM
Yep, I'm also somewhat perplexed - interest rate down, stocks down, currency up. Not the standard reaction!
While this is curious, its not going to change my strategy - the saving on interest will just get tipped into the stash (debt paydown).
What I don't understand is how wide the yield differential is between stocks and home loans at the moment. I'm borrowing money at 4.04% after this cut. The yield on the broad Australian stock market is currently about 4.4%. Add in the franking credits, and its just over 6%. So, borrowing money to invest in stocks nets 2% positive income. I can't see how that is sustainable - either prices will be bid up to close that gap, or Mr Market is expecting a) dividends to fall, b) interest rates to rise, or c) pricing in a high likelihood of capital loss.
I'm fully intending on sticking with the DRP/BSPs, and knocking down my debt load with my savings.
I think a) and c) are pretty much the same thing. If corporate profits fall one or both will happen.
Do you have any historical numbers of the difference between a mortgage rate and stock market yield? I'd be interested to see, should be somewhat related to equity risk premium.
To me the difference doesn't seem that attractive atm. I would not want to take the risk of borrowing money at 4% for a very flakey 2% extra yield given the state of the economy and how shaky things are starting to feel. But I'm probably just paranoid.
I think this is another example of how the government has fucked themselves with franking credits. 6% is almost three times what 10 year bonds are yielding!
Post by: idjces on May 05, 2015, 12:29:05 PM
Ordinary result from Westpac today... flat profit as compared to prior period.
Too early to say the good times are over but it seems like a pretty odd result given the run-up in investor loans (WBC getting the lions' share of them). I can't seem to work it out - analyst pack of 140 pages said nothing basically.... lots of pretty graphs, no real explanation why there was no profit growth.
ANZ and NAB to report this week, are the good times over?
I was expecting the good times to be over for the big 4, in the reports 6 months ago. Mortgage rates and interest margins being slashed, huge sums of money being handed out in sign up bonuses and interest free periods, unemployment soaring. The banks having to issue shares at a discount and then some. ANZ was the only one to meet those low expectations, before CBA's results threw that theory out the window.
Now westpac's recent results are more in line with the theory.
Post by: bigchrisb on May 05, 2015, 03:48:45 PM
What I don't understand is how wide the yield differential is between stocks and home loans at the moment. I'm borrowing money at 4.04% after this cut. The yield on the broad Australian stock market is currently about 4.4%.
Hi bigchrisb, I'll be borrowing at 4.16% after the cut. Your 4.04% is dang impressive!
Just wondering where you got the 4.4% dividend from, because according to the "Average P/E ratios and average dividend yield" on the following link
http://www.afrsmartinvestor.com.au/share-tables/
All Ords appear to be yielding < 4%. Additionally, the large LICs such as AFI/ARG/MLT are also < 4% net yields. I agree with you point about current yields and mortgage rates though. Still positive cashflow after taking into account franking credits.
Seems like everyone is using the easy money to bid up property prices. Whereas I've been releasing equity from my property portfolio to invest into shares...seems as though I'm swimming against the tide. Could be a good thing, or I could get wiped out. Fingers crossed I'm onto a good thing!
edit: make that 4.21% after the cut! greedy CBA only passing on 0.20% of the RBA cut
I have been using the data the RBA publishes: http://www.rba.gov.au/statistics/tables/pdf/f07.pdf
Looking at it, one is a MSCI index, and the other is a s&p index. Looking at the detail for MSCI, it contains 71 stocks, and has more financials (55% financials, 15% materials, 30% others). This probably explains the difference.
With the LICs, most have a payout ratio of less than 100% (or some over 100%), and don't hug an index, which means they aren't a great yardstick for market yield.
Post by: FFA on May 05, 2015, 04:05:36 PM
I think this is another example of how the government has fucked themselves with franking credits. 6% is almost three times what 10 year bonds are yielding!
I support franking credits. The concept is to avoid double tax which is fair.
Where it gets screwed is companies aggressively minimising tax, with effective tax rates are sometimes 5% or less. Hockey is still on the case lets see if they can deliver anything.
Bhp 500 mil is a good start. Booking approx 5 bil in marketing fees in singapore is imo beyond credibility, these are commodities mostly sold on term contracts afterall!
Post by: slothman on May 05, 2015, 04:41:45 PM
This probably explains the difference.
Thanks buddy that makes sense. Do you think there will be more yield chasers given the recent cut or do you think all that idle money is staying put?
Post by: happy on May 05, 2015, 06:32:20 PM
….
Personally im holding a decent cash balance despite interest being a pittance. I could be wrong, but I expect some market wobbles in the next year or two as this unconventional monetary policy inevitably unwinds....
This is where I am at also ( but all in Super due to my age), but looking at some of the returns on stocks, I frequently wonder if I'm taking the correct course. This rate cut just makes it a tougher line to take.
So I'm glad to see at least one of you hot young investors is taking a similar view.
Post by: AustralianMustachio on May 05, 2015, 06:51:39 PM
The low interest rates destroy the returns of term deposits/cash, push bond yields down, and so people are forced to take on more risk just to get a decent return on their money.
Our market has been bid up this year from Jan - March, pretty much purely due to PE expansion, as opposed to underlying earnings actually rising. But people still remember the GFC, and are very wary of the stockmarkets volatility. In this thread already we've had a few people talk about bad experiences with shares during the GFC.
So where is the most natural place for money to go? In my opinion - real estate.
These rate cuts aren't going to be good for slowing down our booming (bubbling?) housing market
Post by: terrier56 on May 05, 2015, 06:53:34 PM
….
Personally im holding a decent cash balance despite interest being a pittance. I could be wrong, but I expect some market wobbles in the next year or two as this unconventional monetary policy inevitably unwinds....
This is where I am at also ( but all in Super due to my age), but looking at some of the returns on stocks, I frequently wonder if I'm taking the correct course. This rate cut just makes it a tougher line to take.
So I'm glad to see at least one of you hot young investors is taking a similar view.
Hmm I think you are making a mistake here. The risk of stocks is cancelled out by the very long time period that super is held. This could potentially cost you $100K's over the long run.
What he is doing is different. Taking a stock position with an increasing hedge against crash (it's not clear to me if this is a better strategy than a dollar cost avg). You on the other hand are guaranteeing low returns that don't have short term volatility.
Post by: bigchrisb on May 05, 2015, 07:29:32 PM
Post by: dungoofed on May 05, 2015, 08:03:13 PM
….
Personally im holding a decent cash balance despite interest being a pittance. I could be wrong, but I expect some market wobbles in the next year or two as this unconventional monetary policy inevitably unwinds....
This is where I am at also ( but all in Super due to my age), but looking at some of the returns on stocks, I frequently wonder if I'm taking the correct course. This rate cut just makes it a tougher line to take.
So I'm glad to see at least one of you hot young investors is taking a similar view.
Hmm I think you are making a mistake here. The risk of stocks is cancelled out by the very long time period that super is held. This could potentially cost you $100K's over the long run.
What he is doing is different. Taking a stock position with an increasing hedge against crash (it's not clear to me if this is a better strategy than a dollar cost avg). You on the other hand are guaranteeing low returns that don't have short term volatility.
For what it's worth I'm overweight defensive assets. I'm moving back to Australia so there is a lot of cash here and there just to make sure I can cover moving expenses and to cover my first 12 months living expenses but I'm not panicked about potential lost gains. I've mentioned it before but I am invested in a modified version of the Permanent Portfolio, so I have gold (warrants), term deposits and AGBs too. This is definitely the underperforming part of my portfolio but I know that it's there for a reason, even though I don't know what that reason will be.
In fact, my next purchase will possibly be more AGBs which are slightly underpriced but yielding well under historical ASX returns. There is a lot of temptation to throw this money into stocks, especially because if rates rise over the next few years then I'll lose a lot on these things, but they are a hedge against rates dropping even more, even into negative territory.
Post by: bigchrisb on May 05, 2015, 08:26:31 PM
There is a huge amount of cash in the system right now. For example, http://www.fsc.org.au/downloads/uploaded/2014_0226_140226-%20FSC%20Maddock-%20Capital%20Flows%20Report%20FINAL_2d88.pdf has some stats to the end of 2013, showing that the Australian super system has approx $215b of cash. The cash in super alone is equivalent to about 12.5% of the total value of the Aus share market. I don't have the data, but I suspect the same is true of broader institutional asset allocations (e.g. future fund $15%), along with corporate and household. This means there is a lot of cash on the sidelines not earning anything, waiting to be deployed. Rates lowering will add pressure to push this out of cash. My guess is that all this cash will act as a pretty big buffer to asset valuations if they fall - which will by definition temper the fall!
This seems to be a different scenario to 2007, when stock leverage was much higher, and there wasn't much hard cash on the sidelines. My suspicion is that while we will have volatility in the near future, we probably won't have a precipitous fall of 50%!
Never the less, I'm seeing some potential changes in my earned income coming up in the next few years, so I'm trying to wind down my leverage levels. I'm also happy to keep DRPs running, to keep some re-investment out of my control. If I didn't have the investment debt, I would be buying in with DCA, but ensure I had some access to borrow against this in future when we do see a bit of a fall.
Post by: dungoofed on May 05, 2015, 09:58:11 PM
* Money tied up in housing in Australia is much larger than I thought!
* Don't forget that the cash may just be there for consumption ie not necessarily waiting to be deployed in the market. Especially among baby boomers who are retiring now en masse.
* The points about SMSF, I think a lot of that is property-loving Aussies using their super for buying an investment property.
* There is actually an argument in the paper for the government to decrease the rate of compulsory super.
* The way to remove undeployed cash in the system is to make keeping it in cash a bad idea. Unfortunately the way to do this is to increase supply.
Maybe the stock market just needs to rise for a few more years in order to get everyone to start piling in again. It was eight years from the tech boom in 1999 until pre-GFC boom in 2007. 2015 this year so, what's that, eight years? oh.
Gold is still well above pre-2008 levels. People haven't had enough time to forget yet.
Post by: FFA on May 05, 2015, 10:42:18 PM
….
Personally im holding a decent cash balance despite interest being a pittance. I could be wrong, but I expect some market wobbles in the next year or two as this unconventional monetary policy inevitably unwinds....
This is where I am at also ( but all in Super due to my age), but looking at some of the returns on stocks, I frequently wonder if I'm taking the correct course. This rate cut just makes it a tougher line to take.
So I'm glad to see at least one of you hot young investors is taking a similar view.
Hmm I think you are making a mistake here. The risk of stocks is cancelled out by the very long time period that super is held. This could potentially cost you $100K's over the long run.
What he is doing is different. Taking a stock position with an increasing hedge against crash (it's not clear to me if this is a better strategy than a dollar cost avg). You on the other hand are guaranteeing low returns that don't have short term volatility.
to clarify a bit what i'm doing. I have some recent lump sums coming in and the cash is tipping my AA overweight defensive. I put some tolerances in my Investment Policy Statement like max +/-10% on the high level growth/defensive split. At the moment I will be pushing up to my +10% defensive and maybe slightly over for a while. at the same time I am also Dollar Cost Averaging into shares and super, but probably at a slower rate than I would normally (eg 1-2 years instead of 3-6 months) if it wasn't for my caution about the current abnormal financial markets.
So, I do stick to an AA, but I have put some flex in there for lump sums and market timing (not for frequent use, only where I deem there is some extreme or abnormal situation - subjective, I know). I understand market timing is generally frowned upon in this forum. And while I agree it is a poor strategy for the majority, I don't dismiss it outright, especially if controlled to a small fraction of total portfolio.
Post by: marty998 on May 06, 2015, 02:28:41 AM
This seems to be a different scenario to 2007, when stock leverage was much higher, and there wasn't much hard cash on the sidelines. My suspicion is that while we will have volatility in the near future, we probably won't have a precipitous fall of 50%!
Seem to recall 2007 was when the Super system (SMSF sector) was overflowing with cash when all those with the means dumped $1m cash into their funds in Peter Costello's last gasp hurrah.
I too cannot see a fall of 50%, but geez with CBA putting in one of its worst 1 day share price performances in history then it makes me a little nervous.
Still, I've got 5 months left on the mortgage and after that will be tilting heavily into stocks. I think I've finally changed my mindset that market falls are not something to be feared but something to be welcomed so that I can back the truck up and load her up.
Maybe the stock market just needs to rise for a few more years in order to get everyone to start piling in again. It was eight years from the tech boom in 1999 until pre-GFC boom in 2007. 2015 this year so, what's that, eight years? oh.
Kills my theory of stockmarket crashes.... 1987 (Black Friday), 1997 (Asian FC), 2007 (Global FC).
Thought we'd string it out to 2017...
Anyone believe our 24 years of uninterrupted economic growth is over? Storm clouds are aligning, business confidence is in the toilet, party is well and truly over for the banks
Woolworths posted a 3rd qtr sales fall and shares got hammered. REA Group (realestate.com.au) fell by 10% today! Mining stocks have already been slaughtered in the past 12 months.
Many stocks and sectors are just lacking revenue growth and IMO signs are there for a recession...may be a good time to keep some powder dry for when the bottom falls out. We'll look back in 24 months time and see the next 6 months as a great opportunity to buy - counter cyclical strategy.
Tipping the market to correct 20ish% it's already done around 6%, once the banks go ex div in mid may it'll be 10% and on we go.
Post by: potm on May 06, 2015, 02:40:05 AM
My personal opinion is that the low interest rate party has a way to go. How will governments and central banks handle it when the can cannot be kicked anymore is another thing though.
Doesn't matter what happens though, keep on saving and buying :) Not bothered at all by the falls.
Good timing for me to make some extra super contributions before the fin year ends.
Post by: FFA on May 06, 2015, 02:47:17 AM
Certainly an unexpected twist to get a rate cut, asx dip and aud rally. Mkt has certainly shrugged the rate cut and completely latched onto the wording deletion implying the end of the easing cycle.
I agree re: cash support. Im not expecting any big corrections just a bit more volatility as the EU and japan ramp up qe and the fed inches towards the first rate increase
Post by: happy on May 06, 2015, 03:26:04 AM
….
Personally im holding a decent cash balance despite interest being a pittance. I could be wrong, but I expect some market wobbles in the next year or two as this unconventional monetary policy inevitably unwinds....
This is where I am at also ( but all in Super due to my age), but looking at some of the returns on stocks, I frequently wonder if I'm taking the correct course. This rate cut just makes it a tougher line to take.
So I'm glad to see at least one of you hot young investors is taking a similar view.
Hmm I think you are making a mistake here. The risk of stocks is cancelled out by the very long time period that super is held. This could potentially cost you $100K's over the long run.
What he is doing is different. Taking a stock position with an increasing hedge against crash (it's not clear to me if this is a better strategy than a dollar cost avg). You on the other hand are guaranteeing low returns that don't have short term volatility.
Ok I'm listening, but I don't understand why it makes any difference whether its in super or not. Since I will be accessing super in the next 4 years or so, the time frame is immaterial. I'm still on training wheels with all this, so if you can clarify I'd be grateful.
Post by: marty998 on May 06, 2015, 03:43:37 AM
2 days ago it was near recent highs. A bit too early to be predicting economic doom just yet.
My personal opinion is that the low interest rate party has a way to go. How will governments and central banks handle it when the can cannot be kicked anymore is another thing though.
Thats the point - the Government has proven it cannot handle it and any moves the RBA are doing are not working. The can has been kicked into the empty iron ore pits of the Pilbara and cannot be found now.
I'm genuinely concerned to be frank. The fed budget is essentially a pile of doggie doo doo, with more $50b+ deficits coming, and the economy is spluttering along with no real direction. Always thought we were better managed than most of the other countries, but wow, we may be in for a fair bit of hurt sooner rather than later.
Post by: potm on May 06, 2015, 04:09:13 AM
It is impossible to predict the future actions of governments and reserve banks though. Australia will probably take the lead of other countries in how to proceed. First in line will be the USA who are the only ones at a stage to try and go the other way. We'll see how they manage to achieve that, I don't expect them to have much success in raising rates any significant amount. What does that mean for the world in the medium to long term being stuck on ultra low interest rates? Will governments and central banks change tactics? Recession we had to have instead of whatever it takes? Inflation? Deflation? Who knows. We live in exciting times.
Post by: FFA on May 06, 2015, 04:20:12 AM
Post by: dungoofed on May 06, 2015, 06:51:07 AM
Its a global phenomenon, many govts are impotent on fiscal policy and its all left to central banks to fix. Monetary policy is being pushed beyond its intent everywhere. At least we have a sign now 2% cash rate is a bottom. Spare a thought for negative rate countries. oz is still better managed relatively i feel, in the "steven bradbury" style.
You know, ever since the RBA dropped rates 100 basis points at the end of 2008 it almost feels like every single thing they do needs to be a "surprise." Seriously makes them look like amateurs.
I'm not a betting man but I reckon I could get some pretty good odds right now on the RBA cutting again next time. I honestly think they are going to do their stupid "surprise the market" thing and cut rates, and giving a sign that there will be no further cuts is a part of this stupid plan. I hope I'm wrong but if I'm right I'm going to send a link to this thread to the folks at the RBA and a bunch of major institutional investors so that the RBA can't use this stupid strategy any more.
Post by: FFA on May 06, 2015, 07:20:52 AM
If you want to single out amateurs surely it's the ECB. Years of dithering and even tightening when blind freddy could see they should be easing. More than 5 years to finally decide to QE, after every man and his dog has bought up European govt bonds ahead, leaving them to swallow negative yields.Its a global phenomenon, many govts are impotent on fiscal policy and its all left to central banks to fix. Monetary policy is being pushed beyond its intent everywhere. At least we have a sign now 2% cash rate is a bottom. Spare a thought for negative rate countries. oz is still better managed relatively i feel, in the "steven bradbury" style.
You know, ever since the RBA dropped rates 100 basis points at the end of 2008 it almost feels like every single thing they do needs to be a "surprise." Seriously makes them look like amateurs.
I'm not a betting man but I reckon I could get some pretty good odds right now on the RBA cutting again next time. I honestly think they are going to do their stupid "surprise the market" thing and cut rates, and giving a sign that there will be no further cuts is a part of this stupid plan. I hope I'm wrong but if I'm right I'm going to send a link to this thread to the folks at the RBA and a bunch of major institutional investors so that the RBA can't use this stupid strategy any more.
I feel the RBA's been doing a good job, all things considered, and they have a solid reputation globally. [ glenn stevens, in the small chance you're reading this after dungoofed sends you the link, please give yourself a pat on the back :) ]
I don't expect any more cuts for a while, unless there's some global chaos or other unexpected economic snags. Can you really distinguish if RBA is surprising the market, or if market is second guessing/pre-empting the RBA. I tend to think it's more the latter actually.
Post by: dungoofed on May 06, 2015, 05:08:54 PM
http://www.abc.net.au/news/2015-03-28/federal-government-set-to-introduce-tax-on-bank-deposits/6355662
(This is from the end of March).
Post by: terrier56 on May 06, 2015, 08:17:23 PM
….
Personally im holding a decent cash balance despite interest being a pittance. I could be wrong, but I expect some market wobbles in the next year or two as this unconventional monetary policy inevitably unwinds....
This is where I am at also ( but all in Super due to my age), but looking at some of the returns on stocks, I frequently wonder if I'm taking the correct course. This rate cut just makes it a tougher line to take.
So I'm glad to see at least one of you hot young investors is taking a similar view.
Hmm I think you are making a mistake here. The risk of stocks is cancelled out by the very long time period that super is held. This could potentially cost you $100K's over the long run.
What he is doing is different. Taking a stock position with an increasing hedge against crash (it's not clear to me if this is a better strategy than a dollar cost avg). You on the other hand are guaranteeing low returns that don't have short term volatility.
Ok I'm listening, but I don't understand why it makes any difference whether its in super or not. Since I will be accessing super in the next 4 years or so, the time frame is immaterial. I'm still on training wheels with all this, so if you can clarify I'd be grateful.
Sorry happy I didn't realise you were only 4 years from collection. You're fine to take this line :)
Post by: happy on May 07, 2015, 03:49:23 AM
Post by: potm on May 07, 2015, 04:57:34 AM
Post by: happy on May 07, 2015, 06:32:56 AM
Hehe after 30 years of DCAing into super according to a fixed formula, my first tentative effort at market timing which I thought was logical and conservative at the time, might well turn out to be yet another example of why market timing is not a good idea :). Time will tell.
Post by: bigchrisb on May 07, 2015, 07:29:25 PM
December 2007:
Total margin debt: $41B
Household deposits: $442B
Business deposits: $174B
Household gearing: 20% (1332bn total liabilities, 6766bn total assets)
March 2009:
Total margin debt: $21B
Household deposits: $548B
Business deposits: $234B
Household gearing: 24%
i.e. $20bn in margin disappeared, households stashed 100bn in cash, businesses stashed 60bn in cash - i.e. in 15 months, there was a move to cash of some $180b. Compare that to the market cap, of some 1000bn, and its a massive move.
Dec 2014:
Total margin debt: $11.8B
Household deposits: $873B
Business deposits: $356B
Household gearing: 22%
Its worth noting that margin lending is a quarter of what it was in 2007, while both household and business cash levels have doubled. With data like this, I really struggle to see the same sort of cash/liquidity issues seen in the GFC, and hence harder to see the huge falls, in the stock market at least. Don't get me wrong - I reckon there will always be volatility, but my money is staying mostly in stocks, along with debt paydown.
Post by: potm on May 07, 2015, 08:13:48 PM
I'm assuming that total gearing figure includes housing assets and liabilities in there.
How much have the debt levels increased by? The gearing may not have gone up but that is based on current housing prices. Any pullback in the housing market will have wide ranging effects on the economy and sharemarket.
Post by: bigchrisb on May 07, 2015, 09:39:17 PM
Leverage on shares is not a concern at the moment but what about housing.
Precisely! Since end 2007 and today, household debt has pretty much doubled (2.1T vs 1.3T), while the value of houses has increased from 3.8 to 5.1T. i.e. of the ~1.3T in additional houses and house value, 0.8T is purely from growing debt.
I'm far more nervous about AU houses over the medium/long term than I am about AU stocks.
Post by: themadman on May 07, 2015, 10:22:50 PM
I'm 20 years old, 2 years left of Uni (this + next year), no job and $324 fortnightly centrelink payments. I'm saving $155/fortnight with the intent of investing it. I've just done a little research and invested $2000 in Vanguard's VTS with a $20 brokerage fee through CBA's CDIA.
I have another $1000 to invest and I'm not sure if I should keep adding to it for a while before investing or just plunge right in and pay the 2% for brokerage. What do you guys use as a minimum amount when investing? Once you start getting under $500 (4% brokerage) it seems a bit excessive, but I don't really know what the general rule is that I should be using? What would you guys be recommending that I do with this other $1000? How much would you start to invest before you worried about diversifying? ie. Now that I have $2000 in a US-centred ETF with low management fees (0.05%), should I start putting some into an Australian index, or into bonds etc? Or should I just keep building in that same fund for a while?
I've had suggestions to put it into HECS and get the 10% discount, but I just don't know if that's worth it when I can get 5-10% returns on my money for the next 10 years instead of just paying up front...It doesn't seem smart when there's no interest on the loan and the HECS discount is disappearing next year (http://studyassist.gov.au/sites/studyassist/news/pages/changes-to-hecs-help-discounts-and-voluntary-repayment-bonus)?
Another general question I had: With this VTS fund, the dividend yield is 1.71% ttm with quarterly returns. Does this mean the actual dividends last year were 1.71*4=7%? Or is that 1.71 divided over each of the quarterly dividends (0.42%/quarter)?
Post by: DrowsyBee on May 07, 2015, 10:39:40 PM
Yeah, investing $500 with a $20 brokerage fee is crazy. I only invested small amounts because I had no brokerage fees for a while.
Another thing people here are likely to say is...do a lot of research and work out your desired asset allocation, then work towards that.
Sidenote - Wait, HECS has a 10% discount? I thought it was 5%
Post by: potm on May 07, 2015, 11:28:58 PM
Ok guys, can I get some advice please? :) I posted across in the "Ask A Mustachian (http://forum.mrmoneymustache.com/ask-a-mustachian/student-advice/msg654587/#msg654587)" thread, but it was recommended I post my questions in here because you're obviously all Aussie's/understand the scene here. I haven't yet had the time to read through this whole thread, and I know this is probably covered to some extent elsewhere but I'm trying to figure out my best options financially.
I'm 20 years old, 2 years left of Uni (this + next year), no job and $324 fortnightly centrelink payments. I'm saving $155/fortnight with the intent of investing it. I've just done a little research and invested $2000 in Vanguard's VTS with a $20 brokerage fee through CBA's CDIA.
I have another $1000 to invest and I'm not sure if I should keep adding to it for a while before investing or just plunge right in and pay the 2% for brokerage. What do you guys use as a minimum amount when investing? Once you start getting under $500 (4% brokerage) it seems a bit excessive, but I don't really know what the general rule is that I should be using? What would you guys be recommending that I do with this other $1000? How much would you start to invest before you worried about diversifying? ie. Now that I have $2000 in a US-centred ETF with low management fees (0.05%), should I start putting some into an Australian index, or into bonds etc? Or should I just keep building in that same fund for a while?
I've had suggestions to put it into HECS and get the 10% discount, but I just don't know if that's worth it when I can get 5-10% returns on my money for the next 10 years instead of just paying up front...It doesn't seem smart when there's no interest on the loan and the HECS discount is disappearing next year (http://studyassist.gov.au/sites/studyassist/news/pages/changes-to-hecs-help-discounts-and-voluntary-repayment-bonus)?
Another general question I had: With this VTS fund, the dividend yield is 1.71% ttm with quarterly returns. Does this mean the actual dividends last year were 1.71*4=7%? Or is that 1.71 divided over each of the quarterly dividends (0.42%/quarter)?
Have you checked out the various free brokerage offers available? Can be nice to give you a start without paying an excessive amount of brokerage.
Your thinking is right on the HECs. It depends on what the amount is and your future earnings. If the debt is going to be around for 10 years then the 10% upfront discount isn't worth it. Also at any time you can get a 5% bonus on voluntary payments so it's not really a 10% discount. I'd suggest waiting until the balance is low some year in the future and pay it off in May before it gets indexed in June. Also the HECs discounts were supposed to disappear a couple years ago. Hasn't happened yet. But that is something to take into consideration.
The dividend yield quoted is for the whole year. USA companies tend to pay lower dividends due to tax reasons.
As for what to invest in, there's no right answer. You have to decide for yourself. There's been plenty of discussion in this and other threads. I recommend doing research beyond this forum as well.
Post by: AustralianMustachio on May 08, 2015, 12:29:51 AM
Leverage on shares is not a concern at the moment but what about housing.
Precisely! Since end 2007 and today, household debt has pretty much doubled (2.1T vs 1.3T), while the value of houses has increased from 3.8 to 5.1T. i.e. of the ~1.3T in additional houses and house value, 0.8T is purely from growing debt.
I'm far more nervous about AU houses over the medium/long term than I am about AU stocks.
But, if the housing market tanks, it will affect stocks and other assets greatly:
"Impact of house price falls on other assets"
https://www.nabtrade.com.au/insights-and-ideas/insights/news/2015/04/impact_of_house_pric
Post by: Kepler on May 08, 2015, 07:48:15 AM
Post by: marty998 on May 08, 2015, 09:25:07 PM
$5.5 billion rights issue at 20% discount to market price to pay for provisions for the bad behaviour in its UK Clydesdale bank, which it can't sell and is going to spin-off in a demerger back to shareholders who don't want it.
Bloody hell. I keep saying it, every few years they invent a new way to lose money.
Post by: potm on May 08, 2015, 09:45:53 PM
20% discount capital raising yet will probably still increase the dividend.
Makes me want to actively manage my super as well instead of indexing.
Post by: FFA on May 09, 2015, 04:33:15 PM
Post by: MMMaybe on May 10, 2015, 11:34:20 PM
Q. My wife, 28, and I, 30, have annual incomes of $100,000 and $120,000 respectively. We live in a property we bought for $900,000, now worth $1.1million with $809,000 owing and $480,000 in our offset account.
Our other investments consist of two townhouses (worth $2.7 million, with $2 million owing, and are returning $1300 and $1350 a week respectively) and an apartment (worth $520,000 with $460,000 owing and is returning $540 a week). Both are on interest-only loans. In our superannuation, I have $100,000 and my wife $40,000. My wife also has $25,000 in shares. We have no other debts.
We maximised the amount of salary packaging. What is the best way to make the most of our wealth as we probably need to build some savings to prepare for children in the next few years? We would also want some passive income, should one of us be unable to work. A.N.
Post by: bigchrisb on May 10, 2015, 11:57:35 PM
I've found that my sleep at night factor for leverage is much more related to my debt:income ratio rather than my debt:assets ratio. Investment debt at about 3x income is about my upper limit for comfort, and I feel better with it under 2 (its currently just under 3).
Its also hard to know with RE how close to the wind someone is actually sailing. People generally have an idea of what its "worth", but in an illiquid market, there is probably a good 5% uncertainty in this, and some ~5% in transaction costs/CGT. 10% downside on a $4.5M portfolio is 1/3rd of that couple's net worth!
Post by: MMMaybe on May 11, 2015, 12:17:33 AM
I just feel like they have all their investing eggs in the RE basket. They seem to be planning on one scenario only and that is one of continuing asset appreciation while their personal circumstances stay the same or improve.
Its not going to take much of a shift for the wheels to come off the bus for people like this.
I was living in the Caribbean at the time of the RE bubble in the US/Caribbean, which preceeded the GFC and this kind of hubris/reckless bank lending looks oddly familiar to me. When the tide changes, it changes fast and I feel like I am watching it happen all over again.
I should note that some of the most ill thought through loans that were done at the time down there were funded by two famous US investment banks that no longer exist today. Now of course, everyone will tell me that its different this time!
Post by: AustralianMustachio on May 11, 2015, 12:25:04 AM
And I'd say drops in value would be less generally. I think in the GFC, property in the US fell about 30% vs the stock market falling 50%.
Disclaimer: have no real estate investments myself. Certainly not an expert
Post by: slothman on May 11, 2015, 01:46:52 AM
SANF is quite comfortable as my LVR is under 80%, living expenses are quite low, PPOR is mostly paid off and have taken out income protection insurance in case I cant go to work.
Post by: steveo on May 11, 2015, 02:40:30 AM
I just feel like they have all their investing eggs in the RE basket. They seem to be planning on one scenario only and that is one of continuing asset appreciation while their personal circumstances stay the same or improve.
Add me to the list of people that think its crazy. I also don't think it will work out that well. You are getting hammered in interest payments and your asset allocation is way too focussed in RE. Plus buying and selling costs aren't taken into the picture.
I suppose it works if the market continues to run up significantly for a large number of years and you can maintain those interest payments.
I basically though think its way too much effort and hassle for the reward. I'd rather get rid of all my debt within my PPOR and then invest in Shares and Bonds to have a more well rounded portfolio. This way is also to me much less stressful.
Post by: marty998 on May 11, 2015, 03:07:36 AM
I guess RE investors take comfort from the fact that there aren't margin calls, and that any drop in the property market should be much slower than in shares. Since property isnt valued every day, you don't usually wake up to an overnight crash in the real estate market, as fas as I know.
And I'd say drops in value would be less generally. I think in the GFC, property in the US fell about 30% vs the stock market falling 50%.
Disclaimer: have no real estate investments myself. Certainly not an expert
There most certainly are margin calls of sort (requests for cash top ups)... but usually by the time the banks catch up to you the equity is all gone.
The real problem is that banks won't take partial possession...they'll take the lot when you're in trouble.
Post by: FFA on May 11, 2015, 07:38:24 AM
I agree that properties might feel less risky because the asset price is not transparent, and everyone else seems to be doing it.... Ignorance is bliss.
Fortunately for us, we did ok with our properties and managed to avoid nightmare tenants (well we had one but not bad over 15 years and up to 4 properties). Also as I have come to realise, the bigger drivers of reaching FIRE are spending less and earning more. I think we did a better job of those two than managing our investments, although I'm trying to atone for it now !
Post by: potm on May 11, 2015, 05:34:37 PM
Excerpt From: Schroeder, Alice. “The Snowball.” Random House Publishing Group, 2009. iBooks.
This material may be protected by copyright.
Post by: FFA on May 11, 2015, 07:55:02 PM
Post by: MMMaybe on May 11, 2015, 08:53:39 PM
Just to balance the discussion, i'd also add RE investing can be a good addition to portfolios, especially if done well. i.e. Sensible leverage, property selection, active property management (maintenance, tenant selection/retention), diversification of properties (across cities/suburbs, property types, cash flow, etc), price negotiation and timing in property cycle, etc.
Oh definitely. Not disputing that at all. Its just that there are a lot of people who aren't going about it with a sensible judicious approach. Those are the people who make me nervous.
Post by: Taswegian on May 12, 2015, 01:26:55 AM
That said, mainly posting to keep track of this thread - took me a while to find it and more relevant than hearing about 401k IRA flips.. ;)
Post by: lolzmonster on May 12, 2015, 12:44:41 PM
I mean with all the fear of mining and oil right now, it seems to me like now is the perfect time to jump in, while everyone seems to be fearful of the industries, and that would be true considering how risk averse investors seem at the moment. So I wanted to get people's opinions on this and what their current strategies are, although I know many of you have already actually mentioned briefly what they plan to do.
Me: Continue to DCA on Vanguard, but possibly spend a bit of "fun money" in bigger mining companies.
Post by: marty998 on May 12, 2015, 04:11:30 PM
Okay guys, so Im kind of torn on this and I want some opinions, do you guys think now is the time to invest or time to hold cash?
I mean with all the fear of mining and oil right now, it seems to me like now is the perfect time to jump in, while everyone seems to be fearful of the industries, and that would be true considering how risk averse investors seem at the moment. So I wanted to get people's opinions on this and what their current strategies are, although I know many of you have already actually mentioned briefly what they plan to do.
Me: Continue to DCA on Vanguard, but possibly spend a bit of "fun money" in bigger mining companies.
Hold cash, pay down debt.
We are about to enter our 25th year of uninterrupted economic growth. Joe Hockey's budget is built on stretching that to 28 years.
To my knowledge, no advanced economy in history has ever gone that long without some form of correction.
I've suppose I've turned very bearish in the last couple of months...those recent bank profit results told quite an interesting story.
IT and biotech are the 2 sectors I'd be looking at. High risk, but lets be honest, half the economy is going to be automated at some point. Biotech is always hit and miss, however, healthcare is always listed as the #1 priority for Australians.
Post by: bigchrisb on May 12, 2015, 06:06:44 PM
That said, I've been investing less than my savings over this time, to try to work down my leverage a bit, and provide a bit more buffer / ammunition in case further opportunities arise. Despite this, I'm still fairly leveraged, with total investment debt in the ballpark of $1M.
Post by: AustralianMustachio on May 12, 2015, 07:17:42 PM
Okay guys, so Im kind of torn on this and I want some opinions, do you guys think now is the time to invest or time to hold cash?
I mean with all the fear of mining and oil right now, it seems to me like now is the perfect time to jump in, while everyone seems to be fearful of the industries, and that would be true considering how risk averse investors seem at the moment. So I wanted to get people's opinions on this and what their current strategies are, although I know many of you have already actually mentioned briefly what they plan to do.
Me: Continue to DCA on Vanguard, but possibly spend a bit of "fun money" in bigger mining companies.
With regards to "hold cash or invest?" - I really think it depends on your mindset. I.e. can you hold on during a downturn? If you're simply DCAing and can stick with it, then I believe thats the best approach. If you can't hold, you'll most likely sell low and buy high, and hence underperform the market.
More importantly, with individual companies, do you feel like you are confident that you can value them well enough to know what they should be worth? If you cant, then your buying and selling decision will most likely be an emotional not a rational one. This will lead to poorer results.
For me, I've learned that indexes are best suited to my mindset. I don't know enough about fundamental analysis to value individual stocks better than the market. I don't know enough technical analysis to attempt to plan out my entries and exits. So if I tried individual stocks, then I wouldn't have a confident plan... so my decisions would be emotionally driven more than rationally.... and i would most likely underperform.
And I think if you already own VAS or the big LICs or something similar, then you already have plenty of exposure to the mining companies on the ASX. I don't think we're suddenly going to see another commodities boom any time soon, we're still just coming off the back of one of the biggest ones in history. Oil is a different story of course
Post by: FFA on May 12, 2015, 09:20:27 PM
possibly spend a bit of "fun money" in bigger mining companies.
Maybe just semantics, but the above phrasing is not a good indicator for success. Hobbies or leisure might be a better way to spend fun money ? Not trying to pick lolzmonster, but if you want to add value to your portfolio via direct trades on mining companies, I don't think it will be easy and you need to have the right mindset. Good luck!
Post by: qwerty8675309 on May 13, 2015, 05:16:19 AM
Okay guys, so Im kind of torn on this and I want some opinions, do you guys think now is the time to invest or time to hold cash?
I think drafting a good long term investment plan, and sticking with it is always the best approach. That way, you invest when the market is bad, as well as when the market is good. I think making binary moves in and out of the market based on sentiment is a good way to lose money.
Post by: dungoofed on May 13, 2015, 06:37:58 AM
bigchrisb - I remembered this morning that the government has already solved the excess cash balances problem!
http://www.abc.net.au/news/2015-03-28/federal-government-set-to-introduce-tax-on-bank-deposits/6355662
(This is from the end of March).
Guys was the "Bank Tax" on deposits a part of The Budget? I couldn't see it confirmed nor denied in any of the mass media.
Post by: lolzmonster on May 13, 2015, 11:25:22 AM
and yeah its scary how high the valuations are for banks at the moment, just goes to show how risk averse investors in our economy are at the moment.
@bigchrisb: are you talking margin loans or is this in real estate :/? because wow thats a lot of debt
Post by: bigchrisb on May 13, 2015, 05:09:37 PM
@bigchrisb: are you talking margin loans or is this in real estate :/? because wow thats a lot of debt
A combination. About $600k is secured against an investment property (soon to be PPOR), and about 400 as margin. This is against assets of about $800k of house, ~$1.6M of stocks and about $200k of cash (that I can't access for close to a year). For more details, see my journal.
I guess the point I was trying to make is that while I'm less bullish than a couple of years ago (buying stock at about 250% of savings), I'm still putting some of my savings into the market, and some into debt reduction (maybe 50/50).
A lot of the "buy for the long haul" comes down to your psyche - what will you actually do in a financial crisis? I was still buying on margin at the depths of the GFC, and wishing I could buy more. By inference, as long as I steer clear of margin calls and forced liquidation, I'm comfortable with a very high allocation to stocks.
However, I suspect as my portfolio size has grown (during the GFC was a couple of years was under 1 years income, these days is many years income), my risk tolerance is dropping. Changes in circumstance make it pretty hard to keep a good feel on how you will actually respond to crisis!
Post by: This_Is_My_Username on May 14, 2015, 03:53:21 AM
I want some opinions, do you guys think now is the time to time the market?lolololololololololol NO.
However, make sure to track all your investments and measure the extent of your failure. hopefully you won't lose too much.
Post by: Wadiman on May 14, 2015, 08:40:16 PM
I currently hold the Russell Semi Govt Bond ETF (RSM - fee= 0.26%, running yield = 4.8%) but am also looking at the Russell Australian Govt Bond ETF (RGB - fee = 0.24%, running yield = 4.06%). I prefer the Russell funds over the Vanguard ones due to their higher liquidity. I would like to consider international FI ETFs as well but suspect yields would be very low.
I've been doing some reading about how bonds work and am growing my understanding about their characteristics but get confused about the factors that influence their daily price movement. I understand that the main factor is prevailing domestic and international interest rates but don't understand why prices drop when interest rates are lowered.
It's probably a pretty complex area but can anyone chime in on this and provide insights?
Also - if there are any other bond ETFs - particularly International ones - that you rate I would be happy to hear about them.
Thanks!
Post by: superannuationfreak on May 14, 2015, 10:27:11 PM
I've been doing some reading about how bonds work and am growing my understanding about their characteristics but get confused about the factors that influence their daily price movement. I understand that the main factor is prevailing domestic and international interest rates but don't understand why prices drop when interest rates are lowered.
...
Also - if there are any other bond ETFs - particularly International ones - that you rate I would be happy to hear about them.
Bonds are tradeable claims to a stream of payments. E.g. a bond from the Australian government paying 3% p.a. for the next 10 years. If interest rates go up and a new bond with the same maturity would require the Australian government to pay 4% p.a. then existing bonds (3% p.a.) have to fall in price so that buyers would be indifferent between buying them and the new bonds.
To be honest, the best value bond funds I've found in Australia are offered by industry funds. For example AustralianSuper offer Australian Fixed Interest for 0.18% p.a. or International Fixed Interest for 0.24% p.a. Note that if you go with some International Fixed Interest you probably want it substantially currency-hedged, since the value of a bond fund is to reduce volatility in your overall portfolio. This will be the case with most Australian-based international bond funds and ETFs but means it may not be worth using funds and ETFs which are meant for a US investor, for example.
Post by: FFA on May 15, 2015, 12:15:43 AM
Post by: bigchrisb on May 15, 2015, 12:23:24 AM
Post by: dungoofed on May 15, 2015, 12:49:43 AM
i'm curious if anyone invests in the exchange tradeable Aust. Gov Bonds (AGB's), and any feedback/comments on that experience ?
I've got some GSBG37, and will top up again shortly. It has dropped sharply recently in anticipation of rates never going below 2%, but you can see from the graph below that this was not always the assumption.
http://hfgapps.hubb.com/asxtools/Charts.aspx?asxCode=GSBG37&chartType=3&volumeInd=9&TimeFrame=D6
The liquidity for GSBG37 isn't great - there's basically one market maker that gives you all the liquidity you'll ever need, albeit at very average spreads. This will making "rolling your own" a little more expensive if you tend to prefer the longer-dated products. On the plus side, there is more movement if you aren't in a rush to sell/buy and the market is moving in a favourable direction.
You literally just enter the code on this page into your trading system:
http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND
Post by: Rob_S on May 16, 2015, 01:57:09 AM
HVST invests in a portfolio of the current top 20 dividend paying stocks who are about to pay, then rebalances every 2 months, so there is a constant dividend stream that’s paid monthly, aiming to provide double the ASX yield.
It hasn't been around long.
I had planned on living of VHY dividends with capital gains a nice bonus. Maybe HVST would be a better idea, particularly when the missus and I call it quits with our proper jobs. It could even get us to FIRE faster...
Post by: potm on May 16, 2015, 02:57:11 AM
It really shows the Australia's obsession with dividends that funds like these are popping up now.
What matters is how much money the underlying businesses that you own make, not how much is paid out.
Post by: AustralianMustachio on May 16, 2015, 03:36:59 AM
A bit like YMAX even. But YMAX sells options in order to hedge against downside risk. It is supposed to "underpeform a strongly rising market, but outperform a slowly rising, flat or falling market" from memory. I do wonder how realistic that is with a 9% dividend yield or whatever it was
Post by: nath on May 16, 2015, 05:56:10 PM
I saw this in the Age today. Is it really possible for people to be this leveraged up? WOW, I am not sure that I could sleep at night if this was me. At least they got a sensible reply, suggesting that they do a 7% interest rate stress test on their mortgage debt. They also were advised to sell one of the properties and reduce debt. What do you think of this situation?
Q. My wife, 28, and I, 30, have annual incomes of $100,000 and $120,000 respectively. We live in a property we bought for $900,000, now worth $1.1million with $809,000 owing and $480,000 in our offset account.
Our other investments consist of two townhouses (worth $2.7 million, with $2 million owing, and are returning $1300 and $1350 a week respectively) and an apartment (worth $520,000 with $460,000 owing and is returning $540 a week). Both are on interest-only loans. In our superannuation, I have $100,000 and my wife $40,000. My wife also has $25,000 in shares. We have no other debts.
We maximised the amount of salary packaging. What is the best way to make the most of our wealth as we probably need to build some savings to prepare for children in the next few years? We would also want some passive income, should one of us be unable to work. A.N.
Saw this the other day too and was stunned at the ignorance of the response from the editor.
I feel this couples position is not too bad, doing a quick calculation in my head the investment properties would be positive geared on Interest only loans. Meaning those tenants are helping payoff the mortgage on their own house too. The value of the townhouses is quite high meaning they are probably in a really fancy part of Sydney or Mel. The market for those properties $1mill+ is getting stronger every month.
If this couple did the basics for the next couple years and just put more savings from their day job in their offset account, they would have a paid off house to live in and their investments would be very good. If worst came to worst and they could not get a tenant or a job loss or whatever, they currently have $480k in their offset account? Not a small sum to keep them afloat for many years until things recovered. If the real estate market totally crashed (pretty unlikely as we know) , they ares still young and could hold their properties for decades if they wanted to wait it out.
Looking at the path this couple is on , most likely in less than 10 years they will be multi multimillionaires holding some excellent pieces of properties for decades of growth. Why sell out now?
Post by: mrpercentage on May 16, 2015, 08:27:20 PM
http://finance.yahoo.com/news/robinhood-announces-plans-bring-popular-113000505.html;_ylt=AwrXgCMq_FdVrDEAGCHQtDMD;_ylu=X3oDMTByb2lvbXVuBGNvbG8DZ3ExBHBvcwMxBHZ0aWQDBHNlYwNzcg--
Post by: dungoofed on May 16, 2015, 08:39:50 PM
Quote
Global economic conditions are providing a "good breeding ground for bubbles" but the Australian sharemarket isn't overvalued, Citigroup says.
For Australia, the main concern would appear to be that US equities are on the threshold of bubble territory, although "euphoric" European bond markets could also provide a few headaches, according to a study by the US investment bank.
Quote
Within Australia, said the Citi report, "fixed income proxies" such as infrastructure stocks, utilities, real estate investment trusts, telcos and banks were the sectors most at risk of being overvalued.
Let me know if you want me to stop posting links to these kind of broad macro speculative articles : )
Having said that, several on this thread and others have already come to similar conclusions as Citi. Tilting away from dividend stocks in Australia however is easier said than done.
Post by: TJEH on May 17, 2015, 05:16:31 AM
I've got some GSBG37, and will top up again shortly. It has dropped sharply recently in anticipation of rates never going below 2%, but you can see from the graph below that this was not always the assumption.
http://hfgapps.hubb.com/asxtools/Charts.aspx?asxCode=GSBG37&chartType=3&volumeInd=9&TimeFrame=D6
The liquidity for GSBG37 isn't great - there's basically one market maker that gives you all the liquidity you'll ever need, albeit at very average spreads. This will making "rolling your own" a little more expensive if you tend to prefer the longer-dated products. On the plus side, there is more movement if you aren't in a rush to sell/buy and the market is moving in a favourable direction.
You literally just enter the code on this page into your trading system:
http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND
I also found this calculator on the asx website:
http://www.asx.com.au/asx/research/bondCalculator.do
I'm new to bonds and had been pondering either VGB or VAF while planning out the defensive part of my portfolio. I too had forgotten about the above option.
How do you approach buying bonds, from a timing perspective? Is there any sense trying to or should you just treat them like an index or individual stock and DCA your way along?
Post by: dungoofed on May 17, 2015, 07:12:09 AM
(this is also the reason I prefer TBs over TIBs - TIBs tend to have their returns dulled in deflationary environments)
Having said that, all signs at the moment point to the major governments of the world committing to never allowing deflation to take hold (think: negative interest rates in Switzerland) so the scenario may never play out. Even if it does you may have enough cash on hand to weather the storm as well as pick up a few stocks at bargain basement prices. Finally, if past performance is anything to go by the "uptick" effect when deflation beckons is much much less on AGBs than say US Treasuries.
Regarding VAF vs VGB, VAF is more correlated with the health of the Australian economy. Specifically, if we have a situation where the Australian stock market is tanking and companies are going bust, there's a chance there will be companies defaulting on the bonds in VAF. That means your VAS (for example) would be taking a hit at the same time as your VAF, a double-whammy. The bonds in VGB on the other hand are backed by the sovereign right of the Australian government to tax the populace, and theoretically they could just keep increasing taxes in order to pay bondholders*
You'll often notice VAF returns slightly more. Just be aware of this possible scenario playing out (and even if it does, it's extremely hard to predict how it will play out, whether there will be bailouts, etc).
The other thing I'd note about both VAF and VGB is that the term of the contained bonds tends to be quite front-heavy, with very little exposure to bonds with >10 years until maturity. I believe this is because that's where both the liquidity and stable returns are, but both products could underperform under certain environments eg deflationary environment drawn out over 10 years.
* "Increase taxes on those hardworking Aussies, Government. Then pay me. Because you own them, and I own you!! bwahahahahah!!!" --I promise I never have this thought when buying AGBs
Post by: TJEH on May 17, 2015, 10:17:54 PM
Have you purchased the exchange tradeable bonds (e.g. GSBG37) or an ETF such as VGB? Just interested how you would lean towards one or the other? I guess the former is a single bond whereas the latter contains a number of bonds with different face values and maturity?
That is a good point about the corporate bonds in VAF being at risk in parallel to VAS taking a hit (although there is only around 10% exposure to corporate bonds in VAF, so I guess at least the damage would be minimized).
I am thinking around 80\20 growth\defensive, plus around two years of living expenses in something simple such as an online saving account. I'm trying to decide on whether bonds are the right thing for the defensive side, and if not then what else. Is anyone else taking this approach, i.e. an additional cash buffer outside the growth\defensive split? The additional cash would not be counted towards the FIRE amount.
Post by: dungoofed on May 18, 2015, 02:37:24 AM
Robinhood free trading is coming to Australia
Thanks for the heads-up! Will be good to see if they can shake things up a little. There are already a couple of incumbents in the Australian market but I'm all for more competition if it means lower trading costs.
Thanks dungoofed, I still have much to learn about bonds!
Me too!
At their basic level they are quite simple to understand, but once you look deeper you see lots of moving parts. In fact, it was precisely because (non-institutional) Australians tend to shun them in favour of shares/property that I thought there might be an opportunity here, and that drives the product I choose for investment.
Quote
Have you purchased the exchange tradeable bonds (e.g. GSBG37) or an ETF such as VGB? Just interested how you would lean towards one or the other? I guess the former is a single bond whereas the latter contains a number of bonds with different face values and maturity?
I have both actually : )
I'm embarrassed to say but I started in bonds with a bit of VGB because I wasn't confident to place the actual trade for a single TB ETF. This bought me some time to learn more about GSBG37 and also let me observe how VGB moved in response to different market conditions.
I aim to hold a ladder of bonds dated between 15-20 years. I'm not looking for fixed income, but may in future, so it's a nice option to have - you'd just not sell once it was 15 years from maturity, and continue to receive dividends.
Not sure what I'm going to do with VGB though. Its strength is constant income under ideal conditions, when compared to a period of volatility for stocks. I think I might hold it until just after the next 20+ year TB ETF is issued, collect one last dividend and then sell VGB, buy the TB ETF.
Quote
That is a good point about the corporate bonds in VAF being at risk in parallel to VAS taking a hit (although there is only around 10% exposure to corporate bonds in VAF, so I guess at least the damage would be minimized).
I think there will always be some correlation between bonds and stocks in a "healthy" economy.
Post by: Wadiman on May 18, 2015, 05:59:21 AM
Post by: idjces on May 18, 2015, 02:21:39 PM
Leaving this here incase it pique's anyone else interest. It mentions the three funds steve baxter chooses to invest in, and his asset allocation at the bottom. I found it somewhat reassuring someone like him chooses to invest in the montgomery fund - i'm not in a position to myself, but find it interesting following the fund's blog discussions
Post by: FFA on May 18, 2015, 03:27:13 PM
http://www.afr.com/personal-finance/how-a-multimillionaire-internet-entrepreneur-invests-20150515-1mvncpThanks for the link. I read their blog too and find it quite informative and educational. Considered investing too, but got turned off by the fees. His other two fund managers are run by big Investment Banks, so I guess he is not very fee conscious. Fair enough, if you believe they can deliver better than market returns. Personally, after finding the boglehead philosophy I favour index investing myself.
Leaving this here incase it pique's anyone else interest. It mentions the three funds steve baxter chooses to invest in, and his asset allocation at the bottom. I found it somewhat reassuring someone like him chooses to invest in the montgomery fund - i'm not in a position to myself, but find it interesting following the fund's blog discussions
Post by: FFA on May 18, 2015, 03:47:00 PM
I had no idea about the range of ETBs available - need to look into this a bit more and understand what I'm looking at - feels like this is pretty complex in comparison to most of the other stuff that's discussed here.I just read this blog post, which may help albeit Canadian oriented.
http://canadiancouchpotato.com/2015/05/18/how-changing-interest-rates-affect-fixed-income/ (http://canadiancouchpotato.com/2015/05/18/how-changing-interest-rates-affect-fixed-income/)
well worthwhile to understand bonds, at least conceptually, and ideally in some details too. As we are reminded recently it is a huge impact on equities valuations as most investor/analysts use 10 year govt bond yields as the risk free rate to discount and value companies.
Post by: TJEH on May 18, 2015, 09:40:06 PM
I aim to hold a ladder of bonds dated between 15-20 years. I'm not looking for fixed income, but may in future, so it's a nice option to have - you'd just not sell once it was 15 years from maturity, and continue to receive dividends.
Could you explain this strategy a little more? I did read up on the concept of bond ladders, but I'm unsure what you're doing in the above approach.
I see what you mean in an earlier comment about the relative short-term maturity of the bonds in VGB. If I can can my head around all this it might make the exchange tradeable options attractive. Or I'll sit here scratching my head about it getting more confused and do nothing :)
Post by: dungoofed on May 19, 2015, 02:10:42 AM
https://www.bogleheads.org/wiki/Laddering_bonds_or_CDs
https://www.bogleheads.org/wiki/Individual_bonds_vs_a_bond_fund
These have links to relevant threads on the forums plus external sources, and you can literally spend days reading to your heart's content.
I have a lot of notes from when I was in the "research everything"-phase that we all go through but unfortunately they're not in any format that I can upload (there is a lot of information in Japanese too, because the JGB situation is somewhat an enigma in the world of bonds, and it's hard to find much information in English where things aren't being viewed through a Western lens).
I think the biggest misconceptions among individual investors are statements along the lines of:
"bonds = stable returns" or
"bonds = defensive asset class"
These are true statements on the surface, but there are a significant number of exceptions to the rule, and if you're going to be investing in bonds then you do yourself a favour by being aware of the risks.
I aim to hold a ladder of bonds dated between 15-20 years. I'm not looking for fixed income, but may in future, so it's a nice option to have - you'd just not sell once it was 15 years from maturity, and continue to receive dividends.
Could you explain this strategy a little more? I did read up on the concept of bond ladders, but I'm unsure what you're doing in the above approach.
Ok so I have an AGB bond ladder, purchasing the longest-dated AGBs available (currently 22 1/2 years from maturity), and selling them* when there is only 15 years remaining until maturity.
What I am trying to do here is create a hedge against any black swan event that resembles a (prolonged) period of deflation, while not creating too much drag on portfolio performance.
The main point is that no-one knows what is around the corner, and this is an attempt to hedge against events which look like deflation.
The overwhelming consensus is that deflation, or specifically a deflationary spiral, is a terrible thing. Having spent a decade in Japan I'm a little on the fence about it myself. Regardless, during times of deflation (or anticipated deflation), rates tend to trend down, causing bond prices (in particular long term bond prices) to "flick" upwards. Combine that with the investors scrambling for long term guaranteed returns and it can theoretically be quite a powerful movement.
The hedge works by purchasing these bonds now.
There is a fair chance that the market will move against me in the interim (or not. ref: Switzerland's negative rates) and I'll lose money, but that doesn't matter. What matters here is that I won't lose my job and then be forced to sell equity holdings when one day deflation (or something like it) hits, thus preserving my wealth.
I want to go into more detail about why a bond fund wouldn't offer the same protection but I've gotta keep moving. More later!
* Or not selling them. There are cases where I may be better off remaining in bonds for a bit longer, or until maturity. This flexibility is why I probably wouldn't purchase a long term bond fund even if it were available.
Post by: dungoofed on May 19, 2015, 03:39:11 AM
http://www.crawlingroad.com/blog/2009/02/09/permanent-portfolio-25-bond-allocation-faq/
This describes in fair detail the kind of hedge I'm trying to achieve.
Post by: FFA on May 19, 2015, 07:35:33 AM
I view bonds as a defensive asset and from the perspective of holding them to maturity. To me, it is just like cash except with a fixed interest rate. Both are deflation hedges. If deflation really takes hold then sure a bond/TD is better as you would've locked in a higher rate. Cash rates might be next to nothing in a deflationary environment, but at least you're cash is still appreciating in real terms. In extreme cases if banks start charging you to place deposits, as in Europe, you can always pull it out and stick it under your bed (or maybe prudent to invest in a safe if your stash is too big to fit under your bed).
So as far as i'm concerned, it's an interest rate call. Similar to when you take a home or margin loan and you need to decide to fix or float (except in reverse of course as this is a deposit not a loan). Right now, with everywhere globally having historic low interest rates, I am not keen to fix much, if any, for my portfolio. I think the TD option is worth considering in Oz, sometimes attractive deals pop up. I managed to book a 5 yr TD at slightly above 4%, just 3-4 months ago. At the same time a 5 year AGB was probably below 2.5% or something like that. Since the TD is govt guaranteed anyway (amount less than 250k), it seems a good deal to me to take the extra 1.5+%. Sure the bond has extra flexibility to trade in/out in secondary market, but as I said at the outset, I see these as defensive assets (ie. for capital preservation and portfolio protection), i'm not looking to optimise here.
There was a RBA speech earlier in the week, I think it was Guy Debelle, and he covered the transition to low interest rate world. It seems it will be here to stay for some time. But he also said he fully expects the tide to turn and rates to normalise eventually. I'm prepared to be patient and wait for a normal interest rate environment where central banks haven't scooped up all the bonds in the world. Meanwhile i'm grinding my teeth as the banks drop rates on online saver accounts faster that I can open them up !
Edit: rba was philip lowe not debelle
Post by: Wadiman on May 19, 2015, 09:03:06 PM
Dungoofed - would you consider state government bonds as well or just Australian Govt bonds for your ladder?
Post by: dungoofed on May 24, 2015, 03:47:13 AM
Sorry, I meant to come back to this but have been away.
No, I wouldn't consider state government bonds. If you go to the link above there are a few sections which touch on the reasons why (US-centric but the same applies) eg
"Most bonds have credit and default risk and this is priced into them as higher interest rates. However the US Treasury bonds are considered extremely low risk of defaulting because the government can always tax people or print money to pay off the debt. As a result, US Treasury bonds pay lower interest than other types of bonds because the risk of holding them is lower."
So for state bonds you may get a slightly higher rate (I haven't checked, but assuming), but that's because the risk is higher. When your goal for holding bonds is that you want to be in the *safest* product when things start to go pear-shaped in the economy then you really need to choose the safest product ie AGBs.
As per the above quote, the Australian government can tax the populace and print money in order to meet its obligations. Compare this to state revenue, which has to go through GST --> Federal Government --> State Governments and you can see (default) risk starting to creep in, with all these moving parts and whatnot. Again, I doubt we'd ever reach a stage where the Federal Government decided to shortchange a state to the point that they couldn't pay their bondholders, but that's not what matters if your purpose for holding the bond is to profit from a sudden influx of institutional investors when things start to go pear-shaped.
If this is not your goal, and you're looking for guaranteed income, then I'm sure you could do worse than (a product which contains) state government bonds : )
Post by: Wadiman on May 25, 2015, 04:15:56 AM
Post by: australian_investor on June 02, 2015, 06:37:25 AM
Thanks for the great thread.
Has anyone else looked into whether ETFs held in Australia on US shares are liable for estate tax? I have shares in IVV and based on the link below I am concerned that I am liable for estate tax on these shares.
http://www.morningstar.com.au/smsf/article/tax-matters-investments/6540?q=printme
Cross-listed ETFs (Australian listings of foreign ETFs) also have their nuances. For example, the iShares Core S&P 500 ETF's (IVV) cross-listing means Australian investors can tap into the liquidity of the primary listing, contributing economies of scale and keeping a lid on bid-ask spreads. But IVV's New York cross-listing means Australian investors may incur some US estate tax on deceased estates.
Post by: superannuationfreak on June 02, 2015, 07:24:52 AM
My understanding is that the Australia-US tax treaty allows us proportionally similar estate tax exemptions as US citizens. I'm having trouble finding proper references on my phone but here is a mention:
https://www.bogleheads.org/forum/viewtopic.php?t=165866#p2500181
It's called a "pro-rata unified credit provision" and my limited understanding is that if your estate is under the current estate tax exemption (~$5m indexed to inflation) then you shouldn't be impacted. But legislative change is a risk.
Personally this limits my dependence on US-domiciled ETFs to exposures i can't easily or cheaply get otherwise but doesn't stop me making US investments entirely. But as I say, I'm not an expert.
Post by: australian_investor on June 02, 2015, 07:19:18 PM
Which Australian domiciled ETFs have you used to gain US exposure? I know UBS have recently launched one UBU but management fee is 0.20% which is higher than IVV and Vanguard options so interested if there are other Australian domiciled options with lower fees.
Post by: FFA on June 02, 2015, 09:48:49 PM
Post by: qwerty8675309 on June 03, 2015, 05:16:02 AM
I was reviewing global share etf options recently, in particular VGS vs VTS/VEU. In the end I opted to continue with VTS/VEU (already have some of these) rather than switch new investments to VGS (and possibly VGAD/VGE). VGS was tempting despite the higher MER, having extras like dividend reinvestment. But I like the fact VEU covers emerging markets also, as I wasn't sure I could be bothered adding VGE units periodically to cover this. I'm also interested to hear what others are doing.
I've been thinking about this lately too. This is the way I see it:
For VEU/VTS:
- Lower MER
- Higher liquidity
- Exposure to emerging markets
For VGS:
- Eligible for all foreign tax credits because fund is domiciled in Australia (for VEU, the foreign tax credits are lost)
- Easier to manage
- DRP
I'm still leaning towards VEU and VTS at the moment, but I might switch if Vanguard lowers fees for VGS, or the liquidity picks up.
Post by: alsoknownasDean on June 03, 2015, 06:20:34 AM
I'm looking at ETFs, should I just pick a broker and then start? I'm thinking of starting with $10,000 or so and buying more once a quarter.
Also should I look at an ETF based on Australian or international shares?
Thanks :)
Post by: MMMOI on June 03, 2015, 07:45:39 AM
I was reviewing global share etf options recently, in particular VGS vs VTS/VEU. In the end I opted to continue with VTS/VEU (already have some of these) rather than switch new investments to VGS (and possibly VGAD/VGE). VGS was tempting despite the higher MER, having extras like dividend reinvestment. But I like the fact VEU covers emerging markets also, as I wasn't sure I could be bothered adding VGE units periodically to cover this. I'm also interested to hear what others are doing.
I've been thinking about this lately too. This is the way I see it:
For VEU/VTS:
- Lower MER
- Higher liquidity
- Exposure to emerging markets
For VGS:
- Eligible for all foreign tax credits because fund is domiciled in Australia (for VEU, the foreign tax credits are lost)
- Easier to manage
- DRP
I'm still leaning towards VEU and VTS at the moment, but I might switch if Vanguard lowers fees for VGS, or the liquidity picks up.
Personally I've gone the VGS route: I really like the simple taxation and the DRP.
I see it as an all in one gateway to my international exposure.
I have been toying with the idea of VGAD - the hedged version of VGS - but given the current climate, will probably only keep adding to VGS only. It's not perfect since you don't get emerging markets, but I can live with that given how much it simplifies the rest.
So for me it's VGS for international exposure, and for local stocks I've got a bit of VAS, ARG and AFI.
Currently sitting at 50/50, I am having a hard time deciding how to allocate international exposure.
Given I have other assets in Aus (PPOR) for a significant higher value than what I have in shares, I am in a way inclined to get more international exposure - especially given the lack of diversification of the ASX - VGS is brilliant in this regard.
However, my strategy for shares is to benefit from FF dividends and DRPs to built an asset base that will deliver dividends to live off in the future. Local shares are better for that and shielded from FX rate fluctuations.
Regardless, I am keeping it simple: VGS for international exposure, VAS & LICs for Aus goodness :)
Post by: FFA on June 03, 2015, 09:21:44 AM
Post by: PurpleEi on June 03, 2015, 08:35:14 PM
Post by: bigchrisb on June 03, 2015, 08:46:43 PM
For those with ARG holdings, what are your thoughts on the Argo Global Listed Infrastructure Limited Offer?
I had a good look at this, and decided it was not for me. I saw a couple of pros and cons:
- Infrastructure as an asset class is somewhat uncorrelated with the rest of my portfolio. This is a good thing.
- Its operated as a fund of funds, with a fairly high expense ratio. Certainly more fees than I'm prepared to pay. This is a bad thing.
- Infrastructure assets tend to be inversely correlated with cash returns - a bit more like bonds than stocks*. They have fairly stable earnings, and the price tends to reflect what someone is prepared to pay for the earnings. With low global cash rates, infrastructure assets have had an awesome return over the last few years. The market timer in me would suggest that now is not the time...
- * or at least they would behave like bonds if they didn't have a high degree of debt. One of the tricks infrastructure has been using is to lever up the balance sheet with cheap debt. This has been great while debt gets cheaper. It will not be so great in the reverse situation. My gut makes me feel like infrastructure assets are geared like the REITS were pre-GFC, and it makes me a bit nervous.
On balance, I'm not inclined to increase my exposure to infrastructure, and if I was, I'm not convinced that this is the vehicle to use.
Disclosure - I have a market weight of infrastructure (through index/lic funds), and a direct holding in SYD (from its MQG spin-out).
Post by: FFA on June 03, 2015, 09:35:04 PM
I'm keen to put some of the cash sitting in my savings account to more productive uses. Can you please help an investing newbie? (the only other shares I've got are a small handful of AMP shares I got about ten years ago that I haven't touched since)Hi akadean, ultimately you need to research and make your own investment decision... as a general view ive stated a few times my opinion 50/50 aus/int is a reasonable starting point. If doing quarterly investments you could alternate between the etfs. Another option to consider is a diversified fund, although fees will be higher than etf, it is more convenient for regular topups and auto rebalancing the ratio.
I'm looking at ETFs, should I just pick a broker and then start? I'm thinking of starting with $10,000 or so and buying more once a quarter.
Also should I look at an ETF based on Australian or international shares?
Thanks :)
Post by: superannuationfreak on June 04, 2015, 04:41:44 AM
For those with ARG holdings, what are your thoughts on the Argo Global Listed Infrastructure Limited Offer?
My main concerns are the high fees and that listed infrastructure does not seem to have been the diversifier that (presumably less leveraged) direct infrastructure has been.
If I were to have a specific Infrastructure allocation I would have it through an industry fund. That could either be through a balanced fund or HostPlus have recently added an Infrastructure investment option from Industry Funds Management for 0.45% p.a.
Post by: terrier56 on June 04, 2015, 11:40:57 PM
I recently found the website [sharesight.com]. It is a great tracking tool for australians who buy and hold. if you have fewer than 10 holdings then its free!!
Post by: superannuationfreak on June 05, 2015, 02:53:20 AM
Market Vectors Small Cap Dividend Payers ETF (MVS) tracks liquid dividend paying small caps. They charge 0.49% p.a.
http://www.marketvectors.com.au/funds/MVS/Snapshot/
For me the ETF is too new (literally days old) and small (less than $30m AUM) to invest in, particularly outside of Super (in Super there is less risk of large capital gains tax bills if the product is tax-inefficient or closes due to lack of interest). And I would prefer it to emphasise Value or Shareholder Yield rather than dividend payers. But its a step in the direction of a lower-cost rules-based small cap fund that avoids the "growthiest" small cap stocks (in Australia that has historically been junior miners but who knows what the future holds).
Post by: Rob_S on June 05, 2015, 04:09:13 AM
stock market is having a FIRE-SALE!!! nothing like the smell of fear to buy more shares lol.
Is it really though? It hasn't dropped enough for me to change from debt pay down mode. It might soon though. I read somewhere that the banks were down approx. 20%?
For those looking for factor diversification within the Australian Share market (damned home bias) there's a new ETF which is closer to what I have been looking for.
Market Vectors Small Cap Dividend Payers ETF (MVS) tracks liquid dividend paying small caps. They charge 0.49% p.a.
http://www.marketvectors.com.au/funds/MVS/Snapshot/
Thanks for the tip-off. I'm going to keep an eye on this. I might switch some super into it and see how it goes. Cheers!
Post by: marty998 on June 05, 2015, 05:26:30 AM
Post by: AustralianMustachio on June 05, 2015, 10:07:48 PM
For those looking for factor diversification within the Australian Share market (damned home bias) there's a new ETF which is closer to what I have been looking for.
Market Vectors Small Cap Dividend Payers ETF (MVS) tracks liquid dividend paying small caps. They charge 0.49% p.a.
http://www.marketvectors.com.au/funds/MVS/Snapshot/
For me the ETF is too new (literally days old) and small (less than $30m AUM) to invest in, particularly outside of Super (in Super there is less risk of large capital gains tax bills if the product is tax-inefficient or closes due to lack of interest). And I would prefer it to emphasise Value or Shareholder Yield rather than dividend payers. But its a step in the direction of a lower-cost rules-based small cap fund that avoids the "growthiest" small cap stocks (in Australia that has historically been junior miners but who knows what the future holds).
Thanks for the tip off superannuationfreak. I agree it's too early and too small to invest in. A bit like MVW. Me personally I'd probably go with a LIC which covers smaller or midcaps over something like this
Post by: dungoofed on June 07, 2015, 08:03:25 AM
thanks both. yeah to me it's a line ball decision, I was on the cusp of buying VGS and flipped the other way. The only other plus i'd add for VTS/VEU is you can tinker with the US/non-US split, if you so desire.
I'm VGS/VGE because I believe they are less correlated than VTS/VEU. There's overlap of course, but anyone who owns VAS also has overlap with VEU or VGS.
Incidentally there are a couple of interesting wholesale funds which may be available via your super provider eg VAN0003AU which tracks the MSCI World ex-Australia Index. YMMV but it could form a part of strategy.
Post by: potm on June 07, 2015, 08:32:26 AM
Post by: dungoofed on June 07, 2015, 08:08:11 PM
Post by: marty998 on June 07, 2015, 09:12:23 PM
Couple of years ago I was looking at Blackmores at around $12-$15. Dammit lol it's now trading around $70.
Reminded of it now because June Money Magazine has a little write up on it as a solid small-mid cap. Money is also keen on Capilano Honey, Domino's Pizza and Reece.
I've been buying VHY (Vanguard High Yield ETF) for the past 6 months but am having a look at VSO (Vanguard Small Companies) as an alternative to the un-diversified nature of VAS.
VSO has only returned 1.37% pa since inception - quite extraordinarily low for 4 years. As the economy rebalances out of mining (and potentially housing) in theory it should be a boon for consumer/service type businesses and stocks in VSO should pick up.
The top 10 in VSO are: Aristocrat, Challenger, Ansell, Duet, Echo, Spark, Orora, Fairfax, IOOF and Dulux, representing about 21% of the fund.
I think the main benefit to VSO is that it avoids banks and resources for the most part. You can get exposure to the rest of the economy through it.
Post by: AustralianMustachio on June 07, 2015, 09:21:01 PM
Pity Hyperion has closed to new investors, I liked the look of that one particularly.
Even looking at the website undertheradarreport, their small cap picks have averaged something like 30%. And that's a site you can sign up to for free by just typing in an email address.
Post by: FFA on June 07, 2015, 09:27:20 PM
I've been buying VHY (Vanguard High Yield ETF) for the past 6 months but am having a look at VSO (Vanguard Small Companies) as an alternative to the un-diversified nature of VAS.I still prefer global shares for the ASX concentration issue. Although i'm finding it hard too lately as the global share indices keep riding high and the AUD falls, they are getting quite lofty nowadays. Equally after a bit of pullback on the asx lately, the old franked dividend yield /home bias argument starts to become very tempting too !
Also as per AustralianMustachio, I understood Oz small caps was one area where it's generally better to have an active manager (?). I believe the issue is the index itself, being heavy with spec miners, which can be easily outperformed just by dodging a few of these duds.
Post by: marty998 on June 07, 2015, 09:49:45 PM
Post by: AustralianMustachio on June 08, 2015, 12:42:28 AM
Yeah tend to agree...it's just that going with a small cap manager exposes you to paying up to around 3-4% a year in fees. So you have to be pretty confident they are going to have outperformance every year consistently in order to do well.
I haven't checked out many funds myself, but 3-4% seems a bit extreme. 1 - 1.5% seems the norm, with outperformance fees if it does indeed outperform. My thinking tends to be that if it's outperforming, then I guess it's ok to pay those fees, because it's coming out of extra performance anyway. If it doesn't outperform, you don't pay the fees
Disclaimer - i don't hold any of these funds myself and haven't really thought it through too deeply!
Post by: FFA on June 08, 2015, 08:37:21 AM
Post by: bigchrisb on June 09, 2015, 06:41:16 PM
Anyone else starting to see more value in stocks?
(yes yes, I'm a naughty market timer).
Post by: marty998 on June 10, 2015, 02:32:16 AM
I can see XJO heading towards 5000 before it goes back towards 6000. One of these days one of my 1000s of predictions will come true.
DYOR
* Should clarify that the reason for this view is that credit growth is not what it once was and the banks margins will come under increasing further pressure.
Regarding resources, it's obvious, prices are down, and staying down.
Post by: chasinggains on June 10, 2015, 02:42:20 AM
With the sustained selloff in the last month, today I started dribbling money back into stocks - bought $10k of VAS. Who knows what's going to happen over the medium term, but I'm now at a value point where I'm prepared to divert some of my cash flow from debt reduction to stock purchase.
Anyone else starting to see more value in stocks?
(yes yes, I'm a naughty market timer).
Yeah the market is looking a lot more attractive than it did a month ago, although I'm going to have to hold off buying some more until after my holiday ! :(
Post by: superannuationfreak on June 10, 2015, 06:07:10 AM
Usually yes, but if the outperformance is driven by an easy benchmark then perhaps not.
That's my concern with many small cap funds that charge performance fees. The small ordinaries index has performed poorly so, for example, having a "small cap" labelled fund with mid-cap and/or micro-cap exposure has generated performance fees against potentially the wrong benchmark. I'm not sure if there are also problems like front-running of the index but think it would be susceptible to that.
While I would like to follow a small-mid cap value index there isn't a low-cost product out there. I have a small exposure to the LIC QVE which aims to be low-turnover, value oriented and benchmarked against the ASX excl. the top 20, but is still actively managed and a bit more expensive than I'd prefer (0.8-0.9% p.a.). I also have some FGX but I have mixed feelings about it as the underlying funds it holds are not that transparent and I'm not sure they'll be very tax-efficient. It is pro-bono though (donating the 1% "fee" to charities) so I don't feel too bad about the cost-side.
Post by: dungoofed on June 10, 2015, 08:36:08 AM
http://info.singtel.com/about-us/investor-relations/delisting-of-singtel-shares-from-asx
"...trading in Singtel CDIs on the Australian Securities Exchange (ASX) will be suspended on and from 29 May 2015 (Suspension Date), and Singtel will be removed from the official list of the ASX on 5 June 2015."
I purchased them as Optus shares about 15 years ago and was in the DRP initially but they seem to have got rid of along the way and I started receiving dividends. Luckily I found this now because some deadlines have passed and others are coming up fast.
I think I'll keep the holding on the SGX and continue to receive dividends, paid in SGD and converted to AUD, but would be interested to hear what anyone else in this situation is doing/would do. I know US companies buy out Australian companies and delist from the ASX from time to time, but with Singapore I believe the tax treaty means there is no franking but no tax on the Singapore-side.
This episode also has me thinking about what kind of shares I want to be holding in 15 years time. When I look at the actual share price of Singtel it hasn't actually done much over the long term, so if there are any Australian companies I want to be an owner of I should probably just bite the bullet and buy the shares now.
Post by: dungoofed on June 12, 2015, 02:12:22 AM
With the sustained selloff in the last month, today I started dribbling money back into stocks - bought $10k of VAS. Who knows what's going to happen over the medium term, but I'm now at a value point where I'm prepared to divert some of my cash flow from debt reduction to stock purchase.
Anyone else starting to see more value in stocks?
(yes yes, I'm a naughty market timer).
Yeah the market is looking a lot more attractive than it did a month ago, although I'm going to have to hold off buying some more until after my holiday ! :(
Would love to be participating in a little market timing myself but all my free money is somewhat tied up for the time being (and probably a good thing).
Post by: dungoofed on June 12, 2015, 08:34:44 PM
So yeah, two questions:
1) Any good starting place to find the best superannuation provider? Was there some stuff on the first page of this thread? Back in the country and I have almost finished consolidating all the meager amounts here and there from all the part time work I did over the years. But IOOF is charging me a lot each month just for the wrap, and I think I can do better. Also every time I want to change something I need to step back into the 80s and fax off forms with certified copies of drivers licenses etc. Still it seems better than AMP, which has great customer service but managed to temporarily lose the entire balance of one of my accounts for a few days, and has been extremely expensive.
2) Does anyone *prefer* to hold their investments with US companies (Blackrock, Vanguard, Fidelity etc) as opposed to Australian companies (Magellan, Macquarie, etc)? I seem to have a massive bias in this regard in that I don't know whether I trust corporate governance in Australia as much as I do that in the US.
Post by: qwerty8675309 on June 12, 2015, 08:56:23 PM
1) Any good starting place to find the best superannuation provider? Was there some stuff on the first page of this thread? Back in the country and I have almost finished consolidating all the meager amounts here and there from all the part time work I did over the years. But IOOF is charging me a lot each month just for the wrap, and I think I can do better. Also every time I want to change something I need to step back into the 80s and fax off forms with certified copies of drivers licenses etc. Still it seems better than AMP, which has great customer service but managed to temporarily lose the entire balance of one of my accounts for a few days, and has been extremely expensive.
I went through the process of moving to a new superannuation provider just a few months back. The best that I found was SunSuper, which has a few great index funds on offer. I split my super into 50% Australian Shares (Index) and 50% International Shares (Index). The fees are $78 p.a., plus 0.3% p.a on your investment amount. Not too bad when you compare them to some other superannuation funds charging around 1% p.a. They also have an indexed bond fund too, which is good if you don't want as much risk. Of course, this assumes that you're a fan of indexing.
SunSuper also announced recently that they are partnering with Vanguard, so we might see a larger variety of funds going forward (and hopefully lower fees!). There's also a blog run by superannuationfreak (http://superannuationfreak.blogspot.com.au/) which is a good read.
Post by: potm on June 23, 2015, 12:34:31 AM
https://www.stockspot.com.au/static/reports/Stockspot-ETF-Report-2015.pdf
Post by: FFA on June 23, 2015, 01:45:16 AM
Post by: ynotme on June 23, 2015, 02:35:59 AM
potm - that ETF report was interesting. Thanks for posting.
I was wondering if anyone has any investments focused on Asia. I've bought some IAA which is an ETF of the 50 largest companies listed in Hong Kong, Singapore, South Korea and Taiwan. This doesn't cover India which I also wanted exposure to. These investments will only be a small percentage of my portfolio but I believe there is potential for long-term growth in Asia.
Anyone want to share their strategy if investing in Asia through the ASX?
Post by: Wadiman on June 23, 2015, 04:34:49 AM
I am interested in asian investing as well.
I currently hold ishares japan ETF which has been doing nicely (40% over last two years) and ishares IEM ETF (emerging markets has quite a few asian shares including some of the bigger Hong Kong-based Chinese companies) but - like you - want to increase my exposure to India and mainland Chinese companies.
Have thought about IZZ - ishares China large cap ETF but haven't invested as yet (fortunate given recent tanking but has grown 70% over last two years).
IBK ETF covers the BRIKs and is about the same level as it was 5 years ago so that's not too impressive to say the least! Am not aware of any sole Indian ETFs listed here.
Post by: ynotme on June 23, 2015, 05:03:25 AM
Have thought about IZZ - ishares China large cap ETF but haven't invested as yet (fortunate given recent tanking but has grown 70% over last two years).
I've looked at this too but it's grown so quickly that I wonder if it's sustainable. There's a heap of money that seems to be piling into the Chinese share market so who knows, it may continue to go up.
Good work on investing in Japan. You seemed to have picked the right time to get in.
Post by: dungoofed on June 23, 2015, 04:18:22 PM
While I'm not yet convinced Stockspot is doing anything profound I'm glad that they're at least pointing the spotlight on the Australian ETF market. Their ETF ratings somewhat line up with the kind of criteria that interest me. And good on them for highlighting iShares being 2x the price of Vanguard in some cases for little or no benefit.
As for region-based indexing, if you already hold a global index then the only places I'd consider overweighting are the US and Australia. The former because I'm still a closet bull on the US, and the latter for tax and lifestyle hedging benefits. Maybe a speculative trade on Russia. Otherwise I'm happy to ride the indexes for international exposure.
Post by: potm on June 23, 2015, 05:26:14 PM
Post by: FFA on June 23, 2015, 05:35:06 PM
Indeed huge international growth, doubled. Some of that is capital appreciation, since those funds went up much faster. Some of it could be the "stabilisation" of the global economy (or people becoming more and more complacent about the way things are). Agree a chunk of it is also recency bias, people chasing the latest returns, and punting on the AUD continue to plummet further....
happy to see the etf's i'm in (vas ioz vts veu) all get the stockspot 5 stars of approval :)
Post by: This_Is_My_Username on June 23, 2015, 08:45:26 PM
Quote
If a company has a $1.00 profit, and the company chooses to distribute the 70 cents, with a 30 cent franking credit.
1. Our zero tax payer (say a super fund in pension mode) gets the 70 cents, and then gets the franking credit refunded. It then has $1.00 it can spend or reinvest.
2. Our 39% taxpayer gets the 70 cents. The taxpayer owes 39 cents in tax on this money. They get a credit for the franking credit of 30 cents, and pay the remaining 9 cents. They are left with 61 cents to spend or reinvest.
3. Our 49% taxpayer (high income earner) gets the 70 cents. The taxpayer owes 49 cents in tax on this money. They get a credit for the franking credit of 30 cents, and pay the remaining 19 cents. They are left with 51 cents to spend or reinvest.
Instead, our company chooses not to pay a dividend, and invests the 70 cents in its operations. The price of a share goes up by 70 cents. Our shareholders would have to sell shares to access the funds.
1a. Our zero tax payer would sell 70c of shares. As they pay no tax, they don't pay any capital gains. They have 70 cents to spend or invest. They are worse off than if the dividend was paid.
2a. If our 39% taxpayer wants to reinvest the money in the company (not sell the shares), they have invested 70c. They are better off than getting the dividend.
2b. If they want to spend the money, they would have 70c of capital gain to declare. Say they wait a year for the 50% discount. They would pay 13.65c in tax (70*.5*.39), keeping 56.35 cents. They are worse off than being paid the dividend.
3a. If our 49% taxpayer wants to reinvest the money in the company (not sell the shares), they have invested 70c. They are better off than getting the dividend.
3b. If they want to spend the money, they would have 70c of capital gain to declare. Say they wait a year for the 50% discount. They would pay 17c in tax (70*.5*.49), keeping 53 cents. They are better off than being paid the dividend.
The quote above (plagiarised from bigchrisb) shows that:
during the FIRE accumulation phase, the most effective strategy is to accumulate unreliased capital gains with a high salary at the 39% or 49% marginal tax rate.
during the FIRE drawdown/unemployment phase, the most effective strategy is to receive dividends.
What is the most effective way to transition your investments from zero-dividend growth investments, to high-dividend investments, at/near your FIRE date??
Excluding superannuation, because it is too far away.
I've done a few excel simulations of selling an entire zero-dividend portfolio ($X00,000) and buying high-dividend investments. Depending on the assumptions, the capital gains tax bill eliminates most/all of the tax benefit of accumulating unrealised capital gains. It might(?) be just as good to accumulate high-dividend shares from the start, and put up with the non-optimal taxation of dividends for 80k+ salaries.
How is this transition best handled?
Thanks
Post by: potm on June 23, 2015, 09:43:23 PM
Super is the obvious scenario where dividends are better due to the concessional tax rate.
Outside of super it will depend on the size of your stash.
This is only looking at things from a pure tax perspective. If you are picking individual stocks there's many other factors to consider, such as how effectively the company is investing retained earnings. If you are investing over a long period of time you may find that low dividend payers become high dividend payers as the businesses mature and there's less opportunity for investment.
Post by: FFA on June 24, 2015, 01:29:34 AM
An example might be : if your accumulation phase AA is 50% oz index etf / 50% global index etf. In the five years before FIRE, perhaps you start investing fresh funds at 75/25% (oz/global) to increase the yield over growth orientation. If you want to go further, perhaps substitute the oz index etf for a high yield variety (e.g. VHY instead of VAS). As per potm, you need to consider it holistically though and understand such action is fundamentally changing your AA (oz vs global exposure), not just the tax aspect.
Post by: dungoofed on June 24, 2015, 02:02:46 AM
This is only looking at things from a pure tax perspective. If you are picking individual stocks there's many other factors to consider, such as how effectively the company is investing retained earnings. If you are investing over a long period of time you may find that low dividend payers become high dividend payers as the businesses mature and there's less opportunity for investment.
Blackmores came up in conversation yesterday for this very reason:
http://dividends.com.au/dividend-history/?enter_code=BKL
Would be perfect if one had have invested in it 15-20 years ago, looking to retire now.
Post by: ynotme on June 24, 2015, 02:54:09 AM
One of the reasons I haven't invested in property is because most are cash-flow negative. However I have wondered if pairing a leveraged investment property and a dividend-paying share portfolio might be a good combination. If overall your investments are cash-flow neutral during the accumulation phase so you don't pay any additional tax. If you pay off the loan before you retire, you could live off rent and dividends when you retire. You are also diversified across asset classes.
Post by: bigchrisb on June 24, 2015, 04:09:48 PM
What is the most effective way to transition your investments from zero-dividend growth investments, to high-dividend investments, at/near your FIRE date??
Excluding superannuation, because it is too far away.
I've done a few excel simulations of selling an entire zero-dividend portfolio ($X00,000) and buying high-dividend investments. Depending on the assumptions, the capital gains tax bill eliminates most/all of the tax benefit of accumulating unrealised capital gains. It might(?) be just as good to accumulate high-dividend shares from the start, and put up with the non-optimal taxation of dividends for 80k+ salaries.
How is this transition best handled?
Thanks
I've found investing through a trust very powerful for this. Buy your asset allocation in the trust. While high tax and accumulating, stream any dividends and franking credits to a company beneficiary. Reinvest it at company tax rates (same impact as the underlying holding reinvesting rather than paying a dividend). When after the income, stop paying the dividends to the company, and pay to yourself. Stop reinvesting dividends in the company and pay them to yourself too.
If you need to draw down, think about the tax consequences. Sell down stock in the company holding, and you will not get CGT discount. But you will be able to pay it out as a fully franked dividend (all the divis on the way in store the franking credits). The franking credits will run out when you redraw your original contribution and reinvested dividends, but won't cover any actual capital growth on the shares in the company.
Once that pool of franking is exhausted, then start drawing down capital gains from the shares in the trust - as you will be able to claim CGT discount on that.
That structure means no need to realise capital gains to change your tax treatment between accumulation and draw down.
Hope that helps and makes sense?
Post by: dungoofed on June 25, 2015, 12:36:49 AM
stocklight.com
hashching.com.au
www.moneybuddy.com.au
https://simplywall.st
www.moroku.com
https://bankstatements.com.au
YMMV but nice to know from time to time what the developments are in this space.
Post by: dungoofed on June 27, 2015, 07:19:32 PM
QuoteIf a company has a $1.00 profit, and the company chooses to distribute the 70 cents, with a 30 cent franking credit.
1. Our zero tax payer (say a super fund in pension mode) gets the 70 cents, and then gets the franking credit refunded. It then has $1.00 it can spend or reinvest.
2. Our 39% taxpayer gets the 70 cents. The taxpayer owes 39 cents in tax on this money. They get a credit for the franking credit of 30 cents, and pay the remaining 9 cents. They are left with 61 cents to spend or reinvest.
3. Our 49% taxpayer (high income earner) gets the 70 cents. The taxpayer owes 49 cents in tax on this money. They get a credit for the franking credit of 30 cents, and pay the remaining 19 cents. They are left with 51 cents to spend or reinvest.
Instead, our company chooses not to pay a dividend, and invests the 70 cents in its operations. The price of a share goes up by 70 cents. Our shareholders would have to sell shares to access the funds.
1a. Our zero tax payer would sell 70c of shares. As they pay no tax, they don't pay any capital gains. They have 70 cents to spend or invest. They are worse off than if the dividend was paid.
2a. If our 39% taxpayer wants to reinvest the money in the company (not sell the shares), they have invested 70c. They are better off than getting the dividend.
2b. If they want to spend the money, they would have 70c of capital gain to declare. Say they wait a year for the 50% discount. They would pay 13.65c in tax (70*.5*.39), keeping 56.35 cents. They are worse off than being paid the dividend.
3a. If our 49% taxpayer wants to reinvest the money in the company (not sell the shares), they have invested 70c. They are better off than getting the dividend.
3b. If they want to spend the money, they would have 70c of capital gain to declare. Say they wait a year for the 50% discount. They would pay 17c in tax (70*.5*.49), keeping 53 cents. They are better off than being paid the dividend.
The quote above (plagiarised from bigchrisb) shows that:
during the FIRE accumulation phase, the most effective strategy is to accumulate unreliased capital gains with a high salary at the 39% or 49% marginal tax rate.
during the FIRE drawdown/unemployment phase, the most effective strategy is to receive dividends.
What is the most effective way to transition your investments from zero-dividend growth investments, to high-dividend investments, at/near your FIRE date??
Excluding superannuation, because it is too far away.
I've done a few excel simulations of selling an entire zero-dividend portfolio ($X00,000) and buying high-dividend investments. Depending on the assumptions, the capital gains tax bill eliminates most/all of the tax benefit of accumulating unrealised capital gains. It might(?) be just as good to accumulate high-dividend shares from the start, and put up with the non-optimal taxation of dividends for 80k+ salaries.
How is this transition best handled?
Thanks
Anyone have any experience with Endowments on the ASX?
According to the ASX literature on Warrants:
Quote
Endowments are long term call warrants
typically with a 10 year life at the time of issue.
They are over an ASX quoted security or basket
of securities. Endowments are promoted as
investment products to be bought by investors
and held until expiry.
The issue price of an endowment is between
30 and 65 percent of the market value of the
underlying security at the time of issue. The
exercise price (called the “outstanding amount”
of the endowment) is initially the remaining sum
plus other costs.
The outstanding amount varies over the life
of the warrant. In this respect endowment
warrants differ from most warrants as they
do not have a fixed exercise price.
The outstanding amount is reduced by any
dividends that are paid in relation to the
underlying security. In some instances other
payments may also reduce the outstanding
amount. However, an interest rate is also
applied and the outstanding amount is
increased by these interest amounts.
At expiry, if you exercise the warrant and pay
the balance of the outstanding amount (if any)
the issuer will transfer the underlying securities
to you. Ideally the reductions applied against
the outstanding amount exceed the interest
incurred over the life of the warrant, and the
outstanding amount will have decreased. It
could reduce to zero prior to or at expiry. If
this occurs you may only have to pay a nominal
exercise price such as one cent.
An investor in endowments is taking a long
term view on the underlying company’s dividend
policy versus interest rates with the belief
that the dividends will outweigh the interest
payments and the outstanding amount will
reduce over time.
The issuers of endowments can provide you with
details of the outstanding amount and the expiry
dates of particular endowment warrant series.
My understanding is that these are a potentially tax-effective way to accumulate a dividend stock. You pay a deposit which is usually 30-60% of the current market price of the underlying, then any dividends paid are used to reduce the outstanding balance, less inflation. Term is usually 10 years. And since no dividend is paid to you over the term there is no taxable event yet you have real exposure to the stock's capital growth and real benefit from the dividends. Then at the end of the term if you convert to shares you have no CGT until you sell.
The main risk seems to be that inflation ramps up and outpaces the dividends. I am trying to find out whether the opposite case, where you receive too many dividends over the term, bringing the balance to zero (ie essentially rendering them "lost"), is also a risk. And of course there is treatment of warrants in "exceptional" cases (takeovers, bankruptcies, etc) which you need to be aware of.
I only have experience with PMGOLD in the world of warrants on the ASX, but I'm trying to find out more now. Seems like a lot of the literature talks about leverage risk, which doesn't really affect you if you plan to hold the shares over the long term anyway. What is interesting to me is the thought of putting together today your "retirement portfolio" of say 10 blue chips that you'd want in 10 years time, add another 2-4 in case something goes wrong or as something to sell in order to pay the outstanding balances in 10 years time, then put down the deposits now and forget about them until you're ready to retire. In reality I don't think I'd bet my entire retirement on something like that but if the figures made sense I could see the benefits of adding some warrants from a tax point of view.
Post by: Wadiman on June 27, 2015, 10:29:01 PM
Any thoughts as to whether steps 4 to 8 in the arrangement below would be ok from a tax perspective?:
1. Establish a sub-account within a line of credit secured against PPOR (principal place of residence) specifically for share investment
2. Use sub-account to fund equity portfolio acquisition (say $100k total investment)
3. Claim interest on $100k as tax deduction (say $4500 in year 1 - 4.5% interest)
4. Pay tax refund into PPOR LOC sub account
5. Pay dividends into PPOR LOC sub account
6. At end of year 2, equity LOC has interest capitalised and total owing is now $104.5k
7. Claim 4.5% of 104.5k as tax deduction
8. And so on until PPOR is paid down then start repaying investment loan (while still claiming relevant deductions).
Post by: deborah on June 27, 2015, 10:47:42 PM
Post by: Wadiman on June 27, 2015, 11:01:53 PM
What about capitalising the interest - any view on the deductibility of that?
Thanks!
Post by: ynotme on June 27, 2015, 11:28:15 PM
A few thoughts on your strategy:
- Dividends are income that you can use for whatever purpose including paying off your home.
- My LOC has the condition that I pay the interest accrued each month (effectively an I/O loan) so you may want to check the loan repayment conditions with your lender.
- My LOC also has a maximum amount that I can draw down on so you will reach a limit at some point.
Post by: marty998 on June 28, 2015, 12:01:39 AM
I've done a bit of googling on this and am not clear on potential tax implications.
Any thoughts as to whether steps 4 to 8 in the arrangement below would be ok from a tax perspective?:
1. Establish a sub-account within a line of credit secured against PPOR (principal place of residence) specifically for share investment
2. Use sub-account to fund equity portfolio acquisition (say $100k total investment)
3. Claim interest on $100k as tax deduction (say $4500 in year 1 - 4.5% interest)
4. Pay tax refund into PPOR LOC sub account
5. Pay dividends into PPOR LOC sub account
6. At end of year 2, equity LOC has interest capitalised and total owing is now $104.5k
7. Claim 4.5% of 104.5k as tax deduction
8. And so on until PPOR is paid down then start repaying investment loan (while still claiming relevant deductions).
Have you phrased this right? Why would you direct all dividends and tax refunds into your PPOR investment LOC loan, instead of your existing PPOR non-deductible loan?
Post by: Wadiman on June 28, 2015, 12:31:31 AM
Yeah you've got to be careful with capitalising interest - most loans and LOCs can be interest only, but lenders are probably going to get stricter on products allowing you to capitalise interest.I've done a bit of googling on this and am not clear on potential tax implications.
Any thoughts as to whether steps 4 to 8 in the arrangement below would be ok from a tax perspective?:
1. Establish a sub-account within a line of credit secured against PPOR (principal place of residence) specifically for share investment
2. Use sub-account to fund equity portfolio acquisition (say $100k total investment)
3. Claim interest on $100k as tax deduction (say $4500 in year 1 - 4.5% interest)
4. Pay tax refund into PPOR LOC sub account
5. Pay dividends into PPOR LOC sub account
6. At end of year 2, equity LOC has interest capitalised and total owing is now $104.5k
7. Claim 4.5% of 104.5k as tax deduction
8. And so on until PPOR is paid down then start repaying investment loan (while still claiming relevant deductions).
Have you phrased this right? Why would you direct all dividends and tax refunds into your PPOR investment LOC loan, instead of your existing PPOR non-deductible loan?
Hi Marty -
Yes - have phrased correctly - I would be looking to pay down the non-deductible PPOR LOC sub account - ie pay off my home loan quicker with the tax refund and dividend payments. I have a 'global' LOC with multiple sub-accounts for a range of specific purposes - deductible and non-deductible (but each sub account is one or the other - no mixing!)
Post by: This_Is_My_Username on June 29, 2015, 06:46:34 AM
home loan rates are 4.0 - 4.5%.
share returns are much higher than this in the long run.
Post by: idjces on June 29, 2015, 11:50:45 AM
I've done a bit of googling on this and am not clear on potential tax implications.
Any thoughts as to whether steps 4 to 8 in the arrangement below would be ok from a tax perspective?:
1. Establish a sub-account within a line of credit secured against PPOR (principal place of residence) specifically for share investment
2. Use sub-account to fund equity portfolio acquisition (say $100k total investment)
3. Claim interest on $100k as tax deduction (say $4500 in year 1 - 4.5% interest)
4. Pay tax refund into PPOR LOC sub account
5. Pay dividends into PPOR LOC sub account
6. At end of year 2, equity LOC has interest capitalised and total owing is now $104.5k
7. Claim 4.5% of 104.5k as tax deduction
8. And so on until PPOR is paid down then start repaying investment loan (while still claiming relevant deductions).
Im not sure on the rules but from what i've read from links such as http://m.brokernews.com.au/news/breaking-news/ato-slams-most-common-investment-strategy-as-illegal-182211.aspx and others on the 'hart' case, its probably a very bad idea.
Best practise would be to pay LOC interest out of investment income and any shortfall covered by personal income. If there is excess investment income then how you spend/invest the excess would not matter.
It seems like a grey area but 'snowballing' deductible interest sounds like its asking for a tax audit.
I went with a regular home loan with 'splits' which can be repurposed to be deductible (Eg pay off and redraw). Every lender I spoke to advised against LOC's saying regular splits achieve the same prupose with a lower interest rate. You can't capitilize past your LOC limit and any LOC adjustment requires a comprehensive credit application again.
Post by: bigchrisb on June 30, 2015, 08:21:25 PM
I was about to buy a parcel of BRK.B via nabtrade, but shied away at the 2%+ spread on the exchange rate with them. The brokerage itself is ok, but the level of spread on the forex seems like a shocker (think of it as a 2% front load!).
I used to use IB before their margin lending issues, and they were pretty cost effective. Any other ideas for a brokerage for international stock, with good brokerage rates, acceptable FX and no custodial fees?
Post by: marty998 on June 30, 2015, 08:46:48 PM
anyone have a clue as to why? Perhaps some rebalancing in the ETF triggered some large capital gains.
Bit surprised by it, based on history I was expecting about $1 per unit as the distribution.
No biggie, all gets reinvested for me. Have boatloads of capital losses to chip away at so hopefully the tax components are capital gains and not income.
Post by: DrowsyBee on June 30, 2015, 09:00:39 PM
I've been looking into stuff like BRK.B for a while and thinking about starting some international trading as well. However, one of the thoughts I had was to take advantage of having a US citizen for a partner, is this something I could really take advantage of (once married of course) in the long term?
Or is that level of detail just unnecessary?
Post by: bigchrisb on June 30, 2015, 09:41:00 PM
whopping gigantic distribution of $2.74 out of VHY this quarter.
anyone have a clue as to why? Perhaps some rebalancing in the ETF triggered some large capital gains.
Bit surprised by it, based on history I was expecting about $1 per unit as the distribution.
No biggie, all gets reinvested for me. Have boatloads of capital losses to chip away at so hopefully the tax components are capital gains and not income.
Saw this and also wondered - its suspiciously large. I had a look at the list of shares (https://www.vanguardinvestments.com.au/retail/broker-basket?fundId=47&basketType=) and the list is quite different from that on 31 May (https://static.vgcontent.info/crp/intl/auw/docs/etfs/profiles/VHY_profile.pdf?20150625|091500) . The top 10 have changed from
TLS, WES, WBC, WPL, CBA, ANZ, NAB, SYD, DUE, MQG
To
TLS, ANZ, NAB, RIO, BHP, WBC, CBA TAH, DUE, SKI
This suggests that there is a lot of portfolio churn in this fund within the last month - 4 of last months top 10 are no longer top 10 holds. Makes me think there will be a lot of capital gains distributed from this fund, and makes me question the long term tax efficiency of it vs a more passive buy and hold fund (like VAS).
Post by: bigchrisb on June 30, 2015, 09:42:50 PM
bigchrisb (or anyone else with knowledge, for that matter), question for your question.
I've been looking into stuff like BRK.B for a while and thinking about starting some international trading as well. However, one of the thoughts I had was to take advantage of having a US citizen for a partner, is this something I could really take advantage of (once married of course) in the long term?
Or is that level of detail just unnecessary?
Sorry - no idea about this! Suspect there may be some potential for tax arbitrage, but I think the US in particular is picky about taxing citizens on global income.
Post by: dungoofed on June 30, 2015, 11:05:57 PM
I'm also interested in hearing what people are doing in this regard. I had an account in Japan which gave decent rates but I liquidated it before I came to Australia recently.
A few of my foreign friends in Japan said that the best option was to have an HSBC Premier account, then wire money from Japan to HK where they had an IB account. Unfortunately HSBC pulled out of Tokyo but they still have a strong presence in Australia.
This is the kind of setup I'd like to work towards and from what I understand the tax accounting is really simple but like you I'd prefer to speak to someone who is doing it from Australia before I take the plunge.
Post by: marty998 on July 01, 2015, 01:42:54 AM
whopping gigantic distribution of $2.74 out of VHY this quarter.
anyone have a clue as to why? Perhaps some rebalancing in the ETF triggered some large capital gains.
Bit surprised by it, based on history I was expecting about $1 per unit as the distribution.
No biggie, all gets reinvested for me. Have boatloads of capital losses to chip away at so hopefully the tax components are capital gains and not income.
Saw this and also wondered - its suspiciously large. I had a look at the list of shares (https://www.vanguardinvestments.com.au/retail/broker-basket?fundId=47&basketType=) and the list is quite different from that on 31 May (https://static.vgcontent.info/crp/intl/auw/docs/etfs/profiles/VHY_profile.pdf?20150625|091500) . The top 10 have changed from
TLS, WES, WBC, WPL, CBA, ANZ, NAB, SYD, DUE, MQG
To
TLS, ANZ, NAB, RIO, BHP, WBC, CBA, TAH, DUE, SKI
This suggests that there is a lot of portfolio churn in this fund within the last month - 4 of last months top 10 are no longer top 10 holds. Makes me think there will be a lot of capital gains distributed from this fund, and makes me question the long term tax efficiency of it vs a more passive buy and hold fund (like VAS).
I've been trying to get a copy of the FTSE index that the fund is based on but a google search isn't turning up the list. Must be proprietary information.
So WES and WPL have been dumped.... no real issue with WPL going but surprised by WES given they are doing quite well vs WOW and I'd expect high dividends to continue.
WBC and CBA drop down in favour of ANZ and NAB
Would expect that the majority of the realised cap gains have come from WES and CBA this quarter.
BHP and RIO are high yield plays?
Post by: FFA on July 01, 2015, 02:13:49 AM
Post by: This_Is_My_Username on July 01, 2015, 02:40:36 AM
Post by: Wadiman on July 01, 2015, 03:02:49 AM
https://www.stockspot.com.au/etf/
Download link is towards the bottom of the page.
Post by: potm on July 01, 2015, 03:13:50 AM
Happy new financial year all! May it be a prosperous one for you.
Post by: marty998 on July 04, 2015, 09:48:35 PM
At the end of May it was trading at quite a discount to pre and post tax NTA (approx 14%). Plus carries a 2% discount on DRPs.
Now, for something that invests broadly in top 50 whats not to like?
Did a little digging - the management company Perennial is a child of IOOF. Makes you wonder whether 14% is a big enough discount to make up for the association with a company undergoing a fair bit of negative press for certain questionable ethical practices.
At the end of the day, Perennial hasn't been implicated in anything to my knowledge. But it does make you think twice
Post by: bigchrisb on July 05, 2015, 02:53:14 AM
Post by: FFA on July 06, 2015, 12:20:52 AM
Now, for something that invests broadly in top 50 whats not to like?personally i'm not that keen on LIC's for liquidity and transparency. Even the fact we are now in early july and still talking about end of May figures. Who knows what has happened in the past 5-6 weeks. With index etf's you have the intraday NAV up to the current moment to know what that asset value is behind what you're buying. I don't think i'd ever touch a small LIC like this one. If ARG or AFI was at a decent discount due to widespread sentiment / gloom, it might be tempting though. They have been around for that long to give comfort on reputation.
Post by: dungoofed on July 07, 2015, 06:13:31 AM
I'm sharpening my knives, getting ready to grab some of these delicious European companies....
Post by: bigchrisb on July 07, 2015, 05:33:36 PM
Anyone normally hold IEU?
I'm sharpening my knives, getting ready to grab some of these delicious European companies....
I've always struggled with the fee base on the Ishares products in Australia (except IVV which isn't too bad). IEU is 0.6%. I've used VEU at 0.14% instead and been OK with it being a broad index (only 45% eurpoe/UK). Would be nice if we had the US fees on ETFs (IEU is 0.14% there).
Post by: DrowsyBee on July 07, 2015, 10:38:53 PM
Has anyone read Alan Kohler's Eureka Report? Is it worth a read?
It popped up as the book of the month on Commsec, but I'm more interested in possibly reading a book that is relevant to Australian investors and personal finance. I wouldn't even be mad if it is was filled with 200 pages of his graphs.
Post by: dungoofed on July 08, 2015, 07:09:09 AM
https://shop.abc.net.au/products/the-australian-stockmarket-9th-edition-a-guide-for-players-planners-and-procrastinators
I read about 1/3 of it before getting busy with life and I've never gone back. I remember it filling in a lot of gaps in my knowledge at the time, but yeah 12 years is a long time. Your mileage may vary.
Post by: FFA on July 08, 2015, 07:15:41 AM
1. Slow Cooker
2. Rise and rise of Kerry Packer Uncut
3. Monty Don's French Gardens
go figure....
Post by: dungoofed on July 08, 2015, 07:23:08 AM
Unrelated question, anyone have a BBQ suggestion for someone living close to the ocean? I have one from Barbeques Galore that is rusted through and needs to be replaced entirely, and another that needs the bottom tray and briquette tray replaced, also due to massive rusting.
Was thinking about how a BBQ store in a coastal location would be a potential goldmine as a business.
Post by: Wadiman on July 08, 2015, 02:59:56 PM
Love my Weber Q200 - enamel top, pretty solid construction. Bought 4 years ago, no issues to date.
Post by: Shaz_Au on July 08, 2015, 07:03:26 PM
Has anyone else been following the expansion of Robinhood's free share trading into Australia? They are meant to be launching "later this year". I believe this would mean that after your initial ASX minimum purchase of $500 of particular share listing you could then buy shares in whatever amount you choose with no brokerage cost!
https://robinhood.com/?ref=wzeJqf (https://robinhood.com/?ref=wzeJqf)
I signed up for their notifications/early access, apparently I'm currently 13,524 in line. The link above is a referral, it will help me move up the queue if you choose to use it.
Currently I'm using CMC Markets, I found them to be the cheapest when I did my research. I have been very happy with them, not that I have much experience or have used another broker. $11 a trade vs $0 I think I'll be jumping ship.
So I wonder what is involved in moving your holdings to another broker?
Post by: superannuationfreak on July 08, 2015, 08:34:41 PM
Has anyone else been following the expansion of Robinhood's free share trading into Australia? They are meant to be launching "later this year". I believe this would mean that after your initial ASX minimum purchase of $500 of particular share listing you could then buy shares in whatever amount you choose with no brokerage cost!
To begin with, at least, I think we'll only be able to purchase US stocks and ETFs, not Australian ones.
Still may be worthwhile as a way of accessing international ETFs if you are interested in something other than VGS (e.g. small/mid cap, value and/or momentum. Even plain cap-weighted emerging markets there's a bit of a cost advantage).
Post by: Shaz_Au on July 08, 2015, 09:58:15 PM
Yes it looks like you are correct. That puts a bit of a damper on it but yes having the US market available opens up a lot more variety when it comes to Vanguard funds. Being part of a much bigger market should help with liquidity and buy/sell spreads.
I wonder how competitive the currency conversion will be...
BTW thanks for your website, it is a great source of information for Aussies and there isn't many of them available. You have inspired my wife and I to do our super better!
Post by: potm on July 09, 2015, 12:42:09 AM
Thought I would reach you here since it'll be useful for other like minded aussies.
Sunsuper have increased their admin fees slightly and also changed how they are disclosed from net to gross of tax. So the actual gross of tax fee has increased from $1.47 per week plus .59% of the balance to $1.50 per week plus .1% of the balance.
Previously they were disclosed as $1.25 and .05%.
I'm not sure how other super funds have been disclosing but it's quite an important distinction. I think they are required to disclose gross of tax from now. The investment fee was previous disclosed gross so that hasn't changed.
For the two index options I'm invested in Australia shares plus International unhedged the fees have changed as follows:
Australian old: 0.15%+0.059% (previously disclosed as 0.05) = 0.209%
Australian new: 0.13%+0.1% = 0.23%
International old: 0.25%+0.059% (previously disclosed as 0.05) = 0.309%
International new: 0.2%+0.1% = 0.3%
So a slight decrease for Aus shares and a slight increase for Int shares. Overall if they had equal balances it's a slight increase in fees of 0.012%.
Post by: dungoofed on July 09, 2015, 01:29:20 AM
Post by: FFA on July 09, 2015, 05:57:03 PM
Hello superfreak,
Thought I would reach you here since it'll be useful for other like minded aussies.
Sunsuper have increased their admin fees slightly and also changed how they are disclosed from net to gross of tax. So the actual gross of tax fee has increased from $1.47 per week plus .59% of the balance to $1.50 per week plus .1% of the balance.
Previously they were disclosed as $1.25 and .05%.
I'm not sure how other super funds have been disclosing but it's quite an important distinction. I think they are required to disclose gross of tax from now. The investment fee was previous disclosed gross so that hasn't changed.
For the two index options I'm invested in Australia shares plus International unhedged the fees have changed as follows:
Australian old: 0.15%+0.059% (previously disclosed as 0.05) = 0.209%
Australian new: 0.13%+0.1% = 0.23%
International old: 0.25%+0.059% (previously disclosed as 0.05) = 0.309%
International new: 0.2%+0.1% = 0.3%
So a slight decrease for Aus shares and a slight increase for Int shares. Overall if they had equal balances it's a slight increase in fees of 0.012%.
i'm with sunsuper, when I had a look at this the fee increase seemed modest enough to me. One specific point I noted is the 0.1% caps at $800,000. As I periodically toy with the idea of a smsf, especially for future when my super balance will hopefully grow to those lofty levels. But this fee cap equates to $800, which is lower than any smsf management fee anyway (the online ones might be a bit below but not after annual audit and other costs). So once again purely from a management cost perspective I can't see myself doing smsf, only if you want the direct control and flexibility I think.
Post by: potm on July 09, 2015, 06:53:34 PM
I may eventually set up an smsf once I am close to preservation age and attempt to move the majority of my investments into super. For now I happy to have the passive regular indexing as a safety net in case I somehow screw everything up, I can still have a comfortable retirement.
Post by: superannuationfreak on July 09, 2015, 10:28:55 PM
For the two index options I'm invested in Australia shares plus International unhedged the fees have changed as follows:
Australian old: 0.15%+0.059% (previously disclosed as 0.05) = 0.209%
Australian new: 0.13%+0.1% = 0.23%
International old: 0.25%+0.059% (previously disclosed as 0.05) = 0.309%
International new: 0.2%+0.1% = 0.3%
So a slight decrease for Aus shares and a slight increase for Int shares. Overall if they had equal balances it's a slight increase in fees of 0.012%.
Thanks potm. I keep meaning to post an update on this but as you point it the differences are very small. If time permits I'm tempted to contact SunSuper to ask if they can confirm if these index investments are now fully managed by Vanguard or transitioning to them over time (based on their alliance I suspect they are but a cursory review of the documentation didn't enlighten me on the implementation of that alliance).
They're still my choice for International exposure in Superannuation. YMMV (for example I don't need insurance from them, and insurance should be considered in the overall super cost calculation where relevant).
Post by: This_Is_My_Username on July 10, 2015, 08:54:27 PM
noting the ATO rules on wash sales.
Post by: superannuationfreak on July 10, 2015, 09:12:05 PM
is tax-loss harvesting legal in australia?
noting the ATO rules on wash sales.
If you can justify a sale/buy for other reasons then it wouldn't be a wash sale. E.g. If changing indices or ETFs due to differences in expense ratios or diversification (such as STW to VAS). If it is the same individual share that probably not be OK, but I'm no expert.
It's less advantageous than the US as you can't typically use any capital losses against ordinary income (in the US I believe they can use $3,000 p.a.) and we don't have a step-up basis on death. But you can use it to offset capital gains now, when you might be on a higher tax rate, and then realise the extra capital gains (from a lower cost base) when you might be on a lower tax rate after FI.
Post by: FFA on July 11, 2015, 04:08:26 AM
the way I look at it, is a tax minimisation strategy but the premise is any actions should be within the law. for example, I think bogleheads is a reputable website and they recommend TLH. I don't think they are encouraging people to do anything illegal there. A large number of forum members here use bogleheads as a primary source for investing advice/strategy.is tax-loss harvesting legal in australia?
noting the ATO rules on wash sales.
If you can justify a sale/buy for other reasons then it wouldn't be a wash sale. E.g. If changing indices or ETFs due to differences in expense ratios or diversification (such as STW to VAS). If it is the same individual share that probably not be OK, but I'm no expert.
It's less advantageous than the US as you can't typically use any capital losses against ordinary income (in the US I believe they can use $3,000 p.a.) and we don't have a step-up basis on death. But you can use it to offset capital gains now, when you might be on a higher tax rate, and then realise the extra capital gains (from a lower cost base) when you might be on a lower tax rate after FI.
However, if you take some of those US based examples and apply them out of context in Australia, then yes it might be illegal, because the laws are different.
Agree with the above comments too, I'm not sure it's a hugely advantageous strategy anyway in Australia. Especially if you adopt the standard approach around here of buy and hold forever, there is no need.
Post by: chasingthegoodlife on July 11, 2015, 06:20:56 PM
I have recently started investing through Vanguard's Australian Shares index fund (not ETF). I chose it over the ETF despite the higher MER because I liked the idea of being able to make small contributions each fortnight rather than wait until I had saved up enough to justify brokerage.
However, after reading a few things here and elsewhere about exposure to the fund's capital gains (eg http://www.morningstar.com.au/etfs/article/tax-advantages/6202) and doing a few sums on MER, buy/sell spread and brokerage fees, I am wondering if I have made the right decision.
Is anyone else using the managed fund as opposed to VAS? Why/why not?
Also, for small time investors, what is the minimum amount you would invest if paying brokerage? $2000?
Post by: dungoofed on July 11, 2015, 07:03:18 PM
Is anyone else using the managed fund as opposed to VAS? Why/why not?
Also, for small time investors, what is the minimum amount you would invest if paying brokerage? $2000?
Hi chasingthegoodlife - I use Vanguard ETFs but it was so long ago I can't remember the reason I chose them over the funds - sorry! I think it has been discussed on this site before - start here:
https://www.google.com.au/search?q=site:mrmoneymustache.com+vanguard+etf+fund
I tend to rebalance with clips of about $5000.
Post by: FFA on July 11, 2015, 09:20:52 PM
regular investments are good, but there's diminishing returns on dollar cost averaging. I think the benefit is probably small between fortnightly vs once every 1-2 months. Then again, if you stretched it to once every 6-12 months, your purchasing would be somewhat more lumpy which could be good or bad (you will lose out on some returns in an uptrrending market). i'd suggest a (minimum) frequency of once every 3-4 months.
based on these assumptions, implies $5,000 * 3-4 per year = $15-20k p.a. If you are saving/investing this amount or more, I'd go for the etf. With lower levels i'd probably stick with the managed fund and trickle in fortnightly or monthly. At some point in future you can always switch across to etf but it will trigger a capital gain/loss event (and you could have some exposure in the time between you sell the managed fund and buy the etf).
Post by: Coercivity on July 12, 2015, 02:40:15 AM
Thanks everyone for this fantastic and informative thread. The Sharesight tracker looks great and have downloaded many of the pdfs linked for train reading.I agree, it's great to have so many Aussies on MMM! I've learnt heaps here as well as on Bogleheads (but a bit sparse on Australia-relevant info)
I have recently started investing through Vanguard's Australian Shares index fund (not ETF). I chose it over the ETF despite the higher MER because I liked the idea of being able to make small contributions each fortnight rather than wait until I had saved up enough to justify brokerage.
However, after reading a few things here and elsewhere about exposure to the fund's capital gains (eg http://www.morningstar.com.au/etfs/article/tax-advantages/6202) and doing a few sums on MER, buy/sell spread and brokerage fees, I am wondering if I have made the right decision.
Is anyone else using the managed fund as opposed to VAS? Why/why not?
Also, for small time investors, what is the minimum amount you would invest if paying brokerage? $2000?
Are you referring to the retail or wholesale funds? I'm still saving up to hit the minimum for the wholesale, but I'm planning on using the managed fund for the same reasons you're considering. I'd like to "pay myself first" every fortnight and drip feed it in, and the brokerage and ETF spread would exceed the fund spread. Actually the fund spread has dropped recently to 10bp/10bp. I consider the extra MER worth the hassle it'd be to set up orders to trade in hours.
Question for the great Aussie minds in this thread: I'd like my portfolio to be 50% Aus shares, 50% International shares. I'm almost at the 100k for a wholesale account, and it will take around 1.5 years to save the next lot of 100k (sitting in high interest account). Thoughts on whether I should go for the Aus shares or International shares first? I was leaning towards International given I have a bit of home bias with work and housing, but the AUD is not at the best place atm and US shares have been on a tear over the last 5 years and may be fully valued? Having a bit of paralysis by analysis on this :s
Post by: dungoofed on July 12, 2015, 03:30:36 AM
Actually, is there any option to switch from retail to wholesale in a year or so? It might be worth eating the wider spread just to let you get your desired asset allocation.
Post by: FFA on July 12, 2015, 03:50:11 AM
Question for the great Aussie minds in this thread: I'd like my portfolio to be 50% Aus shares, 50% International shares. I'm almost at the 100k for a wholesale account, and it will take around 1.5 years to save the next lot of 100k (sitting in high interest account). Thoughts on whether I should go for the Aus shares or International shares first? I was leaning towards International given I have a bit of home bias with work and housing, but the AUD is not at the best place atm and US shares have been on a tear over the last 5 years and may be fully valued? Having a bit of paralysis by analysis on this :s
Unless you are intentionally taking a view that markets will be correcting downwards, at that saving rate above 5k/month, i'd just go for etf's... 1) MER usually slightly lower than wholesale, 2) invest the initial 50/50k and then invest monthly alternating between Oz / international (keeps your asset allocation basically on track throughout), 3) you can invest into the market gradually instead of taking a large timing exposure to the share market level in 1.5 years time.
For long-term holding, MER is the key factor in the cost equation. brokerage and buy/sell spread are one-offs, MER is ongoing.
Post by: chasingthegoodlife on July 12, 2015, 05:17:29 AM
For funds over 100k in the retail fund, the MER is .35% (your first and second 50k would be .75% and .5% respectively).
In comparison, VAS ETF is .15%.
For me, with a tiny balance in the retail fund, I am looking at .75% annually on all funds invested.
Am I right in thinking I can 'spend' roughly up to .6% of funds invested (.75% - .15%) on brokerage costs before the cost of investing an amount in the ETF exceeds the cost of investing in the retail fund (first year only)?
So if I use CMC markets at $11 a trade, I need to invest at least $1834 at a time to 'break even' in the first year invested? Of course, the brokerage is a once-off expense while the management costs are ongoing so in that scenario I would be better off with VAS long term.
Does that reasoning make sense? I haven't factored in spreads as not quite sure how to account for ETF.
Post by: rowdy on July 12, 2015, 05:55:52 AM
Post by: FFA on July 12, 2015, 06:32:25 AM
Going from the Vanguard website, to access the wholesale pricing it looks like you need 500k min investment. MER for the wholesale Australian Shares fund is .18%.yes makes sense to me. VAS etf buy/sell is typically +/- 10c on $70 = +/- 0.14%
For funds over 100k in the retail fund, the MER is .35% (your first and second 50k would be .75% and .5% respectively).
In comparison, VAS ETF is .15%.
For me, with a tiny balance in the retail fund, I am looking at .75% annually on all funds invested.
Am I right in thinking I can 'spend' roughly up to .6% of funds invested (.75% - .15%) on brokerage costs before the cost of investing an amount in the ETF exceeds the cost of investing in the retail fund (first year only)?
So if I use CMC markets at $11 a trade, I need to invest at least $1834 at a time to 'break even' in the first year invested? Of course, the brokerage is a once-off expense while the management costs are ongoing so in that scenario I would be better off with VAS long term.
Does that reasoning make sense? I haven't factored in spreads as not quite sure how to account for ETF.
cost economics will favour etf for any pragmatic scale of investment. They are the more efficient product.
It also comes down to other factors, e.g. if you value customer service of the fund manager or you are comfortable with DIY. probably more important is regular investment facilities to automate and discipline contributions, etc. Are you interested and can you be bothered doing the regular online trades ? Especially if you have enough to be in wholesale products. The cost difference there is marginal versus etf's, so it might come down to these other factors.
Post by: Coercivity on July 13, 2015, 04:04:54 AM
Hey chasingthegoodlife, like rowdy mentioned the minimum for wholesale is actually 100k not 500k if you ring them up. I confirmed this with Vanguard last month.Going from the Vanguard website, to access the wholesale pricing it looks like you need 500k min investment. MER for the wholesale Australian Shares fund is .18%.yes makes sense to me. VAS etf buy/sell is typically +/- 10c on $70 = +/- 0.14%
For funds over 100k in the retail fund, the MER is .35% (your first and second 50k would be .75% and .5% respectively).
In comparison, VAS ETF is .15%.
For me, with a tiny balance in the retail fund, I am looking at .75% annually on all funds invested.
Am I right in thinking I can 'spend' roughly up to .6% of funds invested (.75% - .15%) on brokerage costs before the cost of investing an amount in the ETF exceeds the cost of investing in the retail fund (first year only)?
So if I use CMC markets at $11 a trade, I need to invest at least $1834 at a time to 'break even' in the first year invested? Of course, the brokerage is a once-off expense while the management costs are ongoing so in that scenario I would be better off with VAS long term.
Does that reasoning make sense? I haven't factored in spreads as not quite sure how to account for ETF.
cost economics will favour etf for any pragmatic scale of investment. They are the more efficient product.
It also comes down to other factors, e.g. if you value customer service of the fund manager or you are comfortable with DIY. probably more important is regular investment facilities to automate and discipline contributions, etc. Are you interested and can you be bothered doing the regular online trades ? Especially if you have enough to be in wholesale products. The cost difference there is marginal versus etf's, so it might come down to these other factors.
Thanks for your thoughts FFA, I had been tossing up between the funds and the ETFs for a while.
The MER for Aus wholesale index fund is 0.18%, MER for Aus index ETF is 0.15%, MER for International wholesale index fund is 0.18%, MER for International ETF is 0.18% and buy/sell spread is 0.10% for both funds cf the 0.14% you're quoting for ETFs. So it was the convenience of regular contributions and lack of interest/bother in doing online trades which lead me to the funds and I consider the extra 0.03% MER for Aus to be worth that factor. If I had 200k, I'd plonk 100/100 down on both funds and be done with it. I am wishfully hoping the markets will be downgoing/flat for the next 1.5years because of the timing exposure risks in splitting my entry in equities.
Dungoofed, it is possible to go 50/50 on the index funds retail and then switch to wholesale when you reach 100/100 but because it is a different fund you are liable for capital gains at that time (i.e. you're essentially going to cash as an intermediate step). I hadn't really considered this option but it might be a way to hedge any rise in the interim (if there was a rise in either index the capital gains payable would probably be less than the cost of buying in at the more expensive price)
Post by: Coercivity on July 13, 2015, 04:19:25 AM
Hello guys, I've been lurking this thread long enough thought I would chip in with a few questions.You've probably already read this from earlier in the thread but I think Sun Super would be cheapest and you can then dial up to an equity % you're comfortable with. I'm unfortunately restricted by my EBA, and First State Super (MER ~0.6%) was the best I could get.
A little about me: 25yr Old, recent graduate, just about to start a full time job in a different field to my degree. My salary will be 55k and I make at least 10k a year from other side gigs (mostly sports betting.) My COL is low as I still live and plan to stay at my family home (in Sydney) for another year or two.
My first query relates to superannuation. Being at least 35 years away from being able to access my super (pending possible legislation changes) I would like to put my money in a high growth fund. While doing research it seems like over such a long timespan two big factors are fees charged and the amount of risk taken on. Does anyone have any recommendations into what funds would tick these boxes with my circumstances? I have a relatively low starting balance of 10k from previous part time jobs which has been sitting dormant in a cash only AMP account.
My second query relates to my investment strategy outside of Super. I have come out of my degree with a HECS debt of 35k and savings of around 40k. I have aspirations of owning my own property but with the way Sydney real estate prices are, I can not see that happening for at least 5 years. Is 5 years too short a timespan to be investing in the share market? Currently the money is in a high rate savings account but the returns are pretty miserable. Is anyone else in a similar situation or has any advice for me? I value the flexibility of holding cash but only getting a 3.5% return while my HECS debt is increasing by 2-2.5% has me looking for something better.
I would think if you have an allocated need for the money in 5 years then shares would put you at risk not being able to meet your deposit goal. If you're flexible in needing it in 5-10 years then I probably would invest it in shares now then take it out at 5 years unless the market had crashed significantly where your flexibility would allow you to wait out another 5 years for them to recover. That's what I would do in your situation YMMV.
Post by: deborah on July 13, 2015, 04:53:00 AM
Post by: micase on July 13, 2015, 10:06:40 PM
Post by: Sparkie on July 13, 2015, 11:52:31 PM
Post by: AustralianMustachio on July 14, 2015, 03:18:52 AM
Ive plonked for a Vanguard wholesale fund ($100k min) despite the higher fees than just doing etfs. For me it was more about my emotional state. I felt i was unlikely to be able to rebalance out of something doing well, and buy something doing shite. So I've left that to them. Even with slightly higher fees, I'll probably still do better if my inabilities are out of the way
So if it's rebalancing, is that a wholesale fund which has a mix of different asset classes and geography? LifeStrategy I think it was called, with Conservative, Balanced, Growth etc.
Or is it 100% Australian shares?
I guess my question is, does the 100k minimum apply to these balanced funds as well? Or is just for the VAS or VGS equivalents
Post by: dungoofed on July 14, 2015, 03:22:03 AM
Hi Coercivity - it might be worth a(nother) call to Vanguard to see what they say. I think they'll probably wipe their hands of making any comment on tax calculations but you never know. Also, I don't think you'd be the first person to have this query.
Post by: Sparkie on July 14, 2015, 03:32:17 AM
So if it's rebalancing, is that a wholesale fund which has a mix of different asset classes and geography? LifeStrategy I think it was called, with Conservative, Balanced, Growth etc.
Or is it 100% Australian shares?
I guess my question is, does the 100k minimum apply to these balanced funds as well? Or is just for the VAS or VGS equivalents
Yep, its in a Lifestategy fund (growth). The $100k applies to these too. I'd have to check but Im pretty sure the $100k can be spread around different funds during the initial deposit. So, you could put some in Lifestrategy fund and some in Oz shares, some in reits etc. i just plumped for a mix I was happy with taking into account my other stuff.
Post by: Coercivity on July 14, 2015, 07:19:54 AM
I was under the impression the 100k was the minimum per index fund not overall, but definitely worth another call to Vanguard to confirm the distinction.
So if it's rebalancing, is that a wholesale fund which has a mix of different asset classes and geography? LifeStrategy I think it was called, with Conservative, Balanced, Growth etc.
Or is it 100% Australian shares?
I guess my question is, does the 100k minimum apply to these balanced funds as well? Or is just for the VAS or VGS equivalents
Yep, its in a Lifestategy fund (growth). The $100k applies to these too. I'd have to check but Im pretty sure the $100k can be spread around different funds during the initial deposit. So, you could put some in Lifestrategy fund and some in Oz shares, some in reits etc. i just plumped for a mix I was happy with taking into account my other stuff.
Hi micase - had you considered putting money earmarked for real estate into a low-cost, unlevereaged REIT? That way you expect your investment to move *with* the real estate market, while receiving rent payments in the form of dividends. If real estate continues on its bull run then your investment has increased by a similar amount, and if it drops then your investment drops with it BUT you can buy real estate for cheaper now too.Wow, this is a great idea ... like mind-blowingly good. Can't believe this has never occurred to me before. It's almost like a TIPS for saving for a house.
Post by: dungoofed on July 14, 2015, 09:04:56 AM
MMM had an article about (American) REITs which might also be worth a read: http://www.mrmoneymustache.com/2011/08/15/become-a-lazy-landlord-with-reits/
Post by: FFA on July 14, 2015, 05:08:01 PM
Post by: JamesSyd on July 14, 2015, 06:13:34 PM
I currently own a house which I live in with a mortgage (lets say the amount is $x), and have roughly 0.5x in the offset account.
I am looking to buy some more shares, and have realised it would be better to have a separate loan for the shares, instead of taking cash out of my offset account so then I can net off the interest on the loan against the dividends I receive on those shares.
My questions for you are then:
1) What is the best way to do this? Get a separate line of credit (bank said something about 5.4% rate) or is it possible to split my home loan (~4.1%) into two loans, and have one part dedicated to investments? Is that allowed? How much should I split off?
2) Is it possible to do this for investments I already own outright, so that I can put more cash into my PPOR offset account?
Thanks!
Edit: the other complicating factor is that the house is in our names, but I want to buy the shares in the family trust, not sure if this creates any other issues
Post by: Sparkie on July 14, 2015, 07:01:48 PM
Post by: englyn on July 14, 2015, 11:42:29 PM
I am looking to buy some more shares, and have realised it would be better to have a separate loan for the shares, instead of taking cash out of my offset account so then I can net off the interest on the loan against the dividends I receive on those shares.More importantly, the interest on the loan is deductable against your salary.
1) What is the best way to do this? Get a separate line of credit (bank said something about 5.4% rate) or is it possible to split my home loan (~4.1%) into two loans, and have one part dedicated to investments? Is that allowed? How much should I split off?Go for the lower rate. Yes you can have multiple loans against your home, such as one for personal purposes and one for investment purposes. I've had up to 3. See a good mortgage broker.
2) Is it possible to do this for investments I already own outright, so that I can put more cash into my PPOR offset account?Are you talking about taking a loan against investment property you already own outright in order to buy the shares? If so, do it.
Or are you talking about taking a loan to "buy" shares you already own? That... doesn't get you anywhere. Your loan interest wouldn't be deductible. The ATO only cares what you used the loan funds for. If you essentially just dumped the funds in your offset account, you've used them to reduce interest payments on your home loan, not for investment purposes.
Edit: the other complicating factor is that the house is in our names, but I want to buy the shares in the family trust, not sure if this creates any other issuesI think that kills any tax deductions, because the shares do not produce income in your name, but the loan has to be in your name. Check with an accountant.
Post by: FFA on July 15, 2015, 01:37:24 AM
Just checked my Vanguard emails and the initial $100k can be split around various wholesale funds. It is the total initial deposit that needs to add to $100kwell, that should resolve Coercivity's dilemma !
Post by: Coercivity on July 15, 2015, 02:03:46 AM
It does! Thanks Sparkie, you just made my day!Just checked my Vanguard emails and the initial $100k can be split around various wholesale funds. It is the total initial deposit that needs to add to $100kwell, that should resolve Coercivity's dilemma !
Post by: bruh on July 17, 2015, 08:35:26 PM
I'm new to MMM so i'm keen to hear everyone's ideas.
I'm 23. About to graduate uni and have a good paying job set up at the start of next year. I have a bit over 30k sitting in a savings account since the FHSA wound down and a about 2k in shares and super each.
I'm a bit stuck for investing ideas at what is a pretty major crossroads. Do I focus on building up super on the assumption that i will be able to take advantage of concessional contributions. Or do i focus on building wealth after tax, which gives me more freedom to buy a PPOR or potentially do a masters or something like that.
Cheers
Post by: marty998 on July 17, 2015, 10:39:15 PM
Hey everyone, great thread.
I'm new to MMM so i'm keen to hear everyone's ideas.
I'm 23. About to graduate uni and have a good paying job set up at the start of next year. I have a bit over 30k sitting in a savings account since the FHSA wound down and a about 2k in shares and super each.
I'm a bit stuck for investing ideas at what is a pretty major crossroads. Do I focus on building up super on the assumption that i will be able to take advantage of concessional contributions. Or do i focus on building wealth after tax, which gives me more freedom to buy a PPOR or potentially do a masters or something like that.
Cheers
House first then investments. Not hard to tell what my thoughts are on that debate :)
Salary sacrifice to super if your income goes above $80k.
Post by: micase on July 18, 2015, 06:58:08 AM
Hey everyone, great thread.
I'm new to MMM so i'm keen to hear everyone's ideas.
I'm 23. About to graduate uni and have a good paying job set up at the start of next year. I have a bit over 30k sitting in a savings account since the FHSA wound down and a about 2k in shares and super each.
I'm a bit stuck for investing ideas at what is a pretty major crossroads. Do I focus on building up super on the assumption that i will be able to take advantage of concessional contributions. Or do i focus on building wealth after tax, which gives me more freedom to buy a PPOR or potentially do a masters or something like that.
Cheers
I'm in a similar situation and I value freedom to do what I want with money much more than contributing to an investment that I might be able to access in 35+ years with rules that could change on the whim of the government.
Post by: FFA on July 18, 2015, 05:06:16 PM
Post by: Grogounet on July 18, 2015, 10:49:19 PM
Post by: bruh on July 19, 2015, 12:57:59 AM
I did a rough calculation, heavy salary sacrificing becomes viable with an assessable income of ~49000 or more. It basically keeps your average tax rate at around 15% (assuming you can live off the 40000 or so in after tax income).
What do you like about housing, Marty? From what I know, the PPOR can be used to get very cheap loans (compared to margin loans or business loans) and not paying someone else's mortgage is interesting.
I guess the freedom issue comes down to what you can do with a super including SMSFs.... something for me to look up.
Post by: FFA on July 19, 2015, 02:13:09 AM
Post by: marty998 on July 19, 2015, 05:55:33 AM
What do you like about housing, Marty? From what I know, the PPOR can be used to get very cheap loans (compared to margin loans or business loans) and not paying someone else's mortgage is interesting.
Because everyone compares rent vs buy only at a particular point in time. Today.
Guess what... after 5 years rent is likely to have gone up by 15-20%.
5 years after I took out my loan to buy my property, the interest cost is down to $2.30 per day, and will be zero at the end of September (fully paid off). The value of the property has gone up by some $180,000 as well.
The person who chose to rent, is still paying rent at $60 per day.
Post by: steveo on July 19, 2015, 03:10:51 PM
What do you like about housing, Marty? From what I know, the PPOR can be used to get very cheap loans (compared to margin loans or business loans) and not paying someone else's mortgage is interesting.
Because everyone compares rent vs buy only at a particular point in time. Today.
Guess what... after 5 years rent is likely to have gone up by 15-20%.
5 years after I took out my loan to buy my property, the interest cost is down to $2.30 per day, and will be zero at the end of September (fully paid off). The value of the property has gone up by some $180,000 as well.
The person who chose to rent, is still paying rent at $60 per day.
This is an interesting point isn't it. The problem that we have in Australia is that property is so expensive and therefore I don't believe its possible to retire really early especially if you have kids. Pay your house off and then you can be on the fast track to ER.
I've also noticed my interest payments getting less and less. One thing I will also state is that if the two biggest expenses are transport and housing when you own a house mortgage free you should have your housing costs significantly minimized.
Post by: happy on July 19, 2015, 05:53:08 PM
Quote
House first then investments. Not hard to tell what my thoughts are on that debate :)
Marty the housing bull! I'm a bit of a housing bull myself , but thats mainly because I followed the expected consumer plan, and then got stuck on it.
If I had my time over I would follow more of Big Chris B's model ( although I wouldn't be game to take the risks he does with margin lending):
When young pre kids -
Rent with housemates, reducing housing costs.
Save my arse off and invest
Once my stash looked healthy - i.e. >2-300k depending on income - if high income earner I'd go for 500k. Let it compound.
If I was then sick of house mates I'd buy a small unit as PPOR, that could be later rented. I'd pay off the mortgage as fast as possible.
If Ok with renting with house mates, I'd stay that way until marriage and kids. I may consider an IP depending, whilst letting stash compound, or if I was a property bear, I'd just keep stashing.
There's a few possibilities, but my main point is that I think its better not to get too sidetracked into a really big mortgage too early in life. If one is going to do a PPOR first, then it should be something modest, able to be rented out later and take in housemates if there is room.
Post by: FFA on July 19, 2015, 07:11:04 PM
Whichever way you go i'd recommend a detailed analysis/consideration of rent vs buy. Consider all the pros and cons for each, including intangibles (extra flexibility of renting, extra security of owning, etc).
I would also considering owning in two parts 1) cost of housing (assume you pay yourself rent) and 2) investment in the PPOR (with CGT exemption). I think this is important to reveal that it's actually quite a high cost/risk approach. People tend to buy a bigger house as they are thinking long-term. You might only need two beds, but you buy four to allow for the future family in 5-10 years. Just bear in mind this is incurring an extra housing cost (even though you don't see it, since you don't pay yourself rent) than what you might if you rented and upgraded your housing over the years to fit your needs. On the flip side, the higher cost of housing might be offset by a bigger investment gain (hopefully) on this asset position.
This process will help you make a better informed decision for your situation...
Post by: deborah on July 19, 2015, 07:54:10 PM
As mustashians we should buy as small a PPOR as is reasonable. Housing here is high cost, so this applies doubly to Australia. We also have a very large cost of purchase (from memory, the Economist ranks it as one of the highest in the world) - in the form of stamp duty for buyers (along with incidentals like pest inspection) and real estate fees for sellers (and other incidentals) - so changing PPORs includes throw-away costs of about 10% or more of the house price. This means that we need to buy where we are going to live for a long time and we need to buy a house that can be converted as our family situation changes.
Conversion may mean something with a flexible floor plan, able to be extended, converted between a duplex and a single dwelling, having an attached flat... It may mean buying something a bit run down that can gradually be renovated - the worst house in the street.
People who are not committed to a particular area are almost certainly better off renting because of the high cost of exchange.
Post by: dungoofed on July 19, 2015, 11:36:02 PM
Post by: bigchrisb on July 20, 2015, 12:08:49 AM
- Minimize the major costs of life. For me, this has included living in share houses well into my 30's and driving cars into the ground. Compared to my peers, I significantly under-consume housing and cars.
- Optimize tax structures. I've done this through a company, a trust and a SMSF. It also helped with a lot of risk mitigation when I was a company director.
- Save hard and invest hard, with a focus on growth assets. I've focused on equity, listed and unlisted.
- Utilise leverage and haggle interest rates
- Only once I was established, think about a PPOR
I'm probably the opposite of Marty on property. I think that a PPOR is one of the cheapest ways to consume housing and one of the cheapest ways to access debt. However, I see a lot of people getting sucked into PPORs that result in them drastically over-consuming property.
Post by: Shaz_Au on July 20, 2015, 12:25:21 AM
I've got a silly question regarding Franking Credits on Australian ETFs, if you are able to help that would be fantastic!
I thought I would receive some franking credits from my VAS ETF but to date I have not, is this normal? Are these credits somehow used internally by the fund?
The product overview does mention franking credits under the fund's benefits:
Quote
dividend income and franking credits that may be used to offset tax payable on income received from other sources
Since I have owned the ETF (12/14) I have received three dividend payments but none of the statements have mentioned franking credits. The only mention of tax on the statement is withholding tax @ 0% and I assume this is because they have my TFN...
It isn't a huge deal at the moment as I currently I only own a handful of these shares but in future I'd like to own a lot more. I guess I just want to confirm that the franking credits from the shares owned by the VAS fund are being used efficently and if I own a lot more that I'm not going to end up with a big tax bill each year.
Thanks all!
Post by: FFA on July 20, 2015, 01:00:52 AM
You could also work it out yourself if you download the Vanguard ASX announcements around each distribution they tell you the splits, e.g. 75% franked, 10% unfranked, 5% foreign sourced, .... But they don't put this component breakdown on each dist'n statement.
Post by: deborah on July 20, 2015, 01:04:46 AM
Post by: bigchrisb on July 20, 2015, 01:12:50 AM
Post by: marty998 on July 20, 2015, 01:56:17 AM
Just be patient. You will receive a tax statement from them well after the financial year close. This will outline all the tax components (including but not limited to franking credits - there are some other juicy capital gains discounts and tax deferred income). The statements can take a while to come - I don't get the statements from some of my REITS into late August / September.
Sigh.. waiting for the tax statement is holding up my $6000 refund lol (God bless negative gearing hehe).
Dammit, should have just bought a LIC.
Agree with most of this. The key tenants to me:
- Minimize the major costs of life. For me, this has included living in share houses well into my 30's and driving cars into the ground. Compared to my peers, I significantly under-consume housing and cars.
- Optimize tax structures. I've done this through a company, a trust and a SMSF. It also helped with a lot of risk mitigation when I was a company director.
- Save hard and invest hard, with a focus on growth assets. I've focused on equity, listed and unlisted.
- Utilise leverage and haggle interest rates
- Only once I was established, think about a PPOR
I'm probably the opposite of Marty on property. I think that a PPOR is one of the cheapest ways to consume housing and one of the cheapest ways to access debt. However, I see a lot of people getting sucked into PPORs that result in them drastically over-consuming property.
I actually agree with most of that. And yet at the end of the day I still went down the PPOR route :)
I'm not trying to rationalise (i.e. I did this, therefore it is the correct and only way). For me it is simply the sleep at night/ stress factor. Also I don't think anyone would ever tolerate living with me.
- No one can kick me out of my place and I'm not subject to the whims or a landlord or flatmate. I can renovate, improve, turn a house into a home. Last week I put new blinds in and threw out the curtains.
- I don't have to share my fridge, my sink, my toilet etc
- I have an appreciating investment asset that is untaxed when sold
- The "income" that it produces (being not having to pay rent (imputed rent?)), is also outside the tax system.
In hindsight, there's a middle road to be taken, that I should have taken but I didn't.
I might have missed out on investment gains here and there. Who knows. The worst that has happened by not taking that middle road is that I have a fully paid off roof over my head.
Any other analysis over my situation is benefit of hindsight.
YMMV.
Post by: bigchrisb on July 20, 2015, 01:59:38 AM
Any other analysis over my situation is benefit of hindsight.
YMMV.
This. There are many ways to skin this cat. Its a long game, and without the benefit of hindsight, no-one will get a complete optimum! Consume less, earn more, invest, compound, get on with life!
Post by: Shaz_Au on July 20, 2015, 02:04:19 AM
If that 75% franking is around the average for the dividends that is great and is higher than I expected too,Yay!
Post by: happy on July 20, 2015, 02:05:43 AM
Quote
This. There are many ways to skin this cat. Its a long game, and without the benefit of hindsight, no-one will get a complete optimum! Consume less, earn more, invest, compound, get on with life!
Amen!
Post by: deborah on July 20, 2015, 02:46:49 AM
If that 75% franking is around the for the dividends that is great and is higher than I expected too,Yay!No - the most you get in franking credits is 30% (because companies pay 30% tax) - it is 75% of the 30% (100% means you get the full 30% the company paid) - 22.5%
Post by: Shaz_Au on July 20, 2015, 04:19:13 AM
Post by: bruh on July 21, 2015, 12:14:38 AM
There's definitely a strong cultural pull towards PPOR and investment property. I think young people like me won't necessarily be able to follow that. With housing it seems that a house on a block of land appreciates at a higher rate than a unit does (because of the land), and has far greater scope for improvements. But those types of assets are very difficult to afford in capital cities (i'll be in Sydney :s). By being young, and therefore with less immediate income and wealth, I'm effectively limited to units. Since those appreciate at a lower rate, the tax benefits are less significant.
There's lots of analysis ahead of me. What are some good Australian resources that people like?
Post by: detrimental12 on July 21, 2015, 01:48:50 AM
I'm new here, though not new to the concept of financial independence. I'm 27 from Canberra, Australia. One of the first books I ever read was Rich Dad Poor Dad, I think I was 11. Only recently (last couple of years) I've really woken up to the fact that you cannot really "beat" the market, or you'd be hard pressed to find many who do. I have my own small business now after 6 years of hard hard work for a former employer. I plan on retiring sometime between 30 and 32.
Here is my current Australian Investment breakdown (all Vanguard):
Australian Government Bond Index (VGB)5%
Australian Shares High Yield (VHY) 22.5%
Australian Shares Index (VAS) 22.5%
MSCI Index International Shares Hedged (VGAD) 22.5%
All-World ex-US Shares Index (VEU) 22.5%
FTSE Emerging Markets Shares (VGE) 5%
I'm currently re balancing my portfolio once per month as I buy in each month (Dollar-cost averaging my cash reserves into the above). I'd welcome any feedback on my investment breakdown! I'm concerned about taxes once I reach FI and would like to have a solid holding value in stocks which over franking credits.
Look forward to contributing :)
Post by: deborah on July 21, 2015, 02:09:25 AM
Post by: FFA on July 21, 2015, 06:43:33 AM
I more usually think of VEU paired with VTS (to give a total world exposure). And VGS/VGAD paired with VGE (to give world ex Oz). So a bit of a different blend you have there....
Other general feedback - at 95% equities is obviously an aggressive setting, which I trust you understand and is compatible with your risk tolerance.
Post by: detrimental12 on July 21, 2015, 06:06:37 PM
hi detrimental12, i'm curious on your international selections of VGAD/VEU/VGE. It will be underweight on US (based on market cap), and quite a large percentage AUD hedged. Is that intentional and what's your thinking behind it ?
I more usually think of VEU paired with VTS (to give a total world exposure). And VGS/VGAD paired with VGE (to give world ex Oz). So a bit of a different blend you have there....
Other general feedback - at 95% equities is obviously an aggressive setting, which I trust you understand and is compatible with your risk tolerance.
I guess from what I researched VGAD was mainly focused on US equities and I had enough exposure to the US market. I should possibly rethink this approach. I'm quite cash heavy at the moment, hence why I only have 5% for bonds. I'd be looking to increase this to 10% in the short term and 20% in the medium term (3-5 years) once the cash deposits start to decline.
Post by: Grogounet on July 21, 2015, 07:41:37 PM
Post by: wombat on July 22, 2015, 03:34:56 AM
Post by: FFA on July 22, 2015, 04:43:47 AM
hi detrimental12, i'm curious on your international selections of VGAD/VEU/VGE. It will be underweight on US (based on market cap), and quite a large percentage AUD hedged. Is that intentional and what's your thinking behind it ?
I more usually think of VEU paired with VTS (to give a total world exposure). And VGS/VGAD paired with VGE (to give world ex Oz). So a bit of a different blend you have there....
Other general feedback - at 95% equities is obviously an aggressive setting, which I trust you understand and is compatible with your risk tolerance.
I guess from what I researched VGAD was mainly focused on US equities and I had enough exposure to the US market. I should possibly rethink this approach. I'm quite cash heavy at the moment, hence why I only have 5% for bonds. I'd be looking to increase this to 10% in the short term and 20% in the medium term (3-5 years) once the cash deposits start to decline.
indeed VGAD is probably 65% US.
rough market caps are something like 45-50% US, 50-55% VEU (of which emerging = 5-10% and Oz = 3%). Your US weighting is probably around 30-35% and 65-70% VEU.
Having said that it's not necessarily right/wrong to follow market cap weightings, just tends to be a default approach....
Post by: TJEH on July 22, 2015, 06:17:43 PM
I am trying to tell myself, don't time the market. With a lump sum to invest, trickling in over the next 12 months is the right thing to do, I just need to say it our loud here :)
Post by: liveintokyo on July 22, 2015, 08:30:26 PM
I'm hoping for a bit of advice if possible - if anybody can help me out it would be much appreciated. I'm an Australian citizen living in Japan and I an a non-resident for taxation purposes. I have an investment property back in Australia and I also get some income from Apra (I'm a musician and get some royalty payments each year). I would guess after taxes I have about 15,000 dollars a year to play with. I'm thinking that this situation will continue for the next 10 years or so and then I plan to sell the investment property (I think it will give me a lump sum of about $200,000 after taxes).
At the moment I am planning to put it all into Rest Super. As a self employed musician I've never had much chance to put money into my super so I only have about $50,000 in it. I was thinking if I can put $350,000 into it over the next 10 years it should be around $500,000 or so and that will cover my retirement when the time comes (I'm not sure where I will be - maybe back in Australia, but probably more likely somewhere cheap in Asia and that will be enough). I'm not expecting to receive any type of pension.
I've been reading through the main MMM site and the idea of investing has got me interested. Just chucking the money into a managed fund like Vanguard seems like another good approach, but I don't really know much about stocks.
It seems to me the main advantage of putting it into super is that there are no tax penalities as a non-resident, I can't touch it until retirement, and also I can draw on it if I am living overseas when pension time comes. The cons are that it limits my flexibility and also I don't have access to the money in case of a problem.
The main advantage of a managed fund is that the returns may be greater and there is more flexibility. However I'm not sure of the tax implications as a non-resident and am worried that the tax cut I would have to pay would offset any possible gains.
Once again if anybody has any advice it would be much appreciated - I'm basically looking to set something up that is simple and efficient and will have a bunch of money waiting for me when I get older:)
Post by: FFA on July 22, 2015, 08:47:39 PM
With a lump sum to invest, trickling in over the next 12 months is the right thing to do, I just need to say it our loud here :)
this is exactly what i'm doing....
part of the issue is the substantial AUD correction, which might still have further to go too. But even without the FX, ASX is still some way short of the 2007 high, whereas S&P is well beyond it. I also feel they're expensive and it's tempting just to buy local. Needs discipline to stick to the planned asset allocation and stay diversified.
Post by: FFA on July 22, 2015, 09:00:23 PM
I was also abroad and tax non resident for a long stint. It may be worthwhile to get some proper financial advice. I never did, and I'm sure I didn't make the most of the situation.
Some key points ; aust share franked dividends - nil tax. interest and unfranked dividends (withholding tax 10% and 15/30% respectively). capital gains tax only on Australian property. Please also check for yourself ATO website, just look up foreign residents.
A few thoughts - I held a lot of property but in hindsight would've probably preferred to have it in shares, especially if you are staying away for a long period. That was one of our problems it was always 2-3 years that just extended and extended. If we had known it would've been 12 years from the start, we could've planned better for it.
Super : you may be eligible for tax deduction on concessional contributions up to 30k, you need to check this (I never used it myself, it was another thing I only discovered afterwards, and hence my earlier suggestion that it might pay to get some proper advice). If so, it might be beneficial for you. Otherwise, given the tax treatments I listed above, you might be paying more tax in super on dividends and capital gains (at 15%) versus holding the shares directly. Not to mention the other restrictions in super.
Post by: dungoofed on July 23, 2015, 06:16:35 AM
And as FFA said, any cash/income in AUD at the moment is suffering a bit due to the exchange rate.
If you're earning in yen, and are planning on being in Japan for 5-10 years, then I'd recommend setting up a NISA with SBI or Rakuten if you haven't done so already.
Post by: liveintokyo on July 25, 2015, 07:53:53 PM
A bit more about my situation. I first came to Japan in 2002 and was here until the end of 2007. Then I toured around Asia/Australia until the end of 2010 when we decided to settle down and have a couple of kids. Bought a house here and have been aggressively paying it off for the last 5 years as I wasn't sure of any other investment options. I also have an investment property in Australia which I am slowly paying off. Got about 7,000,000 yen left on the Aussie house and about 13,000,000 left on the Japan house.
We are planning on being here for the foreseeable future so I really would like to start some investment things going. I talked to one financial advisor in Japan and he suggested putting my money into Super or saving up and entering one of those plans where you put in a lump sum and then a bit of extra money each year and then hope the investors make the right choices. I didn't like the sound of the second option so I've just been putting money into my super and paying off the houses (I've put about 25,000 AUD of my money into super, and also paid about 12,000,000 yen of both of the houses since moving back here).
Thanks again and any other tips (or suggested reading material - websites, books etc) would be greatly appreciated.
Post by: dungoofed on July 25, 2015, 11:49:19 PM
Post by: johnnydoe on July 26, 2015, 12:30:12 AM
- Prices might have been artificially higher due to interest rate drops. The market could be pricing in the next move being up.
- Another thought is that it is just following the usual outcome that high yield shares are not expected to have great capital growth.
- It is heavily weighted in Financials and Basic materials, both of these sectors have issues at the moment (commodity price drops and increased bank lending standards).
Does it seem like a good buying opportunity to anyone? Given the already significant correction in value (12%) it seems like an opportunity to buy a large number of shares that pay out well (good income). The VHY index is also selected from the FTSE ASFA Australia 200 Index (combines top 50 large and top 150 mid cap according to FTSE ASFA) so it doesn't seem like the riskiest move...
Post by: AustralianMustachio on July 26, 2015, 01:27:28 AM
Post by: marty998 on July 26, 2015, 04:55:05 AM
Aside from it's large weightings in banks, it probably has to do with the ETFs abnormally large distribution it just paid. People were discussing it above or in previous pages in this thread
Large distribution + banks. Banks had a good run in Jan/Feb, dropping back to a more reasonable price now.
Interestingly the distribution turned out to be $1.83, not the jaw dropping $2.74 as indicated on the ASX announcement. I find it a little bit concerning that Vanguard can be that far off on its distribution estimates less than a week before ex date... makes me wonder about the level of professionalism of the manager.
Post by: FFA on July 26, 2015, 06:44:44 AM
Not sure if many others have IOZ. That paid a very large distribution in q2 and predominantly capital gains. I was a bit surprised by it and tempted to call ishares and ask. VHY is more understandable with portfolio changes but IOZ is just asx200.
Post by: TJEH on July 27, 2015, 07:11:38 AM
With a lump sum to invest, trickling in over the next 12 months is the right thing to do, I just need to say it our loud here :)
this is exactly what i'm doing....
part of the issue is the substantial AUD correction, which might still have further to go too. But even without the FX, ASX is still some way short of the 2007 high, whereas S&P is well beyond it. I also feel they're expensive and it's tempting just to buy local. Needs discipline to stick to the planned asset allocation and stay diversified.
Thanks for your insight. It is indeed a good exercise in discipline! I haven't exactly landed at a local vs international % split, but I definitely plan on getting a decent exposure to other markets. Best get on with it :)
Post by: marty998 on July 27, 2015, 03:38:05 PM
Their market is a rollercoaster epic - truly only for those strong of mind or those too far in denial to care.
Post by: DrowsyBee on July 27, 2015, 04:18:31 PM
Seems like a good opportunity to think about jumping on board?
Post by: AustralianMustachio on July 27, 2015, 06:43:04 PM
China fell 8% yesterday and is predicted to fall 10% today.
Their market is a rollercoaster epic - truly only for those strong of mind or those too far in denial to care.
Heard this today. An Australian fund manager who is long Chinese equities. Also says some stuff I agree with about the economy in Australia
http://www.abc.net.au/worldtoday/content/2015/s4281427.htm
Post by: FFA on July 27, 2015, 07:22:15 PM
Post by: Wadiman on July 28, 2015, 02:28:15 AM
China fell 8% yesterday and is predicted to fall 10% today.
Their market is a rollercoaster epic - truly only for those strong of mind or those too far in denial to care.
Heard this today. An Australian fund manager who is long Chinese equities. Also says some stuff I agree with about the economy in Australia
http://www.abc.net.au/worldtoday/content/2015/s4281427.htm
Thanks AM - reading the article reminded me that I was keen to see whether there are any ETFs (or shock horror - funds) with a significant Indian exposure.
Anyone know of any?
Post by: liveintokyo on July 29, 2015, 09:44:24 AM
Post by: dungoofed on July 29, 2015, 05:59:27 PM
Post by: TJEH on July 29, 2015, 08:41:23 PM
http://www.asx.com.au/products/managed-funds/market-update.htm
Post by: englyn on July 29, 2015, 08:42:46 PM
Post by: TJEH on July 29, 2015, 08:46:59 PM
I hold all shares in my name, however I am thinking about opening a joint account with my wife, using a new broker. The intent is to purchase all new investments with a 50\50 split. I know there are other mechanisms, such as a trust, but I can't seem to convince myself to go that way.
As far as I know, it's possible to have multiple CHESS sponsored brokers, so in theory I do not need to transfer my existing holdings to the new broker.
If I did, I'm just wondering what the implications would be. Presumably my wife would then assume 50% of all holdings at the cost basis when transferring? Anything else to consider?
Post by: englyn on July 29, 2015, 08:53:06 PM
Post by: deborah on July 29, 2015, 09:36:35 PM
I currently use etrade as my broker. I'm considering changing to a new broker, as I'll be making multiple trades\month over the next 12 months+, and etrade are on the expensive side.When you transfer to dual names you have a CGT event. This is a problem with SMSFs when one partner dies. Brokers don't matter.
I hold all shares in my name, however I am thinking about opening a joint account with my wife, using a new broker. The intent is to purchase all new investments with a 50\50 split. I know there are other mechanisms, such as a trust, but I can't seem to convince myself to go that way.
As far as I know, it's possible to have multiple CHESS sponsored brokers, so in theory I do not need to transfer my existing holdings to the new broker.
If I did, I'm just wondering what the implications would be. Presumably my wife would then assume 50% of all holdings at the cost basis when transferring? Anything else to consider?
Post by: PurpleEi on July 29, 2015, 10:00:37 PM
I bought a small amount of ALI in the IPO (no brokerage =)) - I like the diversification with respect to both the infrastructure sector and the international sector.
The management costs are a wee bit high, but I couldn't find anything similar around for less, so I was happy to accept that (at least for the small amount I purchased).
Post by: gogo419 on July 30, 2015, 02:29:10 AM
If so did you set it all up yourself and do you do all the accounting/tax yourself? Is there much work involved in keeping everything up to date?
At what value of investments did you decide to set it up?
cheers
Post by: detrimental12 on July 30, 2015, 04:13:01 AM
Does anyone on here thats in Australia have a discretionary trust setup with a corporate beneficiary to cap income tax at 30% for investments outside of super.
I'm am also interested to hear people's thoughts on this.
Post by: TJEH on July 30, 2015, 06:22:01 PM
I currently use etrade as my broker. I'm considering changing to a new broker, as I'll be making multiple trades\month over the next 12 months+, and etrade are on the expensive side.When you transfer to dual names you have a CGT event. This is a problem with SMSFs when one partner dies. Brokers don't matter.
I hold all shares in my name, however I am thinking about opening a joint account with my wife, using a new broker. The intent is to purchase all new investments with a 50\50 split. I know there are other mechanisms, such as a trust, but I can't seem to convince myself to go that way.
As far as I know, it's possible to have multiple CHESS sponsored brokers, so in theory I do not need to transfer my existing holdings to the new broker.
If I did, I'm just wondering what the implications would be. Presumably my wife would then assume 50% of all holdings at the cost basis when transferring? Anything else to consider?
Thanks for your response deborah. So when I transfer shares in my name to a joint account (where I am still an account holder), I can see that I am effectively disposing of 50%, triggering CGT. For the other joint account holder, I would have thought that it would only be a CGT event for them on disposal, rather than acquisition?
On another note, is anyone using CMC or BellDirect as brokers? BellDirect state that they only give you an estimated dividend summary as a tax report and CMC have "outsourced" their tax reports to Sharesight (free for up to 10 holdings apparently). With etrade, they include a tax report with all the required info that I just pass onto my accountant come tax time. Only seems like a small thing I guess, but I like having all the details handy come tax time.
Post by: deborah on July 30, 2015, 06:31:07 PM
Post by: englyn on July 30, 2015, 09:32:47 PM
With etrade, they include a tax report with all the required info that I just pass onto my accountant come tax time. Only seems like a small thing I guess, but I like having all the details handy come tax time.My accountant says they get info direct from ATO if the provider has submitted it; which I guess includes anything CHESS; you just need to keep buy/sell confirmations in case of later audit.
Post by: FFA on July 30, 2015, 10:46:14 PM
It is a CGT event. For example see http://www.smartcompany.com.au/finance/tax/42854-husband-and-wife-sharing-and-caring-until-tax-law-do-us-part.html#Deborah, is it CGT event on 100% or 50% though. I think the 50% transferred to the wife is indisputable having changed ownership. But for the 50% that has effectively remained under same ownership, does the tax law also consider this a CGT event? It's not clear to me from the link, it doesn't seem to specify in this level of detail.
TJEH, why don't you consider opening the new account in your wife's name only. Then you can invest in your name and her name separately until you achieve 50/50% or whatever asset split you desire. It might be more flexible to optimise your tax this way too, if you're able to predict marginal tax rates and shift the asset split accordingly, if you wanted to do this.
Post by: Shaz_Au on July 30, 2015, 10:57:07 PM
I am happy with CMC, I haven't had any problems but keep in mind that I have very limited funds invested, I follow a buy and hold strategy and haven't use another broker so YMMV. They have performed well enough to convince me to convert my Issuer
Holdings to Chess with them.
Post by: wombat on July 31, 2015, 04:26:47 PM
Complicating that decision is the fact that Mrs Wombat may want to re-enter the workforce if the 'perfect' job comes up. She loves her work, finds it very rewarding but, although I reckon we are FI, she feels she has some professional business unfinished. I respect that - she's worked hard to get to her level and the next step (the 'prefect' job) would allow her to make have a pretty important impact in her field.
I doubt I'll go back to work full time - but might consider some part time stuff if the right position comes up.
So I'll be talking to our accountant when we get back from summer holidays and asking about our investment set up for the following:
1. Neither of us ever work again
2. One of us goes back to work
3. Both of us go back to work
I assume that - as long as I make the changes before we become residents to tax purposes it will not trigger a CGT event, as there's no CGT on shares for non-residents. I just don't want to incur transaction costs if I don't need to.
Post by: FFA on July 31, 2015, 06:08:06 PM
as there's no CGT on shares for non-residents. I just don't want to incur transaction costs if I don't need to.Generally yes, but there can be exceptions if you bought the shares before you went overseas and depending how you treated it on becoming non-resident. You can either deem sale and take the CGT event at that time, and then it's fine. Or if you didn't deem sale, then the shares are considered like Australian property and are still CGT liable. For shares that you bought while overseas then yes I agree they're CGT exempt and you should restructure before returning as a resident. That's my understanding but pls confirm with your accountant.
Post by: qwerty8675309 on August 01, 2015, 12:01:13 AM
(ignoring medicare levy)
100% franked Pre-tax dividend income = $50,000
Tax refund on first $18,200 = 18200 x 0.3 = $5,460
Tax refund on $18,201 - $37,000 = 18799 x 0.15 = $2820
Tax paid on rest = 12999 x 0.025 = 325
Total post tax income = 50000 + 5460 + 2820 - 325 = $57955
This is based on individual tax rates for 2015-2016: https://www.ato.gov.au/Rates/Individual-income-tax-rates/
Post by: FFA on August 01, 2015, 12:29:14 AM
am I correct in saying that post tax income would be even higher (ie, you would receive a nice tax refund because companies have paid 30% tax for you) -Yes correct, you should get a tax refund, but these calculations don't look right at all. Pls check the 50k taxable income. Should be more like 29k I think with franking credits.
Post by: wombat on August 01, 2015, 12:59:25 AM
Does anyone know if I can transfer CHESS to a sole account? Has anyone done this?
For Eg: 100 VAS shares held through NAB in joint a/c - I'd transfer 50 shares to my individual a/c and 50 to my wife's.
Post by: deborah on August 01, 2015, 03:28:54 AM
This has gotten me thinking about franked distributions. Does this sound right? Lets say that I have $500k invested in shares. For simplicity, lets assume that all the shares offer fully franked distributions yielding 4% a year. The income would be $20k p.a. Assuming that you don't earn any income from other sources, am I correct in saying that post tax income would be even higher (ie, you would receive a nice tax refund because companies have paid 30% tax for you) -
(ignoring medicare levy)
100% franked Pre-tax dividend income =$50,000$20,000 (what you said above)
Franking Credits = 30% x $20,000 = $6,000(this is the tax you have paid)
Total pre-tax income = $26,000 (dividends + franking credits)
Tax you should have paid = ($26,000 - $18,201) x 0.15 = $7,799 x 0.15 = $779.90 + $389.95 = $1169.85
Total refund owed = 6000 - 1169 = $4831
This is based on individual tax rates for 2015-2016: https://www.ato.gov.au/Rates/Individual-income-tax-rates/
Post by: qwerty8675309 on August 01, 2015, 03:37:29 AM
Total post tax income = 20000 + 5460 - 1169 = $24291
Opps thanks for fixing it up. That's quite good, as long as you can live on $20k a year!
Post by: FFA on August 01, 2015, 05:54:14 AM
Post by: FFA on August 01, 2015, 06:31:18 AM
Does anyone know if I can transfer CHESS to a sole account? Has anyone done this?I haven't but understand you can do, look for Off Market Transfer. Best to call you share broker, there might be stamp duty or other costs involved.
For Eg: 100 VAS shares held through NAB in joint a/c - I'd transfer 50 shares to my individual a/c and 50 to my wife's.
Post by: marty998 on August 01, 2015, 07:38:28 AM
This has gotten me thinking about franked distributions. Does this sound right? Lets say that I have $500k invested in shares. For simplicity, lets assume that all the shares offer fully franked distributions yielding 4% a year. The income would be $20k p.a. Assuming that you don't earn any income from other sources, am I correct in saying that post tax income would be even higher (ie, you would receive a nice tax refund because companies have paid 30% tax for you) -
(ignoring medicare levy)
100% franked Pre-tax dividend income =$50,000$20,000 (what you said above)
Franking Credits = 30% x $20,000 = $6,000(this is the tax you have paid)
Total pre-tax income = $26,000 (dividends + franking credits)
Tax you should have paid = ($26,000 - $18,201) x 0.15 = $7,799 x 0.15 = $779.90 + $389.95 = $1169.85
Total refund owed = 6000 - 1169 = $4831
This is based on individual tax rates for 2015-2016: https://www.ato.gov.au/Rates/Individual-income-tax-rates/
Calc is still not right, franking credits multiply the fully franked dividend by 30/70 or 42.8% , not 30% (even though that is the company tax rate, it needs to be "grossed up"). So franking credits around 9k (rounding up) and taxable income is 29k as I posted earlier. Should be a bigger tax refund I think.
Hi yes FFA is right. Deborah your income tax rates are wrong as well (sorry for the pedantry). The marginal rate for 18201-37000 is 19%.
So lets work this out.
Dividend income: $20,000
Franking credits: $8,571 (assuming all franked dividends)
Total income: $28,571
Taxable income: $28,571 (assuming no deductions)
Tax on taxable income: $1970.49
Add medicare levy: $571.42 (@2%, but having a kid or 2 may make you eligible for a reduced levy)
Gross tax payable: $2,541.91
Subtract refundable franking credits: ($8,571.42)
Net refund due: $6,029.51
Post by: deborah on August 01, 2015, 12:40:37 PM
Post by: TJEH on August 02, 2015, 05:54:04 AM
http://frankingcredits.com.au/franking-credit-calculator/
Post by: TJEH on August 02, 2015, 05:57:56 AM
With etrade, they include a tax report with all the required info that I just pass onto my accountant come tax time. Only seems like a small thing I guess, but I like having all the details handy come tax time.My accountant says they get info direct from ATO if the provider has submitted it; which I guess includes anything CHESS; you just need to keep buy/sell confirmations in case of later audit.
englyn - thanks for the reminder, I remember my accountant telling me something about a portal they can access when I forgot to include some info for them one year!
Post by: TJEH on August 02, 2015, 06:01:00 AM
It is a CGT event. For example see http://www.smartcompany.com.au/finance/tax/42854-husband-and-wife-sharing-and-caring-until-tax-law-do-us-part.html#Deborah, is it CGT event on 100% or 50% though. I think the 50% transferred to the wife is indisputable having changed ownership. But for the 50% that has effectively remained under same ownership, does the tax law also consider this a CGT event? It's not clear to me from the link, it doesn't seem to specify in this level of detail.
TJEH, why don't you consider opening the new account in your wife's name only. Then you can invest in your name and her name separately until you achieve 50/50% or whatever asset split you desire. It might be more flexible to optimise your tax this way too, if you're able to predict marginal tax rates and shift the asset split accordingly, if you wanted to do this.
thanks deborah, FFA. I must admit I found the info in the link a little ambiguous. Anyway, yes, my original thought was to open a new account in my wife's name only. I actually didn't know you could have joint share trading accounts until I started researching brokers. I was hoping to simplify things by just holding a handful of ETF's in a 50/50 split, which would have been simplest with the joint account. I'll give a bit more thought how to structure things re the trades\split - as you say there is some added flexibility with separate accounts.
Post by: TJEH on August 02, 2015, 06:02:28 AM
TJEH, I use CMC Stockmarkets and I used their partnership with sharesight to help prepare my tax return this year. The reporting provided got me 90% of the way there, it was definitely helpful. I still had to muck around in excel to get the VTS and VEU reporting right but that's because of exchange rates and different amounts of withholding tax, etc.
I am happy with CMC, I haven't had any problems but keep in mind that I have very limited funds invested, I follow a buy and hold strategy and haven't use another broker so YMMV. They have performed well enough to convince me to convert my Issuer
Holdings to Chess with them.
Shaz_Au - I'm leaning towards CMC, so glad to hear you've had a positive experience with them. I'm going for a buy and hold strategy too, aiming to buy each month over the next year or so.
Post by: marty998 on August 02, 2015, 05:18:45 PM
With etrade, they include a tax report with all the required info that I just pass onto my accountant come tax time. Only seems like a small thing I guess, but I like having all the details handy come tax time.My accountant says they get info direct from ATO if the provider has submitted it; which I guess includes anything CHESS; you just need to keep buy/sell confirmations in case of later audit.
englyn - thanks for the reminder, I remember my accountant telling me something about a portal they can access when I forgot to include some info for them one year!
You log into the share registries... Computershare or Link Market Services
Go to the investor login section - input your HIN or SRN, postcode, stock code...
Post by: Grogounet on August 02, 2015, 09:49:57 PM
Age: 36
2 kids: turning one and a 5 YO
two properties worth: $1.1m, both IO
Offset: $360k on $400k mortgage
Super: $60k in each (arrived in OZ in 2009)
Cars: $10k
Loans of $400k in PPOR and $400k on IP
Now looking at Super. Am with AMP (my company pays for TDP and death, approx $25 a month).
Looking at current investment mix - Fees are quite low as I get a 1.15% rebate from work so around 0.65% a year
International Share Index 34.00
Growth Index 33.00
Australian Share Index 33.00
Have started doing salary sacrifice, purely for tax purposes, as you all, I don t plan to retire at 65..
By end of 2015, PPOR will be paid off
Priorities for 2016: One more IP and starting investing into index funds, automated
Post by: slothman on August 02, 2015, 10:09:40 PM
This provides $8,804 in franking credits and results in $29,346 in after-tax income and tax payable being $0.
If my partner is on the same setup, then this means a household income of $58,691 tax-free. Which is plently for living expenses and a bit of travel once the house is fully paid off.
edit: updated from $20,500 to $20,542 to milk the last cent out and pay $0 tax
Post by: slothman on August 02, 2015, 10:27:29 PM
Tax on taxable income: $1970.49
Add medicare levy: $571.42 (@2%, but having a kid or 2 may make you eligible for a reduced levy)
Gross tax payable: $2,541.91
Subtract refundable franking credits: ($8,571.42)
Net refund due: $6,029.51
I believe you are forgetting about the low income offset and the medicare levy exemption for low income earners. The tax payable should be $0 according to the comprehensive tax calculator provided by the ATO.
https://www.ato.gov.au/Calculators-and-tools/Comprehensive-tax-calculator/
Post by: englyn on August 02, 2015, 10:42:49 PM
Priorities for 2016: One more IP and starting investing into index funds, automated
Hi Grogounet, you're already heavily exposed to the property market and underallocated into other investments. I'd strongly suggest re-examining that plan for another IP.
- yields on Australian IP are terrible
- if your preference is to leverage cheap mortgage rates to invest, you can already do that using home equity
- if you believe property investment is safer because it never goes down, consider opportunity cost in a flat property market + inflation vs. average share market returns
Post by: englyn on August 02, 2015, 10:47:12 PM
I have done this. It is an off market transfer, but with NAB there's a discount for an off market transfer to a different account within nabtrade. No stamp duty etc. It was very straightforward.Does anyone know if I can transfer CHESS to a sole account? Has anyone done this?I haven't but understand you can do, look for Off Market Transfer. Best to call you share broker, there might be stamp duty or other costs involved.
For Eg: 100 VAS shares held through NAB in joint a/c - I'd transfer 50 shares to my individual a/c and 50 to my wife's.
Post by: englyn on August 02, 2015, 10:49:11 PM
Post by: marty998 on August 02, 2015, 10:53:11 PM
Tax on taxable income: $1970.49
Add medicare levy: $571.42 (@2%, but having a kid or 2 may make you eligible for a reduced levy)
Gross tax payable: $2,541.91
Subtract refundable franking credits: ($8,571.42)
Net refund due: $6,029.51
I believe you are forgetting about the low income offset and the medicare levy exemption for low income earners. The tax payable should be $0 according to the comprehensive tax calculator provided by the ATO.
https://www.ato.gov.au/Calculators-and-tools/Comprehensive-tax-calculator/
Yes did not include LITO deliberately to keep the calc still relatively simple. Any offset you can get will be a bonus on top.
Taking it further...where do you stop? Could have mentioned family tax benefits, allowances etc...
On Medicare Levy...addition of franking credits will put your taxable income above the low income medicare levy threshold?
Post by: nick69 on August 02, 2015, 11:48:06 PM
Age: 27
Debt: 20k HECS student debt. Currently renting so no mortgage or credit card debt.
Investments: ~$5000 in various ASX stocks and precious metals.
Super: ~$50k
Post by: slothman on August 03, 2015, 12:12:48 AM
On Medicare Levy...addition of franking credits will put your taxable income above the low income medicare levy threshold?
As far as I can tell, the medicare levy is calculated based on your taxable income, before the Franking tax offset (imputation credit). Exempt up to $20,896.
Post by: marty998 on August 03, 2015, 12:21:05 AM
So therefore if you want to stay under $20,896, you need to have under $14,627 in fully franked (cash) dividends?
Post by: slothman on August 03, 2015, 12:28:27 AM
Post by: Eamesy on August 03, 2015, 02:01:18 AM
Thought i would introduce myself.
Age: 25
No Debt
Renting with partner $700.00 per month inclusive of utilities.
Minimal cost of living with one 4 cylinder car and 100cc scooter between us.
$85,000.00 cash
$30,000.00 shares (15k VAS & 15k VGS)
I am very new to the idea of FIRE and was wondering if this is the only Australian based thread on MMM? Any other Australian related threads or websites any of you would recommend?
Thanks in advance
Post by: DrowsyBee on August 03, 2015, 02:54:28 AM
Post by: deborah on August 03, 2015, 06:09:19 AM
Post by: settlement on August 04, 2015, 01:22:03 AM
For what it's worth:
Age: 25
Savings: $45,000.00
Super: $0 (just arrived in Australia)
Rent: $1000 a month. (Melbourne)
No investments or property
Debt: $0
Post by: steveo on August 04, 2015, 01:35:13 AM
Go to boogleheads to read about index investing.
Post by: englyn on August 04, 2015, 08:31:19 PM
1. Vanguard Australia does not offer a total stock market index fund. You're limited to ASX300 (300 biggest companies)
2. (partly because of 1) VAS (Vanguard's ASX300 index ETF) is heavily weighted towards banks and mining. There isn't nearly as much diversification to health, tech and other industries as the Vanguard US funds.
3. Australian companies tend not to have as much international exposure as some of the major players in the US index
I haven't figured out how to fix 1. But 2 and 3 can both be corrected by some asset allocation into international index funds, I'm currently using Vanguard funds that are ASX listed: VEU & VTS
As to what proportion of assets should be allocated into those to counteract problems 2 and 3, I have no idea, still working that out, would love advice.
Go to boogleheads to read about index investing.*bogleheads :)
Post by: englyn on August 04, 2015, 08:39:43 PM
http://jlcollinsnh.com/2013/05/02/stocks-part-xvii-what-if-you-cant-buy-vtsax-or-even-vanguard/
Post by: englyn on August 04, 2015, 08:42:21 PM
Quote
Bogle is adamant that the discipline of index investing is only effective when using the broadest possible measure of the sharemarket which means not only ignoring the double inverse leveraged ETFs but even the S&P 500 itself.
Another of Bogle’s career achievements was to develop the Vanguard Total Stock Market fund, which takes in not only the S&P 500 but also the Wilshire 4500 (for a grand total of 5000 listed stocks) and is the broadest measure of the US sharemarket available today.
http://www.afrsmartinvestor.com.au/p/specialist-investments/why_jack_bogle_hates_your_etf_BNx51AzguBRlezMSMRNoyI (http://www.afrsmartinvestor.com.au/p/specialist-investments/why_jack_bogle_hates_your_etf_BNx51AzguBRlezMSMRNoyI)
Post by: FFA on August 04, 2015, 11:58:45 PM
This is what I'm talking about with the problem with VAS only indexing ASX300:QuoteBogle is adamant that the discipline of index investing is only effective when using the broadest possible measure of the sharemarket which means not only ignoring the double inverse leveraged ETFs but even the S&P 500 itself.
Another of Bogle’s career achievements was to develop the Vanguard Total Stock Market fund, which takes in not only the S&P 500 but also the Wilshire 4500 (for a grand total of 5000 listed stocks) and is the broadest measure of the US sharemarket available today.
http://www.afrsmartinvestor.com.au/p/specialist-investments/why_jack_bogle_hates_your_etf_BNx51AzguBRlezMSMRNoyI (http://www.afrsmartinvestor.com.au/p/specialist-investments/why_jack_bogle_hates_your_etf_BNx51AzguBRlezMSMRNoyI)
Relative mkt cap should be considered. As US is maybe 15x bigger than Oz. So in this sense ASX300 might be adequate relative to US TSM 5000, it is around the same ratio (perhaps only a bit higher). Just looking at no. of shares in index is misleading if you're talking about share mkt coverage then % of mkt cap would be much more relevant.
I guess that's why Vanguard opted to index based on ASX300 instead of the more common benchmark ASX200.
The issue of ASX concentration is the key concern, and that's just the nature of this market. As you said in previous post, it can be addressed with diversification.
Post by: englyn on August 05, 2015, 01:26:28 AM
Post by: This_Is_My_Username on August 05, 2015, 02:50:43 AM
TJEH, I use CMC Stockmarkets and I used their partnership with sharesight to help prepare my tax return this year. The reporting provided got me 90% of the way there, it was definitely helpful. I still had to muck around in excel to get the VTS and VEU reporting right but that's because of exchange rates and different amounts of withholding tax, etc.
I am happy with CMC, I haven't had any problems but keep in mind that I have very limited funds invested, I follow a buy and hold strategy and haven't use another broker so YMMV. They have performed well enough to convince me to convert my Issuer
Holdings to Chess with them.
Shaz_Au - I'm leaning towards CMC, so glad to hear you've had a positive experience with them. I'm going for a buy and hold strategy too, aiming to buy each month over the next year or so.
i'm with CMC and they are fine
Post by: marty998 on August 05, 2015, 03:00:20 AM
This is what I'm talking about with the problem with VAS only indexing ASX300:QuoteBogle is adamant that the discipline of index investing is only effective when using the broadest possible measure of the sharemarket which means not only ignoring the double inverse leveraged ETFs but even the S&P 500 itself.
Another of Bogle’s career achievements was to develop the Vanguard Total Stock Market fund, which takes in not only the S&P 500 but also the Wilshire 4500 (for a grand total of 5000 listed stocks) and is the broadest measure of the US sharemarket available today.
http://www.afrsmartinvestor.com.au/p/specialist-investments/why_jack_bogle_hates_your_etf_BNx51AzguBRlezMSMRNoyI (http://www.afrsmartinvestor.com.au/p/specialist-investments/why_jack_bogle_hates_your_etf_BNx51AzguBRlezMSMRNoyI)
Relative mkt cap should be considered. As US is maybe 15x bigger than Oz. So in this sense ASX300 might be adequate relative to US TSM 5000, it is around the same ratio (perhaps only a bit higher). Just looking at no. of shares in index is misleading if you're talking about share mkt coverage then % of mkt cap would be much more relevant.
I guess that's why Vanguard opted to index based on ASX300 instead of the more common benchmark ASX200.
The issue of ASX concentration is the key concern, and that's just the nature of this market. As you said in previous post, it can be addressed with diversification.
Fun facts about the All Ordinaries:
# stocks: 492
Mean market cap: $3,300.81 million
Median market cap: $420.87 million
This implies a total market cap of $1,624 trillion.
This also implies that CBA with a market cap of some $142 billion is larger than the bottom half of the index combined, and quite possibly the bottom 2/3rds.
(Link to S&P data source)
http://au.spindices.com/indices/equity/all-ordinaries
Post by: AustralianMustachio on August 06, 2015, 07:57:27 PM
Post by: settlement on August 07, 2015, 02:03:09 AM
Post by: marty998 on August 07, 2015, 09:20:52 PM
Bank shares absolutely slaughtered in an orgy of self inflicted capital raising damage. ANZ bit the bullet with $3b, and shafted retail holders in the process.
CBA results to be released on Wednesday will be the next big news this week.
Happy bargain hunting ladies & gentlemen.
Post by: Wadiman on August 07, 2015, 09:44:22 PM
NAB trading have zero cost for international trades until the end of October.
https://www.nabtrade.com.au/features/products/international-shares/overview?utm_source=nabtrade%20prospect&utm_medium=masthead&utm_campaign=international%20phase%202%20
The normal brokerage is pretty good too - $15/trade.
Worth considering methinks if after direct international shares.
Post by: bigchrisb on August 07, 2015, 10:28:29 PM
I've read about the retail shafting a few times now. I struggle to see how they have been shafted though? I bought some more anz on market yesterday for less than the raising. I also have a handy option with the spp if it rallies hard. How have I been shafted? Could understand the feeling if the raising was a long way below current price?
ANZ bit the bullet with $3b, and shafted retail holders in the process.
Post by: potm on August 07, 2015, 11:43:42 PM
Quick tip, always keep one share when you sell out of a stock.
Post by: marty998 on August 07, 2015, 11:55:05 PM
I've read about the retail shafting a few times now. I struggle to see how they have been shafted though? I bought some more anz on market yesterday for less than the raising. I also have a handy option with the spp if it rallies hard. How have I been shafted? Could understand the feeling if the raising was a long way below current price?
ANZ bit the bullet with $3b, and shafted retail holders in the process.
I guess you've been shafted because the share price has tanked 10% in the past couple of days and your holdings diluted by not having the opportunity to participate on equal terms as the instos... you're forced into buying on market so as not to be diluted. It's just 'lucky' (for want of a better word) that the price has fallen to the placement price due to the underwhelming 3rd qtr result.
NAB's raising earlier in the year probably is the better case study here in what should be done.
Given the slowdown in credit growth and lending restrictions, as well as the forced cap raising which will knock down returns on equity, I just wonder if the best time to buy into bank shares will be in a years time, and the right thing to do now is sit on the sidelines.
Post by: This_Is_My_Username on August 08, 2015, 12:45:55 AM
does anyone know why Chevron Texaco pay the dividend?
Post by: marty998 on August 08, 2015, 06:56:38 AM
Post by: FFA on August 09, 2015, 08:30:16 PM
my vanguard dividends (VAS VHY VGS) come in to my bank account as a direct credit from "Chevron Texaco" .it's the stuff conspiracy theories are made of !
does anyone know why Chevron Texaco pay the dividend?
my direct credit has no mention of Chev Tex....
Post by: rowdy on August 10, 2015, 01:10:47 AM
Listed Investment Companies
http://www.bellpotter.com.au/media/151863/lic%20201506%20abridged%20%282%29.pdf
Post by: FFA on August 10, 2015, 06:07:33 AM
Post by: Shaz_Au on August 11, 2015, 07:49:54 PM
Then I had a quick read of the dual momentum investing thread and that just made me feel worse, according to that strategy I just bought the worst choice! My other funds VEU, VTS, VAF were all in front, VAS was dead last :( Damn it!
Post by: dungoofed on August 11, 2015, 08:00:08 PM
Nothing wrong with rebalancing as a strategy.
Someone please reassure me (or tell me I'm a complainy pants) that I did the right thing when I purchased $5K of VAS on the 7/8 at $69.95. The last couple of days the price has continued to dribble down. I know we aren't meant to try to time the market and $69.95 seemed better than the ~$71 average it has been trading for the last couple of months. My IPS said that VAS was the one to buy to due to being the furthest from the target allocation. Still it sucks though!
Then I had a quick read of the dual momentum investing thread and that just made me feel worse, according to that strategy I just bought the worst choice! My other funds VEU, VTS, VAF were all in front, VAS was dead last :( Damn it!
Post by: FFA on August 12, 2015, 01:22:55 AM
Someone please reassure me (or tell me I'm a complainy pants) that I did the right thing when I purchased $5K of VAS on the 7/8 at $69.95. The last couple of days the price has continued to dribble down. I know we aren't meant to try to time the market and $69.95 seemed better than the ~$71 average it has been trading for the last couple of months. My IPS said that VAS was the one to buy to due to being the furthest from the target allocation. Still it sucks though!buddy, if it makes u feel any better, I bought on the same day at around the same price (a somewhat bigger amount too...). for me it's the right thing to do, because i'm following my plan.
Then I had a quick read of the dual momentum investing thread and that just made me feel worse, according to that strategy I just bought the worst choice! My other funds VEU, VTS, VAF were all in front, VAS was dead last :( Damn it!
there's a buffett quote where he says it's funny how people are happy when market's up and upset when market's down, yet most are net buyers of shares (including the future). So actually, unless you've FIRE'd and are fully invested in the market, you are probably short of equities and can allow yourself to be happy when the market falls.... Or, just ignore market noise as dungoofed says and remember these are long term investments :)
Post by: marty998 on August 12, 2015, 02:17:12 AM
I'm getting hammered on my index funds too... VHY down to $61.18.
Funny thing is I saw this coming... I rebalanced my super away from equities and into fixed interest last month and have held onto my early July gains of 3%. Perfect market timing!
Unfortunately did not do the same with my direct share holdings :(
Won't be getting my hands on a material amount of investable cash now until December. I think it's poor form to hope for markets to stay down but I really wish VAS and VHY could say at their current levels for another 6-12 months at least.
______________
On the subject of individual stocks, I cannot believe how much ANZ has been smashed. Trading at under $30 with current earnings is slightly ridiculous... almost being priced for another GFC...
Post by: FFA on August 12, 2015, 02:49:46 AM
re: anz, was always my least favoured of the big 4 banks (nab too I guess, but at least nab was priced accordingly). anz, I never really bought into their asia strategy.
Post by: AustralianMustachio on August 12, 2015, 05:51:23 AM
Of course thinking this way is far, far simpler said than done
Post by: Shaz_Au on August 12, 2015, 05:59:54 PM
Post by: bigchrisb on August 12, 2015, 09:29:00 PM
I'm about to put another $10k into VAS for my own portfolio.
Post by: settlement on August 14, 2015, 03:38:41 AM
I like the three fund portfolio for Americans - international bonds, international stock and domestic stock. I would like an Australian equivalent that approaches emulating this.
I like the Vanguard lifestrategy except the management costs seem too high to be honest
Post by: domin8s on August 17, 2015, 10:21:20 PM
28y
1 child,
1 investment property
60K to invest.
@ Settlement, I would like a Australian approach also, if anyone can shed some light on this ?
What are people thoughts on stockspot.com.au ? as investment tool ?
Regards, Jason
Post by: englyn on August 17, 2015, 10:31:16 PM
I have a lot of VAS and ARG and some VEU and VTS. A bit of ALI for sector diversification and a couple of individual stocks in very small amounts that I'm looking for a good reason to incur brokerage selling.
Post by: AustralianMustachio on August 17, 2015, 11:04:32 PM
Hi, new to the thread,
28y
1 child,
1 investment property
60K to invest.
@ Settlement, I would like a Australian approach also, if anyone can shed some light on this ?
What are people thoughts on stockspot.com.au ? as investment tool ?
Regards, Jason
Welcome Jason. Both points been discussed in this thread already
Post by: settlement on August 18, 2015, 12:20:53 AM
Urgh, don't look at my portfolio, I'm a very long way from having a target asset allocation planned out, and I'm buying what seems good value at the time, provided I do want it in my eventual portfolio, to avoid analysis paralysis while I plan.
I have a lot of VAS and ARG and some VEU and VTS. A bit of ALI for sector diversification and a couple of individual stocks in very small amounts that I'm looking for a good reason to incur brokerage selling.
I see. Most Australians seem to invest with vanguard?
Post by: englyn on August 18, 2015, 01:09:06 AM
Maybe I should mention that I'm unlikely to buy any other shares (with possible exception of a bond fund further down the track), just to rebalance among what I've got once I decide on % of Aus Shares / Intnl Shares / Bonds (??) / Cash
Post by: Trouble on August 18, 2015, 01:30:25 AM
I'm joining this thread.
31 yo with 2 kids and a husband
$30k-ish in shares
$60k-ish in a 2.?% savings account
Plan to buy a house in less than 3 years
Confused with all the acronyms and investing jargon but trying to learn.
Somewhat frozen with indecision, it was much easier when the choice was "put it in the offset account"
Post by: dungoofed on August 18, 2015, 01:46:01 AM
And yes, it's worth going through the entire thread. Also superannuationfreak's blog, BigChrisb's journal and a few others.
Post by: FFA on August 18, 2015, 02:24:29 AM
I see. Most Australians seem to invest with vanguard?
The traditional oz index is State Street (code STW). But fees are relatively high, and it's fast losing share to vanguard for that reason. Although STW is still quite good for liquidity. Ishares is another competitive option by the worlds largest fund manager, Blackrock. Around the MMM board vanguard is quite popular, as a typical investing strategy is the index approach popularised by Bogle (Vanguard founder).
Post by: FFA on August 18, 2015, 02:28:16 AM
$60k-ish in a 2.?% savings accountTrouble, I suggest you shop for a better savings account. You can achieve mid 3%. the Oz share market must be tempting with the current correction giving a nice entry point (4 to 4.5% yields plus some franking). However if you need the cash in 3 years it maybe too short a timeframe for shares (generally 5 or 7+ years is advised) - you need to weigh this up and decide .
Plan to buy a house in less than 3 years
Somewhat frozen with indecision, it was much easier when the choice was "put it in the offset account"
Post by: limeandpepper on August 18, 2015, 04:26:09 AM
Post by: settlement on August 18, 2015, 04:44:00 AM
I see. Most Australians seem to invest with vanguard?
The traditional oz index is State Street (code STW). But fees are relatively high, and it's fast losing share to vanguard for that reason. Although STW is still quite good for liquidity. Ishares is another competitive option by the worlds largest fund manager, Blackrock. Around the MMM board vanguard is quite popular, as a typical investing strategy is the index approach popularised by Bogle (Vanguard founder).
And the typical Australian portfolio looking something like:
VAS (30%)
VGS (30%)
Government bond / high interest account (40%)
?
Post by: potm on August 18, 2015, 04:56:47 AM
I am currently deciding between VAS and IOZ. Or should I buy both? Hmm.
VAS is asx 300 while IOZ is asx 200, although it doesn't make that much of a difference. VAS mer is slightly cheaper than IOZ and seems to be more liquid.
There's no reason to buy both.
Post by: marty998 on August 18, 2015, 04:59:38 AM
Somewhat frozen with indecision, it was much easier when the choice was "put it in the offset account"
Thats not necessarily a bad idea. We're a funny country. The richest people on earth and by far and away the most pessimistic.
Sometimes I think the market simply goes looking for a reason to go down. China, US, Greece, Russia, Brazil...
Somewhere in the world there is bad economic news on any given day, and the ASX looks at that and goes down in sympathy.
Post by: marty998 on August 18, 2015, 05:04:01 AM
I see. Most Australians seem to invest with vanguard?
The traditional oz index is State Street (code STW). But fees are relatively high, and it's fast losing share to vanguard for that reason. Although STW is still quite good for liquidity. Ishares is another competitive option by the worlds largest fund manager, Blackrock. Around the MMM board vanguard is quite popular, as a typical investing strategy is the index approach popularised by Bogle (Vanguard founder).
And the typical Australian portfolio looking something like:
VAS (30%)
VGS (30%)
Government bond / high interest account (40%)
?
Typical Aussie portfolio is House, Government Age Pension, Cash, CBA, BHP, MPL, TLS, WOW, QAN, IAG, AMP.
Most people haven't a clue how to go about buying a bond portfolio.
Post by: settlement on August 18, 2015, 05:39:51 AM
Post by: FFA on August 18, 2015, 05:40:51 AM
well, funny u should say that, I actually buy both.... my main reason is a bit paranoid, but as I'm concentrating a large chunk of my wealth in vanguard, I just wanted to diversify a bit in case the unthinkable happens and there is some kind of scandal / compliance problem / rogue trader / etc. As I said it is surely paranoid but then again i'm sure most Madoff investors never saw that coming either.... I also figured there might be some optimisation if ever needing to sell, along the lines of capital gains harvesting concept (not actually part of the plan though, which is to hold forever). Finally, as a relative newbie to etf's I wanted to compare them on portfolio turnover, franking levels, distributions, etc. Of course you can compare without investing, but in my experience you keep a keener eye on it when you have money down. The recent IOZ distribution was huge and nearly 80% capital gains, so they had massive portfolio churn in 2q'15 (perhaps rebalancing sales when the ASX peaked in april?) whereas VAS did not. I am still tempted to call iShares and ask for some explanation on this, if I ever get around to it.I am currently deciding between VAS and IOZ. Or should I buy both? Hmm.
VAS is asx 300 while IOZ is asx 200, although it doesn't make that much of a difference. VAS mer is slightly cheaper than IOZ and seems to be more liquid.
There's no reason to buy both.
So... perhaps there are some reasons, although not necessarily rational / good ones !
Post by: marty998 on August 18, 2015, 05:44:26 AM
I don't know what most of those acronyms mean but I meant typical aussie boglehead!
They're ASX stock codes - Commonwealth Bank, BHP Billion, Medibank, Telstra, Woolworths, Qantas, Insurance Australia Group (NRMA/CGU Insurance) & AMP.
Otherwise known as the "mum's and dad's" portfolio - stocks you buy just because they're big companies (BHP, Woolworths) or you've got them from demutualisations (AMP, IAG) or Government sales (CBA, Qantas, Telstra, Medibank).
Post by: potm on August 18, 2015, 05:51:01 AM
I can't think of a situation where having both will help you CGT wise, if anything having only one will be better. You are allowed to select which shares are sold to minimise your tax.
Post by: limeandpepper on August 18, 2015, 07:55:45 AM
VAS is asx 300 while IOZ is asx 200, although it doesn't make that much of a difference. VAS mer is slightly cheaper than IOZ and seems to be more liquid.
There's no reason to buy both.
Yeah it seems superfluous to buy both, I just have a hard time making a decision. Thanks for the input! :)
Post by: FFA on August 18, 2015, 05:12:56 PM
there was some reference to index theory (maybe a page or two earlier in this thread) which suggests it works better when the index covers the total market. if you subscribe to this, then obviously asx300 is preferable. personally i'm not so sure, I think the main point of indexing is consistency and low cost. how the asx 201-300 performs versus the asx200 is anyone's guess!
in my case, while I have both it's not for any solid reason. although also I don't think it really costs me anything as I still invest in the same clip size (so no extra brokerage). maybe 5 mins extra /yr at tax time in admin. I certainly wouldn't hold both if it meant investing in smaller lots and increasing brokerage %
Post by: FFA on August 20, 2015, 06:16:45 AM
Yes I can see the value, but IMO stocks, especially banks and resources, have got a little further to go.*
I can see XJO heading towards 5000 before it goes back towards 6000. One of these days one of my 1000s of predictions will come true.
DYOR
* Should clarify that the reason for this view is that credit growth is not what it once was and the banks margins will come under increasing further pressure.
Regarding resources, it's obvious, prices are down, and staying down.
just reading back through, some quite good warning calls by Marty back in may /june !!
Post by: AustralianMustachio on August 20, 2015, 07:42:49 AM
We've had one very flat year on the ASX, I see the markets picking up and the index heading back towards 6000 by 31 Dec 2015, driven by the banks, who will continue to churn out record bumper profits.
I guess that's why they say market timing is hard. (Just being cheeky and responding to FFA, not having a crack at you marty!)
On the other hand, if the ASX goes up to 6000 by the end of the year, then Marty wins the expert market timing award!
Post by: FFA on August 20, 2015, 04:55:08 PM
Post by: bigchrisb on August 20, 2015, 06:24:04 PM
Post by: FFA on August 20, 2015, 09:48:21 PM
Post by: AustralianMustachio on August 20, 2015, 10:35:29 PM
the first prediction was already (very nearly) reached by mar/apr'15 and then he turned bearish. but let's not give marty a big head just yet, I think he was calling for a 20% fall in May, which still has a bit to go...
But his first prediction was targeted at December 15, not March. Thats why I meant, if the ASX goes to 5000 then back to 6000, then thats a top notch market prediction effort - exactly as forecasted haha
Post by: dungoofed on August 21, 2015, 04:50:26 AM
I see. Most Australians seem to invest with vanguard?
The traditional oz index is State Street (code STW). But fees are relatively high, and it's fast losing share to vanguard for that reason. Although STW is still quite good for liquidity. Ishares is another competitive option by the worlds largest fund manager, Blackrock. Around the MMM board vanguard is quite popular, as a typical investing strategy is the index approach popularised by Bogle (Vanguard founder).
And the typical Australian portfolio looking something like:
VAS (30%)
VGS (30%)
Government bond / high interest account (40%)
?
Typical Aussie portfolio is House, Government Age Pension, Cash, CBA, BHP, MPL, TLS, WOW, QAN, IAG, AMP.
Most people haven't a clue how to go about buying a bond portfolio.
Maybe if they knew GSBG37 had shot up 7% over the last month and a half they'd be more interested in learning : )
Post by: terrier56 on August 21, 2015, 04:22:38 PM
Post by: DrowsyBee on August 21, 2015, 05:26:49 PM
Post by: marty998 on August 21, 2015, 05:39:19 PM
Well done guys quite enjoyed that :)
Like I said, make enough predictions one of them will come true eventually. It's called the Steve Keen hypothesis I think.
I'm calling time on Sydney property. APRA has killed the boom. Probably 2 years too late but better late than never.
CBA is wobbling a bit - latest result had the 2nd half down 2% on 1st half. The banks will claw back Net Interest Margin this year - they won't get the benefit of the full recent 27 basis point increase on investment property loans, because not all of the book is investment loans, but even if they hang onto 5bps on a $600bn lending book it's a fair kick up in profit ($300m each). Can see profits grinding higher, but the bank's P/E ratios will probably stay between 11-13 for now due to the lower growth prospects.
Best blue chip performer this past year? Who in their right mind would have thought it would be Qantas!!
Post by: potm on August 21, 2015, 06:26:46 PM
Post by: marty998 on August 21, 2015, 06:56:14 PM
You talking about this?
Quote
The day included a 4.27 per cent drop in Shanghai after another unnerving sign of slowdown in China's manufacturing sector.
It ended the Shanghai exchange's worst week since 2011, losing 11.5 per cent.
Among leading indices, Tokyo shares lost 2.98 per cent, Hong Kong 1.53 per cent and London's benchmark FTSE 100 lost 2.83 per cent.
The Dow Jones Industrial Average gave up 3.12 per cent for the day and was down 5.82 per cent for the week.
The S&P 500 shed 3.19 per cent in the session and 5.77 per cent for the week — a loss representing some $US1.14 trillion in share value.
The tech heavy Nasdaq fared even worse, losing 3.52 per cent, down 6.78 per cent for the week.
Ouch. Hope you are managing your margin loans effectively potm.
Post by: potm on August 21, 2015, 07:04:43 PM
Times like this create the best opportunities, where everything is thrown out regardless of how well it's business is actually doing.
With your views on the property market, are you going to take any action or just hold for the long term. Ironically the biggest fear I have for my portfolio is the impact of a large housing downturn. I hear of too many people my age still putting their all into getting a place so hopefully our lucky country will keep trucking along. She'll be right.
Post by: marty998 on August 21, 2015, 07:12:02 PM
The 2 I hold now are the type you'd be comfortable holding forever. Small blocks, low strata, easily rentable, close to town, growing young-family-population type area. They won't ever show spectacular growth but nor will they crash and burn like some of the bigger and more showy OTP developments coming up all over Sydney.
Post by: BondiCigar on August 21, 2015, 07:36:26 PM
I bought my first ETFs yesterday noon-ish (split equally between VAS, VTS and VEU) and while I'm glad I finally got round to pulling the trigger I just wanted to clear up a bit of confusion regarding limit orders and the like.
I'm using CMC, my account got activated on Monday and after a little test money (before BPAYing through 80% of my NW) the bulk of my savings earmarked for ETFs came through by yesterday morning. In the excitement, I put my money down on VAS, VTS and VEU in roughly equal proportions, and because I'm using the standard price info with 20 minute delay, I thought I'd place a one-day limit order at slightly above the displayed asking price... All my orders got filled instantly (below the limits I'd set, so I assume at market price), and I just wanted to inform myself for next time what the best practice is since I definitely didn't do it right this time (though I'm not kicking myself over the long-term ramifications of having paid a little extra per share this one time).
I've done a bit of googling and know enough to never buy Australian-listed ETFs before ~10:30 or so (for liquidity/spread reasons), and to keep orders at one-day expiry, but should I have placed my limit at roughly the middle of the 'current' bid/ask spread?
What do you normally do, and how long do orders usually take to be filled?
I'd estimate that my usual orders would be around $4-6k chunks after accumulating in my HISA.
Is there a best time for buying the cross-listed ETFs like VTS and VEU?
Out of interest, if you were starting all over again in your early 20s, with $20k or so, what would you be doing with it right now?
Thanks in advance and again for the great thread and journals (just starting to go through them, I'm sure I'll be a lot wiser for it in a few weeks!)
Post by: qwerty8675309 on August 21, 2015, 07:59:45 PM
An absolute bloodbath on the US stocks last night. I wonder if this will drag down the ASX on monday. I will be looking to buy VAS around mid sept so if it keeps going a bit that would be great. Yield looking so amazingly attractive right now.
It's a great time for rebalancing I reckon. I've been eyeing a few parcels of STW ETFs that I've held for a while, which I'm planning to sell when the cost base is the same as the price to avoid capital gains... and then putting the money into VAS which has lower fees.
I'm not sure if I should go outside of my investment plan, and buy on speculation that things are cheap. Bogle would probably say no, but its so tempting!
Post by: qwerty8675309 on August 21, 2015, 08:05:06 PM
What do you normally do, and how long do orders usually take to be filled?
Usually in a few seconds for the Vangard ETFs, but I buy at market price.
Is there a best time for buying the cross-listed ETFs like VTS and VEU?
The best time to buy is when you have enough to put in your next investment 'chunk' :P
Post by: potm on August 21, 2015, 08:06:46 PM
I would suggest opening a commsec account so you have access to live data. You can even take advantage of some sign on free brokerage.
For ETFs there should be a market maker most of the time, always check the spread though especially for the less liquid ones.
If the spread is small you can choose to just accept it and buy at the offer price.
If you are going to try and set a bid within the spread, I would set it at just above what the market maker has. You can't know how the market will move but this gives you the chance to sell your shares to somebody else. Most likely though, your order will be filled if the market goes down or just will sit there doing nothing if it goes up.
If I was 21 again with 20k starting again I would find the best value stock and put it all into that, with a little leverage to add some more on top if possible. 20k is a small proportion of my future earnings and expected wealth, no need to waste potential return with diversification. That's not advice though, just me. You've done the right thing according to conventional wisdom here, I would have gone with VGS over VEU/VTS. Slightly more expensice mer but better tax implications and less brokerage. Hopefully vanguard can lower the Australian based etfs costs over time as more people buy them.
Post by: marty998 on August 21, 2015, 08:11:30 PM
I thought I'd place a one-day limit order at slightly above the displayed asking price... All my orders got filled instantly (below the limits I'd set, so I assume at market price), and I just wanted to inform myself for next time what the best practice is since I definitely didn't do it right this time (though I'm not kicking myself over the long-term ramifications of having paid a little extra per share this one time).
Ahh think about what you did. Lets say you were buying a house. The seller says to you "I'll sell at $500,000". You then countered with $505,000. Fortunately for you the way that the auction system works on the stockmarket is that your order gets matched at the seller's price when you input an at-market order.
I'm agnostic on limit or market orders with ETFs. It doesn't matter - you should always buy and sell at a price you are comfortable with.
I will say that you should never place a market buy order when buying individual shares - you will get 'front run' by HFTs and bots, and you will end up paying a bit more.
Post by: FFA on August 21, 2015, 08:40:28 PM
I've done a bit of googling and know enough to never buy Australian-listed ETFs before ~10:30 or so (for liquidity/spread reasons), and to keep orders at one-day expiry, but should I have placed my limit at roughly the middle of the 'current' bid/ask spread?I also crosscheck the NAV while executing. Sometimes bid/ask can be evenly spread around NAV. Othertimes it can drift a little. vanguard and iShares have live NAV calc's online. For VTS/VEU you will need to convert it with the fx rate.
What do you normally do, and how long do orders usually take to be filled?
I'd estimate that my usual orders would be around $4-6k chunks after accumulating in my HISA.
Is there a best time for buying the cross-listed ETFs like VTS and VEU?
Out of interest, if you were starting all over again in your early 20s, with $20k or so, what would you be doing with it right now?
Sometimes it's a bit petty and you calculate the difference you are trying to save instead of lifting the offer, it might be $10-20 and takes a long time to get filled, or you miss alltogether. Maybe it's a better idea to just trade at market or use a buy limit order at the offer level or slightly above, to ensure you get filled but keep some control in case the market jumps suddenly.
If I was starting again, i'd probably regularly invest into 50/50 VAS/VGS (or equivalent products with other index manager e.g. iShares).
Post by: limeandpepper on August 22, 2015, 01:44:07 AM
An absolute bloodbath on the US stocks last night. I wonder if this will drag down the ASX on monday. I will be looking to buy VAS around mid sept so if it keeps going a bit that would be great. Yield looking so amazingly attractive right now.
I'm hoping that the market continues to go down for a while, too, so I can grab some bargains. Is there a reliable site where we can find out a reasonably accurate P/E ratio of ETFs?
Post by: BondiCigar on August 22, 2015, 04:20:57 AM
With the time for buying VTS/VEU I was meaning more whether there was an ideal time of day for liquidity considering that the markets of the underlying securities don't line up very much if at all with the ASX hours, but maybe this doesn't matter? Next time I buy a chunk I will definitely keep my eye on the NAV in particular with the cross-listed ETFs.
If you are going to put a buy order at slightly above the offer price, it will get filled instantly.
I would suggest opening a commsec account so you have access to live data. You can even take advantage of some sign on free brokerage.
Good idea with the live data access, I was wondering recently if I had signed up to Commsec and gotten the $600 free brokerage whether I would be able to easily transfer the shares over to a different, cheaper, broker if the need arose to sell them. Of course, having a buy and hold strategy makes that a bit irrelevant but if I could claim a capital loss on VTS+VEU and purchase VGS or something it could be useful.
I also signed up to the Sharesight portfolio tracking and I feel like that had much more recent (or at least different) price data when looking at it side-by-side with CMC. Anyone know whether it has live pricing? I'm sure its in the documentation somewhere but if someone knows off the top of their head and can save me using mine :)
If I was 21 again with 20k starting again I would find the best value stock and put it all into that, with a little leverage to add some more on top if possible. 20k is a small proportion of my future earnings and expected wealth, no need to waste potential return with diversification. That's not advice though, just me. You've done the right thing according to conventional wisdom here, I would have gone with VGS over VEU/VTS. Slightly more expensice mer but better tax implications and less brokerage. Hopefully vanguard can lower the Australian based etfs costs over time as more people buy them.
Interesting choice, and a very useful mindset when thinking about my net worth at this early stage.. Thanks for that perspective. Out of curiosity, how would you go about determining the best value stock? Shiller P/E?
My mentality for choosing VTS+VEU over VGS was mainly based on MER and diversification, as the tax benefits of getting franking credits for a 4% dividend yield of the 3% cap of Australian shares in VGS isn't a huge bonus. Of course, over a lifetime these little things add up to large differences but I've only ever seen the decision made one way or another out of personal preference.
Typically though (or I guess conventionally), VGS would need pairing with VGE to keep the Emerging Market share that makes up about 18% of VEU, which adds more MER and brokerage, not to mention the fact that VTS+VEU covers 6300 securities to VGS's ~1500 and VGE's ~1000 (of course, 98% of those extra securities are probably worth 2% of the fund so it isn't going to make an enormous difference). I'd be interested in hearing what everyone's ETF choices are in this area, and your relative allocation to VTS/VEU or VGS/VGE. I think the world-cap equivalent is roughly 45% VTS/55% VEU or 90% VGS/10% VGE.
Speaking of 90% VGS/10% VGE, I was doing some asset allocation thinking a short time ago, and came up with the exercise of determining an allocation for a 1, 2, 3...9 fund/ETF portfolio. I think I had a Vanguard Growth LifeStrategy Fund for the 1 fund portfolio, VAS+VGS for the 2 fund, etc etc. and obviously as the number of fund/ETFs went up, individual allocations fell quite fast. Looking at the 9 ETF portfolio makes me question the benefit of adding many (significantly more expensive) ETFs in small proportions to a portfolio:
25% IHD 0.30%
15% VGE 0.48%
15% VEU 0.18%
15% VAF 0.20%
10% VAP 0.25%
5% VTS 0.05%
5% IJR 0.16% (US Small Cap 600)
5% IXJ 0.48% (Healthcare)
5% IXI 0.48% (Consumer Staples)
Obviously some people end up with lots of little parts of their portfolio as remnants of previous allocations, but does anyone have any thoughts on the point at which adding x% of something to your portfolio becomes a meaningless attempt at optimisation/diversification?
In this case it was wishful thinking that instead of 20% VTS I could overweight myself in US smallcaps, healthcare and consumer staples in order to get higher growth/more recession-proof/whatever (Note that I have not gone through with this or most of the numerous other complex portfolios I devised), which I guess is sector-picking rather than stock-picking.
Sorry for the ramble, but over the past few months I've been adding to a very long-winded document/diary with new thoughts on asset allocation, questions, and other investment stuff (totalling about 34 pages at the moment) and looking back I think a lot of what I came up with, like that 9-fund portfolio (and worse!), was overcomplicating something that really should be as simple as possible and as cheap (MER and brokerage-wise) as possible. I'd hate to be rebalancing a 20-ETF portfolio with my ~6 yearly chunks..
Post by: potm on August 22, 2015, 04:45:13 AM
I learn everything I can about the company and it's ability to make profits. A simple ratio is totally inadequate for analysing a single company. At 21 I knew very little of what I know now and I wouldn't be surprised if in another 5 years I will say the same thing about myself now. I consider investing to be a lifelong learning journey or at least until I have more than enough and no longer enjoy it.
There was some discussion of cross listed ETFs a while back in this thread. I believe its more than just the franking credits you miss out on. The withholding taxes on non-us share dividends are not claimable as tax credits.
I view the point of indexing as achieving the average performance of the market. Most people here believe that it's not possible for to beat the market so low cost indexing is the best way. This is contradicted by trying to weigh certain sectors more with different ETFs. There really is no right answer for asset allocation, its up to you.
Have you calculated the practicalities of maintaining 9 ETFs though? 9 times 6 contributions a year is 54. 54 times 11 is $594.
Post by: BondiCigar on August 22, 2015, 06:13:26 AM
At the moment I'm planning for my contributions to be separate and go fully into one ETF, rather than splitting them in 3 or however many ETFs I have, and I don't think I'll be adding any more to the list unless I switch future international contributions to VGS. Having said that, my savings rate (in $ not %) should about double next year so even if I'm alternating between 3 ETFs I'll be making quarterly purchases for each of them.
I will definitely look into the full tax implications before my next purchase of international shares and continue accordingly, in all likelihood I glossed over it when I went through this thread earlier and VGS is the objectively better option.
You didn't address the emerging markets aspect though, and with such a small part of the world cap would you suggest maybe VAS/VGS until I've made about 8-10 contributions into VGS, so that a full contribution into VGE doesn't overweight emerging markets?
Post by: FFA on August 22, 2015, 04:37:40 PM
You didn't address the emerging markets aspect though, and with such a small part of the world cap would you suggest maybe VAS/VGS until I've made about 8-10 contributions into VGS, so that a full contribution into VGE doesn't overweight emerging markets?Maybe this is for potm, but when I said 50/50 vas/vgs it was just to keep it simple as your question was for someone starting out. yeah i'd just add vge in line with market cap if you are so inclined. Excluding the emerging markets is also a valid option, especially for smaller portfolios and practicality/simplicity reasons.
The comparison vgs (with some vge) vs vts/veu is very lineball. I'm actually doing vts/veu myself (around 45/55 split). Partly because I started before vgs existed. I did consider changing it over, but found it was six vs half dozen. In addition to the other pros/cons mentioned, vts/veu are more liquid but vgs/vge have DRP's.
Post by: potm on August 22, 2015, 07:59:39 PM
Post by: BuyInGloom on August 22, 2015, 10:16:33 PM
Right now I'm trying to get my head around a decent asset allocation for an Australian investor. A 50/50 split (Australia/Rest of World) seems to be what is generally recommended here and can be achieved by simply investing into the VAS and VGS ETF's in equal proportions.
Now, Australia only represents around 2% of the global market cap. Which means that if we truly diversified by market cap we would invest only 2% of our money in Australia. My interpretation of the reasons we increase this allocation to 50%, is:
a) To take advantage of franked dividends.
b) To avoid withholding tax on dividends from foreign countries.
c) To protect the value of our currency (if the AUD rises and we have 98% invested overseas we lose a lot of money)
d) Because we are familiar with the Australian market, and therefore more knowledgeable when it comes to picking stocks. This doesn't really apply to ETF's though...
I am totally onboard with this rationale, but what I don’t quite understand is how a 50/50 VAS/VGS portfolio enforces this allocation.
The ASX 200, which VAS largely replicates, gains 43% of its revenues from countries outside of Australia. Therefore, if we use geographical revenue to determine our allocation, a 50/50 VAS/VGS split is actually closer to a 30/70 Australia/International split.
My question is, why are we using domicile as the measure for allocation of our investments rather than geographical revenue? I would have thought the latter is a more accurate indicator?
A good article to read regarding this can be found here: http://www.capitalinternational.com.au/_pdf/Australia_NewGeo_Media_Release.pdf (http://www.capitalinternational.com.au/_pdf/Australia_NewGeo_Media_Release.pdf)
Motley Fool also posted a good summary of this article here: http://www.fool.com.au/2014/01/31/the-hidden-risks-lurking-in-your-portfolio/ (http://www.fool.com.au/2014/01/31/the-hidden-risks-lurking-in-your-portfolio/)
If geographical revenue is a more accurate measure for determining international diversification, then it’d possible to create a fully diversified portfolio using ASX stocks exclusively. For example you could start with 75% VAS, then decrease the 57% Australian weight with a couple of individual stocks that gain more revenues from overseas. It would probably also be a good idea to sprinkle in a few companies from sectors that VAS is underweight in, like health care and tech. And there you have it, a fully internationally diversified portfolio with all the tax advantages of holding Australian stocks.
I'm pretty sure I'm missing something and am planning on investing in International ETF’s anyway, but why isn't this plan feasible?
Post by: dungoofed on August 22, 2015, 10:35:00 PM
Some of the others here might be able to give a better answer. I've hardly thought about it beyond basically being aware of where certain companies get their income, but even then a percentage of the international exposure/risk is hedged away by the finance department.
Also, don't forget that even if you are rational there is no guarantee the same applies to Mr Market. "Australia" tanks and the "overseas revenue generators" also take a hit.
Would like to hear what others have to say on this. Thanks for the links.
Post by: potm on August 22, 2015, 11:13:30 PM
If geographical revenue is a more accurate measure for determining international diversification, then it’d possible to create a fully diversified portfolio using ASX stocks exclusively. For example you could start with 75% VAS, then decrease the 57% Australian weight with a couple of individual stocks that gain more revenues from overseas. It would probably also be a good idea to sprinkle in a few companies from sectors that VAS is underweight in, like health care and tech. And there you have it, a fully internationally diversified portfolio with all the tax advantages of holding Australian stocks.
I'm pretty sure I'm missing something and am planning on investing in International ETF’s anyway, but why isn't this plan feasible?
Franked dividends only come from Australian revenue with tax actually paid to the ATO. There's no correct allocation but 50% VAS and 50% VGS gives some level of franking as well as a lot of diversification. I would hardly call VAS plus a few other companies a fully internationally diversified portfolio.
Post by: deborah on August 23, 2015, 01:29:53 AM
Post by: FFA on August 23, 2015, 05:27:36 AM
There's no correct allocation but 50% VAS and 50% VGS gives some level of franking as well as a lot of diversification.+1... it's more art than science, and I believe consistency is better than accuracy in this case (i.e. just pick an AA somewhere in the middle ground and stick to it long term).
Post by: AustralianMustachio on August 23, 2015, 06:20:52 AM
I've read some arguments for instance http://www.canberratimes.com.au/money/investing/at-last--the-horrible-truth-about-the-stock-market-20150813-giymyg.html that franking credits are the only reason that shares are worth investing in. If that is true, an Australian bias gives you and advantage.
I can't see how that could be true. If it was US and other international shares wouldn't be worth investing in, since they don't have franking.
Post by: BuyInGloom on August 23, 2015, 08:58:01 AM
Also, don't forget that even if you are rational there is no guarantee the same applies to Mr Market. "Australia" tanks and the "overseas revenue generators" also take a hit.
This exact thought came to me while I was writing this post :) If the property bubble bursts and the banks drag the ASX down then they could more than likely take companies that earn their entire revenue overseas down with them. So that may be one good reason for holding stocks in different domiciles. Can anyone think of more?
Franked dividends only come from Australian revenue with tax actually paid to the ATO.
That’s a good point, however International shares still aren't as tax effective as Australian shares due to the withholding tax on dividends (at least for non-US shares)
There's no correct allocation but 50% VAS and 50% VGS gives some level of franking as well as a lot of diversification. I would hardly call VAS plus a few other companies a fully internationally diversified portfolio.
Yeah, it doesn't compare to the diversification of VAS + VGS, that’s true. But, I'm not convinced with the benefits of diversification once you go past 30 odd holdings anyway, as long as they are balanced geographically and by sector. So 300+ stocks (my example portfolio) vs. 1900+ stocks (VAS+VGS) rests fine with me.
I'm more concerned about whether it’s more accurate to calculate my asset allocation via geographical revenue, rather than by domicile. Each school of thought results in massively different Australian/International share allocations, so if you use domicile to calculate your allocation (assuming geographical revenue is correct) then you could end up with a much smaller percentage of Australian exposure than you planned for. Which means a massive chunk of your funds miss out on the tax efficiency of investing domestically.
Post by: The Falcon on August 23, 2015, 03:13:56 PM
I've read some arguments for instance http://www.canberratimes.com.au/money/investing/at-last--the-horrible-truth-about-the-stock-market-20150813-giymyg.html that franking credits are the only reason that shares are worth investing in. If that is true, an Australian bias gives you and advantage.
I can't see how that could be true. If it was US and other international shares wouldn't be worth investing in, since they don't have franking.
A rubbish piece of spruiking from Marcus, contains a few kernels of truth but most is plainly misleading and self serving.
Clearly, nobody can be trusted except for Marcus. The solution ; subscribe to his newsletter / tipping service, then get him to manage your portfolio through his job at Patterson Securities. Pathetic.
Post by: marty998 on August 23, 2015, 03:28:43 PM
Cue proverbial newspaper articles about blood on the floor and $30billion being wiped off the market etc.
Post by: FFA on August 23, 2015, 07:08:28 PM
depends if you are willing and able to actively invest the global shares. It's a massive list of companies to pick out the shares and continually monitor. I agree diversification has diminishing benefits, but if it's available and cheap, why not take it ? There is a risk you can get hit, even with large "blue chip" type companies, e.g. bp. There can be unexpected events/scandals. So you have to hope you don't get unlucky.There's no correct allocation but 50% VAS and 50% VGS gives some level of franking as well as a lot of diversification. I would hardly call VAS plus a few other companies a fully internationally diversified portfolio.
Yeah, it doesn't compare to the diversification of VAS + VGS, that’s true. But, I'm not convinced with the benefits of diversification once you go past 30 odd holdings anyway, as long as they are balanced geographically and by sector. So 300+ stocks (my example portfolio) vs. 1900+ stocks (VAS+VGS) rests fine with me.
I'm more concerned about whether it’s more accurate to calculate my asset allocation via geographical revenue, rather than by domicile. Each school of thought results in massively different Australian/International share allocations, so if you use domicile to calculate your allocation (assuming geographical revenue is correct) then you could end up with a much smaller percentage of Australian exposure than you planned for. Which means a massive chunk of your funds miss out on the tax efficiency of investing domestically.
re: domicile vs geography. from pragmatic perspective people will use domicile. perhaps when we say 50/50 it already acknowledges globalisation and asx gives you some exposure indirectly. otherwise the suggested split might be more like 25/75 (or closer to Australia's relative market cap). I don't think the tax advantages alone can justify going to 50/50. And if you're worried about the FX you can always invest in international (hedged) funds, so logically that should only explain a small fraction if you allow for some hedging cost.
Post by: bigchrisb on August 23, 2015, 07:39:22 PM
Post by: DrowsyBee on August 23, 2015, 08:09:57 PM
SPI futures down 100 points for this morning's opening.
Cue proverbial newspaper articles about blood on the floor and $30billion being wiped off the market etc.
"The worlds richest lost a combined $250 billion today"
But they'll gain it back because they won't sell any of it, and then in a few years we will be seeing articles "The worlds richest gained $500 billion because of income inequality"
Post by: dungoofed on August 23, 2015, 08:30:20 PM
Just a quick note to say thanks to all! I'll try to stop refreshing that portfolio and I will just stick with the plan. Bloody buyers remorse shouldn't apply to investing.
Hi Shaz - I thought of you when I tuned into the markets this morning. Hope you're holding out, don't do anything rash.
A bit of blood today, and another two toes into the water for me - parcels of VAS and ANZ. Wonder how deep the panic will go?
I've gotta wait a bit before getting in. The way things are looking I'm going to be called next month on a put I sold at the beginning of the month.
On the plus side, I've got a fair chunk of money sitting in yen. I was initially going to repatriate and invest it in a couple of months but Deborah in another thread pointed out that when the ASX dives the AUD also tends to dive so I was keeping it as my "crisis investing stash." Didn't think I'd be looking to deploy it so soon though lol.
Post by: englyn on August 23, 2015, 08:39:56 PM
Post by: FFA on August 23, 2015, 10:01:42 PM
A bit of blood today, and another two toes into the water for me - parcels of VAS and ANZ. Wonder how deep the panic will go?Hard to know... it seems just the timing of the bank capital raisings, against the external uncertainties (china mkt plunging, US long overdue correction, EU ongoing instability in Greece). Maybe the Fed will come to the party yet again and delay/extend their lift off hahaha.
For me personally , i'm still seeing it as a buying opp. I've been underinvested and holding too much cash since early this year (we had a lump sum selling off property when relocating back to Oz), quietly hoping for ASX to fall back to low 5000's but thinking it extremely unlikely. Ironically when it actually happens, you start to question and second-guess. So I keep trying hard to remember back to my original notion that these are good buying levels !!
Post by: Shaz_Au on August 23, 2015, 11:19:25 PM
Can't do much with Australia's bloody slow inter-bank transfers though, anyone would think they are still are still doing these by check or in physical cash or something!
Just a quick note to say thanks to all! I'll try to stop refreshing that portfolio and I will just stick with the plan. Bloody buyers remorse shouldn't apply to investing.
Hi Shaz - I thought of you when I tuned into the markets this morning. Hope you're holding out, don't do anything rash.A bit of blood today, and another two toes into the water for me - parcels of VAS and ANZ. Wonder how deep the panic will go?
I've gotta wait a bit before getting in. The way things are looking I'm going to be called next month on a put I sold at the beginning of the month.
On the plus side, I've got a fair chunk of money sitting in yen. I was initially going to repatriate and invest it in a couple of months but Deborah in another thread pointed out that when the ASX dives the AUD also tends to dive so I was keeping it as my "crisis investing stash." Didn't think I'd be looking to deploy it so soon though lol.
Post by: FFA on August 24, 2015, 12:25:38 AM
Can't do much with Australia's bloody slow inter-bank transfers though, anyone would think they are still are still doing these by check or in physical cash or something!haha I had the same issue today... waiting for money to come across. but still wanted to get something today, so took the opportunity to rebalance my super % (shifting some cash into oz shares and rebalancing international shares too).
Post by: marty998 on August 24, 2015, 01:36:50 AM
Can't do much with Australia's bloody slow inter-bank transfers though, anyone would think they are still are still doing these by check or in physical cash or something!haha I had the same issue today... waiting for money to come across. but still wanted to get something today, so took the opportunity to rebalance my super % (shifting some cash into oz shares and rebalancing international shares too).
Same day transfers between CBA accounts... best of the bunch because it is the only one that has updated its core banking platform from the stone age system the others are running on.
If the index hits 4800 I'm tempted to throw all my super into Oz shares. Currently 5% in cash, 50% in Fixed Interest, 30% in Aus shares and 15% in International shares.
Rebalanced towards Fixed Interest at the right time in July..thought it would be a 6 month play, could turn out to be a 1 month play.
Post by: The Falcon on August 24, 2015, 02:09:44 AM
Post by: BuyInGloom on August 24, 2015, 02:19:21 AM
depends if you are willing and able to actively invest the global shares. It's a massive list of companies to pick out the shares and continually monitor. I agree diversification has diminishing benefits, but if it's available and cheap, why not take it ? There is a risk you can get hit, even with large "blue chip" type companies, e.g. bp. There can be unexpected events/scandals. So you have to hope you don't get unlucky.
Yeah, I don’t think I'm going to go down this path myself. I was just interested in exploring if that was a plausible investment strategy.
re: domicile vs geography. from pragmatic perspective people will use domicile. perhaps when we say 50/50 it already acknowledges globalisation and asx gives you some exposure indirectly. otherwise the suggested split might be more like 25/75 (or closer to Australia's relative market cap). I don't think the tax advantages alone can justify going to 50/50. And if you're worried about the FX you can always invest in international (hedged) funds, so logically that should only explain a small fraction if you allow for some hedging cost.
Interesting. So when people talk about 50/50 Australian/International share allocation being close to an optimal split, they may already be taking into account the massive slice of international exposure on the ASX. It makes a lot more sense to think about it in terms of geographical revenue for me, because then you can easily see how an individual stock effects your Australian/International allocation. If you had a large CSL holding (which gains 90% of revenues from overseas) and fully counted it as part of your Australian allocation, then that would result in a notable disharmony between your perceived allocation and actual allocation of Australian/International shares.
Post by: FFA on August 24, 2015, 05:00:23 AM
Interesting. So when people talk about 50/50 Australian/International share allocation being close to an optimal split, they may already be taking into account the massive slice of international exposure on the ASX. It makes a lot more sense to think about it in terms of geographical revenue for me, because then you can easily see how an individual stock effects your Australian/International allocation. If you had a large CSL holding (which gains 90% of revenues from overseas) and fully counted it as part of your Australian allocation, then that would result in a notable disharmony between your perceived allocation and actual allocation of Australian/International shares.hi Buyingloom (timely name!), not sure about others but when I suggest 50/50 is for a simple approach - two fund index portfolio. For "lazy" investors that want to cover global equities efficiently and easily. I think if you're actively investing in direct shares, then definitely you need to weigh up the individual companies and construct the portfolio accordingly. Agree theoretically geographical revenue and margin drivers are what's important. But pragmatically the index funds are based on domicile so that is what people will tend to use in an applied sense. hope it helps.
Post by: FFA on August 24, 2015, 05:06:48 AM
dumped MPL at 224.5cps and bought VAS at 6412cps at the bell.
I had a plan to dump a handful (or two) of legacy direct holdings and switch into VAS/IOZ... portfolio tidy up exercise. But having second thoughts since many of these blue chips have been hammered so badly. It's tempting just to hang on to most of them, especially the bank and mining shares, until the cycle turns again.
Post by: AustralianMustachio on August 24, 2015, 10:16:02 AM
Interesting. So when people talk about 50/50 Australian/International share allocation being close to an optimal split, they may already be taking into account the massive slice of international exposure on the ASX. It makes a lot more sense to think about it in terms of geographical revenue for me, because then you can easily see how an individual stock effects your Australian/International allocation. If you had a large CSL holding (which gains 90% of revenues from overseas) and fully counted it as part of your Australian allocation, then that would result in a notable disharmony between your perceived allocation and actual allocation of Australian/International shares.
I think that thinking in terms of geography isn't the best way to consider Australian shares / international shares split. With indexing, the approach is to avoid selecting stocks and simply attempting to capture the entire market returns. The Australian market is a very small slice of the entire market, therefore one should give it a smaller weighting vs international. That's the basic premise.
However franking credits, currency exchange, and higher dividend yields on ASX shares all point people to a higher weighting of ASX than the 2-3% market cap. And there's the law of diminishing returns when it comes to diversification. Hence what people say - it's not an exact science, more a personal choice.
The other idea of international investing is being exposed to industries that aren't particularly well developed in the ASX such as IT, technology companies, etc.
Post by: marty998 on August 24, 2015, 03:25:47 PM
The AUD has been absolutely smashed as well. Trading around US$0.71 and GBP 0.45
Oil fell 5% to close around about US$38, Iron Ore under US$47
We'll open somewhere around 4900 then god knows what will happen when Shanghai and Shenzhen open... Chinese Government should just close the markets and re-open in 3 years time.
"When the earnings are stalling
There'll be days like this
When the markets are falling
There'll be days like this
When the brokers are calling
There'll be days like this
Yeah my mamma told me, there'll be days like this"
(With apologies to Van Morrison)
Post by: FFA on August 24, 2015, 03:56:32 PM
on second thoughts, maybe I should be thankful for slow transfers for stopping me invest even more money too early, ha!Can't do much with Australia's bloody slow inter-bank transfers though, anyone would think they are still are still doing these by check or in physical cash or something!haha I had the same issue today... waiting for money to come across. but still wanted to get something today, so took the opportunity to rebalance my super % (shifting some cash into oz shares and rebalancing international shares too).
Post by: dungoofed on August 24, 2015, 04:26:08 PM
I had to laugh at the SMH's timing with their "now might be the time to reconsider gold" article today. Clearly it was written before the last two days' trading.
edit: for those of you who have bought stocks on margin before, usually how long would you expect it to take before investors' margin calls were triggered?
Post by: This_Is_My_Username on August 24, 2015, 06:40:12 PM
I lost 2 and a half month's salary in one day (24 August).
My LVR on my margin loan was 70% a few weeks ago. Now it is 77%, and I'm getting close to a margin call.
Post by: bigchrisb on August 24, 2015, 07:29:25 PM
edit: for those of you who have bought stocks on margin before, usually how long would you expect it to take before investors' margin calls were triggered?
When I was margin called a couple of times in the GFC, it followed the following process:
For my AU broker (ANZ/Etrade in this case)
- I got alerts when my margin loan entered buffer (in my case 5%).
- When I hit margin, I got a call from the broker saying that a margin call had been triggered, after the market close on the day it was triggered. I had to either show evidence of my depositing funds to the account, put through sell orders for the next day, or nominate securities to sell the next day.
- I was told that if I didn't do either of these, that the lender would start liquidating positions on my behalf the next day.
For my Interactive Brokers account
- It was calculated live.
- From what I understood form the T's and C's, they would start liquidating live as soon at it was breached. I never tested this.
However, the magnitude of the current falls is piddly compared to the GFC - one would have to be pretty highly leveraged to be getting margin calls this far in, and I'd expect it to be a minor effect. Drop another 20% and a totally different story!
(I've been chipping in more stock while this has been going on - I still believe that in the long term its a reasonable time to be buying).
Post by: dungoofed on August 24, 2015, 08:00:18 PM
Post by: HowMuchCanAKoalaBear on August 24, 2015, 08:09:50 PM
Post by: FFA on August 24, 2015, 08:17:50 PM
I bought 150 Vas for $66.21 on Friday. Today, Tuesday the market opened 70 points down Vas trading at $62.10 I was tempted to buy more 2 hours later market now up 70 points Vas $64.97!! Got to be quick.yeah, seems like there's some cash coming off the sidelines today....
Post by: The Falcon on August 24, 2015, 09:10:34 PM
"When the earnings are stalling
There'll be days like this
When the markets are falling
There'll be days like this
When the brokers are calling
There'll be days like this
Yeah my mamma told me, there'll be days like this"
(With apologies to Van Morrison)
Very good Marty :)
Post by: BuyInGloom on August 25, 2015, 03:30:18 AM
hi Buyingloom (timely name!), not sure about others but when I suggest 50/50 is for a simple approach - two fund index portfolio. For "lazy" investors that want to cover global equities efficiently and easily. I think if you're actively investing in direct shares, then definitely you need to weigh up the individual companies and construct the portfolio accordingly. Agree theoretically geographical revenue and margin drivers are what's important. But pragmatically the index funds are based on domicile so that is what people will tend to use in an applied sense. hope it helps.
Yes it does! Seeing as I hold a few individual stocks as well as index funds, I plan to calculate the geographical revenue of each of my holdings (including the index funds) to see where my allocation lies. My starting point will be something around 75/25 International/Australian shares as that seems like a nice balance between replicating the actual Australian market cap, while taking advantage of the tax efficiences of investing domestically.
I encourage anyone with individual stocks to consider the implications of using domicile to calculate your Australian/International share allocation as you may find that your desired allocation is quite a ways off from your real world allocation.
I think that thinking in terms of geography isn't the best way to consider Australian shares / international shares split. With indexing, the approach is to avoid selecting stocks and simply attempting to capture the entire market returns. The Australian market is a very small slice of the entire market, therefore one should give it a smaller weighting vs international. That's the basic premise.
Yeah, if you’re purely indexing then looking at the geographic revenue of the the index fund held is an uneccesary complication. However, if you hold some individual stocks then it’s definitely worth taking a look at where they earn their income, as even if the stock is domiciled in Australia it can be earning 90%+ of it’s income from overseas.
Post by: gogo419 on August 25, 2015, 05:51:48 AM
Do any of you own commercial property?
Looking to make an investment into some in the near future and was hoping someone might be able to provide some pointers other than the non obvious things..
Cheers gogo
Post by: marty998 on August 25, 2015, 05:53:54 AM
I know its a bit out of place asking in this area of the forum... But i am wanting my question to be seen by aussies.
Do any of you own commercial property?
Looking to make an investment into some in the near future and was hoping someone might be able to provide some pointers other than the non obvious things..
Cheers gogo
go to www.propertchat.com.au (the new Somersoft)
they'll help.
Post by: marty998 on August 25, 2015, 06:01:15 AM
sorely tempted to restructure my non-deductible property debt into deductible investment debt (place the offset funds into the loan and reborrow)
Take the proceeds ($250k) and dump it into VAS, VEU and VTS. Too bloody paralysed with fear to do it.
Then I ask, if not now then when?
Post by: AustralianMustachio on August 25, 2015, 08:52:32 AM
damn bipolar markets. don't know what the frack they want to do.
sorely tempted to restructure my non-deductible property debt into deductible investment debt (place the offset funds into the loan and reborrow)
Take the proceeds ($250k) and dump it into VAS, VEU and VTS. Too bloody paralysed with fear to do it.
Then I ask, if not now then when?
Can you do it slowly, using a dollar cost averaging approach? Then you don't have to worry if it's the "right time"
Despite what some people say about the downsides of this, I feel like an automated consistent approach is the perfect antidote to all the emotional crap that goes into investing
Post by: FFA on August 25, 2015, 05:28:50 PM
Post by: AustralianMustachio on August 25, 2015, 08:38:41 PM
Yeah ive had the similar thoughts executing in this choppy market. Brought me back to past debates on wholesale funds vs etfs. Think its much easier to pull the trigger when you contribute via bppay and just accept closing prices. Promotes better discipline and adherence to asset allocation. Watching live prices for any extended period is a recipe for disaster/indecision.
This is my exact thoughts and what actually draws me to unlisted funds over ETFs. Save a certain amount each month, and just invest it in the fund via BPAY or and ETF.
And any time you have some more spare cash than usual, just throw it in there and forget about it.
Post by: marty998 on August 26, 2015, 04:14:44 PM
Got my entitlements letter from CBA in the mail yesterday. Get to top up a grand total of 3 shares. haha.
Post by: HowMuchCanAKoalaBear on August 26, 2015, 07:39:35 PM
I've also got some CBA rights you can sell them on market but not worth it for you with brokerage at $20 if you let them lapse they will send you the cash equivalent. Not going to bother with the top up they can send me the cash.
Post by: TJEH on August 26, 2015, 08:40:19 PM
Yeah ive had the similar thoughts executing in this choppy market. Brought me back to past debates on wholesale funds vs etfs. Think its much easier to pull the trigger when you contribute via bppay and just accept closing prices. Promotes better discipline and adherence to asset allocation. Watching live prices for any extended period is a recipe for disaster/indecision.
This is my exact thoughts and what actually draws me to unlisted funds over ETFs. Save a certain amount each month, and just invest it in the fund via BPAY or and ETF.
And any time you have some more spare cash than usual, just throw it in there and forget about it.
I'm renown for procrastination and over analysis, so it would probably be a good solution for me. Having said that, I settled on a plan recently and have been sticking to my guns, purchasing vas, vts and veu this month as per the plan. Discipline can be a good thing, let's see how I go with it as I DCA in over the coming months....
Post by: Grogounet on August 27, 2015, 06:01:38 AM
Post by: AustralianMustachio on August 27, 2015, 10:31:27 PM
http://qz.com/487013/this-game-will-show-you-just-how-foolish-it-is-to-sell-stocks-right-now/
Post by: Sparkie on August 29, 2015, 08:49:26 PM
Post by: Aussiegirl on August 31, 2015, 04:23:02 PM
Post by: Sparkie on August 31, 2015, 05:35:43 PM
Sparkle - what investment platform do you use that you can essentially Dollar cost average into Vanguard using bpay?
Hi Aussiegirl. I use the Commbank app on my phone to Bpay directly into my Vanguard account, which is a wholesale fund. The wholesale funds need $100k to open, and then there's no minimum bpay amount (i think).
I chose wholesale as it is made up of etf's I'd buy anyway, rebalanced for me, which I probably wouldn't do due to being too 'emotional'. I know to buy low and sell high etc, but i was surprised how hard it is to actually do with money in the game. I pay a higher fee for this convenience (0.36%) but its worth it to me.
Post by: dungoofed on August 31, 2015, 06:32:06 PM
Post by: FFA on August 31, 2015, 07:04:31 PM
edit to add : i consider VAS already "high yield" at 5% now and with franking credits on top. of course, more is always desireable so I understand why there's a captive market for VHY, but remember there are no free lunches (it comes at a cost/risk).
Post by: dungoofed on August 31, 2015, 09:43:03 PM
For what it's worth, VHY is down 13% over the last three months. VAS 8%, VSO 12%.
Post by: AusFIRE on September 01, 2015, 03:14:58 AM
I have been following the thread for a while now, thank you for all of your contributions!
Can someone please clarify for me the situation around Australians purchasing individual international shares (mainly US), specifically if there is a way to participate in dividend reinvestment plans. From what I gather all dividends are automatically paid in cash (+/- currency conversion). I am interested in purchasing some specific stocks and letting them compound away for a couple of decades, DRPs would make that much easier. If its all too hard I might just have to stick to indexes!
Many thanks for your responses.
Post by: DrowsyBee on September 01, 2015, 05:33:22 PM
Post by: Rustycage on September 01, 2015, 07:09:23 PM
Hi everyone,
I have been following the thread for a while now, thank you for all of your contributions!
Can someone please clarify for me the situation around Australians purchasing individual international shares (mainly US), specifically if there is a way to participate in dividend reinvestment plans. From what I gather all dividends are automatically paid in cash (+/- currency conversion). I am interested in purchasing some specific stocks and letting them compound away for a couple of decades, DRPs would make that much easier. If its all too hard I might just have to stick to indexes!
Many thanks for your responses.
Forgetting the "specific stocks" part for a second (can't really help there), you could invest in something like Vanguard's VGS (world ex Australia ETF). Has a DRP option, and has most of its exposure in the USA anyway. Would make things a bit easier at tax time also.
Post by: AusFIRE on September 01, 2015, 08:21:37 PM
I intend to have most of my investments in ETFs/Vanguard wholesale, but I was interested in having a few direct holdings (probably consumer staple type companies eg: CL, KO, JNJ etc and maybe some XOM and/or CVX) all of which have long histories of paying dividends and good long term compound growth. I just feel a bit wary of too much exposure to (what I think) are expensive stocks in companies that may not even exist in 20 years time.
I think you are right about VGS, it certainly would be the most time/tax efficient method - I was just hoping that their might be a way to have some direct holdings allowing for automatic reinvestment - it may just be too difficult and not worth it.
Post by: dungoofed on September 01, 2015, 11:05:23 PM
Thanks for the replies, I was expecting a little flak for the individual stock thing in this forum!
I intend to have most of my investments in ETFs/Vanguard wholesale, but I was interested in having a few direct holdings (probably consumer staple type companies eg: CL, KO, JNJ etc and maybe some XOM and/or CVX) all of which have long histories of paying dividends and good long term compound growth. I just feel a bit wary of too much exposure to (what I think) are expensive stocks in companies that may not even exist in 20 years time.
I think you are right about VGS, it certainly would be the most time/tax efficient method - I was just hoping that their might be a way to have some direct holdings allowing for automatic reinvestment - it may just be too difficult and not worth it.
My experience dealing with Blackrock has been so bad that I'm reluctant to suggest it but if you're determined to get US consumer staples then the easiest way is via the Blackrock ETF "IXI." I looked into it for a while but AUDUSD would have to rise to about 0.95 in order for me to see value.
The other option is via LIC GFL (http://www.globalmastersfund.com.au/) who have large exposure to Berkshire Hathaway, who in turn hold several of those companies above.
Note that both of these options incur significant management fees, especially when compared with buying shares directly. But there's a lot less hassle, just purchase via the ASX.
Post by: bigchrisb on September 01, 2015, 11:19:12 PM
Post by: dungoofed on September 02, 2015, 10:10:59 AM
Post by: The Falcon on September 02, 2015, 07:58:51 PM
Hi everyone,
I have been following the thread for a while now, thank you for all of your contributions!
Can someone please clarify for me the situation around Australians purchasing individual international shares (mainly US), specifically if there is a way to participate in dividend reinvestment plans. From what I gather all dividends are automatically paid in cash (+/- currency conversion). I am interested in purchasing some specific stocks and letting them compound away for a couple of decades, DRPs would make that much easier. If its all too hard I might just have to stick to indexes!
Many thanks for your responses.
I've got US direct holdings including JNJ, WMT, CVX, NSRGY, PM, BRKB, MKL to name a few. Will be adding ULVR and perhaps PG in the future too. No DRP available though, just get the cash back. That's ok, as you can just buy additional holdings........more clunky than DRP though that's for sure.
Post by: The Falcon on September 02, 2015, 08:02:30 PM
Yet another option would be just to go completely local. CCL, BGA, GNC would give you a fair cross-section of global income streams from consumer staples. Maybe SHV, TGR, TWE. Also WES and WOW, although these guys are a bit conglomerate-y to call them a pure consumer staples play. And Metcash, the logistics firm operating in this space (if you can get past the CEO compensation, that is).
Geez some woofers in this mix. Much more a stock pickers portfolio with still large Oz bias....certainly not proxy for Unilever, PepsiCo, Coke, Nestle, Philip Morris, Procter and Gamble and Johnson and Johnson for example.
Post by: bigchrisb on September 02, 2015, 09:49:39 PM
I've got US direct holdings including JNJ, WMT, CVX, NSRGY, PM, BRKB, MKL to name a few. Will be adding ULVR and perhaps PG in the future too. No DRP available though, just get the cash back. That's ok, as you can just buy additional holdings........more clunky than DRP though that's for sure.
How do these direct international holdings work tax wise? I assume you have a W8-BEN? Do your dividends get paid into an AU account at the spot rate? I keep meaning to hold some direct US stock, but to date have just used cross listed ETFs or BRK (with no dividend to deal with).
Post by: misterhorsey on September 03, 2015, 12:40:39 AM
Yet another option would be just to go completely local. CCL, BGA, GNC would give you a fair cross-section of global income streams from consumer staples. Maybe SHV, TGR, TWE. Also WES and WOW, although these guys are a bit conglomerate-y to call them a pure consumer staples play. And Metcash, the logistics firm operating in this space (if you can get past the CEO compensation, that is).
Metcash, LOL. I'm down -73.9% on my small holding. Or -56% when you take into account dividends (which are suspended for the forseeable).
I'm hoping in vain for Aldi to buy Metcash but they won't cos they do it cheaper and more efficiently than metcash can it seems.
Metcash and some others was my signal to start the shift fully into indexes!
Post by: MsRichLife on September 03, 2015, 02:30:48 AM
Having lived and lost through the GFC, I know I won't be doing that again so close to FIRE.
Anyone else thinking this way?
Post by: marty998 on September 03, 2015, 03:44:01 AM
One of these days he'll be right.
I'm not happy seeing my numbers go down, and I think they'll go down more as well. However round about December I'll be in a position to buy again, so would be relatively pleased if the ASX hovers around 5000 till then.
FY15 (year ended 30 Sep) reporting for ANZ, WBC and NAB in early November will be an exceptionally enlightening insight into the state of the economy.
We already know that GDP growth has collapsed to just 0.2% and real GDP growth per person is negative. Should show up as as a pick-up in bad debts in the bank results.
Bad consumer spending numbers released today saw the market fall, despite the positive lead from Wall Street.
Post by: Rob_S on September 03, 2015, 05:52:03 AM
FY15 (year ended 30 Sep) reporting for ANZ, WBC and NAB in early November will be an exceptionally enlightening insight into the state of the economy.
We already know that GDP growth has collapsed to just 0.2% and real GDP growth per person is negative. Should show up as as a pick-up in bad debts in the bank results.
But unemployment is still at an OK level yeah? And interest rates remain low. I can't see bad debts hurting bank results yet. I think the beat up on the banks is a bit overdone as they continue to pay good dividends.
Either way I am OK with the banks getting hammered as I am dollar value averaging in during the slump. Looks like a buying opportunity for those accumulating.
Post by: bigchrisb on September 03, 2015, 06:06:15 AM
Post by: FFA on September 03, 2015, 07:50:03 AM
Post by: ynotme on September 03, 2015, 08:24:37 AM
I'm reluctant to buy more VAS as I started buying in 2013 and I haven't seen any capital growth yet. It is tempting to average down but just waiting and seeing at the moment. I have a few individual shares I also have my eye on.
Post by: FFA on September 03, 2015, 08:32:56 AM
Morgan Stanley thinks the ASX is heading for 4200... however thats probably just the calls from perpetual-harbinger-of-doom Gerard Minack getting louder.if it slumps that far and interest rates are still here or lower, then I might be joining bigchris, potm etc in the margin loan club !!
Post by: Sparkie on September 03, 2015, 07:47:05 PM
Morgan Stanley thinks the ASX is heading for 4200...
Personally, i think thats a bit optimistic. Australia's economy is commodity based, and that party's over for now. And we couldn't even get out of that boom with money in the bank. Financial services and swapping houses with each other won't cut it as a replacement.
The rest of the world will decide how low we go. With the huge disconnect between actual economies and their respective indices, I just cant see how QE, zero /negative interest rates etc can sustain the markets. We may have attracted some international money in the past due to China's boom and our commodities, but that'll dry up in the near future.
I'll still DCA in as there's little alternative. But I wouldn't be surprised to see the Asx start with a 3 within the next 18 months, even with a melt up after QE4 and beyond.
Post by: bigchrisb on September 03, 2015, 08:55:06 PM
My personal take is that there is so much money washing around at the moment, and so few places for it to go. Case in point - the Australian super sector now has more funds to manage than the entire AUS market capitalisation!
Certainly agree about a bit of potential gloom around the AUS economy - but isn't that already priced in - major resources have lost 50% of share price, banks 30%. Our currency has collapsed almost 40% against the USD. That would seem to have priced in a pretty severe contraction. My personal view is that there is a bit of a margin of safety in AU stocks at the moment if taking a long term view.
The fall in the AUD means that my international stocks have been doing comparatively well, so I've been topping up the AU stocks in a bit of portfolio balancing.
Post by: Sparkie on September 03, 2015, 09:08:22 PM
We've seen some sector drops as you say, but the index as a whole is not too bad, so i still think there's some panic seling to come if the asx drops some more. I guess we keep plodding, assessing the risks/rewards as we see fit. As long as we all make decisions we can sleep well with at night with, then no harm done.
Post by: FFA on September 03, 2015, 10:09:47 PM
Post by: The Falcon on September 03, 2015, 10:25:22 PM
I've got US direct holdings including JNJ, WMT, CVX, NSRGY, PM, BRKB, MKL to name a few. Will be adding ULVR and perhaps PG in the future too. No DRP available though, just get the cash back. That's ok, as you can just buy additional holdings........more clunky than DRP though that's for sure.
How do these direct international holdings work tax wise? I assume you have a W8-BEN? Do your dividends get paid into an AU account at the spot rate? I keep meaning to hold some direct US stock, but to date have just used cross listed ETFs or BRK (with no dividend to deal with).
Yep, completed W8-BEN. Divis are paid into USD account.
Post by: FFA on September 03, 2015, 10:32:39 PM
- New management can turn it around, deal with Masters fiasco, recover gap with Coles and fend off Aldi/Costco ?
- Or all the above is too much to deal with and it's a Sell ???
Post by: The Falcon on September 03, 2015, 11:00:24 PM
Any views on WOW pls...
- New management can turn it around, deal with Masters fiasco, recover gap with Coles and fend off Aldi/Costco ?
- Or all the above is too much to deal with and it's a Sell ???
I am holding but putting it in the bottom drawer. I think it can be turned but will take a few years.
Post by: bigchrisb on September 03, 2015, 11:08:46 PM
Any views on WOW pls...
- New management can turn it around, deal with Masters fiasco, recover gap with Coles and fend off Aldi/Costco ?
- Or all the above is too much to deal with and it's a Sell ???
I am holding but putting it in the bottom drawer. I think it can be turned but will take a few years.
I'm the same. I've got a holding in WOW. I've ticked the DRP box, and am just letting it sit there. Not expecting anything to happen quickly on its turn around!
Post by: FFA on September 03, 2015, 11:29:14 PM
Coming back to the topic of correction vs crash, I also feel the share market looks just too attractive versus property/cash/FI at the moment (and Int. shares too for that matter, after AUD is back to six year low and ASX has fallen much further than other indices). If it falls another 20-25 %, then even more the case. Of course, if we have GFC II then it's another story. Everything is more dicey nowadays in the event of unexpected crisis since all the levers are already pulled. But personally i'm not going to put my investment plans on hold for this.
The other scenario locally, as has been discussed is property mkt collapse and knock-on effect to ASX. It has been talked for decades but never really happened. A correction though is perhaps to be expected in some of the more frothy cities.
Post by: The Falcon on September 04, 2015, 12:11:19 AM
Post by: bigchrisb on September 04, 2015, 12:30:20 AM
http://www.canberratimes.com.au/business/the-economy/economy-is-neither-wonderful-nor-woeful-20150904-gjezib.html
Post by: FFA on September 04, 2015, 01:31:28 AM
Personally I am currently reducing margin LVR from low 40s to low 30s. I am staying fully invested and will keep buying as cash inflows are received. But, I will be holding LVRs to low 30s with LOC/Credit on hand to quickly take LVR to low 20s if need be.this might be a dumb question from someone who hasn't used margin loans, but wouldn't it be better to maintain or even increase LVR as market level falls ? obviously this is provided you have a solid back-up plan to fund any margin calls if they occur. I think if this proviso is not valid, then one shouldn't really be investing on margin in the first place.
the more the market falls, the investments are increasingly cash flow positive (dividends plus franking >> loan interest less tax deduction), and the potential for long-term capital gain is much greater too. as per my earlier comment, if the market falls to 4,200 even I might seriously look at a margin loan! (not something I thought I'd be doing post FIRE....)
Post by: marty998 on September 04, 2015, 01:44:58 AM
FY15 (year ended 30 Sep) reporting for ANZ, WBC and NAB in early November will be an exceptionally enlightening insight into the state of the economy.
We already know that GDP growth has collapsed to just 0.2% and real GDP growth per person is negative. Should show up as as a pick-up in bad debts in the bank results.
But unemployment is still at an OK level yeah? And interest rates remain low. I can't see bad debts hurting bank results yet. I think the beat up on the banks is a bit overdone as they continue to pay good dividends.
Either way I am OK with the banks getting hammered as I am dollar value averaging in during the slump. Looks like a buying opportunity for those accumulating.
Bad debts show up materially in commercial/business loans first. And when they go bad the banks lose hundreds of millions, not hundred of thousands when the average home loan goes bad (which may have LMI or equity can still be recovered on mortgagee sale)
Any views on WOW pls...
- New management can turn it around, deal with Masters fiasco, recover gap with Coles and fend off Aldi/Costco ?
- Or all the above is too much to deal with and it's a Sell ???
People will always have to eat. And when a recession hits people tend to drink more. So therefore their supermarket and liquor/hotel businesses are likely to keep doing ok, even when the economy goes to shit.
Logic101 (I may or may not be sober right now).
Post by: The Falcon on September 04, 2015, 04:00:32 AM
Personally I am currently reducing margin LVR from low 40s to low 30s. I am staying fully invested and will keep buying as cash inflows are received. But, I will be holding LVRs to low 30s with LOC/Credit on hand to quickly take LVR to low 20s if need be.this might be a dumb question from someone who hasn't used margin loans, but wouldn't it be better to maintain or even increase LVR as market level falls ? obviously this is provided you have a solid back-up plan to fund any margin calls if they occur. I think if this proviso is not valid, then one shouldn't really be investing on margin in the first place.
the more the market falls, the investments are increasingly cash flow positive (dividends plus franking >> loan interest less tax deduction), and the potential for long-term capital gain is much greater too. as per my earlier comment, if the market falls to 4,200 even I might seriously look at a margin loan! (not something I thought I'd be doing post FIRE....)
So what I am doing is injecting cash, so not selling down. I had let LVR creep up in the last year so I'm really just resetting to the portfolio target LVR (33%). This is a multi currency account, so you need to manage currency and collateral value. So, for SANF you are far better managing the margin then it managing you :) I can tell you when playing with large sums that a rising LVR , through collateral devaluation - not through purchasing focuses the mind in a way that can't adequately be explained to virgins. It's easy to think about going hard say from 40% to 75% in a falling market, but geez you would want to be extremely confident that you pick the bottom, or you will blow up your portfolio. So, I'll be holding static LVR (roughly) and dashing in from the sidelines where I see opportunity. Rule 1 ; don't blow yourself up :)
Post by: dungoofed on September 05, 2015, 07:27:38 AM
Any views on WOW pls...
- New management can turn it around, deal with Masters fiasco, recover gap with Coles and fend off Aldi/Costco ?
- Or all the above is too much to deal with and it's a Sell ???
People will always have to eat. And when a recession hits people tend to drink more. So therefore their supermarket and liquor/hotel businesses are likely to keep doing ok, even when the economy goes to shit.
Logic101 (I may or may not be sober right now).
There was a decent writeup in the AFR recently:
http://www.afr.com/business/retail/battered-and-bruised-too-soon-to-buy-woolworths-20150902-gjdm5t
"Analysts say while there is no quick fix, the nation's largest retailer's problems can be mended. But for investors wondering how to time buying Woolworths shares, the wait for a turnaround could be long. While buying in just when the business begins to recover would be any investor's dream, what are the signs to show it's started happening?
Woolworths' long road back will will start by the appointment a new chief executive. The first of many tasks awaiting the new boss will be whether to sell the loss-making Masters home improvement chain and the discount retailer Big W. The pricing of grocery items in the core supermarkets business will also have to be fixed. So will its focus on its customers, with the company admitting this needs attention."
Aldi may only have 10% market share but the bigger picture is that Australian supermarket chains are not immune to overseas competition. Expect more in this space.
I think the price gouging that the duopoly has got away with for the last several decades was still their best strategy, but instead of returning the profits to shareholders they should have been building moats with that money.
At the moment the biggest question marks are over the new CEO and what direction they will take the company. Having said that, even if things get worse I think it's at enough of a discount now to still be called cheap (doubly so if you have some foreign currency you can deploy), though it's definitely a long term play.
Post by: limeandpepper on September 06, 2015, 01:27:44 AM
Post by: The Falcon on September 06, 2015, 02:57:00 AM
Post by: limeandpepper on September 06, 2015, 03:51:50 AM
Post by: bigchrisb on September 06, 2015, 05:26:27 PM
I reckon ANZ is good value at the moment. However, I'm not convinced that the SPP is a good value way to access it - the discount is going to be pretty skinny, if indeed it exists at all (ANZ had been falling over the 5 day pricing period). If I really wanted ANZ, I'd just buy it on market. (maybe I'm just post justifying what I have already done :)
Post by: dungoofed on September 07, 2015, 05:00:29 PM
"Recent events mean smaller investors have the opportunity to rebalance their portfolios."
Sounds good so far.
"Helped by the continuing weakness in the Australian dollar, overseas share holdings, especially in the US market, have outperformed Australian shares and also increased in Australian dollar terms by US dollar currency appreciation."
Ok, so time to take some profits and rebalance into the Australian stock market, right?
"While predicting future currency movements is difficult,"
Yep. Which is why we don't. We leave it to the institutions, who pay for active management.
"the continuing strength of the blah blah blah etc. This is why during the past year, unlike many smaller investors, larger institutions have been reducing their Australian share weightings and increasing their overseas weightings."
So... the market has already moved, the ASX has been sold off by institutional investors in exchange for international stocks?
"smaller investors still have the opportunity to rebalance their portfolios if they wish to reduce their overall risk profile. For many, the changes to be considered include reducing their gearing levels and/or increasing their exposure to overseas assets not necessarily shares."
Hang on. You're suggesting that instead of taking some of the profits from our international holdings and rebalancing into the ASX, we instead rebalance by selling down our ASX holding (at the lowest price it has been in forever), and buy international (at the highest it has been since 2008)? Just like the institutional investors have already done?
------
I don't know about everyone else but if I were doing a periodic rebalance then all signs at the moment are pointing to lower international exposure, higher ASX exposure. Include gold and bonds into the mix and I should be selling off these too in order to buy more of the ASX.
Post by: potm on September 07, 2015, 05:13:36 PM
ANZ share purchase plan offer expiring soon, wondering if I should take it up. Anyone with it? Thoughts?
You have until 5pm today to make a decision so wait to see what it closes at today and compare it to the vwap to see what kind of discount, if any, you are getting.
Now that the Aud has gone below 70c, I'm changing most of my future super contributions to go to the Aus index instead of 50/50.
Post by: TJEH on September 07, 2015, 07:18:34 PM
I was thinking of transferring a set amount each month, much like a DCA approach with buying shares. There is a reasonable chance the AUD is not going to be particularly strong against the GBP for a while (predictions predictions.....)
Post by: dungoofed on September 07, 2015, 08:02:45 PM
Does anyone have thoughts re the approach for transferring a lump sum back to AUD? I've had some funds sitting in a GBP denominated account for far too long, waiting for the fx rate to improve. In waiting (we're talking years rather than months) I've obviously been missing out on potential returns by not having the funds invested here. Emotions getting in the way I suppose, as the fx rate didn't seem "good enough".
I was thinking of transferring a set amount each month, much like a DCA approach with buying shares. There is a reasonable chance the AUD is not going to be particularly strong against the GBP for a while (predictions predictions.....)
For anyone besides FX traders the rule of thumb is "have the money in the currency where it is needed." The need might be consumer spending, investments, etc. Please just repatriate, consult your Investment Policy Statement and invest accordingly. Ozforex have fair retail rates.
Post by: detrimental12 on September 07, 2015, 09:03:49 PM
Does anyone have thoughts re the approach for transferring a lump sum back to AUD? I've had some funds sitting in a GBP denominated account for far too long, waiting for the fx rate to improve. In waiting (we're talking years rather than months) I've obviously been missing out on potential returns by not having the funds invested here. Emotions getting in the way I suppose, as the fx rate didn't seem "good enough".
I was thinking of transferring a set amount each month, much like a DCA approach with buying shares. There is a reasonable chance the AUD is not going to be particularly strong against the GBP for a while (predictions predictions.....)
Yes, I use Ozforex. If you are transferring a decent amount (around $15k or more at a time), CALL THEM and ask for a better rate. Usually you will pay a 1c difference when transferring, much better than the banks 4-5cents.
Post by: TJEH on September 07, 2015, 10:10:54 PM
I notice on their website they say to call for better rates if moving 100k but do you think it's possible with ~15k at a time? Don't ask don't get I suppose.
Hmmm, "have the money in the currency where it is needed", now that is far too sensible! The "need" perhaps hasn't been strong enough, as I haven't had a burning requirement for it. Investing it indeed should be good enough, and now that I have a strategy I should pull the trigger. As for the IPS I did start on it, this is a good reminder to finish it :)
Post by: detrimental12 on September 08, 2015, 02:04:06 AM
I notice on their website they say to call for better rates if moving 100k but do you think it's possible with ~15k at a time? Don't ask don't get I suppose.
Speaking from experience, yes it is! Just asking nicely :)
Post by: limeandpepper on September 08, 2015, 03:59:59 AM
Post by: FFA on September 08, 2015, 10:33:35 AM
Post by: FFA on September 09, 2015, 08:43:43 AM
Quote
Now that the Aud has gone below 70c, I'm changing most of my future super contributions to go to the Aus index instead of 50/50.Potm, just a thought, if its mainly fx driven why not switch to global (hedged) instead? Or are you also seeing better value in asx irrespective of fx
Post by: potm on September 09, 2015, 04:17:19 PM
QuoteNow that the Aud has gone below 70c, I'm changing most of my future super contributions to go to the Aus index instead of 50/50.Potm, just a thought, if its mainly fx driven why not switch to global (hedged) instead? Or are you also seeing better value in asx irrespective of fx
Hedging only protects you against a rising AUD, it doesn't help that you are getting less USD for your AUD right now.
Post by: AustralianMustachio on September 10, 2015, 12:07:02 AM
I was talking to a friend recently who was insisting it does, and I was pretty sure that couldn't be right. (I have a family accountant who has been doing my tax since I started investing a year or so ago)
Post by: banksie_82 on September 10, 2015, 12:55:10 AM
Dividends paid as cash or used for dividend reinvestment plans are treated the same way for tax purposes.
When it comes to CGT, the DRP shares are deemed to have been brought for the entry price that the company publishes at the time.
A small number of companies (QBE for example) offer what called bonus share plan (BSP). This is where you surrender your right to a dividend, and instead the company will give you free shares. So no dividends = no tax to pay. You also surrender your right to the franking credits.
The catch is, for CGT, you are deemed to have brought the shares for $0.00, and therefore the total sale price is a capital gain.
Post by: marty998 on September 10, 2015, 01:49:15 AM
Yes your reasoning is correct on DRP and bonus share plans. Lots of LIC's offer that option.
DRP's can get a bit messy for trusts (like VAS) because of tax deferred components of distributions.
Holding VAS for 10 years with reinvested dividends can result in over 40 individual acquisition parcels. Every time you get paid a distributions you then have to do cost base adjustments to all of them to account for the tax deferred income.
Doing large DRP's on companies that pay unfranked dividends can be problematic because you have to pay the tax on them but you've got no cash because you've reinvested the dividend...
Post by: Jamie_ on September 10, 2015, 03:22:19 AM
Assuming crystal ball is correct and it won't go down any further :P
Post by: radson on September 11, 2015, 07:54:38 PM
http://www.smh.com.au/money/investing/rebound-makes-time-for-a-new-game-20150902-gjdd8z.html
"Recent events mean smaller investors have the opportunity to rebalance their portfolios."
Sounds good so far.
"Helped by the continuing weakness in the Australian dollar, overseas share holdings, especially in the US market, have outperformed Australian shares and also increased in Australian dollar terms by US dollar currency appreciation."
Ok, so time to take some profits and rebalance into the Australian stock market, right?
"While predicting future currency movements is difficult,"
Yep. Which is why we don't. We leave it to the institutions, who pay for active management.
"the continuing strength of the blah blah blah etc. This is why during the past year, unlike many smaller investors, larger institutions have been reducing their Australian share weightings and increasing their overseas weightings."
So... the market has already moved, the ASX has been sold off by institutional investors in exchange for international stocks?
"smaller investors still have the opportunity to rebalance their portfolios if they wish to reduce their overall risk profile. For many, the changes to be considered include reducing their gearing levels and/or increasing their exposure to overseas assets not necessarily shares."
Hang on. You're suggesting that instead of taking some of the profits from our international holdings and rebalancing into the ASX, we instead rebalance by selling down our ASX holding (at the lowest price it has been in forever), and buy international (at the highest it has been since 2008)? Just like the institutional investors have already done?
------
I don't know about everyone else but if I were doing a periodic rebalance then all signs at the moment are pointing to lower international exposure, higher ASX exposure. Include gold and bonds into the mix and I should be selling off these too in order to buy more of the ASX.
I agree, seems crazy to invest fully in International equities now with the slump in the AUD and focus should be on adding AUD denominated holdings while the ASX is hovering around 5000.
Post by: dungoofed on September 11, 2015, 09:17:58 PM
Hi Banksie,
Yes your reasoning is correct on DRP and bonus share plans. Lots of LIC's offer that option.
DRP's can get a bit messy for trusts (like VAS) because of tax deferred components of distributions.
Holding VAS for 10 years with reinvested dividends can result in over 40 individual acquisition parcels. Every time you get paid a distributions you then have to do cost base adjustments to all of them to account for the tax deferred income.
Doing large DRP's on companies that pay unfranked dividends can be problematic because you have to pay the tax on them but you've got no cash because you've reinvested the dividend...
One more product that might be worth comparing is endowment warrants. I haven't tried them myself, first mentioned them here: http://forum.mrmoneymustache.com/investor-alley/australian-investing-thread/msg711255/?topicseen#msg711255
I haven't looked into them beyond what I wrote before, ie it looks to me like it could be a tax-effective way of accumulating dividend-paying stocks.
Post by: FFA on September 13, 2015, 07:39:19 AM
DRP's can get a bit messy for trusts (like VAS) because of tax deferred components of distributions.Marty, is it adequate to do once per year, just pro rate the tax deferred income across all units' cost base ? A bit tedious indeed, but only few minutes job once per year i guess is manageable (Assuming you already maintain a spreadsheet of all your purchases and cost base)
Holding VAS for 10 years with reinvested dividends can result in over 40 individual acquisition parcels. Every time you get paid a distributions you then have to do cost base adjustments to all of them to account for the tax deferred income.
Post by: marty998 on September 13, 2015, 03:24:17 PM
DRP's can get a bit messy for trusts (like VAS) because of tax deferred components of distributions.Marty, is it adequate to do once per year, just pro rate the tax deferred income across all units' cost base ? A bit tedious indeed, but only few minutes job once per year i guess is manageable (Assuming you already maintain a spreadsheet of all your purchases and cost base)
Holding VAS for 10 years with reinvested dividends can result in over 40 individual acquisition parcels. Every time you get paid a distributions you then have to do cost base adjustments to all of them to account for the tax deferred income.
Yeah once a year is what I do, (thought for the ~$100 tax deferred income I got on my VHY this year I found it simpler to just declare it as income).
Last line of yours is the clincher - it assumes your mathematically inclined enough to keep a spreadsheet. Most people are not...
Post by: FFA on September 13, 2015, 05:07:51 PM
Post by: marty998 on September 14, 2015, 06:22:23 AM
Post by: bigchrisb on September 14, 2015, 04:56:37 PM
Without wanting to drag this thread political, I'm pleased we finally have a leader who isn't a missionary relic of old empire, or a criminal union thug.
Post by: marty998 on September 15, 2015, 01:34:34 AM
Oil Search rejected a takeover bid from Woodside. Most news reports sighting lack of synergies and wondering why would Woodside bother, other than trying to be sneaky and opportunistic while a low oil price is dragging down valuations.
Also I reckon the Oil Search Directors and Management are none too keen to give up their cushy positions.
Post by: marty998 on September 15, 2015, 01:40:37 AM
The Instos paid $73.50, so anyone who did not take up their entitlements will be paid $2 per right.
Post by: bigchrisb on September 16, 2015, 10:56:42 PM
I'll use SOL as an example that I hold. Really a closed end investment company, but not really a LIC either. Gets exposure to a number of businesses that are either outside of, or under represented in the index due to cross ownership or liquidity. Examples from holding SOL include:
- TPM
- BKW
- NHC
- Copperchem
- ampcontrol
- Apex
- API
- CLV
- RHL
- TPI
- Plus a whole lot of listed securities
Basically, I see companies like SOL a bit like I see BRK in the states - they have diverse holdings, but often with substantial holdings (and a board seat), or full control. I see these working more like private equity vehicles, but with internal funds management, and providing exposure to a number of companies that I'm not getting through ETFs
I hold BRK-B as part of my international holdings for the same reason.
Anyone else do the same, or have any thoughts?
Post by: The Falcon on September 17, 2015, 01:56:17 AM
Internationally, they have some similarities with the likes of Berkshire Hathaway, Markel Corp , Jardine Matheson Holdings (all of which I hold) and Fairfax Financial Holdings (which i'm watching) to name a few I suppose. All of these businesses have very long term minded management with a very large portion of their family wealth in the business....sort of takes care of the agency risk matter.
Post by: bigchrisb on September 17, 2015, 06:36:31 AM
Post by: detrimental12 on September 19, 2015, 01:50:08 AM
http://www.reddit.com/r/fiaustralia (http://www.reddit.com/r/fiaustralia)
Cheers!
Post by: dungoofed on September 19, 2015, 04:47:41 AM
Post by: The Falcon on September 19, 2015, 03:31:40 PM
Post by: The Falcon on September 19, 2015, 03:41:58 PM
The cloning thing has historically worked well, if following the right kind of investor - ie. ones that buy stocks to hold (ie. very low turnover) it becomes hopeless if following someone who has high turnover as you will never get the timing right as you only know after the fact. In the US the mandatory filing of holdings quarterly (13F) is pretty helpful, but we can get similar from most fundies regular updates....top 10 holdings at least. I guess the big 3 LICs top 20 holdings aren't a bad start for a buy and hold portfolio (as the LICs select these stocks to do just that) but another one I like to get less index correlation and small cap ideas is IML. These guys are one of the few fundies who are very tax aware and have low turnover....and very good performance over the long term. Does anyone else get ideas this way?
Post by: superannuationfreak on September 19, 2015, 09:59:53 PM
Post by: bigchrisb on September 20, 2015, 12:36:42 AM
...
A small number of companies (QBE for example) offer what called bonus share plan (BSP). This is where you surrender your right to a dividend, and instead the company will give you free shares. So no dividends = no tax to pay. You also surrender your right to the franking credits.
The catch is, for CGT, you are deemed to have brought the shares for $0.00, and therefore the total sale price is a capital gain.
I am in the Bonus Share Plan with AFIC. My understanding is that you are deemed to have bought the shares at the same time and for the same price as the base shares that you are receiving the bonus for. So, if you bought 1,000 shares for $5 ea in 2010, and you get 50 allocated as a bonus today when they are trading at $10 each, if you sell you will pay CGT as if you had bought them five years earlier at $5. Makes sense only if your marginal tax rate is currently high and you plan on selling when you can afford the CGT hit.
Tax office advice here:
https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Events-affecting-shareholders/Current-year/Australian-Foundation-Investment-Company-Limited-(AFIC)--bonus-share-plan/
I assume other Bonus Plans work in a similar way.
Maybe double check the link and example? My understanding of the wording is that the initial cost base is now divided across the total number of shares. So each bonus parcel reduced the average cost base. Makes a CGT problem down the track if you intend to sell. I use BSPs with stocks I'm prepared to hold forever, and will eventually start collecting the dividends as opposed to selling down shares.
Post by: dungoofed on September 20, 2015, 01:21:26 AM
I've recently accepted a job within the Superannuation sector. While this is great news, it does mean I have a conflict of interest and am not able to continue writing my blog or posting on specific investment products here. Hope people have found it useful, and I'm sure I'll be lurking around here from time to time.
:(
Well thanks for everything to date and good luck with it!!
btw if you're keen on your writing, keep doing it but don't publish anything. Wait until you are next "between jobs" and upload the lot.
Post by: bigchrisb on September 20, 2015, 05:56:55 PM
One for BigchrisB and others that buy individual stocks as well as ETFs and LICs......does anyone else look through fundies (that you like) portfolio updates for ideas based on their top disclosed holdings?
The cloning thing has historically worked well, if following the right kind of investor - ie. ones that buy stocks to hold (ie. very low turnover) it becomes hopeless if following someone who has high turnover as you will never get the timing right as you only know after the fact. In the US the mandatory filing of holdings quarterly (13F) is pretty helpful, but we can get similar from most fundies regular updates....top 10 holdings at least. I guess the big 3 LICs top 20 holdings aren't a bad start for a buy and hold portfolio (as the LICs select these stocks to do just that) but another one I like to get less index correlation and small cap ideas is IML. These guys are one of the few fundies who are very tax aware and have low turnover....and very good performance over the long term. Does anyone else get ideas this way?
I keep an eye on what the larger LICs are exposed to - mainly because LICs make up a big slice of my asset allocation. I break this down by the holdings and NTA premium/discount, so I can track my underlying holdings, and hence get a feel for my actual asset exposure. I don't try to mirror these holdings in my individual stocks as:
a) I'm already heavily weighted to these stocks through my LIC holdings, and I would prefer to diversify rather than concentrate my exposure
b) I buy LICs heavily when they are at a discount to NTA for this part of my holdings. Why would I try to mirror these stocks in my own name, if I can buy them for 90c in the dollar through a low cost LIC?
Haven't looked at IML - they seem to have had reasonable performance, but at a fairly high cost. I wonder how much of their performance has been driven by their largest single holding, Energy Developments, which has been on a tear the last three years up until takeover. Also be more interested to benchmark them against small cap industrials - they don't have any resources in their top holdings, which has been a good move over the last few years. i.e. how repeatable is the performance, and is it worth 1%p.a.
Post by: The Falcon on September 20, 2015, 09:28:58 PM
I keep an eye on what the larger LICs are exposed to - mainly because LICs make up a big slice of my asset allocation. I break this down by the holdings and NTA premium/discount, so I can track my underlying holdings, and hence get a feel for my actual asset exposure. I don't try to mirror these holdings in my individual stocks as:
a) I'm already heavily weighted to these stocks through my LIC holdings, and I would prefer to diversify rather than concentrate my exposure
b) I buy LICs heavily when they are at a discount to NTA for this part of my holdings. Why would I try to mirror these stocks in my own name, if I can buy them for 90c in the dollar through a low cost LIC?
Haven't looked at IML - they seem to have had reasonable performance, but at a fairly high cost. I wonder how much of their performance has been driven by their largest single holding, Energy Developments, which has been on a tear the last three years up until takeover. Also be more interested to benchmark them against small cap industrials - they don't have any resources in their top holdings, which has been a good move over the last few years. i.e. how repeatable is the performance, and is it worth 1%p.a.
Re your points A/B ; the point here is you are in a position to add the beat up stocks when they, individually are out of favour, while the LICs themselves are holding well above NTA...and I am not advocating mirroring the portfolio weightings either. And as for 10% NTA discounts on LICs you'd want to hold, you may be waiting some time for that opportunity to come around again.
My further point was not around IMLs relative performance, but around idea generation. However, put aside IMLs small cap funds and you will see their large cap fund has also outperformed over the long term , with low turnover historically. This is not about their fee basis as I am not advocating investing in their funds, but about their methodology being one that I like and that if they have run the ruler over it and decided to add something, then I will also take a look at it. Trying to generate some discussion around idea generation here...that's all.
Post by: bigchrisb on September 20, 2015, 11:48:04 PM
I did spend a bit of time in the past following what Allan Grey was doing in the small cap space. For me, I wasn't able to generate a premium from doing so.
Agree that 10% discounts to NTA are uncommon - however 5% discounts are semi-regular - take the data from AFI here http://www.afi.com.au/How-We-Invest/shareprice-NTA-chart.aspx
Post by: marty998 on September 29, 2015, 01:55:06 AM
BHP slaughtered today... not really sure why (except falling in sympathy with all other global miners), my theory is that it's one of the few companies that could cash in and buy up Glencore's assets on the cheap should a fire sale happen.
I don't believe this is going to be a short sharp bear market... thinking it could persist well into next year. There's just no growth in the economy this year.
Post by: dungoofed on September 29, 2015, 02:10:29 AM
Post by: steveo on September 29, 2015, 03:08:43 AM
Ouch (again). Down 187 points today.
BHP slaughtered today... not really sure why (except falling in sympathy with all other global miners), my theory is that it's one of the few companies that could cash in and buy up Glencore's assets on the cheap should a fire sale happen.
I don't believe this is going to be a short sharp bear market... thinking it could persist well into next year. There's just no growth in the economy this year.
I'm starting to increase my investments in the stock market and I honestly hope this happens. I'd like to see 5 years of dud returns. I reckon this is realistic as well.
Post by: ErYan on September 29, 2015, 05:39:05 AM
Fellow Australian seeking knowledge about simple buy and hold investing. Nothing flash, just slow and steady wins the race. Someone told me once if you lose half your investment you need to double it to get even.
Given the current conditions I am wary of dumping all into a combination of VAS VTS and VEU. Someone also told me once to keep your age as a percentage in cash. Is this a valid strategy? The ETF vs index fund argument does my head in. I could try to get the $100k for the wholesale fund but then have little cash reserves.
With a potential storm ahead, I guess I am looking for thoughts that can make it clearer for me about about how to enter this market.
Post by: FFA on September 29, 2015, 03:51:32 PM
Ouch (again). Down 187 points today.
BHP slaughtered today... not really sure why (except falling in sympathy with all other global miners), my theory is that it's one of the few companies that could cash in and buy up Glencore's assets on the cheap should a fire sale happen.
I don't believe this is going to be a short sharp bear market... thinking it could persist well into next year. There's just no growth in the economy this year.
I'm starting to increase my investments in the stock market and I honestly hope this happens. I'd like to see 5 years of dud returns. I reckon this is realistic as well.
had a day in the garden y'day and missed all the action. eyes popped out when I saw the asx chart!
the mood is definitely gloomy. the one key support remains the very attractive yield on offer. buyers still cautious when prices falling fast though....
Post by: marty998 on September 29, 2015, 04:04:07 PM
Ouch (again). Down 187 points today.
BHP slaughtered today... not really sure why (except falling in sympathy with all other global miners), my theory is that it's one of the few companies that could cash in and buy up Glencore's assets on the cheap should a fire sale happen.
I don't believe this is going to be a short sharp bear market... thinking it could persist well into next year. There's just no growth in the economy this year.
I'm starting to increase my investments in the stock market and I honestly hope this happens. I'd like to see 5 years of dud returns. I reckon this is realistic as well.
had a day in the garden y'day and missed all the action. eyes popped out when I saw the asx chart!
the mood is definitely gloomy. the one key support remains the very attractive yield on offer. buyers still cautious when prices falling fast though....
We'll soon enough find out how good that yield is when WBC, ANZ and NAB report their full year results in a month's time. CBA's full year results indicated a softer second half with earnings down 2% half on half. Can expect largely the same from the other 3 majors.
Post by: FFA on September 29, 2015, 04:30:13 PM
yeah you're right Marty, the concern now is not only prices falling, but potential for future dividends to fall too.
We'll soon enough find out how good that yield is when WBC, ANZ and NAB report their full year results in a month's time. CBA's full year results indicated a softer second half with earnings down 2% half on half. Can expect largely the same from the other 3 majors.
still, purely on yield comparisons, the asx at 5% (or 7+ with franking) is just so far ahead versus online savers (3.5%), us shares (<2%). dividends would have to fall a long way for income investors to be worse off. And the outlook for interest rates seems to remain low for some time yet.
Post by: wombat on October 01, 2015, 09:14:21 AM
Post by: marty998 on October 01, 2015, 03:53:16 PM
Buried in the middle of yesterday's Fin Review was a short story about 2 major banks trying to offload Arrium loans for 80c in the dollar.
Could potentially be quite a hit to the bottom line assuming they haven't already been provided for. And this is all before the banks start taking haircuts on all the loans made to LNG and coal sector companies.
APRAs squeeze on investment loans may also hit bank profitability and dividends. If (when?) the RBA lowers interest rates the banks may not be keen to pass that on - after all if their deposit ratios have to adjust to meet APRAs targets then they might look to interest rates to encourage more deposits so they can write more loans.
Yeah I tend to agree... the next cut in interest rates will see OO loans fall but Investor loans won't by as much. It'll almost go back to the situation 20 years ago with the differential pricing in place, just this time it will be same SVR, different discounting.
You might find they will also look at costs. I doubt many more jobs will be offshored.. rather jobs will be disappearing entirely soon enough.
Considering you can already deposit cheques into ATMs, the only transactions people need a bank teller for these days is if they're taking out a home loan or closing all their accounts.
Post by: dungoofed on October 08, 2015, 04:52:21 PM
Post by: bigchrisb on October 08, 2015, 05:20:23 PM
AUD back up, ASX back up. Watch next as analysts/banks revise their forecasts up for each lol
Yep, certainly bipolar! I'm always amazed how much recency bias I end up with in my own emotions about the stock market. Case in point - on the way down, I was saying "VAS at $67? I should buy more, what a bargain!!!". Now on its way back up, I'm thinking "VAS at $67? That's getting expensive, better hoard cash".
All good arguments for trying to take emotion out of investment and just keep to regular buying I suspect.
Post by: dungoofed on October 08, 2015, 05:57:49 PM
I've got one high-conviction speccy that I've been looking to purchase more of for nine months now. I believe it's an 8-bagger at the price I bought it, and I was hoping the market would push it down a little more into 10-bagger territory but now it's back up again.
Post by: FFA on October 08, 2015, 06:07:40 PM
yes I find the same, and largely gave up on market timing for the regular investing approach.AUD back up, ASX back up. Watch next as analysts/banks revise their forecasts up for each lol
Yep, certainly bipolar! I'm always amazed how much recency bias I end up with in my own emotions about the stock market. Case in point - on the way down, I was saying "VAS at $67? I should buy more, what a bargain!!!". Now on its way back up, I'm thinking "VAS at $67? That's getting expensive, better hoard cash".
All good arguments for trying to take emotion out of investment and just keep to regular buying I suspect.
this kind of psychology is similar to the support/resistance concept, i.e. once the 67 support gets broken it becomes a resistance... if you believe in technicals !
looks like the ole sell everything in april and buy it all back again is September would've worked a treat this time !!
Post by: Astatine on October 09, 2015, 02:59:39 AM
Post by: FFA on October 09, 2015, 03:58:03 AM
A n00b question about how often you guys invest? I recently came across the concept of investing too often means complicated CGT calculations in the future (in someone's journal) which I'd kind of thought about but not in any detail.in the past year I've transacted (bought) 65 etf/share parcels. that's more than usual as I've been in transition. But even in a typical year it would be easily 30-40 parcels mainly due to DRP's (dividend reinvestment).
I think I mentioned in the other thread, for me it's not a big deal, just a bit of spreadsheet work. not as time consuming as it might seem and anyway is a labour of love :) .... but marty has a valid point, it's not for everyone.
you can control it. 1) keep a simple portfolio (e.g. two fund VAS/VGS). 2) don't use DRP's do it manually yourself to avoid lots of small parcels. 3) invest less frequently e.g. bimonthly or quarterly. 4) buy and hold forever.
if you are over 100k in size and can get access to wholesale funds, that might be the best option. I expect the fund manager will track it for you and provide a CGT tax statement when you eventually sell. the difference between wholesale and etf MER's is very small (e.g. 0.03% in the case of Vanguard)
Post by: Astatine on October 09, 2015, 04:04:13 AM
A n00b question about how often you guys invest? I recently came across the concept of investing too often means complicated CGT calculations in the future (in someone's journal) which I'd kind of thought about but not in any detail.in the past year I've transacted (bought) 65 etf/share parcels. that's more than usual as I've been in transition. But even in a typical year it would be easily 30-40 parcels mainly due to DRP's (dividend reinvestment).
I think I mentioned in the other thread, for me it's not a big deal, just a bit of spreadsheet work. not as time consuming as it might seem and anyway is a labour of love :) .... but marty has a valid point, it's not for everyone.
you can control it. 1) keep a simple portfolio (e.g. two fund VAS/VGS). 2) don't use DRP's do it manually yourself to avoid lots of small parcels. 3) invest less frequently e.g. bimonthly or quarterly. 4) buy and hold forever.
if you are over 100k in size and can get access to wholesale funds, that might be the best option. I expect the fund manager will track it for you and provide a CGT tax statement when you eventually sell. the difference between wholesale and etf MER's is very small (e.g. 0.03% in the case of Vanguard)
Thank you very much, that's very helpful. I'm at least a year away before I start investing, but I'm someone who takes a long time to digest and internalise knowledge if it's well outside what I know inside and out. Every little nugget I learn is being added to a mental model of how I will invest (need to keep it simple in case DH needs to take over at any point) so that when I start it will all seem relatively straightforward and I'll have some idea of what I don't know.
Post by: qwerty8675309 on October 09, 2015, 04:52:19 AM
A n00b question about how often you guys invest? I recently came across the concept of investing too often means complicated CGT calculations in the future (in someone's journal) which I'd kind of thought about but not in any detail.
About once every 2-3 months when I have 10k saved up. Don't let the CGT calculations prevent you from investing regularly. Just keep track of the cost for parcels. Re-investment of dividends will mean you'll have a ton of parcels to track anyway. Remember you'll also need to track of non-assessable amounts too as they will affect your cost base.
Post by: FFA on October 09, 2015, 05:34:55 AM
Re : the non-assessable / tax deferred income, I think that was Marty's main point in the first place.A n00b question about how often you guys invest? I recently came across the concept of investing too often means complicated CGT calculations in the future (in someone's journal) which I'd kind of thought about but not in any detail.
About once every 2-3 months when I have 10k saved up. Don't let the CGT calculations prevent you from investing regularly. Just keep track of the cost for parcels. Re-investment of dividends will mean you'll have a ton of parcels to track anyway. Remember you'll also need to track of non-assessable amounts too as they will affect your cost base.
All I do is take the tax deferred income from the end of the year ETF tax statement, and apportion to all the parcels on a pro rata basis.
It's really easy if you use a spreadsheet.
Each parcel is a new row. Include columns for number of shares/units, purchase price, purchase cost, brokerage, other costs, tax deferred income 2014/15/16/17/.... Then sum all of these to give the cost base for each parcel.
I agree with qwerty, I would not let CGT calc's drive your investment strategy. Especially if you know some basic spreadsheet skills or have a trusted friend who can help, or a friendly accountant.
As an aside : Personally I think shares are a piece of cake compared to Investment Properties, especially if you ever head overseas and become a tax non resident. I am now having to spend $2k on property valuations for CGT. Thanks a lot, Wayne Swan.
Post by: marty998 on October 09, 2015, 04:58:58 PM
2 trusts and one company stapled together and you had to had to apportion tax deferred income and capital returns between the 3 entities.
But I'm guessing for the non-mathematically inclined/spreadsheet nerds among us it might be more of a hassle...
Post by: marty998 on October 09, 2015, 05:01:19 PM
Big Chris... you would have done well with your BHP purchases earlier. Picking bottoms messy as it is (lols) can be lucrative.
Post by: Minion on October 09, 2015, 06:19:10 PM
I think I mentioned in the other thread, for me it's not a big deal, just a bit of spreadsheet work. not as time consuming as it might seem and anyway is a labour of love :) .... but marty has a valid point, it's not for everyone.
Would love to grab a spreadsheet template if you are willing to share
Post by: Astatine on October 09, 2015, 07:29:42 PM
Oh never a pain point for me :) I was even a good boy with the stapled Macquarie Infrastructure, Office, Airports, whatever trusts...
2 trusts and one company stapled together and you had to had to apportion tax deferred income and capital returns between the 3 entities.
But I'm guessing for the non-mathematically inclined/spreadsheet nerds among us it might be more of a hassle...
I do like a good spreadsheet (I built my own mortgage calculator when I was buying my home coz I wanted to model more scenarios than the online ones allowed for). But tax law confuses the crap out of me so I wouldn't even know what to build. Hence the need for simplicity (DH has no interest in this stuff and it needs to be DH proof). Maths? Easy. Tax? Fucking confusing.
Post by: FFA on October 09, 2015, 10:11:30 PM
I think I mentioned in the other thread, for me it's not a big deal, just a bit of spreadsheet work. not as time consuming as it might seem and anyway is a labour of love :) .... but marty has a valid point, it's not for everyone.
Would love to grab a spreadsheet template if you are willing to share
I would be happy to share except for all the transaction details, not that there's anything top secret but is personal nonetheless. Will try find time to make a clean/template version, but can't promise. At very least I will commit to do a blog post sometime soon describing how I track my financials....
Post by: gwdonnelly on October 12, 2015, 11:53:55 PM
Just starting out, very late in the game!
Post by: terrier56 on October 20, 2015, 01:36:08 AM
great article has so many great reason why you shouldn't try in australia ;)
Post by: steveo on October 20, 2015, 04:17:09 AM
Post by: povertystrickenbastard on October 20, 2015, 01:20:12 PM
Hi everyone. I have a quick question for you. When it comes to super at what salary does it make sense to put extra into super up to the additional 30k per year ?
Anything you earn over 37K will attract income tax of 32.5% plus 2% medicare levy, so it does make sense to salary sacrifice into super and only pay 15% contribution tax. However, you need to take into account your personal circumstances. Personally I think it's not a bad thing to prioritise non-super investments if you're younger.
- First thing you need is a cash emergency fund, or at least access to cheap credit to achieve the same thing
- Do you need to save for a house deposit?
- Super won't help your financial situation until you're at least 60, have you considered investing in stocks/index funds? A reliable dividend stream will start helping your cashflow NOW and will possibly help you retire before 60, or assist you to live in the case of sickness or unemployment.
- You might not even live until 60
- The government might change the rules and not let you get your super until you're 70, 80 or even 100.
My plan is to leave super, while keeping an eye on it in growth funds until I'm in my 50s and have a reasonable expectation that my super will be available soon, hopefully by that point I have built up quite a lot of wealth and will be able to maximise all avenues of topping it up before it becomes available.
Post by: marty998 on October 20, 2015, 01:52:32 PM
Hi everyone. I have a quick question for you. When it comes to super at what salary does it make sense to put extra into super up to the additional 30k per year ?
Anything you earn over 37K will attract income tax of 32.5% plus 2% medicare levy, so it does make sense to salary sacrifice into super and only pay 15% contribution tax. However, you need to take into account your personal circumstances. Personally I think it's not a bad thing to prioritise non-super investments if you're younger.
- First thing you need is a cash emergency fund, or at least access to cheap credit to achieve the same thing
- Do you need to save for a house deposit?
- Super won't help your financial situation until you're at least 60, have you considered investing in stocks/index funds? A reliable dividend stream will start helping your cashflow NOW and will possibly help you retire before 60, or assist you to live in the case of sickness or unemployment.
- You might not even live until 60
- The government might change the rules and not let you get your super until you're 70, 80 or even 100.
My plan is to leave super, while keeping an eye on it in growth funds until I'm in my 50s and have a reasonable expectation that my super will be available soon, hopefully by that point I have built up quite a lot of wealth and will be able to maximise all avenues of topping it up before it becomes available.
I can tolerate paying 34.5%. When I started earning over 80k then I started getting pissed at paying 39%, so began SS to super and now doing $480/fortnight.
I give up $7,633 in after tax cash income per year, but my super goes up by $10,637, for a net tax saving of $3,004.
I don't max out the $30k limit - as mentioned by the previous poster you need a strategy to have enough income outside of super if you want to retire before 60.
Post by: steveo on October 20, 2015, 02:37:53 PM
I intend to have about 50% of my wealth in super and 50% outside of super. My super fund appears low cost and appears to just take an index approach so I figure its pretty safe. I can't see the government raising the super age too much.
Post by: FFA on October 20, 2015, 06:59:15 PM
Post by: DrowsyBee on October 20, 2015, 10:15:41 PM
If I ever earn enough to put me on track to be financially independent earlier than expected, then yeah I'll salary sacrifice the hell out of it
Post by: bigchrisb on October 20, 2015, 11:11:55 PM
I'd probably have a different answer if I were faced with the choice between super or outside super, and couldn't fund both.
Post by: marty998 on October 21, 2015, 07:43:05 PM
Me thinks the oil sheiks have been deliberately driving down the price of oil, smashing the share prices of producers around the globe and hoovering them up in opportunistic takeovers in order to eliminate the competition.
Makes me sound like a tin foil hat nutter but there is so much manipulation and market rigging of shares and commodities that I find it hard to swallow sometimes.
Post by: AustralianMustachio on October 22, 2015, 07:43:48 AM
Makes me sound like a tin foil hat nutter but there is so much manipulation and market rigging of shares and commodities that I find it hard to swallow sometimes.
Lol. The image of someone sitting behind his computer in wearing such a hat gave me a good chuckle.
Post by: radson on October 22, 2015, 06:06:20 PM
Post by: FFA on October 23, 2015, 06:50:21 PM
Takeover bid for Santos today - all cash @ $6.88 - from a group called "Scepter Partners" - supposedly a collection of UHNW families and sovereign wealth funds.the bid price alone - 6.88 - makes me guess there are some Chinese among the UHNW. that's a "lucky" number right there !!
well, share markets seem to be rolling again, and with S&P up further overnight I guess it's a positive lead into next week... So, are we out of the woods now and set for a bullish run into end of year // or there's still more fun and games ahead ????
Post by: FFA on October 25, 2015, 03:58:53 PM
Post by: DrowsyBee on October 27, 2015, 03:54:35 PM
Probably still expensive compared to some online brokers but hey thats a nice little thing that makes me want to invest in some US shares.
Post by: stripey on October 31, 2015, 02:44:14 AM
Post by: This_Is_My_Username on November 01, 2015, 02:34:15 AM
For anyone interested, I just logged on to CommSec and had a notice that International Brokerage has gone down from $69.95 AUD to $19.95 USD.
Probably still expensive compared to some online brokers but hey thats a nice little thing that makes me want to invest in some US shares.
$69.95 AUD and $19.95 USD will be the same price soon !
:p
Post by: Abundant life on November 01, 2015, 10:19:37 AM
What I need to know is how they work for index funds and ETFs? Are you able to take full advantage of them according to your tax bracket, or are they somehow generically included in the total returns?
Post by: Ozstache on November 01, 2015, 02:17:23 PM
Hello fellow Australians, I've been lurking on the forum for a while and have a question re franking credits. (I'm sorry if this has been covered in the preceding 29 pages of this thread!) I'm familiar with them as far as individual share parcels like TLS, CBA etc are concerned.Welcome!
What I need to know is how they work for index funds and ETFs? Are you able to take full advantage of them according to your tax bracket, or are they somehow generically included in the total returns?
Re franking credits and index funds, the credits you get are directly proportional to whatever shares mix, and the associated franking credit each share provides, that the index fund holds. If you want high franking levels for their tax advantages, pick an index fund that invests in shares that mostly provide such franking credits. Some funds managers, such as Vanguard, declare what franking level was achieved in the past in their fact sheets eg. https://static.vgcontent.info/crp/intl/auw/docs/etfs/profiles/VAS_profile.pdf?20151014|094500 (https://static.vgcontent.info/crp/intl/auw/docs/etfs/profiles/VAS_profile.pdf?20151014|094500) (See page 2)
Post by: dungoofed on November 02, 2015, 09:32:15 PM
Post by: DrowsyBee on November 02, 2015, 09:38:04 PM
Post by: Astatine on November 03, 2015, 06:00:18 AM
Mate you've gotta buy some index bets, where you buy a share of the winners of every race over a seven to ten year time frame. I think vanguard offers some.
Hahaha nice.
Post by: WhiteNoise on November 03, 2015, 08:03:30 PM
Just popping on here to say hi - I've made the plunge and signed up to the forums today. I've been lurking the MMM forums for quite some time now, but have only just come across this Australian investing thread. My husband and I have a lot of our portfolio tied up in real-estate (we own a few rental properties) in our hometown. But we are now looking to diversify into other asset classes - I'm interested in learning about managed funds and ETFs and how I can best use them for our situation.
Looking forward to learning from you all!
Post by: Abundant life on November 04, 2015, 03:02:04 AM
Quote
Welcome!
Re franking credits and index funds, the credits you get are directly proportional to whatever shares mix, and the associated franking credit each share provides, that the index fund holds. If you want high franking levels for their tax advantages, pick an index fund that invests in shares that mostly provide such franking credits. Some funds managers, such as Vanguard, declare what franking level was achieved in the past in their fact sheets eg. https://static.vgcontent.info/crp/intl/auw/docs/etfs/profiles/VAS_profile.pdf?20151014|094500 (See page 2)
Thanks for that Ozstache, that makes things clearer. The franking credits are a bonus, especially for those in lower tax brackets.
After reading all MMM and JL Collins posts I can see the logic of index fund/ETF investing. Now I have to understand the differences and decide on which ones! Am I right in assuming that the index funds are useful for building a stache gradually, whereas exchange traded funds are better for a lump sum investment? The structure of Vanguard, being owned by the investors, and its lower fees in the US are appealing, although I gather the fees are not as low here.
I also get Scott Pape's emails and he recommends AFIC and Argo a lot.
Anything else I should consider?
Quote
There'll be more aussies here soon than Americans! Welcome WhiteNoise :)
ozbeach it is great to have a place where aussie's can ask questions pertinent to our situation.
Post by: englyn on November 04, 2015, 08:25:06 PM
Am I right in assuming that the index funds are useful for building a stache gradually, whereas exchange traded funds are better for a lump sum investment? The structure of Vanguard, being owned by the investors, and its lower fees in the US are appealing, although I gather the fees are not as low here.
I also get Scott Pape's emails and he recommends AFIC and Argo a lot.
Scott Pape has some pretty good info. I have some Argo. It's overpriced at the moment though (price > NTA).
I think that ETF or direct investment into Vanguard are much the same. Direct investment you can do by Bpay without brokerage, so it's cheaper if you will be putting in small amounts frequently (<5000 or so). I picked the ETF instead for reasons I couldn't quite remember, maybe the fees were a bit lower? Or I wanted to view all my investments in one place? (Nabtrade)
Post by: dsiee on November 04, 2015, 09:51:19 PM
How is it the same when the expense ratios are so different? The Retail funds are all managed and high fee (minimum of .7% for the first $50k). Is there something i am missing completely?
Post by: cakie on November 05, 2015, 02:36:00 AM
Post by: marty998 on November 05, 2015, 04:28:32 AM
I think that ETF or direct investment into Vanguard are much the same.
How is it the same when the expense ratios are so different? The Retail funds are all managed and high fee (minimum of .7% for the first $50k). Is there something i am missing completely?
The managed funds do all the admin work for you in terms of working out your CGT calcs when you eventually redeem out. You have to do that yourself for the ETF.
Said before it can be tricky if you're not an accounting/spreadsheet geek.
Post by: Minion on November 05, 2015, 03:02:23 PM
Post by: Abundant life on November 05, 2015, 03:31:14 PM
Quote
Scott Pape has some pretty good info. I have some Argo. It's overpriced at the moment though (price > NTA).
I think that ETF or direct investment into Vanguard are much the same. Direct investment you can do by Bpay without brokerage, so it's cheaper if you will be putting in small amounts frequently (<5000 or so). I picked the ETF instead for reasons I couldn't quite remember, maybe the fees were a bit lower? Or I wanted to view all my investments in one place? (Nabtrade)
Englin, thanks for your input. Is there a way of looking up the NTA without sourcing a balance sheet and doing the calculations yourself? Although I would like to buy at bargain prices, does that mean I'm timing the market which delays me jumping in, which is not recommended from my reading?
Post by: stripey on November 05, 2015, 04:47:56 PM
Post by: bigchrisb on November 05, 2015, 05:28:51 PM
There is also some useful info on expense ratios, and some information on REITS too.
Post by: englyn on November 05, 2015, 09:21:53 PM
The managed funds do all the admin work for you in terms of working out your CGT calcs when you eventually redeem out. You have to do that yourself for the ETF.
Said before it can be tricky if you're not an accounting/spreadsheet geek.
Erk, that isn't something I'd considered. I assumed that since I'd be buying and selling a share of the Vanguard ETF, only the cgt on the share price I actually paid would be relevant. If I'm incorrect, can you point me at a resource that explains what I need to do? (I am a spreadsheet geek, so it doesn't need to spell it out in great detail.)
Post by: FFA on November 06, 2015, 01:51:09 AM
it's all in here from the prime source..... you have 1) cgt event when you eventually sell the etf, and 2) cgt's distributed to you each year by the fund. regarding 1), you need to adjust your cost base for any tax deferred amounts received in the annual distributions. pls refer chapter C2 in the link document
Post by: marty998 on November 06, 2015, 01:56:45 AM
Each year you get an annual tax statement detailing the components of your distributions throughout the year. Along with franking credits, capital gains, foreign income etc, a small amount is called "tax-deferred" which is is not included in your return. Instead it is deducted from the cost base of your investment*, and thus increases your capital gain when it comes time to sell.
If you reinvest your dividends, you need to keep track of the cost base of each parcel, so you need to keep track of the tax deferred income and allocate it to each parcel.
If you hold VAS for 20 years and reinvest the dividends quarterly and add to the investment with purchases 4 times a year then you end up with 160 parcels with a whole bunch of tax deferred cost base deductions to keep track of.
That's where it gets tricky.
* Only happens if you hold it long enough, but tax deferred income cannot reduce your cost base below zero. Once it hits zero then any further tax deferred income is included in your tax return as a capital gain.
**Edit again ... thanks FFA for that link.
Post by: cakie on November 06, 2015, 04:30:16 AM
Has anyone put any money into P2P lending? We're considering making RateSetter a small part of our bond/cash allocation. At the moment, I'm aiming for 80% stocks, 20% VAF. Currently have $16k invested + $20k EF.
I'm thinking we might change the 20% VAF to 15% VAF, with 5% in 5-year loans with RateSetter...
Post by: steveo on November 07, 2015, 03:29:04 PM
A couple of points:-
1. I reckon that shares are overvalued at the moment so I definitely want to have some money on the sideline.
2. The return of VAF is about 5% at this point. If rates increase how much will VAF go down or does it simply return around 5% ongoing.
3. I'm thinking of going for about a 50/50 asset allocation and if shares drop purchasing more shares.
Let me know your thoughts/advice.
Post by: FFA on November 08, 2015, 04:43:04 AM
Hi guys - who here has an idea regarding bonds and specifically bonds within an Australian portfolio. The house will be paid off soon and I am looking to invest in probably VAF & VAS for my portfolio outside of super.I thought a lot about bonds a year ago as I was planning to FIRE and felt somehow obliged hold a decent allocation in bonds....
A couple of points:-
1. I reckon that shares are overvalued at the moment so I definitely want to have some money on the sideline.
2. The return of VAF is about 5% at this point. If rates increase how much will VAF go down or does it simply return around 5% ongoing.
3. I'm thinking of going for about a 50/50 asset allocation and if shares drop purchasing more shares.
Let me know your thoughts/advice.
Where I ended up though, I hold the vast majority of my defensive assets in online savings accounts. Average yield 3.5% is less than what you mention for VAF, so maybe it's not such a smart move. But my thinking was 1) I want my defensive assets to be capital secure, 2) global monetary policy is still in the middle of an extreme central bank experimental episode and no one really knows how it will end yet, 3) similar to your view on shares, I feel bonds are overvalued nowadays (due to central bank buying/QE), 4) online savers are quite flexible and I can switch it around (e.g. if tax marginal rates change between me/spouse), 5) I was concerned the traditional inverse correlation between shares and bonds may not work this time (now low interest rates are driving shares up, and eventual interest rate hikes could cause both share and bond prices to fall together).
The Buffett quote resonated heaviliy with me, i.e. the one about bonds are supposed to give risk free returns, not return free risk.....
I made a note in my plans to re-assess it each year and see if the interest rate environment (central bank policy) normalises, then I will shift some cash into fixed interest.
Regarding your q2, I think the current 5% is certainly boosted by the falling interest rate environment. i.e. the bond yields are lower, but it is boosted by capital appreciation. If and when rates eventually rise, there will be a capital depreciation effect, that will offset the increase in rates. I have seen a rule of thumb e.g. for a 10 year bond, a 1% increase in rates leads to X% fall in bond price. Can't recall it though and it's hard to say what should be applied to VAF, those will likely by shorter tenure bonds.
edit/add : on the growth side, i'd certainly suggest some global shares to go with your VAS. I think we've had this discussion before, and recall your view that it's all correlated, but maybe the past 12 months is a good example of where global shares can come in handy to stabilise returns. of course, you could look at it the other way too, if ASX yields and franking credits were too attractive 12 months ago, that will be even more the case now !!
Post by: dungoofed on November 08, 2015, 03:41:24 PM
1) systematic bond funds (eg VAF, VGB) tend to revert to mean over time. It is a result of the process of near-dated bonds expiring, and the principal being reinvested into similar bonds but at today's rates. The difference is purely due to speculators' view on which way rates are headed, but if you never sell then the fund can be expected to revert to the mean eventually.
2) If you're using the bonds as "dry powder" then I'd consider having some of the money in cash a la FFA's online savings accounts, and I'd also consider holding some longer-dated bonds. And maybe some gold, too.
The reason for the cash is broadly "diversity" but also because in times when money is tight (eg start of a recession) there are cases where both stocks and bonds are down as people cash out and hunker down for the storm. It's usually just a small window, if it exists at all, but at 3.5% it's not too different to VAF, is insured by the government, very low counterparty risk, etc.
The reason for some long-dated bonds would be to take advantage of a falling-rates environment. If you believe that rates are only going to increase from here then it might not be a great investment. But if you think in Australia rates could go to zero or below then something like GSBK39 from http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND could be a good investment. You'll receive 3.25% guaranteed (almost) for the next 24 years. If rates drop then people will be willing to pay you handsomely to take that guaranteed 3.25% off your hands. Just putting the option out there. Dry powder can take many forms : )
Post by: FFF on November 08, 2015, 08:05:15 PM
Has anyone put any money into P2P lending? We're considering making RateSetter a small part of our bond/cash allocation. At the moment, I'm aiming for 80% stocks, 20% VAF. Currently have $16k invested + $20k EF.
Hi all, been reading on here for a fair while now but not a great poster. Fairly new into the investing game but have been following the MMM lifestyle for a long time, just without knowing it!
Cakie, I have been experimenting with some money in Ratesetter recently-since about August this year. Only small amounts while I get to learn the platform and fully understand the risks but with a view to hold some money in there long term. My personal view is that only the 5 year loans are worth it to me-I figure I can get a completely risk-free ~6% return (including tax implications) on my mortgage so to take on the extra risk the % returns have to be a bit higher, i.e. the ~9% returns of 5 year loans. So far, I have been impressed and am slowly increasing my money held in Ratesetter, mainly because this then diversifies me against the loans I make-the more smaller loans with more borrowers should in theory decrease the risk of default and loss of capital. Obviously, I am not going to be putting all my money in RS but for now it is a fun and interesting experiment.
If you are interested, send me a message and I can give you a link-we both earn $25 if you invest $1000. 2.5% instant return is better than nothing in my opinion.
Post by: steveo on November 09, 2015, 12:44:07 AM
Post by: chasingthegoodlife on November 11, 2015, 03:54:49 AM
Still really enjoying this thread. Thanks so much to everyone for sharing their knowledge.
My plan currently is to choose and purchase a global ETF then continue buying both VAS and global shares as funds allow. Don't want to get caught up in the headlines and short term movements as I am buying for a 20 year+ horizon.
Post by: Geta on November 11, 2015, 04:45:05 PM
Rather than buying a PPOR in Melbourne and continuing to work towards our magic number, we plan to hit a lower number - $1.5 million - and mix in a continued modest income from various sources, as we take our lives on the road and travel long term.
Our investments are currently at nil, as I'm waiting to finalise what my deferred tax bill from my business is and get up to date on that. I expect we'll have 30-40k left over to invest right away. From then on - all going to plan - our target is to save and invest 100k a year, which we're on track to do so far.
I also have a lump sum coming from an inheritance, which should be late this year or early next year. I'm unsure of the figure but it's likely to be around 500-700k.
Based on these figures, we should reach our goal in around five years though we hope to find additional ways to increase our savings in the meantime.
All this leads me to my point: In a few weeks I should have 30-40k to invest, then within a few months, a much larger amount. I find this somewhat terrifying - not investing, but having such a large amount to invest in one hit. I want to get it 'right'.
In my past research, I'd come to favour a mix of Vanguard funds, with a bit of cash/bonds. How should my plans to travel full time (plan is to do it perpetually, but who really knows?) affect my spread. I'd imagine I'd want a far greater exposure to markets outside of Aus? What about funds like VTS/VEU which are US domiciled? Would they be better than funds that are similar but are domiciled in Australia in this case? What is the go with Wholesale Funds - should I look at those, particularly to invest the larger lump sum?
The overwhelming consensus around these parts, and other similar circles is for ETFs / LICs and similar products but I know my Dad is currently investing with someone who is doing covered call options. He raves about his returns, and says it's safe. I'm very skeptical though I've seen his figures and he has done very well over the last couple of years. However, if it was a good long term strategy I'm sure I'd be reading about it on more forums like this one. Does anyone have any comments on this?
I'd appreciate any insights from the like minded crowd here. I fully intend to seek professional advice also, but my only experience with a financial planner in the past was poor, and my parents had a very bad experience in the past also, so I would like to go in prepared.
Which brings me to my last question: Could anyone recommend a good financial planner or accountant well versed in this sort of thing, in Melbourne?
Thanks very much.
Geta
Post by: TJEH on November 11, 2015, 07:08:51 PM
Post by: dungoofed on November 11, 2015, 07:11:23 PM
Quick question before we start: when you are traveling, of which country will you be a resident? Not that I have any advice directly related to this, but it's something you might want to think about, as it affects how you and your investments are taxed, and there might be better (offshore) vehicles available to you.
Regarding selling covered calls/cash-covered puts, I started doing it a couple of months ago. It's "safe" so far as if you stick to the rules and make no mistakes you won't "blow yourself up." I aim for about 15% annualised returns but keep in mind you won't be invested for the full year so it ends up being conservatively about 11%. What's nice about it is that you receive money now which you can reinvest (eg in bonds), and this really ramps up when you have about $200K to dedicate to the strategy. The downside is that there is a fair bit of work involved, more than just buy-and-hold.
Regarding investing a lump sum, the adage goes that the best time to invest it was yesterday. The second best time is today. The maths backs this up. Having said that, a lot of people split it into two and DCA it. Another option is to buy a large chunk in bonds and use the interest payments to DCA into stocks up to your target allocation, but again the math shows that this is not ideal. Regardless, your 30K is going to look small compared to the inheritance when it comes time to invest that, so you might as well use the 30K as a chance to get used to being in the market.
VTS/VEU is one option, another common one is VGS/VAS (with optional VGE).
Post by: Geta on November 11, 2015, 10:59:34 PM
I actually have no idea about residency. I guess I just figured we would be Australian residents who happened to be travelling long term, but I do have UK dual citizenship so I suppose that deserves some investigation to see whether an advantage could be gained in some way from that.
I just did some more reading on covered calls, and I believe I understand the principle of it. I guess my skepticism arose from the fact I don't recall reading much or any about them from within FIRE circles, and when my dad was talking about it so enthusiastically my natural cynicism came to the fore! I'll have a talk to him about it again when he's back from his own travels, and I might have a chat with the adviser he's using and look at putting some of my portfolio into that.
Ah DCA. I've read the maths on that, and heard the quote before. I think I'll jump headfirst into the pool when the time comes, and resolve to ignore any paper losses from blips along the way.
VTS/VEU/VGS/VAS/VGE.... it makes my head swim. Am I right in thinking that I would want a larger exposure to international markets than if I were living and spending in Australia?
I guess I should seek some professional advice on whether US or Aus based funds would be a better fit.
Post by: cakie on November 11, 2015, 11:24:15 PM
Has anyone put any money into P2P lending? We're considering making RateSetter a small part of our bond/cash allocation. At the moment, I'm aiming for 80% stocks, 20% VAF. Currently have $16k invested + $20k EF.
Hi all, been reading on here for a fair while now but not a great poster. Fairly new into the investing game but have been following the MMM lifestyle for a long time, just without knowing it!
Cakie, I have been experimenting with some money in Ratesetter recently-since about August this year. Only small amounts while I get to learn the platform and fully understand the risks but with a view to hold some money in there long term. My personal view is that only the 5 year loans are worth it to me-I figure I can get a completely risk-free ~6% return (including tax implications) on my mortgage so to take on the extra risk the % returns have to be a bit higher, i.e. the ~9% returns of 5 year loans. So far, I have been impressed and am slowly increasing my money held in Ratesetter, mainly because this then diversifies me against the loans I make-the more smaller loans with more borrowers should in theory decrease the risk of default and loss of capital. Obviously, I am not going to be putting all my money in RS but for now it is a fun and interesting experiment.
If you are interested, send me a message and I can give you a link-we both earn $25 if you invest $1000. 2.5% instant return is better than nothing in my opinion.
Thanks for replying FFF! I'm a bit of a lurker on here too :P
If I had known about the referral bonus before I would have done that! Whoops, got impatient last weekend and signed up. Only just transferred money across today. I'm doing a lump sum $1k invest, but think from now on I will put it in small amounts on the market. That way it won't all be going to the same borrower. I like that I can go for a slightly lower interest rate (~9.6%) and it will get taken up straight away, rather than have the money sitting around in the holding account... though if everyone does that, it will push the rates down I suppose!
Post by: FFA on November 12, 2015, 03:34:46 AM
Hi dungoofed, thanks for the replyAgree with dungoofed, I suggest you look into the residency on ATO website (or call them), and/or ask your accountant if you have one. By residency I mean whether you are resident or non-resident of Australia for tax purposes. As you mention the intention is to travel long term / perpetually, depending on what actions you take aligned with this (e.g. de-register electoral roll, cancel all memberships, insurances, sell property, close bank accounts, etc) it might also influence the residency determination. Tax resident status might affect a lot of things ; it's best to clarify this first.
I actually have no idea about residency. I guess I just figured we would be Australian residents who happened to be travelling long term, but I do have UK dual citizenship so I suppose that deserves some investigation to see whether an advantage could be gained in some way from that.
I just did some more reading on covered calls, and I believe I understand the principle of it. I guess my skepticism arose from the fact I don't recall reading much or any about them from within FIRE circles, and when my dad was talking about it so enthusiastically my natural cynicism came to the fore! I'll have a talk to him about it again when he's back from his own travels, and I might have a chat with the adviser he's using and look at putting some of my portfolio into that.
Ah DCA. I've read the maths on that, and heard the quote before. I think I'll jump headfirst into the pool when the time comes, and resolve to ignore any paper losses from blips along the way.
VTS/VEU/VGS/VAS/VGE.... it makes my head swim. Am I right in thinking that I would want a larger exposure to international markets than if I were living and spending in Australia?
I guess I should seek some professional advice on whether US or Aus based funds would be a better fit.
I think you are right as a citizen of the world your home bias to Australia should certainly be less. Just from a FX perspective, and also perhaps not getting as much tax benefit from Australian shares as you might being here, I'd suggest you want significantly higher weighting to global shares than the 50/50 default (or even higher Aus%'s adopted by many here). However, if you still consider Australia as an anchor point / potential place to retire and settle back one day, then you may not want to stray too far from the 50/50 in that case...
Covered calls. It's a legitimate income strategy but not for me personally. If you do go ahead i'd recommend that you really understand fully - how the options work (in detail including contract wordings, pricing equations, etc), all the costs involved, liquidity issues if any, what you are giving up in order to gain (e.g. capital growth upside). As they say.... no free lunches.
Lump sums, while the theoretical view is all in today, I personally favour DCA as the base case. I had a lump back in April and was not keen at all buying shares at those levels. However I abandoned my 18 month DCA program and have been throwing it in the past three months ... Many will frown on this as market timing / luck, but what can I say except that i'm glad I did ! I certainly would be kicking myself if I had followed the adage over my intuition and invested the lump in April.
Post by: FFA on November 12, 2015, 02:38:52 PM
and then there were two .... life about to get harder for stockspot ?
interesting they will use a fixed/flat fee model, and not tie it to macq platforms. sounds good but let's see how big that flat fee is...
Post by: marty998 on November 13, 2015, 03:53:51 AM
All the big banks are experimenting with it, but Macquarie seems to be the first to lay the cards on the table and 'disrupt' the market.
The beauty of it is the sheer volume it opens up for an incredibly cheap price:
- It is not limited by a restriction on the number of clients it can service.
- It doesn't require daily 'feed' of commissions and kickbacks like a human adviser.
- The algorithms pick the best fund/s for your circumstances, not simply the funds that are aligned to the parent Bank entity.
- You wouldn't have to pay an ongoing advice fee or an asset based % fee, and you're not locked in for the long haul by having to move all your assets to them.
The rest of the industry is going to have to play catch up on this one, or risk being left in the dark ages.
Post by: steveo on November 13, 2015, 04:00:41 AM
The rest of the industry is going to have to play catch up on this one, or risk being left in the dark ages.
I'm not sure about this. I can't see myself paying for the service and I wonder if people with a lot of money will bother.
Post by: dungoofed on November 13, 2015, 04:39:34 AM
Just off the top of my head:
1) Stockspot/Macquarie Bank roboadviser advises you to the point of trade, at which point you're on your own (including $10-15 trading fee), vs Betterment/Weathfront which are run more similar to a fund where you just transfer the money across and they take care of the rest, sans fees.
2) With the fees you're not going to want to be rebalancing on a balance less than $20K. Compare that with Betterment/Wealthfront who run efficiently with small balance accounts.
3) No fractional shares.
4) Complete "you're on your own" attitude toward taxation issues.
So far I have seen nothing "robo" in Australia that I couldn't whip up in Excel in a weekend. Furthermore it's not like the Australian ETF market is actually hard to navigate. Finally, Stockspot give you (or used to give you) their entire allocations on their website. From memory their main difference between risk profiles was the amount of exposure to VAS they suggested.
Post by: FFA on November 13, 2015, 05:14:25 AM
On a separate point, i wonder when someone - hope vanguard read this :) - will make an ASX all world etf. Just a fund of funds 50% vas, 45 vgs, 5 vge will do nicely. Would make my life easier and im sure some others would use it too. Any idea why this isn't there already, or am i missing something?
Post by: FFF on November 13, 2015, 08:38:54 PM
Thanks for replying FFF! I'm a bit of a lurker on here too :P
If I had known about the referral bonus before I would have done that! Whoops, got impatient last weekend and signed up. Only just transferred money across today. I'm doing a lump sum $1k invest, but think from now on I will put it in small amounts on the market. That way it won't all be going to the same borrower. I like that I can go for a slightly lower interest rate (~9.6%) and it will get taken up straight away, rather than have the money sitting around in the holding account... though if everyone does that, it will push the rates down I suppose!
No problem, you're welcome!
With regards the lump sum invest that you have done-don't forget that each month that you reinvest the capital and principal payment you are further diversifying yourself as it is a fair assumption that this will be going to a new borrower each time. So even if you don't put any further investment in there the risk should decrease over time. The way I see it is that the longer I am invested in it the more diversified across different borrowers I become. Of course it helps that RS has not seen a single default in their first year of lending through ~900 borrowers. This cannot last, I am sure, but it certainly helps boost the provision fund in the meantime.
Post by: marty998 on November 15, 2015, 06:15:28 PM
Since July my asset allocation in my super investments has been 55% to fixed interest and cash, 30% to Aus equities and 15% to international shares.
Today I switched it to 80% Aus equities, 10% Aus Fixed Interest and 10% International Fixed Interest.
I figure that anytime the index is below 5000 seems like an opportunistic time to buy. Could it go to 4500? Maybe, but it could just as easily snap back to 5500. I mean when you've got BHP trading at pre-mining boom levels and ANZ on a forward P/E of 9 then you would have to think the market would wake up and smell the roses one day.
I still expect BHP to fall further, but the banks are already 25% or more off their highs. Their profits may stagnate for a few years however I'm prepared to be patient and collect the dividends in the meantime.
Post by: FFA on November 15, 2015, 09:09:02 PM
Post by: dungoofed on November 16, 2015, 12:09:32 AM
Post by: marty998 on November 17, 2015, 03:29:10 PM
International equities - the currency has done its run. I can't see it falling much further. Any good performance in international equities is likely to be offset by a steadily rising $A as (IMHO) it heads back towards 75-78c.
I've really subbed international equities for Australian equities. Largely because the tax impact of international shares detracts from performance whereas tax (franking credits) is a net benefit to performance of Australian shares and (IMHO) I believe a good proportion of the returns for the next year will come from dividends, with capital gains being a bonus. If the index goes back up to 5500 - then you will see almost a 17% return being 10% capital, 5% dividends + 2% franking credits. Not hard to see that happening.
Sector allocation of international bonds reduced from 25% to 10%, and Australian bonds from 25% to 10%, and cash from 5% to nil. It doesn't really make sense for a 29 year old to have 55% weighting to conservative asset classes, except where you believe the markets will fall (as I saw happening in July with China shares burning).
Post by: dungoofed on November 17, 2015, 05:11:28 PM
Thanks for giving us a bit of insight into your thinking. I agree, and didn't realise you were sitting on so much dry powder. I just did my annual rebalance and fortunately VGS's bull run meant I didn't have to buy much more at these prices.
I don't really have any high-conviction ideas at the moment, just letting the portfolio do its thing while I work on a couple of projects. If you forced my hand and asked me for stock picks I'd say CAJ, IAG and BHP are worth a look. (disclosure: I'm currently selling covered calls on BHP because one of the put options I sold got exercised. The other two I haven't got further than a couple of annual statements).
IMHO bonds are the riskiest play at the moment - the discount to par value isn't enough cover the risk, and let's face it NO-ONE knows what rates are going to do. Insty responses to "chance of a US rate rise within the next three months?" swing from 30% to 70% on an almost daily basis. Seriously, no-one has a clue.
Post by: AustralianMustachio on November 17, 2015, 10:08:26 PM
Jokes aside, I very much agree with your logic. Personally I did something somewhat similar with my own (relatively small at this stage) holdings outside of super.
Post by: marty998 on November 17, 2015, 10:37:43 PM
Wish there was a Like button. I want to say "ok got it, no real concerns" but don't think it warrants a full "reply" like this. Now that I'm typing,...
Thanks for giving us a bit of insight into your thinking. I agree, and didn't realise you were sitting on so much dry powder. I just did my annual rebalance and fortunately VGS's bull run meant I didn't have to buy much more at these prices.
I don't really have any high-conviction ideas at the moment, just letting the portfolio do its thing while I work on a couple of projects. If you forced my hand and asked me for stock picks I'd say CAJ, IAG and BHP are worth a look. (disclosure: I'm currently selling covered calls on BHP because one of the put options I sold got exercised. The other two I haven't got further than a couple of annual statements).
IMHO bonds are the riskiest play at the moment - the discount to par value isn't enough cover the risk, and let's face it NO-ONE knows what rates are going to do. Insty responses to "chance of a US rate rise within the next three months?" swing from 30% to 70% on an almost daily basis. Seriously, no-one has a clue.
Yes agree bonds are the riskiest play. However I'm of the view that when the Fed does hike rates it will be a net positive for markets. They should have done it earlier this and taken everyone by surprise. Now the market is just on tenterhooks and every month that they don't raise it makes the market think there's something wrong with US economy.
haha woo go marty! Love it. And quite a ballsy move.
Jokes aside, I very much agree with your logic. Personally I did something somewhat similar with my own (relatively small at this stage) holdings outside of super.
Doing it outside of super triggers tax consequences :) much harder to deal with. Within super (unless you have an SMSF) your assets are pooled with everyone else so switching doesn't trigger anything - unless your holdings are a large % of the fund.
Post by: steveo on November 18, 2015, 12:52:57 AM
Post by: AustralianMustachio on November 18, 2015, 06:38:40 AM
haha woo go marty! Love it. And quite a ballsy move.
Jokes aside, I very much agree with your logic. Personally I did something somewhat similar with my own (relatively small at this stage) holdings outside of super.
Doing it outside of super triggers tax consequences :) much harder to deal with. Within super (unless you have an SMSF) your assets are pooled with everyone else so switching doesn't trigger anything - unless your holdings are a large % of the fund.
True, and a good point. My strategy was a bit different anyway, but similar in that I'm now more exposed to Aus shares than before. And regardless, the returns to this point alone have been very much worth it (albeit certainly not the "mustachian" way)
Post by: aych on November 18, 2015, 04:38:35 PM
Looking at the Vanguard Australia site, it seems you would need $500,000 minimum?
https://www.vanguardinvestments.com.au/retail/ret/investments/managed-funds-wholesale.jsp
Post by: bigchrisb on November 18, 2015, 04:53:31 PM
I've also been focusing on buying Australian equities - partly because my international equities have outperformed and I've needed to rebalance, and partly because I agree with the exchange rate gains already being pretty much priced in.
Post by: marty998 on November 18, 2015, 05:11:06 PM
Been trying to figure out where people are getting the $100,000 minimum to open a Vanguard wholesale fund from.
Looking at the Vanguard Australia site, it seems you would need $500,000 minimum?
https://www.vanguardinvestments.com.au/retail/ret/investments/managed-funds-wholesale.jsp
We don't have that much (well, most of us don't anyway). Many here buy the ETFs through discount brokers.
Post by: marty998 on November 18, 2015, 05:18:30 PM
I reckon you are on the right horse here Marty (although I've been pretty much all-in while things have been in the 4900-5200 range).
I've also been focusing on buying Australian equities - partly because my international equities have outperformed and I've needed to rebalance, and partly because I agree with the exchange rate gains already being pretty much priced in.
Well 3 days does not a strategy make, but my super up about $2,500 already lol.
However my buy order on VAS in the $64 range did not get filled so I'm a little disappointed. I'll leave it there for another couple of weeks just in case the index drifts down again. No rush to buy and incur brokerage and fees and interest on the margin loan.
Post by: dungoofed on November 18, 2015, 08:28:58 PM
Been trying to figure out where people are getting the $100,000 minimum to open a Vanguard wholesale fund from.
Looking at the Vanguard Australia site, it seems you would need $500,000 minimum?
https://www.vanguardinvestments.com.au/retail/ret/investments/managed-funds-wholesale.jsp
We don't have that much (well, most of us don't anyway). Many here buy the ETFs through discount brokers.
Weren't some people calling Vanguard direct in order to get the limit lowered?
Post by: hodgeyhodgey on November 20, 2015, 11:08:46 PM
I'm 22 and have recently made the decision to put some of my hard earned savings into shares. Although that decision was easy, now the hard part is deciding which shares to purchase..
I am split between putting it all straight into an LIC such as AFIC, or splitting my funds (maybe 60/40) between AFIC and an ETF such as VAS or VHY.
Any thoughts?
Post by: steveo on November 21, 2015, 02:10:28 AM
Been trying to figure out where people are getting the $100,000 minimum to open a Vanguard wholesale fund from.
Looking at the Vanguard Australia site, it seems you would need $500,000 minimum?
https://www.vanguardinvestments.com.au/retail/ret/investments/managed-funds-wholesale.jsp
We don't have that much (well, most of us don't anyway). Many here buy the ETFs through discount brokers.
Weren't some people calling Vanguard direct in order to get the limit lowered?
It states they will accept lower amounts at their discretion.
Any thoughts on the etf option vs the index option. I just checked the index vs etf option and on 500k the index option is about $850 extra in costs per year. That is a lot of money but does anyone know how much easier the index option is over the etf. Its definitely much more diversified.
The home loan is getting close to being paid off so I'm about to start saving into non-super investment options.
Post by: steveo on November 21, 2015, 02:12:12 AM
Hey everyone!
I'm 22 and have recently made the decision to put some of my hard earned savings into shares. Although that decision was easy, now the hard part is deciding which shares to purchase..
I am split between putting it all straight into an LIC such as AFIC, or splitting my funds (maybe 60/40) between AFIC and an ETF such as VAS or VHY.
Any thoughts?
Its up to you. Personally I wouldn't purchase a LIC if it was trading at above market value. I would then just put it all into VAS. If you don't have much money I'd use VAS or if you are saving regularly you could even use the index option and buy in on a regular basis.
Post by: marty998 on November 21, 2015, 05:06:02 AM
Post by: povertystrickenbastard on November 21, 2015, 10:32:56 AM
Post by: FFA on November 21, 2015, 02:10:50 PM
Its up to you. Personally I wouldn't purchase a LIC if it was trading at above market value. I would then just put it all into VAS.I agree (think steveo means NAV/NTA, not market value), the past few months AFI has been 7% premium to NAV. It's a substantial premium. Just be aware you are paying 7% more than the underlying asset backing. And the dividend is being diluted by 7% (e.g. 0.3-0.4% less, maybe that's small but not negligible we often squabble about much smaller fee differentials). ARG has been even worse, up to 10% over NAV lately.
As Marty mentioned, AFI and ARG both have solid long-term reputations, so you could ignore this entry level issue and take the long view. Personally though I would prefer the index ETF over a LIC trading at premium. If you are patient to wait for those times when they are at discounts then obviously much more attractive in that case, but it doesn't come up so often lately.
Post by: hodgeyhodgey on November 21, 2015, 04:53:22 PM
Its up to you. Personally I wouldn't purchase a LIC if it was trading at above market value. I would then just put it all into VAS.I agree (think steveo means NAV/NTA, not market value), the past few months AFI has been 7% premium to NAV. It's a substantial premium. Just be aware you are paying 7% more than the underlying asset backing. And the dividend is being diluted by 7% (e.g. 0.3-0.4% less, maybe that's small but not negligible we often squabble about much smaller fee differentials). ARG has been even worse, up to 10% over NAV lately.
As Marty mentioned, AFI and ARG both have solid long-term reputations, so you could ignore this entry level issue and take the long view. Personally though I would prefer the index ETF over a LIC trading at premium. If you are patient to wait for those times when they are at discounts then obviously much more attractive in that case, but it doesn't come up so often lately.
The current premium is the reason for my indecision. I know I can wait it out and hope to buy at a discount, but I feel that I will be trying to 'time the market' more than anything which really goes against the principle of passive investing.
Post by: FFA on November 21, 2015, 05:46:48 PM
Completely your call to decide. If you're intent is passive investment, yes market timing is not really consistent with that. Perhaps consider the split approach over the long term. e.g At times when LIC's are at >0% premium to NTA (or maybe 2% or some other tolerance you might be willing to accept), buy VAS. Otherwise, buy the LIC.Its up to you. Personally I wouldn't purchase a LIC if it was trading at above market value. I would then just put it all into VAS.I agree (think steveo means NAV/NTA, not market value), the past few months AFI has been 7% premium to NAV. It's a substantial premium. Just be aware you are paying 7% more than the underlying asset backing. And the dividend is being diluted by 7% (e.g. 0.3-0.4% less, maybe that's small but not negligible we often squabble about much smaller fee differentials). ARG has been even worse, up to 10% over NAV lately.
As Marty mentioned, AFI and ARG both have solid long-term reputations, so you could ignore this entry level issue and take the long view. Personally though I would prefer the index ETF over a LIC trading at premium. If you are patient to wait for those times when they are at discounts then obviously much more attractive in that case, but it doesn't come up so often lately.
The current premium is the reason for my indecision. I know I can wait it out and hope to buy at a discount, but I feel that I will be trying to 'time the market' more than anything which really goes against the principle of passive investing.
Post by: AustralianMustachio on November 21, 2015, 06:24:56 PM
What is wrong with our market? Just looked up 5 year chart of XJO vs the S&P500. XJO up 13% S&P500 up 74%!
Our market has been a poor performer, yes. Number of possible reasons for this. Highly concentrated on banks, staples and resources in the top end, which have all had their challenges recently.
However that chart is misleading, as it doesn't take into account dividends which are substantially higher in Australian than in the US. You should compare using the accumulation index for both.
Post by: steveo on November 21, 2015, 07:20:49 PM
Its up to you. Personally I wouldn't purchase a LIC if it was trading at above market value. I would then just put it all into VAS.I agree (think steveo means NAV/NTA, not market value), the past few months AFI has been 7% premium to NAV. It's a substantial premium. Just be aware you are paying 7% more than the underlying asset backing. And the dividend is being diluted by 7% (e.g. 0.3-0.4% less, maybe that's small but not negligible we often squabble about much smaller fee differentials). ARG has been even worse, up to 10% over NAV lately.
As Marty mentioned, AFI and ARG both have solid long-term reputations, so you could ignore this entry level issue and take the long view. Personally though I would prefer the index ETF over a LIC trading at premium. If you are patient to wait for those times when they are at discounts then obviously much more attractive in that case, but it doesn't come up so often lately.
That is what I meant. I don't see the point if you are buying at a premium.
Post by: FFA on November 21, 2015, 10:36:44 PM
The point might be if you believe AFI/ARG can outperform the index, which I believe they have a track record of doing over the long term. But not sure if they can still outperform with a 7-10% initial handicap.Its up to you. Personally I wouldn't purchase a LIC if it was trading at above market value. I would then just put it all into VAS.I agree (think steveo means NAV/NTA, not market value), the past few months AFI has been 7% premium to NAV. It's a substantial premium. Just be aware you are paying 7% more than the underlying asset backing. And the dividend is being diluted by 7% (e.g. 0.3-0.4% less, maybe that's small but not negligible we often squabble about much smaller fee differentials). ARG has been even worse, up to 10% over NAV lately.
As Marty mentioned, AFI and ARG both have solid long-term reputations, so you could ignore this entry level issue and take the long view. Personally though I would prefer the index ETF over a LIC trading at premium. If you are patient to wait for those times when they are at discounts then obviously much more attractive in that case, but it doesn't come up so often lately.
That is what I meant. I don't see the point if you are buying at a premium.
Anyway, another thought/perspective, and assuming you are selecting these companies because you rate their fund management capability. AFI recently did a SPP at 5% discount. So they are more than happy to sell their own shares at 5% below the prevailing market price. This makes sense as they can invest the funds raised to buy the underlying portfolio at 7% below the market price and lock in a 2% gain.
So then, does it still make sense to buy when the fund manager (with the index beating track record) is selling at a price 5% lower ?
Post by: dungoofed on November 21, 2015, 11:10:32 PM
https://www.spdrs.com.au/etf/fund/fund_detail_QMIX.html
Any thoughts?
Post by: hodgeyhodgey on November 23, 2015, 01:41:41 AM
Completely your call to decide. If you're intent is passive investment, yes market timing is not really consistent with that. Perhaps consider the split approach over the long term. e.g At times when LIC's are at >0% premium to NTA (or maybe 2% or some other tolerance you might be willing to accept), buy VAS. Otherwise, buy the LIC.Its up to you. Personally I wouldn't purchase a LIC if it was trading at above market value. I would then just put it all into VAS.I agree (think steveo means NAV/NTA, not market value), the past few months AFI has been 7% premium to NAV. It's a substantial premium. Just be aware you are paying 7% more than the underlying asset backing. And the dividend is being diluted by 7% (e.g. 0.3-0.4% less, maybe that's small but not negligible we often squabble about much smaller fee differentials). ARG has been even worse, up to 10% over NAV lately.
As Marty mentioned, AFI and ARG both have solid long-term reputations, so you could ignore this entry level issue and take the long view. Personally though I would prefer the index ETF over a LIC trading at premium. If you are patient to wait for those times when they are at discounts then obviously much more attractive in that case, but it doesn't come up so often lately.
The current premium is the reason for my indecision. I know I can wait it out and hope to buy at a discount, but I feel that I will be trying to 'time the market' more than anything which really goes against the principle of passive investing.
That seems like a fair approach, I guess there will always be other opportunities to purchase LICs when they're trading at a discount.
On that note though, thoughts on VAS or VHY? Any preference?
Post by: steveo on November 23, 2015, 04:42:07 AM
Any thoughts on the etf option vs the index option. I just checked the index vs etf option and on 500k the index option is about $850 extra in costs per year. That is a lot of money but does anyone know how much easier the index option is over the etf. Its definitely much more diversified.
The home loan is getting close to being paid off so I'm about to start saving into non-super investment options.
Any feedback on this question. Does the managed fund option have certain advantages over the ETF ?
Post by: steveo on November 23, 2015, 04:43:00 AM
On that note though, thoughts on VAS or VHY? Any preference?
I prefer VAS simply because there are lower fees.
Post by: dungoofed on November 23, 2015, 01:50:32 PM
Any thoughts on the etf option vs the index option. I just checked the index vs etf option and on 500k the index option is about $850 extra in costs per year. That is a lot of money but does anyone know how much easier the index option is over the etf. Its definitely much more diversified.
The home loan is getting close to being paid off so I'm about to start saving into non-super investment options.
Any feedback on this question. Does the managed fund option have certain advantages over the ETF ?
Hi Steveo - I think the managed fund is better for people doing more regular contributions, of smaller amounts, as there is no brokerage. If you were paying brokerage on every trade you'd be going backwards.
Check out here:
http://forum.mrmoneymustache.com/investor-alley/etf-of-index-mutual-fund-help-me-decide-%28aus%29/
(you replied in this thread too! lol)
Lots of good advice, in particular from qwerty. And I seem to recall the question coming up in this very thread before too heh. Maybe it's time we put together that Bogleheads Wiki page for Australia... ;)
The only things I'd add to that thread are 1) you're looking to invest using taxable accounts. I'm not sure how things like distributions are handled with the Vanguard fund - maybe someone else could comment; and 2) one thing I can't comment on is how does Vanguard handle reducing its fees on the ETF vs the fund. We've seen Vanguard has a commitment to passing on savings to customers arising from economies of scale, but I haven't seen how this plays out with their managed funds. Further on down the track Vanguard funds may indeed have a lower MER than the ETFs. Having said that, if you're investing any decent amount of money (>$5000 at a time), and are in it for the long term, then I'd take the lower fee now and go with the ETFs.
Post by: dungoofed on November 23, 2015, 02:09:04 PM
On that note though, thoughts on VAS or VHY? Any preference?
I prefer VAS simply because there are lower fees.
Same. Anything beyond that requires you to take a view of the market.
If you're purchasing in a taxable account, VHY tends to yield more (triggering taxable events), but also has a higher level of franking. If you're in a low tax bracket then this may not matter too much.
VAS should give you greater capital gains in the long run.
People have pointed out that VHY may be overvalued at the moment when compared to VAS, due to the hunt for yield in the current low rate environment. Retirees looking for income-yielding investments are taking on more risk in order to have a steady income stream to fund their lifestyle.
Post by: steveo on November 23, 2015, 02:43:07 PM
Any thoughts on the etf option vs the index option. I just checked the index vs etf option and on 500k the index option is about $850 extra in costs per year. That is a lot of money but does anyone know how much easier the index option is over the etf. Its definitely much more diversified.
The home loan is getting close to being paid off so I'm about to start saving into non-super investment options.
Any feedback on this question. Does the managed fund option have certain advantages over the ETF ?
Hi Steveo - I think the managed fund is better for people doing more regular contributions, of smaller amounts, as there is no brokerage. If you were paying brokerage on every trade you'd be going backwards.
Check out here:
http://forum.mrmoneymustache.com/investor-alley/etf-of-index-mutual-fund-help-me-decide-%28aus%29/
(you replied in this thread too! lol)
Lots of good advice, in particular from qwerty. And I seem to recall the question coming up in this very thread before too heh. Maybe it's time we put together that Bogleheads Wiki page for Australia... ;)
The only things I'd add to that thread are 1) you're looking to invest using taxable accounts. I'm not sure how things like distributions are handled with the Vanguard fund - maybe someone else could comment; and 2) one thing I can't comment on is how does Vanguard handle reducing its fees on the ETF vs the fund. We've seen Vanguard has a commitment to passing on savings to customers arising from economies of scale, but I haven't seen how this plays out with their managed funds. Further on down the track Vanguard funds may indeed have a lower MER than the ETFs. Having said that, if you're investing any decent amount of money (>$5000 at a time), and are in it for the long term, then I'd take the lower fee now and go with the ETFs.
Thanks for the comments. I'm struggling with this question right now.
I basically like the ease of regular investing into the managed fund but I would rather get the lower fee within the wholesale fund. I also like the diversification and asset allocation which I don't have to think about it. With regards to the ETF's I like the lower fees.
If I choose to invest in the ETF option I would probably buy once per year. If I go with the managed fund I would invest regularly after having enough to invest into the wholesale option.
I suppose they are both good choices.
Post by: dungoofed on November 23, 2015, 03:02:34 PM
Post by: Sparkie on November 23, 2015, 05:17:01 PM
Assuming I'm correct with my assumptions, its worth a little bit extra in fees to have it all done.
Post by: steveo on November 23, 2015, 07:14:50 PM
Post by: povertystrickenbastard on November 24, 2015, 01:20:26 PM
Post by: FFA on November 25, 2015, 04:10:14 AM
Quote
In a low interest rate world, the problems of providing retirement incomes will become ever more prominent. The very low level of yields on fixed income assets means that it is very expensive today to purchase a secure stream of future income, which is what someone who is retiring is usually seeking. And there are more of such people, living longer.
The retiree can of course respond to this by holding more of her portfolio in dividend-paying stocks – accepting more risk. She may hope for a dividend stream that is fairly stable from year to year but that tends to grow over time. It certainly seems that many Australian listed corporates feel the pressure from shareholders to deliver that, even some whose earnings are inherently volatile.
Can the corporate sector realistically promise growing dividends over a long period? Not without being prepared to take the risk on investment in new products, processes and markets. How much of that risk an older shareholder base will allow boards and managements of listed entities to take is an important question.
Overall, in a world where a higher proportion of the population wants to be retired and living (even if only in part) off the return on their savings, those returns are likely, all other things equal, to be lower. Part and parcel of the same adjustment may be higher real wages for the smaller proportion of the population that is working. These changes, driven by demographics, may require some adjustment to our collective thinking about what is ‘normal’, not just for rates of return on assets but also for returns to labour.
Post by: misterhorsey on November 25, 2015, 03:15:46 PM
Thanks for those points above. It is a tough decision. One minute I lean towards the ETFs and the other towards the fund.
I had the same decision to make this time last year and I went with the Fund over ETFs. It's been good, but I've been meaning to share some of my experiences back to the forum. I'll type them over the next few days.
Post by: dungoofed on November 25, 2015, 04:13:22 PM
interesting excerpt from glenn stevens speech yday entitled "The long run " ... perhaps worth considering when deciding on your SWR assumptionQuoteIn a low interest rate world, the problems of providing retirement incomes will become ever more prominent. The very low level of yields on fixed income assets means that it is very expensive today to purchase a secure stream of future income, which is what someone who is retiring is usually seeking. And there are more of such people, living longer.
The retiree can of course respond to this by holding more of her portfolio in dividend-paying stocks – accepting more risk. She may hope for a dividend stream that is fairly stable from year to year but that tends to grow over time. It certainly seems that many Australian listed corporates feel the pressure from shareholders to deliver that, even some whose earnings are inherently volatile.
Can the corporate sector realistically promise growing dividends over a long period? Not without being prepared to take the risk on investment in new products, processes and markets. How much of that risk an older shareholder base will allow boards and managements of listed entities to take is an important question.
Overall, in a world where a higher proportion of the population wants to be retired and living (even if only in part) off the return on their savings, those returns are likely, all other things equal, to be lower. Part and parcel of the same adjustment may be higher real wages for the smaller proportion of the population that is working. These changes, driven by demographics, may require some adjustment to our collective thinking about what is ‘normal’, not just for rates of return on assets but also for returns to labour.
Not sure that I agree with the conclusion. If that were the end of the story I'd agree, but the story doesn't end there. With pensioners pulling out of fixed income products, the price of those products drop and they become a relative bargain again.
Post by: steveo on November 25, 2015, 09:10:04 PM
Thanks for those points above. It is a tough decision. One minute I lean towards the ETFs and the other towards the fund.
I had the same decision to make this time last year and I went with the Fund over ETFs. It's been good, but I've been meaning to share some of my experiences back to the forum. I'll type them over the next few days.
I'll be waiting for this. Its extremely relevant to me right now.
Post by: FFA on November 25, 2015, 09:55:58 PM
Post by: povertystrickenbastard on November 27, 2015, 02:47:10 PM
Post by: marty998 on November 27, 2015, 03:46:58 PM
They paid too much for the acquisition of their UK business and their accounting treatment of revenue was very difficult for a lay person to understand. It involved some creative estimates of WIP (work in progress) on client files.
I'm sure they're a great bunch of lawyers but it's patently obvious running a private partnership is vastly different to running a listed company.
Post by: cakie on November 27, 2015, 06:04:41 PM
Thanks for those points above. It is a tough decision. One minute I lean towards the ETFs and the other towards the fund.
I had the same decision to make this time last year and I went with the Fund over ETFs. It's been good, but I've been meaning to share some of my experiences back to the forum. I'll type them over the next few days.
I picked ETFs, but then I am happy with my AA and I know we will stick with it. We have been buying $5k of an ETF every month so far, but we had expected originally to only invest once a quarter (unexpected extra salary).
The big downside at the moment is that we won't have properly balance portfolio (all ETFs within +/-5% of target allocation) until we have about $50k invested. Our original $6k purchase was properly balanced though, because we had our first month brokerage free (Westpac). We bought in $1k lots! :)
Post by: FFA on November 27, 2015, 06:37:11 PM
Just reading about SGH (Slater & Gordon) which is down 90% since June. When you see that and also what's happening with BHP and WOW it's a sharp reminder to me of why I don't try to pick individual stocks.
overall I agree, but just for a moment to take the other perspective ....
- SGH I'm pretty certain I would have no exposure if I was only a direct investor. However thanks to my VAS and IOZ, I have a taken very small piece of that 90% fall.
- BHP, the company itself has been publicly warning the good times are over for at least a few years. I reckon one of the key strategies of nearly all active managers to beat the ASX index in recent years is to be underweight BHP and other resource sector. Perhaps there might be a good chance you take more of a hit as an index investor.
- WOW, perhaps a bit more tricky case, due to the company's strong track record and reputation. Again the warning signs have been there for a while, so plenty of opportunity to get out it early if spotted and ( an even bigger IF ) you had the discipline. But I think many more would fall for this value trap and buy more as it falls.
Now having said all that, I'm far from perfect... I was questioning my WOW and had posted some months earlier asking for views. Decided then to hang on and watch it fall further, before finally pulled the tigger on my WOW holding recently. BHP I'm also guilty of buying a cheeky (unplanned) parcel because it looked cheap and the enticing yield....... So yes as I said in the beginning, overall I do agree the index is probably a safer way :)
Post by: TB_J on November 29, 2015, 09:36:03 PM
Post by: dungoofed on December 01, 2015, 05:10:09 AM
https://www.vanguardinvestments.com.au/au/portal/articles/insights/pressroom/Vanguard-to-offer-international-fixed-and-regional-equity-ETFs.jsp
Vanguard International Fixed Interest Index (Hedged) Index ETF: VIF
Vanguard International Credit Securities Index (Hedged) ETF: VCF
Vanguard FTSE Europe Shares ETF: VEQ
Vanguard FTSE Asia ex Japan Shares Index ETF: VAE
Also of interest was the Vanguard Outstanding ETF Securities Announcement that you should have access to if you hold any Vanguard ETFs. My takeaways are:
1) Australians prefer to chase yield of VAF over the safety of VGB.
2) High yield stocks are possibly overbought
3) Australians like their international unhedged (VGS vs VGAS. I'd wager this is due to recency bias and chasing returns from a strong USD)
Some fair contrarian plays in there but nothing high-conviction.
Post by: TB_J on December 02, 2015, 08:46:30 PM
I think 2015 will go down as the year ETFs came of age in Australia. Admittedly not too much of interest for your average buy-and-hold investor but more competition in this space is always a good thing. About 15 new ETFs this year already, and the following planned from Vanguard:
https://www.vanguardinvestments.com.au/au/portal/articles/insights/pressroom/Vanguard-to-offer-international-fixed-and-regional-equity-ETFs.jsp
Vanguard International Fixed Interest Index (Hedged) Index ETF: VIF
Vanguard International Credit Securities Index (Hedged) ETF: VCF
Vanguard FTSE Europe Shares ETF: VEQ
Vanguard FTSE Asia ex Japan Shares Index ETF: VAE
Also of interest was the Vanguard Outstanding ETF Securities Announcement that you should have access to if you hold any Vanguard ETFs. My takeaways are:
1) Australians prefer to chase yield of VAF over the safety of VGB.
2) High yield stocks are possibly overbought
3) Australians like their international unhedged (VGS vs VGAS. I'd wager this is due to recency bias and chasing returns from a strong USD)
Some fair contrarian plays in there but nothing high-conviction.
Interesting new funds there.
Is anyone here rolling with a simple 50/50 VAS-VGS strategy? & Does anyone use the FTSE Emerging Markets ETF? Expense ratio is 0.48% ...seems very steep!
Post by: AustralianMustachio on December 08, 2015, 05:24:54 AM
http://www.westpac.com.au/personal-banking/investments/loans/investment-loan/#s3
You link the loan to an online brokerage account with them and can get up to $1000 free brokerage for the first two months, which is also a great deal.
The downside is the list of approved securities is much smaller than other margin loans, but pretty much every vanguard ETF is on the list. I'm not a big fan of leverage but am considering using it on a very small portion. Probably about 10-15% LVR max.
Considering you can get ETFs or LICs of the ASX yielding around 4-4.5% fully franked at the moment, it would be more than paying for itself from the beginning. If the market goes up, which I tend to think it might from where it is right now, you get geared exposure to that capital growth. Of course if it crashes, you get geared exposure to that too. Considering the current levels of the ASX, I'm tempted. Someone please point out any catches here!
Post by: Northern gal on December 08, 2015, 02:48:17 PM
interesting excerpt from glenn stevens speech yday entitled "The long run " ... perhaps worth considering when deciding on your SWR assumptionQuoteIn a low interest rate world, the problems of providing retirement incomes will become ever more prominent. The very low level of yields on fixed income assets means that it is very expensive today to purchase a secure stream of future income, which is what someone who is retiring is usually seeking. And there are more of such people, living longer.
The retiree can of course respond to this by holding more of her portfolio in dividend-paying stocks – accepting more risk. She may hope for a dividend stream that is fairly stable from year to year but that tends to grow over time. It certainly seems that many Australian listed corporates feel the pressure from shareholders to deliver that, even some whose earnings are inherently volatile.
Can the corporate sector realistically promise growing dividends over a long period? Not without being prepared to take the risk on investment in new products, processes and markets. How much of that risk an older shareholder base will allow boards and managements of listed entities to take is an important question.
Overall, in a world where a higher proportion of the population wants to be retired and living (even if only in part) off the return on their savings, those returns are likely, all other things equal, to be lower. Part and parcel of the same adjustment may be higher real wages for the smaller proportion of the population that is working. These changes, driven by demographics, may require some adjustment to our collective thinking about what is ‘normal’, not just for rates of return on assets but also for returns to labour.
Food for thought. Thanks for sharing! I would have never bothered to actually read what Stevens said other than skim read for hints of future rate cuts.
Post by: dungoofed on December 08, 2015, 02:52:22 PM
Is anyone here rolling with a simple 50/50 VAS-VGS strategy? & Does anyone use the FTSE Emerging Markets ETF? Expense ratio is 0.48% ...seems very steep!
I spread my equity holdings primarily across VAS, VGS and VGE. VGE is expensive but it is fairly uncorrelated with the other two.
In other news, was wondering whether anyone knows if the Vanguard offerings in Australia are shielded from the court case taking place in the US?
Post by: physiostudent on December 08, 2015, 05:17:46 PM
Also, do I leave my student HECS debt alone or should I pay it off ASAP?
Any help would be appreciated.
Post by: englyn on December 08, 2015, 08:49:21 PM
Also, traditional wisdom has it that if you may need the money in the next 5 years, an investment may not be the way to go.
Post by: BattlaP on December 08, 2015, 09:16:11 PM
Westpac has a new online investment loan (margin loan) at what seems like a very low rate - 4.7% if prepaid. Even the variable rate seems a good 1.5% lower than any competitor I can find. Would appreciate anyone's thoughts on this - am I missing something here? Or are they just doing it because they hope then you will stay on as an online customer, thus attracting more online broking business?
http://www.westpac.com.au/personal-banking/investments/loans/investment-loan/#s3
You link the loan to an online brokerage account with them and can get up to $1000 free brokerage for the first two months, which is also a great deal.
The downside is the list of approved securities is much smaller than other margin loans, but pretty much every vanguard ETF is on the list. I'm not a big fan of leverage but am considering using it on a very small portion. Probably about 10-15% LVR max.
Considering you can get ETFs or LICs of the ASX yielding around 4-4.5% fully franked at the moment, it would be more than paying for itself from the beginning. If the market goes up, which I tend to think it might from where it is right now, you get geared exposure to that capital growth. Of course if it crashes, you get geared exposure to that too. Considering the current levels of the ASX, I'm tempted. Someone please point out any catches here!
I'd be interested in a close reading of this offer too, I've got a lot of cash sitting around at the moment and at these rates I may be willing to dip my toe into leveraging.
Post by: micase on December 08, 2015, 09:50:17 PM
I'm currently a 19 year old university student living in Melbourne. I have around AUS$10k lying around and was wondering if anybody could point me in the right direction in terms of beginning to invest.
Also, do I leave my student HECS debt alone or should I pay it off ASAP?
Any help would be appreciated.
As it is indexed towards inflation only, your HECS debt will be one of the lowest rated loans you will ever have. I am in a situation where I could pay off my HECS debt completely but would rather collect the interest on that money and pay it off slowly through contributions from my wage.
As for investing the 10k you have, I would simply leave it in a high interest savings account. The world is your oyster and if I was you I wouldn't want to have my money tied up in shares with the risk that you might need it for something like and overseas trip and find you have to sell at a loss. Like what englyn said, if there is a chance you will need that money in the coming years then avoid any risky investments.
Post by: chasingthegoodlife on December 09, 2015, 04:45:55 AM
Physio-Student - I am 32 and still paying HECS on my bachelors and masters. My thought process initially was this: You will never be able to get credit on these terms again. You have borrowed money with no interest aside from CPI adjustment, and if you lose your job or take time off for travel etc your repayments are helpfully suspended without penalty until you are earning a decent salary again. So I thought I was better off letting HECs run and building up some cash reserves with a high interest rate savings acct (rates were good back then). Then when I got a mortgage I did the sums and confirmed I was better off putting any spare cash towards the higher interest housing loan instead.
Of course, if it bothers you, feel free to pay it off right away. You may be motivated to pay more than if you were saving towards some non-specific goal. Just make sure you take advantage of any early repayment or pay up front discounts.
Micase has a good point about not tying any money up in shares if you think you might need it in the next few years (housing deposit?). But if you are interested in investing it can be nice to have a 'finger in the pie' and be able to watch your portfolio growing with the market. Maybe you could consider investing half the money in the sharemarket and keeping the other half in something more liquid such as a term deposit or high interest savings account.
Good luck!
Post by: Rustycage on December 10, 2015, 10:31:41 PM
I'm quite chuffed to see that Vanguard are now offering international fixed interest securities ETFs! (govt and corporate)
I find it quite funny given I sent Vanguard an email around 3 months ago making a suggestion that something similar should be introduced, and the response was "we have new products coming online soon but nothing like you have suggested". But that's pretty much what I suggested hehe (not taking credit at all here)
Post by: povertystrickenbastard on December 11, 2015, 03:07:56 PM
Post by: chasingthegoodlife on December 11, 2015, 09:47:44 PM
Post by: povertystrickenbastard on December 12, 2015, 12:51:58 AM
Breathe, stop checking your brokerage account and think long-term?
I can't help it mate. I even check my super account every day haha. I can ride it out ok, just like to whine about it while I'm doing it :)
Post by: FFA on December 12, 2015, 04:31:17 AM
Post by: dungoofed on December 13, 2015, 02:15:20 PM
Post by: DrowsyBee on December 13, 2015, 05:05:06 PM
Post by: FFA on December 13, 2015, 05:53:25 PM
Post by: misterhorsey on December 13, 2015, 07:15:04 PM
http://beta.smh.com.au/money/david-potts-final-fling-last-words-on-super-sharemarket-mortgages-and-tax-20151210-glk52j.html
David Potts summarised what I really struggle to get my head around.
It's hard to beat the returns of from paying off a mortgage on a PPR, when taking into account the tax treatment.
But what to do when you have no mortgage and house prices seem rather expensive. Surely buying into an overpriced asset would undermine any extra returns from this strategy? (It's also affected by your life stage as well I guess. I'm almost 40)
Post by: Television on December 14, 2015, 04:39:30 AM
http://beta.smh.com.au/money/david-potts-final-fling-last-words-on-super-sharemarket-mortgages-and-tax-20151210-glk52j.html
David Potts summarised what I really struggle to get my head around.
It's hard to beat the returns of from paying off a mortgage on a PPR, when taking into account the tax treatment.
But what to do when you have no mortgage and house prices seem rather expensive. Surely buying into an overpriced asset would undermine any extra returns from this strategy? (It's also affected by your life stage as well I guess. I'm almost 40)
He did seem to recommend an offset account... able to go to town at any time.
Post by: This_Is_My_Username on December 15, 2015, 06:22:15 PM
Is it worthwhile?
Does anyone have experience with this? How did it go for you?
Post by: bigchrisb on December 15, 2015, 06:47:36 PM
Is Tax-Loss Harvesting workable in Australia for non-super investments?
Is it worthwhile?
Does anyone have experience with this? How did it go for you?
Yes, it is workable. Main things to consider:
- Read up on the ATO's wash sale rules. These are there to prevent tax loss harvesting purely for a tax gain. They basically mean you can't sell and repurchase the same security and claim a tax loss. You can however, sell and buy a similar security. For example, selling VAS and re-buying VAS would be a wash sale. Selling VAS and buying STW (similar underlying exposure) would not.
- Capital losses can only be offset against capital gains. If you carry forward a capital loss, you don't get any interest or indexation, so the value of the carried loss diminishes over time.
Its worked well for me, but I've had some significant known capital gains coming up. If I didn't have the known capital gains, I'm not sure if I'd do it anyway and bank the loss.
Post by: marty998 on December 16, 2015, 01:12:20 AM
On Tuesday was umming and ahhing about buying $7,000 worth of VAS. Bloody hell should know that whenever it is a 52 week low of thereabouts is always a good time to buy.
Talked myself out of it by thinking BHP, Banks, WPL and WOW still have further to fall.
Ahh well, the rest of the portfolio obviously went up today, but it would have been nice to time that purchase.
Will keep sitting on the sidelines until early new year. I'm happy to just keep paying down margin loan debt for now.
Post by: happy on December 16, 2015, 04:33:57 AM
Post by: Ozlady on December 16, 2015, 01:55:58 PM
Post by: bigchrisb on December 16, 2015, 03:43:50 PM
One word (actually 2 words): Put options!
Options novice question - how does one actually go about buying an option? I suspect I need to get them enabled on my trading accounts first? (etrade and nabtrade)
Post by: This_Is_My_Username on December 16, 2015, 07:30:53 PM
Then, if the counterparty does not exercise the option, you receive the sale price to keep.
if the counterparty does exercise the option, you receive VAS (or similar) at a good price because the index is below 4900. BUT, you will be buying the index at a price of 4900, when the index is at 4800 or 4600 or 4200.
Post by: bigchrisb on December 16, 2015, 07:45:53 PM
How do you convert the put when the time comes too - do you send the cash though a bpay like a rights issue, or do you need to activley do something to claim the option before it expires?
Post by: deborah on December 16, 2015, 08:25:57 PM
Post by: terrier56 on December 16, 2015, 09:11:18 PM
Concur on the theory. Its the execution that I've struggled with - I can't find quotes for puts on my standard broker logins?
How do you convert the put when the time comes too - do you send the cash though a bpay like a rights issue, or do you need to activley do something to claim the option before it expires?
With commsec and had to get options account separately.
With actively execution you have the option to (pardon the pun) but from memory it is automated to execute if you make money on it and expire if you don't, but once again could be different.
Post by: Ozlady on December 16, 2015, 10:09:16 PM
Post by: FFA on December 16, 2015, 11:02:44 PM
But for most simple/lazy investors like myself, I can't really see a strong case for it. Maybe I'm having an off day, but I also can't figure how it would've helped Marty to magically buy the bottom on Tuesday. As luck would have I managed a super topup on Monday and a VAS parcel late Tuesday, but I would say more luck than skill :)
Post by: Ozlady on December 17, 2015, 12:24:09 AM
What i can control is how much i want to pay for a share eg. i have a put position to buy NAB at 27.5...THIS IS THE MAX i am willing to pay as i want the near 10% dividend yield (incl FCredits)....i sell a put and pocket the premium...of course NAB went on a tear and i can't get the share; but shrug! i get to keep the premium and wait to fight another day or as Marty888 would say a new "bottom"...
Post by: Ozlady on December 17, 2015, 12:34:48 AM
(and incidentally it is only a game to me as it is only a small part of my portfolio....)
In contrast what does Marty888 have? Regrets?
(sorry no offence to Marty!)
Post by: dungoofed on December 17, 2015, 02:29:05 AM
Australian options market is quite underdeveloped. Think: ASX20. If you are ok working within these confines then you can put together a decent strategy but I think a lot of people here would be more inclined to just put that cash to work in VGE/VAS/VGS/VEU/VTS/VSO/etc
https://www.interactivebrokers.com.au/en/index.php?f=commission&p=options3&ns=T
Post by: FFA on December 17, 2015, 02:39:33 AM
Post by: Ozlady on December 17, 2015, 02:45:35 AM
understood ozlady, thanks, I didn't mean to offend you either so sorry if that went down the wrong way.... I do agree if you're buying at fixed price limits it makes a lot of sense, you get the income regardless. And if the level get's reached you get the shares too and it effectively lowers your procurement cost.
Nah....what offence?!!! It's fun trading ideas!!
Let's continue to learn from one another...okay? keep the comments running!
Post by: marty998 on December 17, 2015, 03:22:29 AM
And in the meantime, i have that nice premium sitting and warming my pockets atm...and still waiting for NAB at 27.5.....remember... it is a patience game?
(and incidentally it is only a game to me as it is only a small part of my portfolio....)
In contrast what does Marty888 have? Regrets?
(sorry no offence to Marty!)
Yeah.. because I knew the markets would bounce on the fed announcement. I just plain forgot when that announcement was going to be!!!!
Anytime the index has a 4 in front of it is a good time to buy in my humbly useless opinion.
Post by: marty998 on December 17, 2015, 03:29:53 AM
At some point the rubber band will snap and nominal growth will pick up again, which then feeds into wage growth and consumer confidence. It's not going to stay low forever with monetary policy being so accommodative and the population continuing to grow as it is.
Confidence is a fickle thing, It's crap now but could just as quickly turn. Hate to quote Buffet but it seems everyone is just a little bit too fearful....
Post by: Ozlady on December 17, 2015, 04:54:34 PM
And in the meantime, i have that nice premium sitting and warming my pockets atm...and still waiting for NAB at 27.5.....remember... it is a patience game?
(and incidentally it is only a game to me as it is only a small part of my portfolio....)
In contrast what does Marty888 have? Regrets?
(sorry no offence to Marty!)
Yeah.. because I knew the markets would bounce on the fed announcement. I just plain forgot when that announcement was going to be!!!!
Anytime the index has a 4 in front of it is a good time to buy in my humbly useless opinion.
Hi Marty888
The ASX 200 is having a 4 in front now as i am typing....over to you....
I will be watching you:)
Post by: AustralianMustachio on December 18, 2015, 12:12:50 AM
First and foremost, what is "bought at the bottom"? It could be a bottom as Marty888 alluded to a few days ago BUT a new bottom could appear? who can tell?
What i can control is how much i want to pay for a share eg. i have a put position to buy NAB at 27.5...THIS IS THE MAX i am willing to pay as i want the near 10% dividend yield (incl FCredits)....i sell a put and pocket the premium...of course NAB went on a tear and i can't get the share; but shrug! i get to keep the premium and wait to fight another day or as Marty888 would say a new "bottom"...
So in other words, it works well if you think the market won't rise? Otherwise you're better off simply buying the shares?
Post by: marty998 on December 18, 2015, 12:54:21 AM
And in the meantime, i have that nice premium sitting and warming my pockets atm...and still waiting for NAB at 27.5.....remember... it is a patience game?
(and incidentally it is only a game to me as it is only a small part of my portfolio....)
In contrast what does Marty888 have? Regrets?
(sorry no offence to Marty!)
Yeah.. because I knew the markets would bounce on the fed announcement. I just plain forgot when that announcement was going to be!!!!
Anytime the index has a 4 in front of it is a good time to buy in my humbly useless opinion.
Hi Marty888
The ASX 200 is having a 4 in front now as i am typing....over to you....
I will be watching you:)
Not the indices I'm looking at... unless the market moved by 100 points today....
ASX 200 closed at 5106.7 and the All Ords are 5156.5
Be patient, it'll drift down again .... (betting on that old 50:50 chance)
Post by: povertystrickenbastard on December 18, 2015, 12:54:57 AM
Post by: FFA on December 18, 2015, 05:30:23 AM
First and foremost, what is "bought at the bottom"? It could be a bottom as Marty888 alluded to a few days ago BUT a new bottom could appear? who can tell?
What i can control is how much i want to pay for a share eg. i have a put position to buy NAB at 27.5...THIS IS THE MAX i am willing to pay as i want the near 10% dividend yield (incl FCredits)....i sell a put and pocket the premium...of course NAB went on a tear and i can't get the share; but shrug! i get to keep the premium and wait to fight another day or as Marty888 would say a new "bottom"...
So in other words, it works well if you think the market won't rise? Otherwise you're better off simply buying the shares?
I think it works well if your execution strategy is based on specific price limits. This could be based on technical analysis. e.g. you identify a support level and want to buy at that price. Or as per Ozlady's example if you have a target dividend yield that will be reached when the price drops to a certain level. So you are going to enter a GTC buy order anyway, e.g. buy NAB at $27.50 (when the current level is $29 say) and wait and see if you get filled. In that case, why not sell puts instead with a $27.50 strike price, let's assume you pocket a premium of $0.50. If the price never drops to the target then you keep the $0.50. If it does, then you effectively buy the shares at $27 (plus transaction costs).
However, if you are a price taker doing market orders / regular investing / dollar cost averaging in a long term buy and hold strategy, then personally I don't think it's very compatible.
It's certainly true that we could see VAS at $63.25 again in the near future. But then there's also a possibility the market gathers steam and you don't see $63.25 again for a long time. No-one really knows for sure... In the latter case, you would still pocket the put premium, but you may miss out on a much larger return, depending on what you did with the funds in the meanwhile.
Post by: AustralianMustachio on December 18, 2015, 06:55:01 AM
Post by: dungoofed on December 18, 2015, 02:48:31 PM
Quote
However, if you are a price taker doing market orders / regular investing / dollar cost averaging in a long term buy and hold strategy, then personally I don't think it's very compatible.
Just to add a couple more cases:
1) slowly gain more exposure to a single ASX20 company over a period of time (eg if you think BHP is best-of-breed and want more exposure you can sell a combination of OTM and ITM puts),
2) if you want to tilt your portfolio a little (not many examples on the ASX, but selling puts on IAG would be one way to get away from the ASX200's overweighting of banks and miners), or
3) if you feel certain companies in the ASX20 are overvalued and don't like the thought of purchasing them via VAS at these levels.
Note that 2) and 3) can be achieved with regular limit orders too.
Post by: FFA on December 21, 2015, 04:40:55 AM
http://www.abc.net.au/news/2015-12-21/how-much-cash-to-change-a-life/7045442 (http://www.abc.net.au/news/2015-12-21/how-much-cash-to-change-a-life/7045442)
interesting..... what's with Tassie !?!
Post by: happy on December 21, 2015, 04:55:16 AM
Everyone else needs at least half a million to achieve "financial freedom" ( whatever that means). To be honest, if they are starting with debt or little or no net worth, they do need at least half a million. What surprises me is that the average Joe can name a figure - there is not much detail in what that figure is designed to provide: " financial freedom", so maybe the answers are also pretty loose.
Post by: deborah on December 21, 2015, 06:08:27 AM
Post by: happy on December 21, 2015, 05:26:08 PM
Post by: AustralianMustachio on December 22, 2015, 05:28:45 PM
Say it was 300k, and you put it all into VAS, didn't touch the capital, and spent the growing income stream every year. Historically yielding a bit over 4% fully franked, which is around 6% gross. That's $18,000 a year starting point, and should grow over the long term.
I think $18,000 is above what people get from Centrelink to look for work. I would consider someone having their own private Centrelink payments as having a significant effect on their lives.
And this is being quite conservative and not even touching the capital base. If you had a long time till retirement, the capital would grow into a sizeable amount, enough to rival most people super annuation balances
Post by: bigchrisb on December 22, 2015, 05:48:24 PM
- Interest rates are super low, and in my view only likely to go up from here.
- Rising interest rates leave me exposed to rising interest costs on my mortgage. They also expose traditional bonds to capital losses.
- Some of the hybrids are trading at very low values compared to face value - for example NABHA, MBLHB and SVWPA are all below $70 for a $100 note. This puts them on current yields of ~5%, ~6% and ~11%, all higher than what I pay for debt (low 4's). Their future rates will increase with the bank bill swap rate, at a multiple of 1.4-1.6 times (due to selling below face value
- There is a (remote) chance that these will be redeemed at some point in the future at face value, for a capital gain.
I see these as an easy way to get a hedge against interest rates rising on my mortgage, and getting paid the spread in the meantime. There is some risk that they will defer payment, which means conversion (at face value) to ordinary shares (fine print differs between the products). I'm an investor in the ordinary shares in NAB, MQG and SVW, and if I could acquire shares at a 30% discount today, I would, so the conversion risk doesn't bother me much.
However, when markets price something as too good to be true, it usually is. What am I missing on these instruments?
Post by: AustralianMustachio on December 22, 2015, 08:50:48 PM
Post by: bigchrisb on December 22, 2015, 09:23:40 PM
Post by: marty998 on December 23, 2015, 01:07:47 AM
Having rates at 2% has already been proven not to induce inflation in this cycle, which itself is evidence contrary to conventional wisdom.
I don't know what you are missing bigchris. Those prices are very much tempting me too. SVWPA I can understand... there's a not insignificant risk that one of the TV networks will go bust (FWIW my bet is Seven... not Ten, because there are more billionaires with deeper pockets who own Ten).
NABHA and MBLHB I cannot understand. Can't see either of those failing. They might have the odd bad year but fail? No.
Post by: povertystrickenbastard on December 24, 2015, 02:59:27 PM
Post by: Abundant life on December 26, 2015, 11:29:53 PM
Checking my emails, Scott Pape, the Barefoot Investor has sent his usual offering: join the Barefoot Blueprint for $297 for the year instead of $397.
Admittedly he offers a full refund if you are unsatisfied, but, as I peruse his offer it occurs to me that he offers us locals a lot of basic stuff that is available from an online broker and other stuff we can get free from MMM or JL Collins (the only drawback with the latter being that it is slanted to US readers).
Has anyone tried the BB and what did you think of it?
Has anyone come across an Australian website on investing that they felt was worthwhile? Other than this worthwhile thread of course!
Post by: steveo on December 26, 2015, 11:37:06 PM
Anything that costs money reduces your returns.
Post by: Rob_S on December 27, 2015, 03:37:05 AM
I enjoyed Forager Funds 'Bristlemouth blog' and its recent rip into Dick Smith, good on them for putting it out there early on that the whole private equity thing was suss.
https://foragerfunds.com/bristlemouth/dick-smith-response-to-the-heist/
Superannuation Freak and Financially Free Australia (FFA) are both good people and have worthy blogs:
http://superannuationfreak.blogspot.com.au/2014/10/everything-you-need-to-know-about.html
http://www.financiallyfreeaustralia.blogspot.com.au/2014/12/whats-this-blog-about.html
Aussiefirebug is a new blog with some good content. Seems like a nice guy. He's gone the property route which isnt my thing so much of his content isn't all that relevant to where I am going:
http://www.aussiefirebug.com/rent-or-buy/
There's reddit but its very new and moves a little slow and I haven't found much good stuff on it:
https://www.reddit.com/r/fiaustralia
The noise to signal ratio on Whirlpool finance forum is all over the shop but theres some good posters there and some good stuff in the forum archive. Just use the search function. This thread is a good one:
http://forums.whirlpool.net.au/forum-replies.cfm?t=2322459
There's some OK stuff on the passive investor but it hasn't been updated in a long time:
http://www.thepassiveinvestor.com.au/
The british blogs are worth a look. The Escape Artist and Monevator. Some folk reckon Canada and Aus share a lot in common, in which case the canadian couch potato blog could be worth a look.
http://canadiancouchpotato.com/
Other than that I get the best value from books, though there are far too many property empire books clogging up the personal finance section of the library. I just finished Peter Thonhills 'Motivated Money' for the second time; I think The Falcon recommended him earlier in the thread. A very easy read, if a little short, from a man that no longer has skin in the game and has nothing to 'sell'.
Post by: superannuationfreak on December 27, 2015, 04:21:35 AM
Merry Christmas everyone.
Checking my emails, Scott Pape, the Barefoot Investor has sent his usual offering: join the Barefoot Blueprint for $297 for the year instead of $397.
Admittedly he offers a full refund if you are unsatisfied, but, as I peruse his offer it occurs to me that he offers us locals a lot of basic stuff that is available from an online broker and other stuff we can get free from MMM or JL Collins (the only drawback with the latter being that it is slanted to US readers).
Has anyone tried the BB and what did you think of it?
Has anyone come across an Australian website on investing that they felt was worthwhile? Other than this worthwhile thread of course!
I tried the Blueprint to see what it had to offer. I think they're well-intentioned people who have something to offer a subset of the population, I'm just not sure that subset includes many people here. They are genuine about the full refund if you want to give them a try, though.
What did I think of it? The strongest value it provides is the stuff that people probably wouldn't pay for in isolation: solid personal finance advice (live below your means, insure yourself, get a good mortgage deal, etc), and access to a relatively large community of other subscribers (some of whom provide their fellow members with useful advice and support via facebook group/forum). The personal finance stuff I think I'm on top of (and after a one-year barefoot subscription, or some decent books, I think most people would have enough material regardless). Paying $300p.a. for access to a facebook group where I found myself contributing but not learning very much was a bit rich for me. But I saw many others get value from that community.
In terms of investments, what you're really paying for is one stock pick per month. Overall I thought it was a useful outlet for individual investors who would otherwise be trading too frequently or stockpicking with weak rationale. It's a way of giving them a bit more discipline, with regular behavioural reminders along the way. For those already comfortable with index funds and low-cost super it seems like a backwards step. There was also an ETF portfolio (the barefoot breakfree portfolio - google it if you want to see what it was at the start, I don't imagine it's changed all that much). It was a not-unreasonable but relatively aggressive mostly equity portfolio, nothing special but perfectly adequate if one understands the risks (which were promoted as lower than I thought credible) and can stay the course over a couple of decades. And there were special reports on things like investment bonds (which was actually pretty decent, highlighting the lower-cost products for those on high-enough tax brackets - not so useful for individuals who expect to be in a lower bracket in retirement).
What were my concerns? Most of his suggestions I'd say are lower risk than the traditional Australian "buy property and a few dividend stocks", but still higher-risk than I think most people can handle behaviourally. He hadn't given much portfolio construction advice though, other than to suggest 6 months (for accumulators) to 3 years cash (for retirees). If this is in-line with your risk-appetite that's great. But when I was a member we hadn't seen a long-lasting downturn in the economy or the share market since Blueprint started. When we do (perhaps even in this year's decline) I suspect many will be uncomfortable with the risks they have been taking. Other than the ETF portfolio, his investment advice was mostly about investing in a LIC or two (such as AFIC) and adding 10 or so individual ASX-listed stocks (emphasising quality and value, Buffet-style). That will probably turn out OK, I certainly hope it does for those who follow such a strategy, but it's a hard strategy to be successful with behaviourally and doesn't take advantage of the substantial degree of global diversification now available cheaply. It takes on large amounts of Australia-specific risk - it's entirely plausible for a single small country to underperform over an investing lifetime - and I fear his members will struggle behaviourally as much as anyone else with the inevitable downturns that come from time to time.
Other larger Australian forums I've come across have been focused on property or trading. So that barefoot community does offer a critical mass of more investment-focused individuals we don't have yet. However I really hope a larger (free) Australian financial community builds up with more evidence-based investing underlying it (along the lines of the Bogleheads or MMM community).
Post by: dungoofed on December 27, 2015, 02:48:32 PM
However I really hope a larger (free) Australian financial community builds up with more evidence-based investing underlying it (along the lines of the Bogleheads or MMM community).
I'd nominate FFA's blog to try and build a community like that.[1] FFA - any thoughts?
Otherwise, the technology to put together a blog/forum/wiki is already out there. Could be up and running with a basic site within a few hours.
(also, I've mentioned it many times already but I think an important first step is getting the Australia section of the Bogleheads wiki uploaded)
[1] Would also have suggested yours too @superannuationfreak, but you've got it on ice for the foreseeable future.
Post by: superannuationfreak on December 27, 2015, 03:49:19 PM
However I really hope a larger (free) Australian financial community builds up with more evidence-based investing underlying it (along the lines of the Bogleheads or MMM community).
Otherwise, the technology to put together a blog/forum/wiki is already out there. Could be up and running with a basic site within a few hours.
I agree, the technology is cheap or free. Putting together fresh content is time-consuming but not that difficult in principle. The real challenge is hitting a critical mass so that a forum becomes self-sustaining. That's something I haven't worked out a formula to solve - maybe three parts luck, two parts existing content (such as a popular blog or radio show), one part marketing genius?
Post by: FFA on December 27, 2015, 04:41:09 PM
Abundant life - my opinion is that all you really need to do is a little bit of research yourself mainly because there are no secrets to investing well. Pick an asset allocation that you are comfortable with, invest in low cost index funds and stick to that plan for a long period of time and you will do well.well said steveo, I agree with the proviso that it's easier said than done. For some reason we are always tempted to overcomplicate / fast-track the process !
Anything that costs money reduces your returns.
Rob_S, thanks for the kind words and excellent summary of various info sources. I agree your comments re: barefoot, I've been a longtime subscriber to his newsletter but never went for the BB. I like his fresh / anti-establishment style and always get a good vibe from Scott Pape. Reminds me of Jamie Oliver, except only his feet are naked.
superannuationfreak - welcome back !
dungoofed - thanks for the nomination, I'm certainly willing to try/help. I wouldn't mind using my blog as the platform, or starting a fresh forum/wiki, whichever is desireable. My only criteria would be that it's free/non-commercial/no ad's/etc, and helps empower people to better self-manage their money.
I propose if we can make a small team to work on it during Jan, to give it some further thought/planning and decide if worthwhile to go ahead or not. dungoofed / s'freak - are you in ? Any other volunteers (preferably regular posters here) welcome too, although we might want to limit to 4-5 max. To avoid cluttering this thread, I suggest replies via PM and we will keep the thread updated on any progress from this initiative.
Lastly and most importantly - Merry Christmas and best wishes to all for 2016 !!
Post by: dungoofed on December 27, 2015, 05:40:43 PM
Post by: happy on December 28, 2015, 12:37:52 AM
Post by: slothman on December 28, 2015, 12:53:53 AM
There's some OK stuff on the passive investor but it hasn't been updated in a long time:
http://www.thepassiveinvestor.com.au/
Thank you for sharing this link! Just spent the last couple of hours going through the whole site. Didn't learn anything new but surprised that it completely mirrors my current investment goals and direction, i.e. property for capital growth then shares for income.
Post by: FFA on December 28, 2015, 01:17:13 AM
What I find is they are quite complex instruments and that's a bit of a turn off. Also it depends how you characterise the hybrid (equity/bond mix). For sure as a yield enhancement to your defensive assets, it's a positive. But then there's the other alternative of just buying the equity. E.g. in my case with 65/35% growth/defensive. If I were to invest 10% hybrids, do you just include that in the defensive bucket? Or do you put some split e.g. 60/10/30%, whereby your hybrid is offsetting some equity return too.
Anyway, I think that's where I got to last time and basically decided to keep it simple and leave hybrids out. The mortgage hedge is a completely different angle, so maybe that gives some extra benefit in your situation.
Post by: FFA on December 28, 2015, 01:33:58 AM
In terms of investments, what you're really paying for is one stock pick per month. Overall I thought it was a useful outlet for individual investors who would otherwise be trading too frequently or stockpicking with weak rationale. It's a way of giving them a bit more discipline, with regular behavioural reminders along the way. For those already comfortable with index funds and low-cost super it seems like a backwards step.
Regarding Australian long term investment forums, I've just started a Motley Fool subscription a month ago, and my early experience is very consistent with the above. Similar to Barefoot they have a money back guarantee, and the MF marketing can be rather aggressive/spammy. But if you can look past that, I get the impression they are a well meaning and transparent. MF has a range of services, I'm in the lowest cost Dividend Investor, which retails $199 and often on special at half the price. The forum is quite active. My reason for joining was to diversify my ASX exposure as I am concerned about VAS/IOZ concentration, e.g. in banks/miners/etc. I still intend to hold the majority (80+%) of my Oz share exposure in index etf's though.
Post by: nnls on December 28, 2015, 01:42:58 AM
just wondering if anyone has any advice on which online brokerage to use in Australia. Looking around CMC seems to have the lowest fees that I can find, but was wondering if anyone had any tips/ advice?
Thanks in advance
Post by: Rob_S on December 28, 2015, 06:23:02 PM
hi
just wondering if anyone has any advice on which online brokerage to use in Australia. Looking around CMC seems to have the lowest fees that I can find, but was wondering if anyone had any tips/ advice?
Thanks in advance
I use CMC, picked it because it was the lowest cost. It's working fine. The other platform I hear only good things about is CommSec. It's meant to be the more modern platform on offer from the banks and the ability to do a trade and transfer money across verse having the money sitting in your broking account is a big plus. From their website: Trade up to $25,000 worth of stock without an initial cash deposit.
This would have been handy as the market tanked just before the Santa rally. I had funds available just not in the CMC trading account.
Post by: ynotme on December 28, 2015, 07:27:22 PM
Regarding Comsec, it's easy to use although parts of it is clunky like the company filters to research potential companies to buy. I haven't used any other platforms so I can't compare. The biggest advantage for me is that I have other accounts with CBA so I find it handy to transfer between my CBA accounts and Comsec instantly (no delays when I want to buy). I also get to see a consolidated view of my accounts, including shares, through CBA's netbank. However if you're with one of the other banks, it might be worth checking out their trading platform.
Also all the best for 2016 everyone! I am generally a lurker, posting occasionally, and have enjoyed the discussion on this thread throughout the year.
Post by: deborah on December 28, 2015, 07:51:17 PM
Post by: Abundant life on December 29, 2015, 06:10:18 PM
Abundant life - my opinion is that all you really need to do is a little bit of research yourself mainly because there are no secrets to investing well. Pick an asset allocation that you are comfortable with, invest in low cost index funds and stick to that plan for a long period of time and you will do well.Steveo I agree on both counts, index funds are the way to go and costs always reduce returns.
Anything that costs money reduces your returns.
Barefoots emails are always a decent read but I wouldn't pay for his blueprint. His books alright, if a bit for beginners as well as being dated now.Thank you very much for this detailed response Rob_S, I can't get to investigating all these links at once, but I'll plough my way through them over the coming days/weeks.
I enjoyed Forager Funds 'Bristlemouth blog' and its recent rip into Dick Smith, good on them for putting it out there early on that the whole private equity thing was suss.
https://foragerfunds.com/bristlemouth/dick-smith-response-to-the-heist/
Superannuation Freak and Financially Free Australia (FFA) are both good people and have worthy blogs:
http://superannuationfreak.blogspot.com.au/2014/10/everything-you-need-to-know-about.html
http://www.financiallyfreeaustralia.blogspot.com.au/2014/12/whats-this-blog-about.html
Aussiefirebug is a new blog with some good content. Seems like a nice guy. He's gone the property route which isnt my thing so much of his content isn't all that relevant to where I am going:
http://www.aussiefirebug.com/rent-or-buy/
There's reddit but its very new and moves a little slow and I haven't found much good stuff on it:
https://www.reddit.com/r/fiaustralia
The noise to signal ratio on Whirlpool finance forum is all over the shop but theres some good posters there and some good stuff in the forum archive. Just use the search function. This thread is a good one:
http://forums.whirlpool.net.au/forum-replies.cfm?t=2322459
There's some OK stuff on the passive investor but it hasn't been updated in a long time:
http://www.thepassiveinvestor.com.au/
The british blogs are worth a look. The Escape Artist and Monevator. Some folk reckon Canada and Aus share a lot in common, in which case the canadian couch potato blog could be worth a look.
http://canadiancouchpotato.com/
Other than that I get the best value from books, though there are far too many property empire books clogging up the personal finance section of the library. I just finished Peter Thonhills 'Motivated Money' for the second time; I think The Falcon recommended him earlier in the thread. A very easy read, if a little short, from a man that no longer has skin in the game and has nothing to 'sell'.
Thanks superannuationfreak, (I have read your excellent blog in the past, but also read that you had suspended it for the time being due to conflict of interest). I don't know whether you didn't want feedback on your blog or didn't want to respond to questions, but I did ask a question at one stage and there was no response? However I digress ...Merry Christmas everyone.
Checking my emails, Scott Pape, the Barefoot Investor has sent his usual offering: join the Barefoot Blueprint for $297 for the year instead of $397.
Admittedly he offers a full refund if you are unsatisfied, but, as I peruse his offer it occurs to me that he offers us locals a lot of basic stuff that is available from an online broker and other stuff we can get free from MMM or JL Collins (the only drawback with the latter being that it is slanted to US readers).
Has anyone tried the BB and what did you think of it?
Has anyone come across an Australian website on investing that they felt was worthwhile? Other than this worthwhile thread of course!
I tried the Blueprint to see what it had to offer. I think they're well-intentioned people who have something to offer a subset of the population, I'm just not sure that subset includes many people here. They are genuine about the full refund if you want to give them a try, though.
What did I think of it? The strongest value it provides is the stuff that people probably wouldn't pay for in isolation: solid personal finance advice (live below your means, insure yourself, get a good mortgage deal, etc), and access to a relatively large community of other subscribers (some of whom provide their fellow members with useful advice and support via facebook group/forum). The personal finance stuff I think I'm on top of (and after a one-year barefoot subscription, or some decent books, I think most people would have enough material regardless). Paying $300p.a. for access to a facebook group where I found myself contributing but not learning very much was a bit rich for me. But I saw many others get value from that community.
In terms of investments, what you're really paying for is one stock pick per month. Overall I thought it was a useful outlet for individual investors who would otherwise be trading too frequently or stockpicking with weak rationale. It's a way of giving them a bit more discipline, with regular behavioural reminders along the way. For those already comfortable with index funds and low-cost super it seems like a backwards step. There was also an ETF portfolio (the barefoot breakfree portfolio - google it if you want to see what it was at the start, I don't imagine it's changed all that much). It was a not-unreasonable but relatively aggressive mostly equity portfolio, nothing special but perfectly adequate if one understands the risks (which were promoted as lower than I thought credible) and can stay the course over a couple of decades. And there were special reports on things like investment bonds (which was actually pretty decent, highlighting the lower-cost products for those on high-enough tax brackets - not so useful for individuals who expect to be in a lower bracket in retirement).
What were my concerns? Most of his suggestions I'd say are lower risk than the traditional Australian "buy property and a few dividend stocks", but still higher-risk than I think most people can handle behaviourally. He hadn't given much portfolio construction advice though, other than to suggest 6 months (for accumulators) to 3 years cash (for retirees). If this is in-line with your risk-appetite that's great. But when I was a member we hadn't seen a long-lasting downturn in the economy or the share market since Blueprint started. When we do (perhaps even in this year's decline) I suspect many will be uncomfortable with the risks they have been taking. Other than the ETF portfolio, his investment advice was mostly about investing in a LIC or two (such as AFIC) and adding 10 or so individual ASX-listed stocks (emphasising quality and value, Buffet-style). That will probably turn out OK, I certainly hope it does for those who follow such a strategy, but it's a hard strategy to be successful with behaviourally and doesn't take advantage of the substantial degree of global diversification now available cheaply. It takes on large amounts of Australia-specific risk - it's entirely plausible for a single small country to underperform over an investing lifetime - and I fear his members will struggle behaviourally as much as anyone else with the inevitable downturns that come from time to time.
Other larger Australian forums I've come across have been focused on property or trading. So that barefoot community does offer a critical mass of more investment-focused individuals we don't have yet. However I really hope a larger (free) Australian financial community builds up with more evidence-based investing underlying it (along the lines of the Bogleheads or MMM community).
This was a really informative answer, thank you. I have been reading some of the links Scott Pape has sent as a taste of what he provides and have come to the same conclusion. I tend to agree that it is mostly for people who are getting their financial act together. I don't need the mortgage info nor the debt reduction strategies for starters.
I did take notes from a pod cast he had in the last couple of years, which recommended a portfolio of certain index funds and the percentages he would allot to each. I should re-visit them.
After reading Jim Collins, I think I'm getting a backbone and long term view to riding the roller coaster that is the stock market. I did use some of my cash buffer, as it was building up with only meagre returns, to buy AFIC. I figured that I could take advantage of the 100% franking credits, while the capital and dividend reinvestment churned over.
And thank you for your last suggestion that seems to have sparked the formation of a new Australian focused blog! I don't know that I could contribute much, but I would follow with great interest. So thank you in advance to all those who feel they could contribute in a meaningful and informed way.
Post by: nnls on December 29, 2015, 07:54:52 PM
hi
just wondering if anyone has any advice on which online brokerage to use in Australia. Looking around CMC seems to have the lowest fees that I can find, but was wondering if anyone had any tips/ advice?
Thanks in advance
I use CMC, picked it because it was the lowest cost. It's working fine. The other platform I hear only good things about is CommSec. It's meant to be the more modern platform on offer from the banks and the ability to do a trade and transfer money across verse having the money sitting in your broking account is a big plus. From their website: Trade up to $25,000 worth of stock without an initial cash deposit.
This would have been handy as the market tanked just before the Santa rally. I had funds available just not in the CMC trading account.
Thanks for the feedback Rob_s and ynotme, I currently have my banking with Westpac so maybe will go with CMC as they are lowest cost
Post by: The Traveller on December 29, 2015, 10:51:26 PM
After the last 12 months living off the smell of an oily rag while being bled by divorce legal bills, settlement is now through. Unless I find work I need to live off investments.
I am going around in circles trying to figure out a strategy for the next 7 years before I can apply for a pension. I would like to have a coherent idea before I go to a financial planner.
I’m not really tied by location other than my household effects being in storage in Brisbane. I could buy a house outright in outer Brisbane or country Victoria but randomly selecting a location with no job is a difficult decision. I could rent for a year then decide?
I like to travel and happy wandering cheaply around Asia or elsewhere and need to build that into my retirement plans.
So fellow mustachians your thoughts and opinions are welcome.
Post by: terrier56 on December 30, 2015, 12:21:58 AM
You should be able to easily make that 7 years with 450k.
The issue is that when you come back (or maybe you wont have too) you would likely need a house and the pension could cover the rest. I guess there is always Tasmania :).
check out the website http://www.gocurrycracker.com/
This couple are travelling around Asia themselves and do detailed updates of monthly expenses.
Post by: happy on December 30, 2015, 01:26:28 AM
You have a lot of options which are personal decisions. With 920k you can probably live forever on 36k/year including housing. You would not however be eligible for OAP with that many assets. If you were trying to utilise the pension, but maintain your asset base, then you could consider buying a PPOR before you are 67 as this is currently ( but may not be in the future) not counted in the OAP means test. Sounds like now is not the time to buy a house, if you want to freewheel/travel for a while. Retirement planning at 60 or above is complicated and I agree you should see a fee for service planner, or attend free seminars etc from centreline or possibly your super fund.
Or, since this is the investing thread, were you asking about what to do with the 450k cash?
Post by: Astatine on December 30, 2015, 02:32:54 AM
Barefoots emails are always a decent read but I wouldn't pay for his blueprint. His books alright, if a bit for beginners as well as being dated now.
I enjoyed Forager Funds 'Bristlemouth blog' and its recent rip into Dick Smith, good on them for putting it out there early on that the whole private equity thing was suss.
https://foragerfunds.com/bristlemouth/dick-smith-response-to-the-heist/
<snip>
Fantastic, thank you for pulling together that list. I've put a copy in my journal to read later when my brain is functioning a bit better.
And I love the idea of an Australian-focused blog/wiki. I'm still such a n00b and barely follow the conversation in this thread (I can never remember what the acronyms stand for), and a handy Australian reference guide would be awesome.
Post by: dungoofed on December 30, 2015, 05:56:49 AM
I'll start by throwing out my suggestion of what I think you should do with the shares, the super and the $450K, then talk about the "other stuff" afterwards. The usual disclaimers apply, but this is my best-effort based on data I have seen.
Assumptions:
You rent instead of buying a house.
Summary: Put aside $50K cash, then aim for $435K in each of shares and defensive assets (in reality comes out at $430K/$440K respectively)
Regarding the $230K in shares, I'm not entirely happy with this. If you had $23K each across 10 blue chips I'd be fine, but three companies is a bit more risk than I think I'd be comfortable with in your situation. If you are able to sell down without incurring capital gains and buy some VAS instead then I'd look at doing that (unlikely with CBA, but maybe possible for TLS/NAB, depending on what price you bought at). Regardless, I'm going to assume you keep the full $230K in Australian equity.
Regarding the $240K super, I'd be trying to avoid accessing it (you do have options though!) and I'd try to make sure it was allocated about 50/50 between bonds and equity. Consider changing providers if you can find another that has lower fees, and make sure the insurance that comes with the super is relevant (life insurance is one that I'd be looking to ditch, assuming you have no kids still in school).
As for the $450K, I'd split it up as follows:
$50k set aside as cash for your first year getting settled in (hopefully you won't need this much). Then,
$40k as cash, in a high interest savings account or term deposit.
$80k PMGOLD call warrants.
$200K in bonds. Simple way is to just buy $200K of VGB. You can make this as complex as you like. Other options would include adding to the mix some VAF or some bond LICs trading below NAV, manually creating a ladder of bonds with maturities between 2-7 years (so that you have a guaranteed lump sum freed up at least once a year until your pension kicks in), some long term bonds to protect against interest rates dropping further, etc.
$40K in VAS (ASX300)
$40K in VGS (international shares)
All up this should yield about $25K/year in the first year (assuming you just reinvest the super) from the saver, shares and bonds. Because you're not touching the super, and because VAS and VGS operate like growth investments, I'd be comfortable with you spending that entire $25K each year. Also, you've set aside $50K in your first year, so the first $25K will become your emergency money going forward. I'd try and not spend more than was yielded in any 12 month period for the first seven years, and after that I'd be looking to reassess, maybe rebalance into shares, etc.
--
Positives about your situation:
1) You have some decent savings! There are a lot of people with a lot less at your age.
2) You've started to become used to living frugally. This is a skill that some people never master, but you've been practicing for the last 12 months already. If there are no major market gyrations over the next five years or so then you have a good chance of being significantly more wealthy than you are now thanks to your frugal ways.
3) You have a few options for accessing your super (personally I'd make sure it was invested sensibly then leave it alone for a few more years)
4) Australia still has a decent public health care system. This is something that Asia may not necessarily have.
5) Some Asian countries are currently involved in a kind of bidding war for retirees at the moment. Traditional destinations have been Indonesia (ie Bali), the Philippines and Thailand. However Indonesia and Thailand have odd laws starting with land ownership and property rights and there are a few other things I don't personally like about the way they view foreign retirees (ie as cows to be milked), and don't look like they're making efforts to improve. Meanwhile, Philippines is trying it's little heart out to attract retirees, and also Malaysia is a new player in this space (I imagine Vietnam would be too but haven't looked into it). If you were after the "frontier" experience you could try Cambodia or Laos but personally I'd be inclined to go for a place with slightly better expat infrastructure. Worst case you could set up something semi-permanent in a couple of these places and spend three months at a time in each indefinitely. (on a side note, I wish Japan had a suitable visa because you can easily find a place in the country for $350/month, and other ex-healthcare living costs are about half what they are in Australia if you're prepared to eat a bit of raw fish every now and then. And you could probably find work teaching English without much effort).
Other things to consider:
1) Definitely get that consultation with that fee-based financial planner.
2) Do you have an online brokerage account? My father still phones up his broker at $45 per trade. You won't pay half that at the most expensive online broker, usually between $11-16 per trade.
3) I'm not sure where you are looking for accommodation in "the outskirts of Brisbane" but I priced a couple of places, you seem to be able to get modest houses for around $250/week. Unfortunately this is about half of your $25,000/year
4) Any benefits available to you now? Unemployment benefits, etc.
5) Are you a pushbike rider?
6) Have you considered writing in to the Sydney Morning Herald "Ask an Expert" in the Money section?
7) What are the storage costs for the furniture? If you can sell some to the tune of $5000, that $5000 invested will theoretically give you an extra $15/month for the rest of your life.
8) I'd absolutely be looking to rent as opposed to buy, at least for the first year until things have settled down a bit. Even then, you want to be quite decided on an area as it's a big, illiquid investment.
Post by: FFA on December 30, 2015, 06:14:49 AM
Newly post-divorce I now find myself with no job and no home, no debt but I am cashed up with cash of 450k, shares (CBA,NAB, Telstra) worth 230k and super of 240k. I was retrenched from the resources industry last year and now at 60 seemingly unemployable.
...
I am going around in circles trying to figure out a strategy for the next 7 years before I can apply for a pension. I would like to have a coherent idea before I go to a financial planner.
I also agree a financial planner (fixed fee, no commissions) seems a good idea to get guidance on the combination of your cash/shares, super and how it fits with pension eligibility. Before that it would certainly be worthwhile to read (or re-read) the relevant MMM blog posts, and perhaps bogleheads.org if you want to delve deeper into investment philosophy and planning.
I think the rent or buy decision is an important crossroads to decide. If you opt to buy with cash, then your investment funds will be limited. If you decide to rent, then you have substantial investment funds to allocate.
A few further thoughts on the investment aspects :
Share portfolio : I would encourage you to diversify. Two oz banks and a Telco is a very narrow portfolio for 230k. You could consider swapping (at least some if not all) for a few index ETF's (e.g. Vanguard Australian Shares - VAS and Vanguard Global Shares - VGS) and cover the entire world. However you need to weigh up any capital gains tax liabilities before selling the CBA/NAB/TLS.
Cash : I'd recommend looking into high interest savers such as ING (100k limit), RAMS (250k limit, no withdrawals though, so might not be suitable!) and Ubank (200k limit). You can achieve 3.3-3.5% if you jump through a few hoops (e.g. make a deposit $200 or $1000 per month; can just shuffle money between them if need be). You need to live off this interest so I would be getting the absolute best rate possible, but you do need to be disciplined/focused to meet the bonus interest criteria each month.
Super : I'd recommend reading superannuationfreak.blogspot.com (http://superannuationfreak.blogspot.com) . My wife is in the hostplus indexed balanced option, which I believe is the best value in town, so I suggest it's worth a look. If the asset allocation 75/25% might be a bit aggressive, you could dampen it, e.g. 80-90% indexed balanced / 10-20% Cash. Although on an overall basis, you already have quite a large allocation of cash. Anyway as I said earlier, this comes back to the key question of whether you opt to buy a place.
While you're on superannuationfreak's blog, I'd definitely recommend reading this post too : http://superannuationfreak.blogspot.com.au/2014/10/everything-you-need-to-know-about.html (http://superannuationfreak.blogspot.com.au/2014/10/everything-you-need-to-know-about.html)
Good luck !
Post by: The Traveller on December 30, 2015, 08:24:32 PM
Using the FFA/dungoofed strategy provides a taxable income of around 25k/year albeit the safer path of cash and bonds does seem to limit portfolio capital growth and renting at 200/week to $250/week would use up 40% to 50% of income, which short of finding some type of employment, leaves a very frugal lifestyle.
Happy suggested buying a PPOR before 67 (well in my case before 66.5 years)
I had come to that conclusion myself as renting in retirement is an increasingly expensive option and pension rules currently benefit the house owner over renter. So using the incoming 2017 changes at 66 depending what my asset base was I could purchase or build a PPOR that leaves me within the range of the Asset free threshold of 250k and pension cut-off threshold of 547k.
Somewhat depends on the rules of the day in 2 or 3 changes of government’s time.
So it’s the interim period I need to work through.
Purchasing a house Option:
In country Victoria in a small to medium town I could purchase a cheap house for between 120k to 200k. In say Ipswich area of Brisbane 180k to 250k and stamp duty is half cost of Victoria. If I used 200k to 250k inc stamp duties and legals to purchase then my cash reduces to 200k to 250k.
This together with share portfolio of 230k at an overall non-super portfolio earnings of 4%pa (as per FFA/Dungoofed strategy) gives and income of 17k to 19k less rates.
This seems to provide more options including renting the property if I got a job elsewhere or if I spent a year or two away. Or I could get a lodger. After 6 years I would hopefully have some tax free capital growth on upgrading.
I have a lot more reading to do and thanks for the various links
Post by: FFA on December 30, 2015, 10:19:15 PM
if you buy a place and let's say you have 230k residual cash. that leaves your AA (ex super) at 50/50 oz shares/cash.
It's actually quite a reasonable split between growth and defensive assets for someone who's 60 years old. Of course is also depends on your risk tolerance and how your super is invested, which I don't really know.
Anyway, it's a good coincidence that your natural position falls this way, at least the high level AA is somewhere near the right spot.
What needs attention is the sub split within Growth and Defensive. Especially the Growth which is very high risk / undiversified, although the franked dividend yield from those shares is nice. I'd suggest at least 20% international exposure (e.g. VGS). And would rather see at least half the ASX exposure in an index ETF (e.g. VAS) instead of the direct shares. As I mentioned before, CGT exposure on selling the CBA/NAB/TLS needs to be considered before selling to buy into VAS/VGS. If you bought a long time ago and have very low cost base (high CG), then you might stagger sales over the years to use up any tax free thresholds and avoid CGT (due to nil marginal tax rate). If you have flexibility in your super investment choice, another way is to hold more international shares in super, to offset the lack of international shares outside. This also helps your income in the interim period, since the VGS yield is lower.
If you do end up working again, definitely ask the financial adviser about super strategies - salary sacrifice / transition to retirement / recontribution. There's lots you can do, some of them are loopholes likely to be closed very soon by the Govt. I don't know details as it's too far off for me, except that it can make a big difference for someone over 55, so I suggest you look into !
Post by: Primm on December 31, 2015, 03:10:18 AM
Post by: Primm on December 31, 2015, 03:24:29 AM
Changing jobs so will have access to a "self-invest" option for my super which I plan to take advantage of.
I'll be transferring around the $200k mark. My options are as follows. I'm 46 and realistically won't be retiring for another 10 years (started this caper a bit late), so I'd love to hear thoughts on how I should break up my investments.
VAS Vanguard Australian Shares Index / MER 0.15%
VSO Vanguard MSCI Australian Small Companies Index / MER 0.30%
VHY Vanguard Australian Shares High Yield / MER 0.25%
VAP Vanguard Australian Properties Securities Index / MER 0.25%
DJRE Dow Jones Global Real Estate Fund / MER 0.50%
VTS Vanguard US Total Market Shares Index / MER 0.05%
VEU Vanguard All-World ex-US Shares Index / MER 0.14%
WXHG SPDR S&P World ex Australia (Hedged) Fund / MER 0.48%
WDIV SPDR S&P Global Dividend Fund / MER 0.50%
VGE Vanguard FTSE Emerging Markets Shares ETF / MER 0.48%
VGB Vanguard Australian Government Bond Index / MER 0.20%
OZF SPDR S&P/ASX 200 Financials ex A-REIT Fund / MER 0.40%
OZR SPDR S&P/ASX 200 Resources Fund / MER 0.40%
Rules are can only invest a maximum of 85% in shares or ETFs (so 15% has to stay in my base account) and can't have more than 25% of total amount in any single ETF / share.
Thank you!
Post by: superannuationfreak on December 31, 2015, 04:56:40 AM
Changing jobs so will have access to a "self-invest" option for my super which I plan to take advantage of.
Review the non "self-invest" options also. You may find there are options which are also inexpensive and don't incur extra admin fees (often $180-400 p.a.) or brokerage. That said, there are some nice ETFs in the list (I primarily like VAS, VEU, VTS from that list but YMMV). You may need to supplement with those in-built investment choices or LICs (if offered) to get the allocation you want, particularly if you want more than 25% Australian Shares.
Post by: FFA on December 31, 2015, 05:08:47 AM
Some use rules of thumb like "age in bonds", which would mean 54% shares / 46% bonds... A Balanced setting. If you went with this, you might choose something like :
VAS 25%/ VEU 15% / VTS 14% = 54%
VGB 25% / Other Fixed income option or Cash in base account 21% = 46%
Maybe a better way is to consider how comfortable you are to see your super balance fall from 200k to 175k (ok?) or a tad further to 150k (still hanging in ?) .... 125k (eek!) ... Think back to 2008 and try to recall/visualise how you will cope.
Let's say you decide 125k is your max pain threshold. If we assume shares can fall 50% in a bear market, whereas defensive assets preserve capital. Then it suggests an allocation of 150k shares / 50k defensive. (In this stress test the shares have fallen from 150 to 75k, causing the balance to be at 125k.) It turns out more aggressive than the rule of thumb, more like a Growth option. Possible allocation might be :
VAS 25%/ VHY 13%/ VEU 19% / VTS 18% = 75%
VGB 10% / Other Fixed income option or Cash in base account 15% = 25%
As per superannuationfreak, I like the straightforward lowest cost ETF's. Keep the portfolio simple yet well diversified. I'm not into property, personally I feel VAS has enough. I added VHY in the second example because VAS was max'd to 25%. VSO sounds appealing but the small ords index is not a good benchmark, its one of the few sectors you are better off with an active manager. Hope it gives food for thought.
Happy New Year to all !!
Post by: deborah on December 31, 2015, 02:20:20 PM
Admittedly, they also recommend that you invest only 50% in them, and the rest in Westfarmers and Telstra etc., but as they are a stock picking service, it is quite surprising.
Post by: dungoofed on December 31, 2015, 02:34:50 PM
Post by: chasingthegoodlife on December 31, 2015, 04:00:23 PM
Which towns are you considering?
A few things to think about if you plan on purchasing the property as your long term retirement home are the accessibility to specialist medical services and whether the property will be accessible and easy to maintain as you age (eg stairs, land size, no shower-over-bath etc)
Also, you mention potential for capital gains on the property and subsequent upgrade - if this is your hope look closely into the markets you are considering. Much of country vic does not have the same potential for capital gains as melbourne and markets can be 'slow' too - many houses in my town are listed for a year before selling.
Sorry to derail the investing thread - pm me if you want to discuss in more detail.
Sent from my iPhone using Tapatalk
Post by: chasingthegoodlife on December 31, 2015, 04:06:42 PM
Sent from my iPhone using Tapatalk
Post by: Primm on December 31, 2015, 04:14:31 PM
hi primm, your AA should be set based on your risk tolerance/appetite, which you didn't really tell us about.
True. Basically I love my job, and while I would like to be retired in about 10 years if the shit hit the fan and I had to keep working that wouldn't be the end of the world. So for my age (I really hate that term) I am quite risk-tolerant.
Other factors which contribute to this are no dependent children and a husband who is an only child with an expected inheritance when we hit retirement age (parents are late 80s and not in good health) of not much more than a house, but it's in a good tourist area with estimated value at the moment of about $450k. Also we will have paid off our mortgage and finished renovations in our "forever" house by then as well.
Quote
Some use rules of thumb like "age in bonds", which would mean 54% shares / 46% bonds... A Balanced setting. If you went with this, you might choose something like :
VAS 25%/ VEU 15% / VTS 14% = 54%
VGB 25% / Other Fixed income option or Cash in base account 21% = 46%
Maybe a better way is to consider how comfortable you are to see your super balance fall from 200k to 175k (ok?) or a tad further to 150k (still hanging in ?) .... 125k (eek!) ... Think back to 2008 and try to recall/visualise how you will cope.
Let's say you decide 125k is your max pain threshold. If we assume shares can fall 50% in a bear market, whereas defensive assets preserve capital. Then it suggests an allocation of 150k shares / 50k defensive. (In this stress test the shares have fallen from 150 to 75k, causing the balance to be at 125k.) It turns out more aggressive than the rule of thumb, more like a Growth option. Possible allocation might be :
VAS 25%/ VHY 13%/ VEU 19% / VTS 18% = 75%
VGB 10% / Other Fixed income option or Cash in base account 15% = 25%
As per superannuationfreak, I like the straightforward lowest cost ETF's. Keep the portfolio simple yet well diversified. I'm not into property, personally I feel VAS has enough. I added VHY in the second example because VAS was max'd to 25%. VSO sounds appealing but the small ords index is not a good benchmark, its one of the few sectors you are better off with an active manager. Hope it gives food for thought.
Happy New Year to all !!
That gives me food for thought, thanks for that. I haven't yet consolidated my old super into the new one so it's all academic at this stage. I forgot about including the 15% of "non-invested" funds as being part of the safe cash option too.
Review the non "self-invest" options also. You may find there are options which are also inexpensive and don't incur extra admin fees (often $180-400 p.a.) or brokerage. That said, there are some nice ETFs in the list (I primarily like VAS, VEU, VTS from that list but YMMV). You may need to supplement with those in-built investment choices or LICs (if offered) to get the allocation you want, particularly if you want more than 25% Australian Shares.
Thank you. I honestly was a bit excited about the fact that I could pick and choose and didn't think to consider the extra cost, will have to do some research into how much that will be, including the cost of adding my contributions on a reasonably regular basis as well.
Cheers guys, and Happy New Year to you too!
Post by: chasingthegoodlife on December 31, 2015, 04:14:48 PM
Sent from my iPhone using Tapatalk
Post by: steveo on December 31, 2015, 06:39:14 PM
Superannuation freak has a good point about admin fees for self invest options - in my fund they do not seem worth it despite low MER. Does anyone here have a SMSF, and if so have you found it worth it? I imagine it would only be efficient for very large balances.
For me personally I don't think its worth it. My fund is an industry super fund which appears to simply index with associated minimal costs and good performance.
Post by: FFA on December 31, 2015, 07:30:22 PM
Deborah, re: the Motley Fool, yes I was also surprised they endorse Vanguard. I mentioned upthread that I recently took a subscription and this is one aspect that gave them credibility in my eyes. One thing to be aware of with MF as I also said earlier, their advertising is very spammy/full-on. A lot of the free articles you see in google and picked up by the media are by freelancers. It's completely different from what you see as a paid member, when you get the stock recommendations and education pieces from the MF team (e.g. Scott Phillips, Andrew Page etc). Also regarding the endorsement of Vanguard, it's actually not a new thing. I noted one of Bogle's key speeches "Investing with Simplicity" he mentions it then too, and that was 17 years ago !
Post by: happy on December 31, 2015, 10:55:46 PM
I've also come to this conclusion after investigating SMSF in the last 6 months. Fee-wise, much cheaper to stay in my industry fund. For the me the issue is having more direct control over my investments versus cost.Superannuation freak has a good point about admin fees for self invest options - in my fund they do not seem worth it despite low MER. Does anyone here have a SMSF, and if so have you found it worth it? I imagine it would only be efficient for very large balances.
For me personally I don't think its worth it. My fund is an industry super fund which appears to simply index with associated minimal costs and good performance.
Post by: Rob_S on January 01, 2016, 01:31:01 AM
Direct investing lets me pursue a low cost dividend strategy. Franking credits work to your favour in the super environment with its 15% tax rate leading to franking credits being paid to you in November.
The returns on my superfund pre the switch to direct investments had been opaque. I had no way of knowing how they came to the % return they did. With control over my investments I can see exactly the number of units/shares I have, when dividends and franking credits are paid and I get to see the DRP do its thing buying more shares. It now feels like a process that I can control and I now trust. It makes it feel more like your money and something I am interested in for the first time rather than the set and forget approach commonly held towards super.
A reason, beyond higher costs, to not go the whole SMSF route could well be the cheaper insurance available in a retail or industry product. You could leave a small amount in a industry fund with insurance attached and have the bulk of your funds in a SMSF if you want to hold onto cheap cover. I've seen plenty of people do this over the years.
With all that said I certainly see the appeal of a low cost industry fund. My wifes super is in HostPlus(?) and has done remarkably well in comparison to my retail fund. I'm hoping with direct investments things will improve. At least now I will know the returns are my fault.
Post by: deborah on January 01, 2016, 01:42:14 AM
Financially, I have done better with my SMSF than the alternatives I have been in from time to time. As these were all relatively short term, it could be argued that I wasn't in them for a reasonable timeframe for comparisons, but my money in the SMSF did better in the same time periods. The money is also THERE and it is mine. In the past, on several occasions I have had extreme difficulty in being able to transfer my super from one fund to another. In one case it took 6 months for me to get hold of my money. As I am retired I really like the ease with which I can do transfers (both in and out) - no waiting several days for the money to be in the account. I also like the transparency of an SMSF - you know exactly what you have.
I have been in alternatives when I was about to close the SMSF and at various times when my work wouldn't allow me to put my super into my SMSF.
Post by: Primm on January 01, 2016, 02:58:54 AM
https://qsuper.qld.gov.au/our-products/investment-options/self-invest/
Post by: happy on January 01, 2016, 04:01:10 AM
The returns on my superfund pre the switch to direct investments had been opaque. I had no way of knowing how they came to the % return they did.
Agree, this irks me no end WRT my industry fund.
Post by: Aussiegirl on January 02, 2016, 07:52:10 PM
Superannuation freak has a good point about admin fees for self invest options - in my fund they do not seem worth it despite low MER. Does anyone here have a SMSF, and if so have you found it worth it? I imagine it would only be efficient for very large balances.
We've had a SMSF for many years. I think if you have a smaller balance, you're single or you're happy to invest in ETFs / ASX300 shares, then the industry funds will be a cheaper, easier option using their self directed options. Gives you pretty good choice of investments and reasonable investment control. This will be more than ample for most people. If you want to invest in real estate or collectibles, you'll need to go the SMSF route. We have property in our SMSF as well as equities (ETF's). With the franking credits and property depreciation, we don't pay any tax in our fund at all even though we've a decent chunk in non dividend smaller company / non franking credit international ETF's. Being able to arrange / control your tax positions is one of the reasons I like SMSF's, as well as the absolute control you have over the funds and the ability to leverage.
For the non-aussies amongst us, if you sell an asset (including a property) in your superfund once you're in pensions phase then there is ZERO capital gains tax payable. The government will change this rule eventually, its far too generous, but they most likely grandfather any assets already held (which they have done in the past).
Post by: cakie on January 03, 2016, 07:12:31 PM
Using the FFA/dungoofed strategy provides a taxable income of around 25k/year albeit the safer path of cash and bonds does seem to limit portfolio capital growth and renting at 200/week to $250/week would use up 40% to 50% of income, which short of finding some type of employment, leaves a very frugal lifestyle.
I am wondering if you have considered other accommodation options besides buying/renting a house? I'm always jealous of over 55s when I look for rentals in country Vic, because there are lots of (sometimes standalone) units limited to over 55s, and they are always in the best locations ie. quiet areas with easy access to shops/public transport. My 62yo MIL just moved into one in fact!
If you are living on your own, and would like to travel, renting one of these seems like it would be a good option - it would easily shave $50+ /week off expenses.
Post by: superannuationfreak on January 04, 2016, 02:38:23 AM
The thing is it's not an SMSF as such, it's a "self-directed" portion of an industry super fund (Qld gov - Q-super), so it comes with all the perks of low cost insurance etc. which obviously come out of the "you can't touch this" 15% part, which is why I'm even considering it.
https://qsuper.qld.gov.au/our-products/investment-options/self-invest/
With QSuper I'd (personally) be more comfortable largely using their built-in low cost funds. You pay 0.20% p.a. even on the self-invest portion, so ETFs can't really compete with 0.07% p.a. (plus 0.20% p.a. admin) for Australian and International Shares in particular (EDIT: Both are passively managed although I see their International is hedged back to AUD, I would ideally want at least half my International unhedged). Their fees for cash are even lower and even the 0.26% (plus 0.20% admin) fee for Diversified Bonds will be hard to beat with an ETF (0.15% is the base fee + 0.11% last year in fees for outperformance, albeit you may not want as much of an emphasis on international fixed interest as the fund has). So feel free to use their self-invest but I wouldn't turn up my nose at the passive Australian Shares component particularly.
Post by: marty998 on January 04, 2016, 01:33:49 PM
Expect a pretty nasty open on the ASX this morning. We had a nice Santa rally over Christmas but someone has decided to stop the music for today anyway.
Post by: potm on January 05, 2016, 03:52:04 PM
If you do all the admin and reporting yourself, the only costs you have to pay for an SMSF will be the audit fee and the ATO regulation fee.
For index investing though, I would stick with industry funds, Host plus, Sunsuper, Australian Super.
Post by: Rob_S on January 06, 2016, 01:43:47 AM
The guy who built the site says:
It is a database of all of the ETFs and most of the LICs available on the ASX.
It has been designed for investors to be able to filter a fund database and find funds that suit their needs. Some of the cool aspects i think are industry/region categorisations, historic performance, dividend yield, and LIC premium or discount to NAV/NTA (as well as 5 years worth of premium/discount history). There's also a blog and news feed and some general info on ETFs & LICs.
I've been poking around on it today and like what I see. I figured it's worth a share.
http://www.etfwatch.com.au/
Post by: nnls on January 06, 2016, 01:57:43 AM
A new site went live a few days ago called ETF watch. It's full of useful information about ETF's and LICs.
The guy who built the site says:
It is a database of all of the ETFs and most of the LICs available on the ASX.
It has been designed for investors to be able to filter a fund database and find funds that suit their needs. Some of the cool aspects i think are industry/region categorisations, historic performance, dividend yield, and LIC premium or discount to NAV/NTA (as well as 5 years worth of premium/discount history). There's also a blog and news feed and some general info on ETFs & LICs.
I've been poking around on it today and like what I see. I figured it's worth a share.
http://www.etfwatch.com.au/
thanks for sharing Rob_s
Post by: limeandpepper on January 06, 2016, 07:01:08 AM
Post by: steveo on January 06, 2016, 06:51:33 PM
Post by: Rustycage on January 06, 2016, 08:10:56 PM
http://forums.whirlpool.net.au/forum-replies.cfm?t=2486777
For those that don't use Whirlpool at all, ignore most (probably all) of the other threads on the finance section. Lots of BS :D
Post by: FFA on January 06, 2016, 11:16:54 PM
Thanks for that ETF list. The problem is that now I can see so many options.haha yes, choice overload... seems a useful site. "The lowest cost ETF portfolio available on the ASX" is a good article. I still gravitate back to the 50/50 VAS/VGS default case. You can spend a lot more time, and come up with something more complicated, but I'm not sure it will be any better.
Post by: steveo on January 07, 2016, 12:25:30 AM
Thanks for that ETF list. The problem is that now I can see so many options.haha yes, choice overload... seems a useful site. "The lowest cost ETF portfolio available on the ASX" is a good article. I still gravitate back to the 50/50 VAS/VGS default case. You can spend a lot more time, and come up with something more complicated, but I'm not sure it will be any better.
I browsed a bunch of them and then thought VAS/VGS is nice and simple. I intend to also add VAF for a bond proportion within my asset allocations. Interestingly I checked my super fund out today and I can allocate single index options. At the moment I have a 90/10 allocation however I could change that in the future to have more international exposure and hold more ASX outside of super.
Post by: Wadiman on January 07, 2016, 01:32:17 PM
While this is welcome, any ideas why they have decided to make them hedged products? Do they just want to remove any currency risk whatsoever even though it would seem likely that the AUD won't be going back up anytime soon.
Post by: superannuationfreak on January 07, 2016, 02:02:24 PM
As many you know, Vanguard has introduced new Fixed interest ETFs - VIF and VCF.
While this is welcome, any ideas why they have decided to make them hedged products? Do they just want to remove any currency risk whatsoever even though it would seem likely that the AUD won't be going back up anytime soon.
Yes, Vanguard are taking the "bonds are for safety" view. It makes sense since otherwise currency volatility would likely swamp the bond returns.
Post by: FFA on January 07, 2016, 04:07:14 PM
This is a bit of a backflip by me, as I have been consistently against "smart" etf's and favouring the low fee/ market cap. However my ongoing unease about ASX concentration is leading me to think MVW is a good idea (not instead of VAS, but in conjunction with).
Currently I have my oz etf holdings in VAS 75-80% and IOZ 20-25%. The reason for IOZ was just to not have everything with Vanguard. Aside from that it doesn't give me much, the cost is slightly higher than VAS and the index is asx200 instead of 300, not much different.
So an idea currently hatching for me is to sell my IOZ and buy MVW. MVW cost at 0.35% is relatively double, but still in the bigger picture, not that bad. I can see value in it for the diversification, not having everything in the big 4 banks etc. An added benefit for me in this case i'm sitting on a decent capital loss on IOZ so I can realise that at the same time (though it's not the objective of this portfolio change, it would be a nice side benefit)
I'm thinking to re-target my oz etf's, something like 70% VAS / 30% MVW...
Would appreciate any feedback on MVW, especially if anyone uses it, how is the liquidity ? Any other thoughts ? Thanks !
Post by: DrowsyBee on January 07, 2016, 04:51:21 PM
Post by: povertystrickenbastard on January 07, 2016, 05:10:44 PM
2015 was my first year of investing. I managed to get used to seeing my investments in the green and then in the red. But in the past week I went from about $300 profit for my year, and now I'm down a total of $1,000. That $1,000 psychological barrier is certainly a reality check.
Just keep making regular investments and don't stress it too much. Look at these times as an opportunity to acquire more shares at cheaper prices.
Post by: sirdeets on January 07, 2016, 05:15:47 PM
These are really easy to read.
He puts forward a convincing argument in "Global Value" on investing in countries with low Cycically Adjusted Price to Earnings. Not quite individual stock picking, more "country" stock picking.. i.e. plough into Russia and Euro countries at the moment with CAPE <10, and stay away from US with CAPE >25. Interested in the groups thoughts on this. I read a paper from him in 2012 leading to me invest using his approach and had some good returns, but it was in a market where there were good returns everywhere.
Post by: dungoofed on January 07, 2016, 05:25:42 PM
FFA - there is also QOZ from Betashares, and I know Colonial First State have a wholesale fund based on RAFI which might be available from your superannuation provider.
Personally I'll be going the stock-picking route to flatten my Australian exposure manually. But only when I see high-conviction bargains; the majority for me will remain in VAS.
Post by: FFA on January 07, 2016, 06:09:49 PM
Post by: cakie on January 07, 2016, 09:16:41 PM
25% VAS
10% MVW
5% VSO
However, this week I have been researching small cap LICs, thinking about adding one in instead of VSO (ATM I only have $1k each in VSO and MVW courtesy of free first month brokerage with Westpac)
I would love any recommendations, that ETF watch site was actually very helpful :) The LIC fees are putting me off though! Might invest in GC1 (newcomer) if I can get it cheap. Won't be for a couple of months at least though.
Post by: cakie on January 07, 2016, 09:18:36 PM
DrowsyBee, lost similar amounts since we started in July (~$900), but it doesn't matter too much in accumulation phase...bought VGS yesterday $2 cheaper than previous purchase in October :) Got almost $200 in dividends on its way too...
Post by: FFA on January 07, 2016, 09:47:49 PM
I'm no expert on small cap LIC's. Suggest to check NTA premium in addition to fees. Sometimes the in vogue LIC managers have hefty premiums, even up to 30-40% which is crazy IMO. Others have hefty discounts which seem to stay that way for a long time.
I favour index over active in all cases except Oz small cap. The VSO index is a bad benchmark. Also many of these stocks are illiquid and there might be problems indexing.
Other options to consider
- keep life simple and delete Oz small cap.
- I took a motley fool subscription and am doing some direct small cap investing based on their recommendations. I would say this is more hobby/personal interest driven rather than rational economic optimisation of my portfolio
Post by: superannuationfreak on January 08, 2016, 12:21:13 AM
FFA, I have MVW, original aim was to have my 40% Aust stocks split:
...
I would love any recommendations, that ETF watch site was actually very helpful :) The LIC fees are putting me off though! Might invest in GC1 (newcomer) if I can get it cheap. Won't be for a couple of months at least though.
These were my thoughts on MVW/QOZ vs. more focused small/mid-cap exposure:
http://forum.mrmoneymustache.com/investor-alley/australian-investing-thread/msg445457/?topicseen#msg445457
GC1 not only has a 1% base fee but a performance fee against the Small Ordinaries index (ugh).
Although I'm (personally) now leaning towards simplifying to VAS again. My employer (and I'm sure many of the other industry funds) includes some more varied active ASX exposures and pays much less in fees (and does much more due diligence) than I am able to do as an individual investor. Since they pay my Super into the fund, that may grow to be enough diversification/excitement (and a lower-tax environment in which to hold potentially higher-turnover strategies).
Post by: FFA on January 08, 2016, 01:08:26 AM
for me, the MVW is a swap with IOZ. so it's not about small cap exposure, but really about a better diversified large/mid cap index. offset against 0.35 vs 0.19% MER. and with a positive side effect of a decent capital lost to harvest. I didn't pull the trigger today, might ponder it a bit more. also because I noticed MVW goes ex-div on Monday and I would rather not take the extra dividend (any pay tax on it, even after franking credits). Just watching it today the liquidity seems decent for MVW, better than IOZ. market markets keeping 3c bid vs ask nearly the whole day. IOZ is like that in the afternoon but can be much wider in the morning.
edit to add : regarding QOZ I got as far at the key facts sheet http://www.betashares.com.au/products/name/ftse-rafi-australia-200-etf/#each-keyFacts
.... just a glance at the top holdings made me immediately conclude - why bother, just take VAS. With MVW you are really getting a different portfolio, each holding is 2% or less, so for sure you will have a 20+% reduction in exposure to the big 4 banks.
Post by: ynotme on January 08, 2016, 02:37:30 AM
The reason I haven't gone ahead with it is because I prefer letting my winners run and selling shares that aren't doing well. With the equal weighting, you keep selling the winners to bring it back to the weighting. I'm still deciding whether to go with MVW or buy some individual shares in the ASX 100 that act more like a high conviction fund. I do have shares like Ramsay Healthcare that I am just happy holding and are otherwise such a small part of VAS . The majority of my AU portfolio is VAS so I don't have a large percentage in any one company.
I think if you want better diversification and don't want to hold individual shares, MVW sounds pretty good.
Post by: FFA on January 08, 2016, 04:46:25 AM
yeah indices are never perfect. market cap is also criticised for being overweight the overvalued stocks and underweight the undervalued....
my portfolio is in a bit of a mess and I've been working on getting in order in the new year. it's more complex than it needs to be, but that's probably because I like it that way :) here's what i'm settling on -
Oz shares 55%
- VAS = 20-25%
- MVW = 10-15% (need to switch IOZ)
- Large cap 8 to 12 holdings max = 10-15% (need to sell some, thinking to keep ASX, CBA, CSL, IAG, RHC, RIO, TLS, WES, WPL)
- Motley fool Dividend Investor (small/mid caps) 5-10%
Int shares 45%
- Currently all in VEU/VTS (55/45% sub-split)
- Fresh funds into VGS/VGE (90/10% sub-split)
Post by: wilkensone on January 08, 2016, 08:02:16 AM
I've been having a read (albeit slow) through this australian thread, has there been any australian specific discussion for the costs of etf/funds such as vanguards offerings. I'm currently leaning towards investing my money in the funds not etf as I can make weekly contributions for the sweet DCA rather than buying etf and likely only quarterly.
Thanks for the great thread so far!
Post by: Rob_S on January 10, 2016, 05:59:42 AM
However, this week I have been researching small cap LICs, thinking about adding one in instead of VSO (ATM I only have $1k each in VSO and MVW courtesy of free first month brokerage with Westpac)
I would love any recommendations, that ETF watch site was actually very helpful :) The LIC fees are putting me off though! Might invest in GC1 (newcomer) if I can get it cheap. Won't be for a couple of months at least though.
I've been thinking about small cap LIC's tonight. I'm currently interested in MIR, WAM and CDM. I'm all in on VHY at the moment and FFA keeps frowning at the strategy. I can see MIR being a real complement with its focus on small/mid caps but then again I like the yield and international diversity of CDM. MIR is 0.7 fee compared to 0.25 on VHY so I'm not sure if the diversity is worth it. WAM and CDM is 1.0 and then has a 20% outperform fee; I like CDMs investment mix though...
I'll probably just stick to VHY :)
Post by: FFA on January 10, 2016, 03:34:47 PM
I'm all in on VHY at the moment and FFA keeps frowning at the strategy.my frowns are not having any influence though :)
anyway, it's horses for courses and I applaud you for making your own decision, for your own reasons and planning.
just to clarify my thinking is mainly around diversification.
I feel having some international exposure is a key consideration. especially if you have a lifestyle involving regular international travel, plans to live abroad for periods of time, etc. And the range of companies available in global markets is just so much wider than we have here.
Regarding the type of oz exposure, whether VAS or VHY or some small cap in the mix. I feel these are second order considerations. Less impact. As I suggested to cakie, if you want to keep it simple, leaving out small cap is also a valid option. The thing I worry most about is ASX concentration. That's why i'm looking at adding some MVW as a VAS/IOZ substitute. for me it's a slightly more important issue than the small cap, but that's just me. we each need to decide based on our own judgement and plans.
Post by: FFA on January 10, 2016, 03:46:30 PM
We did discuss quite a bit over the new year period. This is my version of where we got to... Superannuationfreak, dungoofed - pls add your comments too, and feel free to correct if I got it wrong -
- we feel this MMM Australian Investing thread is already serving a useful/adequate function as a forum (not so good as a wiki /info source due to lack of structure)
- we're all a bit time constrained right now to take on a major initiative (even me, believe it or not !)
- between us we had slightly different priorities / constraints
- I've been keen for a while to write an eBook, so have decided to draft something on Simple Investing. Several forum members are helping me review, it should be out in the coming weeks. I will let you know once out.
- dungoofed is still keen on the wiki/forum and so it's still on the backburner. I'm also happy to help. So pls let dungoofed know if you want to be involved / have any ideas. If we see more demand/interest it has a better chance to happen.
Post by: slothman on January 11, 2016, 08:33:32 AM
I feel having some international exposure is a key consideration. especially if you have a lifestyle involving regular international travel, plans to live abroad for periods of time, etc.
Hi FFA, could you please explain how international exposure might assist my goal of living abroad for mini retirements? I've got some funds in VGS but no where near the ~40-50% of portfolio that it ought to be. Just hoping you can elaborate a little more on the importance of international exposure for someone a few years out from FIRE and wanting to rely solely on a steady passive income stream during mini retirements.
Post by: deborah on January 11, 2016, 01:54:05 PM
For one reason, just look at the last couple of years. Then, the AUD was on par with the USD, now, it's 70% of the USD. That would mean a 30% haircut in your income if you were living overseas and everything else stayed the same. If you were international and everything stayed the same you wouldn't get that haircut.I feel having some international exposure is a key consideration. especially if you have a lifestyle involving regular international travel, plans to live abroad for periods of time, etc.
Hi FFA, could you please explain how international exposure might assist my goal of living abroad for mini retirements? I've got some funds in VGS but no where near the ~40-50% of portfolio that it ought to be. Just hoping you can elaborate a little more on the importance of international exposure for someone a few years out from FIRE and wanting to rely solely on a steady passive income stream during mini retirements.
Post by: FFA on January 11, 2016, 02:25:27 PM
Post by: steveo on January 11, 2016, 06:53:12 PM
hi slothman, yes what Deborah said is what I had in mind. basically to help protect your purchasing power abroad. the diversification is the bigger reason for me, but overseas purchasing power is an important consideration if you have a more international lifestyle.
What if you intend to live in Australia ? Does that change the picture. I intend to have international shares but primarily for diversification. I don't intend to live or travel much overseas.
Post by: deborah on January 11, 2016, 11:26:42 PM
hi slothman, yes what Deborah said is what I had in mind. basically to help protect your purchasing power abroad. the diversification is the bigger reason for me, but overseas purchasing power is an important consideration if you have a more international lifestyle.
What if you intend to live in Australia ? Does that change the picture. I intend to have international shares but primarily for diversification. I don't intend to live or travel much overseas.
Diversification. Also, remember that 100 years ago many countries in South America had pretty high standards of living, and look at where they have been for all our lifetimes. A country like Australia with a small population and not much diversity of country income (we've been relying on the mining boom for example) can easily slip down like those countries did. If that happens during your lifetime, international exposure allows you to retain your own standard of living.
Post by: steveo on January 11, 2016, 11:33:21 PM
hi slothman, yes what Deborah said is what I had in mind. basically to help protect your purchasing power abroad. the diversification is the bigger reason for me, but overseas purchasing power is an important consideration if you have a more international lifestyle.
What if you intend to live in Australia ? Does that change the picture. I intend to have international shares but primarily for diversification. I don't intend to live or travel much overseas.
Diversification. Also, remember that 100 years ago many countries in South America had pretty high standards of living, and look at where they have been for all our lifetimes. A country like Australia with a small population and not much diversity of country income (we've been relying on the mining boom for example) can easily slip down like those countries did. If that happens during your lifetime, international exposure allows you to retain your own standard of living.
I agree but it comes at a cost and additional risk as well. We have such great benefits with franking credits and you miss some of that plus you are exposed to currency movements.
I have already diversified and I will diversify basically just via international shares however its a tough call to make at times.
Post by: deborah on January 12, 2016, 12:29:37 AM
Yes, I really struggle too. A year ago I realised that I was far too Australian, and I have diversified a bit since then, but not enough.hi slothman, yes what Deborah said is what I had in mind. basically to help protect your purchasing power abroad. the diversification is the bigger reason for me, but overseas purchasing power is an important consideration if you have a more international lifestyle.
What if you intend to live in Australia ? Does that change the picture. I intend to have international shares but primarily for diversification. I don't intend to live or travel much overseas.
Diversification. Also, remember that 100 years ago many countries in South America had pretty high standards of living, and look at where they have been for all our lifetimes. A country like Australia with a small population and not much diversity of country income (we've been relying on the mining boom for example) can easily slip down like those countries did. If that happens during your lifetime, international exposure allows you to retain your own standard of living.
I agree but it comes at a cost and additional risk as well. We have such great benefits with franking credits and you miss some of that plus you are exposed to currency movements.
I have already diversified and I will diversify basically just via international shares however its a tough call to make at times.
Post by: Astatine on January 12, 2016, 01:12:15 AM
Just to feedback to this thread re: earlier idea/initiative of a potential wiki/forum (I think it was around Christmas time if you're searching back up the thread).
We did discuss quite a bit over the new year period. This is my version of where we got to... Superannuationfreak, dungoofed - pls add your comments too, and feel free to correct if I got it wrong -
- we feel this MMM Australian Investing thread is already serving a useful/adequate function as a forum (not so good as a wiki /info source due to lack of structure)
- we're all a bit time constrained right now to take on a major initiative (even me, believe it or not !)
- between us we had slightly different priorities / constraints
- I've been keen for a while to write an eBook, so have decided to draft something on Simple Investing. Several forum members are helping me review, it should be out in the coming weeks. I will let you know once out.
- dungoofed is still keen on the wiki/forum and so it's still on the backburner. I'm also happy to help. So pls let dungoofed know if you want to be involved / have any ideas. If we see more demand/interest it has a better chance to happen.
Thanks for the update!! I look forward to reading the ebook. Not sure what your writing style will be but I always find it easier to understand things with a few simple examples. Otherwise it's all a bit abstract and not real.
Post by: stripey on January 12, 2016, 01:45:38 AM
Just to feedback to this thread re: earlier idea/initiative of a potential wiki/forum (I think it was around Christmas time if you're searching back up the thread).
We did discuss quite a bit over the new year period. This is my version of where we got to... Superannuationfreak, dungoofed - pls add your comments too, and feel free to correct if I got it wrong -
- we feel this MMM Australian Investing thread is already serving a useful/adequate function as a forum (not so good as a wiki /info source due to lack of structure)
- we're all a bit time constrained right now to take on a major initiative (even me, believe it or not !)
- between us we had slightly different priorities / constraints
- I've been keen for a while to write an eBook, so have decided to draft something on Simple Investing. Several forum members are helping me review, it should be out in the coming weeks. I will let you know once out.
- dungoofed is still keen on the wiki/forum and so it's still on the backburner. I'm also happy to help. So pls let dungoofed know if you want to be involved / have any ideas. If we see more demand/interest it has a better chance to happen.
Thanks for the update!! I look forward to reading the ebook. Not sure what your writing style will be but I always find it easier to understand things with a few simple examples. Otherwise it's all a bit abstract and not real.
Me too. Can't contribute anything as I am far too much of a novice.
Post by: Adventures With Poopsie on January 12, 2016, 02:09:51 AM
Post by: FFA on January 12, 2016, 02:17:36 PM
http://www.abc.net.au/news/2016-01-12/many-australians-dying-with-large-superannuation-balances/7082628
Quote
"The vast majority of people don't spend their superannuation recklessly, and if anything perhaps a little bit the opposite," Dr Reeson said. "People are very risk averse and spend at a relatively slow rate, which potentially means that many people will die still with significant superannuation balances." The study is based on previously unpublished data from the Australian Taxation Office (ATO) and super funds going back to 2004.
Post by: deborah on January 12, 2016, 07:03:58 PM
Post by: FFA on January 12, 2016, 10:12:53 PM
Let's wait and see what comes this year on Super/tax reform. Lots of these kind of articles and thinktank proposals lately (CGT, etc). The Govt could latch on to this as evidence Super is being misused/too generous. I recall at my first employer they used to give 5 weeks leave instead of 4 weeks annual leave. However people weren't keeping up and were accumulating leave. So the company said fine if you don't need it we will just revert back to the normal..... People started taking holidays quick smart then !!
Post by: deborah on January 12, 2016, 11:22:54 PM
Post by: AustralianMustachio on January 14, 2016, 02:56:00 AM
QVE seems like the best for me, and am considering investing in it. The manager is conservative and dividend focused, and has a long history of outperformance in general, and especially in the small cap area. This is their unlisted small cap fund:
http://www.iml.com.au/IML/main/index.php?select=performance&PID=5
I was invested in MVW at one stage, but changed my mind (i chopped and changed investment strategies too much, so not a reflection on it as an investment). I think there could be a problem with turnover for that ETF though, with too much buying and selling to maintain their equal weights, vs the index which is very much not equal weighted. It's also quite small if i remember correctly
Post by: marty998 on January 14, 2016, 04:00:05 AM
One problem is the progressive nature of superannuation draw downs - from 4% per year before you are 65 when you are younger to 14% at 95. This means you almost have to only draw down the minimum in the early years to be able to have anything in the later years to draw down, or leave a substantial proportion in accumulation phase, even though you cannot add anything to it after 65 if you are retired. While 81 is the average life expectancy, if you are a couple and you both reach 60, on average one of you will live past 90 (see http://learn.nab.com.au/life-expectancy-and-retirement/).
You might have to draw it down out of super but that doesn't mean you have to spend it.
My dad's super pension just goes straight into a savings account....
Post by: FFA on January 14, 2016, 03:34:18 PM
I was invested in MVW at one stage, but changed my mind (i chopped and changed investment strategies too much, so not a reflection on it as an investment). I think there could be a problem with turnover for that ETF though, with too much buying and selling to maintain their equal weights, vs the index which is very much not equal weighted. It's also quite small if i remember correctlythanks AustralianMustachio , I was hoping for your feedback since you'd mentioned MVW... I noted the turnover issue, although MV claim it's not excessive, and that it can add value since it's rebalancing. Anyway there's always trade-offs and i'm prepared to accept this for better diversification. ASX200/300 have a concentration issue (just look at top 4 holdings, and compare with VGS as an example) which for me is the bigger concern. So I swapped my IOZ for MVW the other day. Still holding the majority of my oz ETF in VAS. While MVW is a small ETF the liquidity is slightly better than IOZ, but not as good as VAS these days.
Post by: oysters on January 15, 2016, 04:24:10 AM
I'm new to MMM, thanks for this great thread. Bio: 31, single dad, Adelaide, small savings so far (waiting for a little more from divorce settlement), hoping to start Vangaurd ETFs soon. I'm keen to get more frugal and Mustachio'd (now that I choose my own non-consumerist path!) and FIRE around the time my daughter enters adulthood (about 16 years). Then I want to enjoy my freedom and travel (and pick and choose the occasional piece of work to my liking. I'm a scientist). I'm currently I'm in the 32.5% tax bracket. Maybe in a few years I'll creep into the next one through slight increases in pay (not due to CPI), then that's probably about where my salaried earning potential will end unless I change fields entirely.
I'm sure those of you who are pre FIRE and have this game sorted, already have an optimised procedure for determining exactly how much to put into super PRE-tax. As I aim to FIRE well before the current Age 60 preservation age (and I'd bank that will increase by the time I get there maybe up to a few years), it makes sense to have a nice balanced ratio of non-super and super investments. I'm fairly confident that the 9.5% employer contributions I get, for the remaining ~16 years before I FIRE, would be below the optimum minimum to have in there. Likely, it would be better if I do some pre-tax contributions to take advantage of pre-tax dollars. But the question is, exactly how much? If I put in too much (up to allowed amount), I won't be able to put in much into my non-super investments. This could mean I run short of $$ prior to hitting preservation age.
Is there an easy way to work this out? I have been playing with FIRECalc the last couple of days (just discovered it) and figure I could keep playing with numbers on that (and with the aid of other calculators) increasing the pre-tax $$$ and decreasing inputs to non super investments, until I find a happy medium???
Also, would it be better to wait a few years (maybe five or six) until I put start doing pre-tax super contributions. In the meantime I put the full amount I can save into my non-super investments, then when I get into the next tax bracket (37%) I start pre-tax super contributions as well, but put a larger amount in to make up for the few years I haven't? Pros: 1. non super investments do better earlier, and have longer to compound. 2. By waiting I get better leverage on my tax at 37% rather than 32.5%. Cons: 1. less time for super to compound. 2. Earnings on the super investment have less tax (I think?) so it might be a wash.
The way I'm using FIREcalc so far, I'm trying to avoid failure (and by avoid, I mean minimise probablilty of it happening-not 100%). That's the goal with this calculation. As FIREcalc doesn't simultaneously take into account the potential failure rate of the super stash, having a higher % failure rate of the non-super investment isn't as big a deal if the super stash is rather large. But this is harder to take into account, as I'm putting the Super income in just as a regular "pension" type income in one of the FIREcalc tabs...also I've just been assuming 3.5%SWR for the super stash (whatever that amount happens to be on preservation)...just being slightly conservative on the 4%SWR based on what I've read in some threads on MMM for the Australian situation.
Should I just keep it simple and do one calculation based on two main FIREcalc calculations:
1. Assume maximum pre-tax super input. (a) Calculate left over savings for non super investments for pre-preservation age FIRE (PreSPAFIRE...hehe). Assume no super tax advantage.
2. Do FIREcalc for the 13 years of PreSPAFIRE only using (a). As long as this is a high %, all is good.
3. Do FIREcalc for the x number of years of PostSPAFIRE, using what the super would be to, by fudging it so that I pretend I'm 13 years older than I currently am. As long as this is a high % then maxing on non super investments is fine.
Screwing this method up though, I could miss out on FIRE at an earlier date, if things aren't quite optimised.
Thanks all in advance...apologies if I've confused the way I've written this up, or done too many questions in one post. I guess I could just do a little extra pre-tax Super for now and just concentrate on being happy-stingy. There are other things to add into the mix too, like buying a PPOR (rent currently) at some point.
Post by: deborah on January 15, 2016, 06:40:58 AM
However, at the moment, superannuation is a very good deal, and they are going to cut it back. You might think (like me) that they could grandfather your existing super (continue to treat it like they do at the moment), in which case you might allocate more of the super component now, and less later (after what ever the new provisions are in place). If you do this, don't forget to allocate more to pre-super retirement later.
Post by: happy on January 15, 2016, 08:04:03 AM
OP there is no single formula we use, since it depends on your personal views on what the govt is going to do to super, and whether you think they will grandfather the current conditions. I agree with Deborah that super is likely to get worse, not better and grandfathering of current conditions is likely. Both contributions and super earnings are taxed at 15% in the accumulation phase.
Are you using FIREsim or cFIREsim? The latter is a bit easier to use I think.
If you are feeling that you wanted to make the most of the current super provisions then I'd put in the highest pretax amount allowable, and then invest the rest.
If you are dubious about super, then invest more outside.
Don't forget you can track your progress, and adjust accordingly as you go along. Whatever you decide you'll need 13 years expenses outside of super.
Post by: FFA on January 15, 2016, 03:23:25 PM
I must confess I didn't use firecalc, so can't offer much there.
I used a simple approach. e.g. 3.5% SWR = 1/0.035 = multiplier of 29 . Let's say 30 to make the maths easier and include a small buffer.
If your FIRE expenses are 25k per year (please substitute your own number). Required stash = $25k * 30 = $750k
As per happy's two thirds in Super / one third ex Super --> 500k in Super / 250k ex Super.
Or perhaps 50/50 is a more flexible target to accumulate towards e.g. 375k in / 375k ex Super. Assuming there is some flexibility retained to top up Super rapidly at the end, you can always shift in that direction but not the reverse.
Post by: Aussiegirl on January 15, 2016, 04:26:17 PM
1. Income from super will no longer be tax free in pension mode. I assume it will be your marginal tax rate less 15%.
2. Capital gains in your superfund in pension mode will be taxed at 15%.
3. Non-concessional contributions limits will come down in a big way.
4. You won't be able to take lump sums from your super, it will be an income stream only.
5. They will increase the age at which you can access super to 5years less Than the pension.
And in the short term:
5. The tax benefits for contributions will be scaled back.
I have put extra into super, as does my hubby. But, for us, the benefits are probably starting to be out weighed by the legislative risk. Once the tax benefits are scaled back,that will probably be the end of our extra contributions.
Personally, I would work out the split as per Happy and then I would save 10% -15% more outside of super than those numbers suggest. Might be a tad more expensive tax wise but it will give you more flexibility.
Another thing to keep in mind is the tax implications of your super on death. If the beneficiary isn't a dependent (spouse, financially dependent child living at home etc) then they will pay tax on the inheritance from super - but not on assets in your own name.
Post by: deborah on January 15, 2016, 06:29:08 PM
1. Income from super will no longer be tax free in pension mode. I assume it will be your marginal tax rate less 15%. Agree
2. Capital gains in your superfund in pension mode will be taxed at 15%. Agree
3. Non-concessional contributions limits will come down in a big way. Agree
4. You won't be able to take lump sums from your super, it will be an income stream only. NO - people need lump sums to move into care, to downsize... Lump sums help the government because they go out of the low tax environment, and the government encourages people to take their money out of the super environment already by making the percent you withdraw larger each year. There is no evidence that people are reducing their super to get more pension (although there is evidence to suggest that people without the pension were trying to get the pension for the health care card, but that has almost certainly been fixed by the latest changes).
5. They will increase the age at which you can access super to 5 years less Than the pension. Agree - but I am not confident of this, as it would put a lot of people onto the disability pension. According to the ABS (http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6238.0Main%20Features3July%202012%20to%20June%202013?opendocument&tabname=Summary&prodno=6238.0&issue=July%202012%20to%20June%202013&num=&view=) just under a quarter of people who have retired give the reason as 'own sickness, injury or disability'. It appears that there is already an extra burden on the disability pension because of the rise from 55 to 56 which happened last year.
And in the short term:
5. The tax benefits for contributions will be scaled back. Agree
I really think this is all going to happen sooner rather than later because otherwise is will completely miss the baby boomers - who are a bigger generation than the two after them, and are the cause everyone is so concerned. The last five years of the baby boomers were affected by the change from 55 - 60.
Post by: dungoofed on January 15, 2016, 11:40:50 PM
Quote
The index at the small end of the ASX is a joke, cluttered up with speculative miners (which are now re listing as speculative vitamin companies selling to China).
LOL! Best description I've seen.
Regarding diversification and VAS, I think in reality I'll wait until there is a passive "ex-ASX20" or mid-cap index (probably based on http://au.spindices.com/indices/equity/sp-asx-midcap-50). And until it does I'll use it as an excuse to pick stocks from the "small-cap value" end of town : )
If I knew for sure none were forthcoming then I'd choose one "value" ETF (preferably systematic/passive) and one small-cap or micro-cap ETF (would consider active management).
Regarding tax-sheltering, I wish Australia would move to an "ISA" model like they have in the UK, or a Roth model like in the US. Having said that, I think it'll just be another year or two before your average Joe has offshore accounts in tax-sheltered locations. These are no longer just for hedge funds. Much simpler, you just pay CGT at the end when you repatriate the money to Australia, or according to the rules of whichever country you retire to.
Post by: FFA on January 16, 2016, 05:06:33 AM
I think it'll just be another year or two before your average Joe has offshore accounts in tax-sheltered locations. These are no longer just for hedge funds. Much simpler, you just pay CGT at the end when you repatriate the money to Australia, or according to the rules of whichever country you retire to.i'm surprised , I thought it would be very difficult these days. They had an amnesty recently, after which I thought the ATO was going to be very tough on any offshore undeclared income/gains. I hope so too personally, i'm quite against tax avoidance/sheltering (whether legal or not, I feel the principle is very wrong).
Regarding the changes to Super/CGT/etc. I've given up trying to predict. I'm just going to wait, and re-adjust strategy afterwards if necessary. My basic assumption on Super is that it will need to remain tax advantaged (although the extent of advantage should be reduced). So I don't expect the basic strategy/idea to change, i.e. prioritise investment for your post 60/65 years in Super, and keep the rest outside Super.
Post by: dungoofed on January 16, 2016, 06:04:34 AM
(add Bitcoin for the transactions in and out the country and it no longer has to be above-board - heh)
I'm a big fan of more competition between governments when it comes to treatment of your money. You can't expect money to hang around if it is treated better elsewhere.
Post by: FFA on January 16, 2016, 04:12:12 PM
Anyway, i'm in the camp that hopes they crackdown on this, as part of the whole tax revamp. Easier said than done. But there's not much point equalising Super, CGT and whatever else, if you just allow people to bypass it anyway.
Post by: Minion on January 16, 2016, 04:20:59 PM
Assistance appreciated
Post by: dungoofed on January 16, 2016, 04:40:18 PM
sorry for being thick, but where's the benefit if you need to declare it ? That should mean you pay Australian tax on it (perhaps with some foreign tax credit if the other country has a tax treaty with Australia, perhaps unlikely if it's a tax haven i'd expect).
You supposedly pay CGT (with a tax credit) when you repatriate, but there is no CGT during accumulation. Think of all the reinvested dividends, CGT events from liquidating one fund and purchasing another more suitable one, etc over a 30 year period and it starts to add up. Also, if you get to choose exactly when to repatriate and therefore pay CGT then you have flexibility to wait for a time where Australia may have lowered the CGT rate.
It's not all roses though - you are at the whim of another jurisdiction and their laws, and the US is currently pressuring many of these "havens."
Note that there are two issues which are often conflated: 1) jurisdictions setting tax rates that make them attractive places to do business, and 2) jurisdictions that have financial secrecy laws. Neither are necessarily "bad" - sovereign nations should be allowed to choose how they tax the populace, and should be free to decide whether their citizens have the right to financial secrecy. I find it an interesting conversation that reaches to the roots of what it means to be a sovereign nation, but it's possibly not suited to this thread. If I was more confident with my knowledge in this area I'd give some specific examples relevant to the Australian case but to be honest I haven't looked into it beyond what you can find with a few simple google searches.
Post by: FFA on January 16, 2016, 06:34:03 PM
Coming back to ASX diversification, I think it's helpful to keep the issues separate, even though they are related -
1. Concentration of the core index ASX200/300
2. Diversification/bias by company size (e.g. small cap bias). This then leads to the third issue of active vs passive management, due to the problems with the small cap index.
Often the suggested solution to 1 is 2, and hence these issues get intertwined. But it's also possible to address point 1 separately, e.g. in my case, using MVW in conjunction with VAS.
Post by: englyn on January 17, 2016, 08:35:08 PM
This is the first drop I've seen since I've been investing. My net worth dropped noticeably over 2015 despite >50% savings rate. I can't even rejoice that shares are on sale so I can buy more, because I already did.
Must. Stay. The. Course. Must. Not. Look. At. Nabtrade.
Post by: FFA on January 17, 2016, 09:33:12 PM
Post by: BattlaP on January 17, 2016, 11:39:18 PM
Post by: ynotme on January 18, 2016, 01:21:24 AM
Post by: bigchrisb on January 18, 2016, 02:18:21 AM
However, having been through this a couple of times, while it hurts while its dropping, it feels pretty good in hindsight.
Hopefully things keep slowly falling/bumbling along for another year or two so I can keep padding the portfolio. Staying employed through one last financial crisis is probably what I need to close out the home straight.
Post by: potm on January 18, 2016, 02:45:21 AM
Post by: happy on January 18, 2016, 02:58:58 AM
Staying employed through one last financial crisis is probably what I need to close out the home straight.Agree. My retirement is planned for just under 3 years…I'd rather the correction that seems inevitable comes now. If we have a long slow correction over several years I might even need to delay.
Post by: oysters on January 18, 2016, 05:17:33 AM
Wondering what fellow Aussies use as a tool to determine correlation between different ETFs? As a scientist I understand the concept of correlation implicitly, and could run it myself if I can get ahold of the raw data on performance for ETFs, though that is painful and feels too much like work (both finding each index' data and then taking the time to clean up the data to run it). There seems to be a few online websites that allow you to select different ETFs and generate correlations automatically, but they rarely have many if any of the common ETFs that seem to be available to Aussie investors.
Been reading some interesting stuff on correlation and diversificaiton of index funds (makes total math sense to do so if possible, to me anyway), so while I'm in early stages of building a stash I wouldn't mind setting in a bit of negative correlation, in some funds other than traditional negatives like bonds, cash etc. They probably won't be big parts of the stash, probably a few 5% allocations in things that corrrelate less to the Aus and US markets.
But yeah need to figure what. Apart from Asian whole of market funds, they are pretty easy to pick out (vs say VGS, VAS) but they scare the bejebus out of me so I would never go there apart from a few token thousand dollars towards the end...
Cheers!
Post by: marty998 on January 18, 2016, 01:12:40 PM
Hey all.
Wondering what fellow Aussies use as a tool to determine correlation between different ETFs? As a scientist I understand the concept of correlation implicitly, and could run it myself if I can get ahold of the raw data on performance for ETFs, though that is painful and feels too much like work (both finding each index' data and then taking the time to clean up the data to run it). There seems to be a few online websites that allow you to select different ETFs and generate correlations automatically, but they rarely have many if any of the common ETFs that seem to be available to Aussie investors.
Been reading some interesting stuff on correlation and diversificaiton of index funds (makes total math sense to do so if possible, to me anyway), so while I'm in early stages of building a stash I wouldn't mind setting in a bit of negative correlation, in some funds other than traditional negatives like bonds, cash etc. They probably won't be big parts of the stash, probably a few 5% allocations in things that corrrelate less to the Aus and US markets.
But yeah need to figure what. Apart from Asian whole of market funds, they are pretty easy to pick out (vs say VGS, VAS) but they scare the bejebus out of me so I would never go there apart from a few token thousand dollars towards the end...
Cheers!
When the world is burning, everything will go down.
The serious answer is that it's impossible to predict correlation in the future - you can only analyse it after the fact.
You can however look up the constituents of an index to see commonalities (e.g. CBA and WBC will be in all Asian index funds that include Australia, so you will double up if you buy one of those and VAS or STW).
Gold probably counts as a true uncorrelated asset class. It's the only commodity that seems to have escapes the recent carnage.
Post by: Ozlady on January 18, 2016, 02:11:32 PM
Instead gotta tell myself , mindset shift..it's a sale ! get ready to buy ! SO instead of doom and gloom attitude wasting time, research on WHICH shares to buy and when the market drops more (4500 anyone?) lets go shopping!
Post by: oysters on January 18, 2016, 08:44:59 PM
When the world is burning, everything will go down.
The serious answer is that it's impossible to predict correlation in the future - you can only analyse it after the fact.
Yep, fully aware of the fact of relying on the past to predict the future. That is, however, the fundamental basis of statistics. The finesse comes in by knowing how reliable your statistic potentially is and taking that into account. If we ignore that ability to use that finesse, we may as well also diversify by betting on everything going at the TAB... ;-)
Post by: faramund on January 18, 2016, 08:51:55 PM
Although, I'm also short of spare cash at the moment, so I can't buy in at these great prices, but in the next 2 months, there should be a fair chunk rolling in, and it won't take long for it to roll on into the market.
Post by: Shaz_Au on January 19, 2016, 05:39:54 PM
A hot index tip for you; I just bought VTS @ $138.00, that means it's about to drop like a stone :)
Cheers,
Shaz
Post by: oysters on January 21, 2016, 10:52:23 PM
The fees are pretty low, really (much lower than the range of differences in MERs between aus available ETFs, so basically no big deal), and go down as your portfolio grows. Bearing in mind they dont charge brokerage for inputs or rebalancing, the fees are lower than what they appear too.
Seems like they have a pretty good strategy. Quite diversified aus available ETFs, and I think they tailor the diversification for each individual. If you know what you are doing a fair bit and have a strategy in mind they might listen to you?
Maybe I'll give them a go to start with. The idea of not having to think as much about my portfolio, do detailed reporting, etc, is pretty tempting for the low cost. I can spend my thoughts and effort (and stress) thinking more about my job and concentrating on increasing my savings rate...either of which as time investments would make up for the low fee increase.
Post by: superannuationfreak on January 22, 2016, 12:49:41 AM
Does anyone here use Stockspot?
...
The fees are pretty low, really...
Unfortunately the typical ongoing fee is 0.077% per _month_ not per year (as well as a fixed admin fee).
This adds up to 0.924% p.a. which is more than a diversified all-in-one index fund costs from Vanguard or Colonial (Wholesale).
If you want cheap and are investing more than about $6,000 p.a. then all you really need is two ETFs (I like VAS and VGS for most people but there are other options out there) and an online savings account for your defensive allocation. If you want an even simpler all-in-one solution then one of the funds from Vanguard or Colonial is still better value.
Post by: dungoofed on January 22, 2016, 02:38:18 AM
Quote
No brokerage costs – we don’t charge brokerage and as such are often a more cost effective solution particularly for people with smaller portfolios.
Assuming DIY ETFs to the tune of 12 trades per year at $9/trade, Stockspot is a more cost effective solution for anyone with a balance up to $11,688.
Post by: oysters on January 22, 2016, 03:45:09 AM
Does anyone here use Stockspot?
...
The fees are pretty low, really...
Unfortunately the typical ongoing fee is 0.077% per _month_ not per year (as well as a fixed admin fee).
This adds up to 0.924% p.a. which is more than a diversified all-in-one index fund costs from Vanguard or Colonial (Wholesale).
If you want cheap and are investing more than about $6,000 p.a. then all you really need is two ETFs (I like VAS and VGS for most people but there are other options out there) and an online savings account for your defensive allocation. If you want an even simpler all-in-one solution then one of the funds from Vanguard or Colonial is still better value.
Oh, thanks for pointing out the month vs year issue. I misread that, thought it was 0.077 per year, oops!
Yeah, at that price I'll definitely stick with the DIY version, more than worth it.
Post by: oysters on January 22, 2016, 03:46:38 AM
+1Quote
Assuming DIY ETFs to the tune of 12 trades per year at $9/trade....
Where do you get $9/trade? :-) I havent found that low yet in my search
Post by: qwerty8675309 on January 22, 2016, 04:36:15 AM
Does anyone here use Stockspot? I just discovered them. Seem similar in some ways to the US Betterment (though I don't know too much about Betterment as its irrelevant to me as an Aussie).
The fees seem to be unnecessarily high. It's unusual that they quote their fees on a per month basis, and not a p/a basis. Maybe they're hoping nobody notices. Considering they only have 4-5 holdings from memory per fund, its better to just construct the portfolio yourself. There's no point in letting a middle man take even more of your hard earned returns.
Is it just me, or did StockSpot use to disclose their holdings in their portfolios? Either I can't find this on their site anymore, or they've removed it.
Post by: dungoofed on January 22, 2016, 07:45:35 AM
+1Quote
Assuming DIY ETFs to the tune of 12 trades per year at $9/trade....
Where do you get $9/trade? :-) I havent found that low yet in my search
Ignore me. It's $11, a la CMC Markets, which kicks the break-even point up to a little over $17K - sorry!
Probably need some information for people who are starting out and have less than $17K to invest. In a nutshell I'd suggest using the Vanguard/Colonial target retirement funds as suggested by Superannuation freak, or if you wanted to roll your own, take advantage of the free trades offered by many of the banks.Is it just me, or did StockSpot use to disclose their holdings in their portfolios? Either I can't find this on their site anymore, or they've removed it.
They did. Would be interesting to know why. They were basically 5-fund portfolios, all with 10% gold holding, and their level of "aggression" determined by the amount of home bias they had, with Topaz topping out at 50% ASX.
Post by: This_Is_My_Username on January 22, 2016, 11:56:36 PM
I'm in the same boat. Already committed the spare funds I had. Currently putting anything saved into the market, but it doesn't come close to making up the difference. Feels really painful - mostly because I'm angry at myself that I can't put more money in at current prices.
haha, i'm in the exact same spot : )
I have no money to buy shares when they are cheap : (
Post by: faramund on January 23, 2016, 12:13:37 AM
Have extra money-> buy shares->repeat
So I don't have spare cash just hanging around, of course over time, more money will arrive. But I just don't have it to dump now, regardless of how much I'd like to.
Post by: limeandpepper on January 23, 2016, 11:16:38 PM
Post by: faramund on January 24, 2016, 02:42:24 PM
Post by: qwerty8675309 on January 25, 2016, 02:36:38 AM
Post by: povertystrickenbastard on January 25, 2016, 02:39:45 AM
Post by: qwerty8675309 on January 25, 2016, 04:58:09 AM
No need to sell anything to maintain an asset allocation and trigger a CGT event. Just buy the other elements to get the AA into line.
Yup - If you can, contribute more to re-balance. You would only sell to rebalance when you're no longer contributing (eg, at retirement)
Post by: dungoofed on January 25, 2016, 06:29:04 AM
Question: How does the going down of the Australian dollar affect the value we get when we buy ETFs for overseas markets like VTS and VEU? Would these ETFs still be considered cheap right now given our currency is no longer as strong as it used to be?
"Stick with your asset allocation as defined by your IPS" is the short answer : )
A decreasing AUD could have any number of effects. eg
- you would expect each Australian dollar would buy less VTS than it did previously.
- however as the AUD slides against the USD, people holding VTS might decide that the Australian stock market is better value for money, and liquidate some of their VTS in order to buy Australian stocks, thus lowering the price of VTS (and letting us buy more with each Australian dollar)
There are lots of these effects, and together they determine how a country's market moves as a whole when compared to their currency. VTS is just coming off several years of increasing stock indices and increasing USD. Australia is seeing weakness in both at the moment.
Your asset allocation should have moved over the last 12 months. VTS should be up a bit, VEU should be down a bit and VAS should be down a bit too, so you're possibly overweight VTS, and if you were looking to rebalance with say $10,000 you'd buy less VTS than the other two. Part of the reason is because of how the exchange rates have moved, part is due to how the stock indices have moved.
Post by: Primm on January 27, 2016, 12:51:00 AM
I believe its better to buy overseas when the local currency is on an unsustainable high - but if you can tell when that is - you are doing very well.
Did that. Totally accidentally, but bought my first VTS when the dollar was at parity and have watched it blossom ever since.
PS Did we all catch the news that ASX settlement is changing from T+3 to T+2 as of 7/3/16?
Post by: faramund on January 27, 2016, 02:01:57 AM
I saw that, and thought, well if you sell and buy in equal amounts - it doesn't really matter, but then I thought, but I pretty much never sell, so now I have to transfer money in one day earlier... OH THE INJUSTICE OF THE WORLD!!!!I believe its better to buy overseas when the local currency is on an unsustainable high - but if you can tell when that is - you are doing very well.
Did that. Totally accidentally, but bought my first VTS when the dollar was at parity and have watched it blossom ever since.
PS Did we all catch the news that ASX settlement is changing from T+3 to T+2 as of 7/3/16?
Post by: englyn on January 28, 2016, 08:19:41 PM
PS Did we all catch the news that ASX settlement is changing from T+3 to T+2 as of 7/3/16?
No. (beginner question) what does that mean?
Post by: limeandpepper on January 28, 2016, 08:55:43 PM
Post by: povertystrickenbastard on January 28, 2016, 10:50:34 PM
PS Did we all catch the news that ASX settlement is changing from T+3 to T+2 as of 7/3/16?
No. (beginner question) what does that mean?
It means you need to have the $$$ in your settlement account a day earlier and when you sell you get your money a day earlier. In reality it should make bugger all difference to anyone except T+3 'traders' who are now going to have to be T+2 traders.
Post by: marty998 on February 01, 2016, 03:37:57 AM
Post by: marty998 on February 01, 2016, 03:42:22 AM
Mentions State Street has reduced the fees on the SPDR ETF index fund series.
SPDR ASX 200 (STW) down from 0.286% to 0.19%
SPDR S&P World ex Aus (Hedged) Fund (WXHG) down from 0.48% to 0.35%
SPDR S&P World ex Aus (Unhedged) Fund (WXOZ) down from 0.42% to 0.30%
Post by: qwerty8675309 on February 02, 2016, 02:39:11 AM
Mentions State Street has reduced the fees on the SPDR ETF index fund series.
Nice! I was about to sell some of my STW and buy VAS because of the fees, but I was reluctant due to the CGT. Now I don't have to :)
Post by: FFA on February 02, 2016, 04:27:37 AM
Just a reminder to NAB shareholders to consider making a sale election if you have less than 2,000 shares and want to avoid getting stuck with CYBG shares or CDI's. After the S32 debacle (which I am the fortunate owner of two small, useless parcels), I am going to take the cash this time ! the election can be done online and is due by tomorrow.
Post by: limeandpepper on February 02, 2016, 07:50:57 PM
Post by: FFA on February 02, 2016, 11:33:28 PM
I was a bit the same, luckily something made me think of it yesterday, so I googled and checked and said phew when I saw the deadline was 3 Feb. I thought others might be the same....
Post by: povertystrickenbastard on February 03, 2016, 01:15:29 AM
I was wondering when SPDR would make a move. Good for us to have another option and hope it puts a bit of pressure on Vanguard to nudge even lower. SPDR products tend to have better liquidity, so at that differential they might be the preferred option for some.
I don't mind STW at all. I bought some in June with my margin loan and landed 6 months worth of distributions before I'd barely accrued a cent of interest.
Post by: Aussiegirl on February 03, 2016, 02:42:05 PM
I don't mind STW at all. I bought some in June with my margin loan and landed 6 months worth of distributions before I'd barely accrued a cent of interest.
Nicely timed PSB. I've got STW as well in our superfund. I'm glad to see the decrease in fees. The only thing that does concern me on this fund is the massive weighting towards the banks. The top 4 holdings are the big 4 and make up ~30% of the index, with 47% being financials. It's quite different to an S&P500 fund that the US based peeps on here would hold. For that reason I am not putting any more funds into this one and slowly building up small cap, international and European based ETFs.
Post by: AustralianMustachio on February 03, 2016, 08:20:34 PM
Just a reminder to NAB shareholders to consider making a sale election if you have less than 2,000 shares and want to avoid getting stuck with CYBG shares or CDI's. After the S32 debacle (which I am the fortunate owner of two small, useless parcels), I am going to take the cash this time ! the election can be done online and is due by tomorrow.
I have a friend who i have disagreements with (he actively invests in resource companies, I like to avoid picking stocks and especially avoid resources due to their cycles) and he has been telling me S32 is currently offering incredible value. He generally seems to have good ideas here and there, so I hope they tick up a bit in the future for you!
Post by: marty998 on February 04, 2016, 03:40:51 AM
Post by: Wadiman on February 04, 2016, 03:43:12 AM
Just a reminder to NAB shareholders to consider making a sale election if you have less than 2,000 shares and want to avoid getting stuck with CYBG shares or CDI's. After the S32 debacle (which I am the fortunate owner of two small, useless parcels), I am going to take the cash this time ! the election can be done online and is due by tomorrow.
I have a friend who i have disagreements with (he actively invests in resource companies, I like to avoid picking stocks and especially avoid resources due to their cycles) and he has been telling me S32 is currently offering incredible value. He generally seems to have good ideas here and there, so I hope they tick up a bit in the future for you!
Also in this month's Money there's an interesting article about resources shares by Greg Hoffman - thinks South32 makes sense given current share price as part of a smallish (10%) holding of resources stocks - if you are into direct equities.
Post by: Wadiman on February 04, 2016, 03:53:31 AM
Looks like a reasonable way to get some more exposure to a particular equity (if supported by the issuer of the SFI). This is a bit of a contrarian option given current volatility but I am thinking of trialling this with a small investment.
SFIs have some similarities to a margin loan but without the potential for a call. 50% of share price down as part-payment, Interest deductible, dividend stream pays down remaining 50% of share price over period of time. Obviously only makes sense if the equity in question has a relatively stable and highish dividend but could make sense for some of the banks at present - yield around 9% for a few of them.
A number of providers for this kind of arrangement (eg Westpac - http://www.westpac.com.au/personal-banking/investments/instalment-warrants/self-funding-instalments/)
Post by: dungoofed on February 04, 2016, 05:31:28 AM
One thing I haven't seen answered is what happens if the dividends end up covering much more than the loan amount. Is the excess just "lost"?
Post by: Wadiman on February 04, 2016, 12:16:53 PM
Post by: faramund on February 04, 2016, 12:25:11 PM
Post by: Wadiman on February 04, 2016, 12:56:16 PM
Post by: faramund on February 04, 2016, 01:10:50 PM
Around 4.65% - check out the indicative pricing sheet towards the bottom of the page on the url I provided above.
Are ok, thanks. I can now see you get the 4.65 from the headline interest rate column (which seems very good), but I notice there's also a indicative cost p.a as % of loan amount which is much higher (up to 90.11% for BHP). I wonder what the heck that is?
Post by: Aussiegirl on February 04, 2016, 01:58:07 PM
I have a friend who i have disagreements with (he actively invests in resource companies, I like to avoid picking stocks and especially avoid resources due to their cycles) and he has been telling me S32 is currently offering incredible value. He generally seems to have good ideas here and there, so I hope they tick up a bit in the future for you!
Does he have a crystal ball to say that resources are going to recover any time soon? S32 has some assets which really don't make sense at this point in the cycle. It won't go bust, but it may not recover any time soon. If you want to play this theme, I'd suggest you wait until it starts going up and then buy in. There is a saying "don't try to catch a falling knife"....
That 9% is basis their historical dividend and their current price. It doesn't take into consideration any dividend cuts, which are most certainly coming. I saw an article by the ratings agencies yesterday that indicated BHP, for example, needed to make a sizeable cut to its dividend in order to avoid another ratings downgrade. And the banks source of growth, investment lending, has been curtailed by the new APRA guidelines plus they have exposure to the resources industry (which is in a state of contraction), so I'd think they're in the same position. I'd wait until after earnings seasons and dividend announcements before I went into a strategy that was basis a dividend.
SFIs have some similarities to a margin loan but without the potential for a call. 50% of share price down as part-payment, Interest deductible, dividend stream pays down remaining 50% of share price over period of time. Obviously only makes sense if the equity in question has a relatively stable and highish dividend but could make sense for some of the banks at present - yield around 9% for a few of them.
Costs on instalments are higher than a margin loan. If you read the fine print, only a percentage of the implied interest will be tax deductible. The rest is seen as an insurance cost which allows you to walk away from the second instalment if the price tanks.
Post by: povertystrickenbastard on February 04, 2016, 05:02:18 PM
I also looked at this, but I couldn't find out their interest rate. I'm with commsec with a margin loan that varies between 6 and 7%. So I wondered how it compared.
Check out Westpac Online Investment loan. 4.70% fixed interest when you prepay 12 months.
Post by: AustralianMustachio on February 04, 2016, 06:18:54 PM
I have a friend who i have disagreements with (he actively invests in resource companies, I like to avoid picking stocks and especially avoid resources due to their cycles) and he has been telling me S32 is currently offering incredible value. He generally seems to have good ideas here and there, so I hope they tick up a bit in the future for you!
Does he have a crystal ball to say that resources are going to recover any time soon? S32 has some assets which really don't make sense at this point in the cycle. It won't go bust, but it may not recover any time soon. If you want to play this theme, I'd suggest you wait until it starts going up and then buy in. There is a saying "don't try to catch a falling knife"....
You're preaching to the converted here re: investing in resource companies (or not doing so).
No one said anything about resources recovering or suggesting people buy in. I was passing on a comment about the current price, that is all.
Post by: FFA on February 04, 2016, 08:39:49 PM
Povertystrickenbastard, just to clarify on dividend/distribution timing, that you don't necessarily benefit when buying immediately before (as opposed to immediately after). On the day the share or ETF goes ex-dividend, the price will adjust downwards by the same amount. Sometimes this effect might be obscured by other market movement. For shares with high dividend yield it is more noticeable. Most likely it will depend on your tax rate too. Higher marginal tax rate, likely better to buy after the dividend (and get more shares/units for the same $$). Lower marginal rate, maybe better to buy before dividend.
Post by: povertystrickenbastard on February 04, 2016, 11:54:58 PM
Povertystrickenbastard, just to clarify on dividend/distribution timing, that you don't necessarily benefit when buying immediately before (as opposed to immediately after). On the day the share or ETF goes ex-dividend, the price will adjust downwards by the same amount. Sometimes this effect might be obscured by other market movement. For shares with high dividend yield it is more noticeable. Most likely it will depend on your tax rate too. Higher marginal tax rate, likely better to buy after the dividend (and get more shares/units for the same $$). Lower marginal rate, maybe better to buy before dividend.
I get your point FFA but in my case leveraging with my margin loan I am using the dividends to pay the interest costs, so it's nice to buy a parcel and get the dividend a few weeks later before that parcel has really accrued any interest. Especially so buying STW and getting a whole 6 months worth of divi up front. You're totally right about the price effect, really it's just a transfer of wealth out of your equity portfolio into your bank account, it's not free money that's for sure.
Post by: FFA on February 05, 2016, 05:33:03 AM
Post by: oysters on February 08, 2016, 06:08:06 PM
http://www.abc.net.au/news/2016-02-09/asx-australian-shares-fall-in-early-trade/7151508
(Market timing, but hey, I'm setting up a regular calendar entry to do inputs in the future no matter what).
Post by: faramund on February 08, 2016, 09:06:43 PM
Povertystrickenbastard, just to clarify on dividend/distribution timing, that you don't necessarily benefit when buying immediately before (as opposed to immediately after). On the day the share or ETF goes ex-dividend, the price will adjust downwards by the same amount. Sometimes this effect might be obscured by other market movement. For shares with high dividend yield it is more noticeable. Most likely it will depend on your tax rate too. Higher marginal tax rate, likely better to buy after the dividend (and get more shares/units for the same $$). Lower marginal rate, maybe better to buy before dividend.
But you know, its not equivalent, because its not the same amount for everyone. For some people, a dividend is worth what it is, plus its franking credit, and for others, its worth less than the entire dividend, because they're in a high tax bracket. So really, it drops by a sort of weighted average of what the dividend is worth.
I'm in the second highest tax bracket, so dividends aren't worth so much for me. So its more worthwhile for me to buy after a dividend is paid. Oh, and just to be clear, I don't actually do this, I just buy a new packet of shares each fortnight...
Post by: marty998 on February 09, 2016, 03:19:15 AM
Who got fucked today? 3% down! Westpac down 5%!
CBA reports tomorrow... make or break for the ASX...
Post by: faramund on February 09, 2016, 04:10:12 AM
So.I only check my shares, once a fortnight, and I do hold Westpac, so maybe me, but really, its only one of my many shares, so who really cares..... I'm sure they'll still pay a dividend.
Who got fucked today? 3% down! Westpac down 5%!
CBA reports tomorrow... make or break for the ASX...
Post by: dungoofed on February 09, 2016, 05:02:08 AM
A peek under the hood at most banks and the biggest problem is sticky wages causing the incompetent to cling on to their over-paid pre-2008 jobs, hoovering up the HR budget and any chance of being able to attract talent required to get them out of this mess. Tech pays much better these days and isn't riddled with sociopaths to the same extent banking is.
The only way I see banks surviving the next 10 years is by acknowledging that they can't be all things to all men and scaling down operations massively. There are a lot of fights they should just walk away from. And the funniest irony of all is that their one structural advantage - having physical branches across the country - they worked for decades to destroy, and now that it's all online the entire market is there for the taking by whichever young and nimble startup can build a better mouse trap.
/rant
Post by: FFA on February 09, 2016, 05:23:03 AM
Post by: AustralianMustachio on February 09, 2016, 08:33:59 AM
It's times like this it really pays to have a clear strategy you have faith in.
I have changed my mind many times over the last year or so of my strategy, which hasn't worked out so bad since the Australian market has been down so I've missed out on some down moves. However I'm now approaching something I feel like I can stick to. Because if I want to participate in the up moves over longer periods, which is the norm for markets, I'll have to!
At the moment I have a little cash spare and some investments which are less correlated to "the market" (small cap and absolute return LICs), which allows me to be less concerned should my VAS holding continue to fall.
But I would imagine most people wouldn't do this, or need to. Peter Thornhill, who some of you may have seen before, has an approach that resonates well with me. He just invests in the ASX from what I can tell, and his advice is to just be tough and buy more when things look really dire!
"I look forward to a GFC"
https://www.youtube.com/watch?v=sCDcrw1qBAw
Post by: chasingthegoodlife on February 09, 2016, 12:45:50 PM
Psychologically, I'm finding it easy to continue investing in the ASX and 'sleep at night' despite my paper losses, knowing I am in it for the long term I can see these falls as 'sales'.
What I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?
Sent from my iPhone using Tapatalk
Post by: Ozlady on February 09, 2016, 04:15:08 PM
Post by: Primm on February 09, 2016, 05:36:42 PM
Just put in an order for VAS!
Psychologically, I'm finding it easy to continue investing in the ASX and 'sleep at night' despite my paper losses, knowing I am in it for the long term I can see these falls as 'sales'.
What I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?
Sent from my iPhone using Tapatalk
Ha! Me too. :) And in doing so I managed to reduce my losses from 15% to 10%, that's a win, right?
I'm not putting anything into O/S markets while the dollar is tanked. I'm not that brave. I probably should, but I don't know why I should (other than it balances my portfolio). I'm working on the "sleep at night" theory at the moment, and sticking with Aus ETFs for now.
Post by: faramund on February 09, 2016, 05:48:48 PM
If you look at any sort of long term AUS/USD exchange rates, we're actually about now where we've usually been over the last 30 years. I think the last 10 years we've been abnormally high during the mining boom - I don't think we'll go back to parity, maybe ever.Just put in an order for VAS!
Psychologically, I'm finding it easy to continue investing in the ASX and 'sleep at night' despite my paper losses, knowing I am in it for the long term I can see these falls as 'sales'.
What I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?
Sent from my iPhone using Tapatalk
Ha! Me too. :) And in doing so I managed to reduce my losses from 15% to 10%, that's a win, right?
I'm not putting anything into O/S markets while the dollar is tanked. I'm not that brave. I probably should, but I don't know why I should (other than it balances my portfolio). I'm working on the "sleep at night" theory at the moment, and sticking with Aus ETFs for now.
The thing is, our inflation band 2-3%, is higher than almost any other developed country (which tends to be 2%, so over time, if everything's equal, we should depreciate by about 0.5% a year. So I don't think its a bad time to buy overseas.
Although the Australian market seems to perform pretty well, so just staying onshore doesn't seem to hurt too much anyway - and there's all those juicy franked dividends.
Post by: Primm on February 09, 2016, 05:56:50 PM
If you look at any sort of long term AUS/USD exchange rates, we're actually about now where we've usually been over the last 30 years. I think the last 10 years we've been abnormally high during the mining boom - I don't think we'll go back to parity, maybe ever.
The thing is, our inflation band 2-3%, is higher than almost any other developed country (which tends to be 2%, so over time, if everything's equal, we should depreciate by about 0.5% a year. So I don't think its a bad time to buy overseas.
Although the Australian market seems to perform pretty well, so just staying onshore doesn't seem to hurt too much anyway - and there's all those juicy franked dividends.
Food for thought, thanks.
I think I'm spoiled by the fact that my one and only foray into US ETFs was when the dollar was at parity, so while the underlying shares have gone down my investment has actually appreciated. I want that all the time!
Anyone who tells you money and investment are devoid of emotion is lying through their teeth.
Post by: faramund on February 09, 2016, 07:49:36 PM
Well, investing is full of moments when you look back and see how things could have been better. About 8 years, I bought a no-dividend, no profit company, that fell something like 97%, and cost me around $14000. 2 years ago, I bought a no-dividend, but with profits company, and its quadrupled and made me $30000.If you look at any sort of long term AUS/USD exchange rates, we're actually about now where we've usually been over the last 30 years. I think the last 10 years we've been abnormally high during the mining boom - I don't think we'll go back to parity, maybe ever.
The thing is, our inflation band 2-3%, is higher than almost any other developed country (which tends to be 2%, so over time, if everything's equal, we should depreciate by about 0.5% a year. So I don't think its a bad time to buy overseas.
Although the Australian market seems to perform pretty well, so just staying onshore doesn't seem to hurt too much anyway - and there's all those juicy franked dividends.
Food for thought, thanks.
I think I'm spoiled by the fact that my one and only foray into US ETFs was when the dollar was at parity, so while the underlying shares have gone down my investment has actually appreciated. I want that all the time!
Anyone who tells you money and investment are devoid of emotion is lying through their teeth.
If only the money I put into the first one, I'd only put into the second one. Still, live and learn, I don't intend to ever buy a no profit company again, and I'm very wary of no dividend ones.
Post by: steveo on February 09, 2016, 11:45:51 PM
What I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?
I'm struggling with this as well.
Post by: FFA on February 10, 2016, 05:06:02 AM
It's times like this it really pays to have a clear strategy you have faith in.
fully agree !
Post by: FFA on February 10, 2016, 05:07:44 AM
I struggle too but for a different reason, namely the ASX dividend yield (with franking) is just too temptingWhat I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?
I'm struggling with this as well.
Post by: steveo on February 10, 2016, 01:23:16 PM
I struggle too but for a different reason, namely the ASX dividend yield (with franking) is just too temptingWhat I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?
I'm struggling with this as well.
This is another reason. Enough ASX and retirement seems pretty easy and secure.
Post by: Aussiegirl on February 10, 2016, 01:35:25 PM
I struggle too but for a different reason, namely the ASX dividend yield (with franking) is just too temptingWhat I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?
I'm struggling with this as well.
This is another reason. Enough ASX and retirement seems pretty easy and secure.
Steveo - Are you planning just to live off dividends? Otherwise if you plan to have a concentrated ASX Div portfolio and you need to use capital to supplement the div's, this might be a risky strategy. A few years of sideways or down performance of the ASX and it would erode your capital if you're pulling from it.
Post by: faramund on February 10, 2016, 02:33:31 PM
Steveo - Are you planning just to live off dividends? Otherwise if you plan to have a concentrated ASX Div portfolio and you need to use capital to supplement the div's, this might be a risky strategy. A few years of sideways or down performance of the ASX and it would erode your capital if you're pulling from it.
Well, I'm planning to live off dividends. At the moment my shares have a dividend yield of 4.7%, so I can live on 4% dividends, and still invest a little bit in new stuff each year.
Post by: steveo on February 10, 2016, 04:27:08 PM
Steveo - Are you planning just to live off dividends? Otherwise if you plan to have a concentrated ASX Div portfolio and you need to use capital to supplement the div's, this might be a risky strategy. A few years of sideways or down performance of the ASX and it would erode your capital if you're pulling from it.
I don't intend to live just off dividends however I don't see this as a risk. I think the risk would be if dividends get cut to lower levels or something like that. I think selling your capital is more risky than only ever spending dividends. I do want to have a fair amount of VAS simply because I think the dividends are great especially when you take into account the tax benefits.
My take is that I don't want to be too dependent on Australian shares. I think diversification provides a less risky retirement.
Post by: Ozlady on February 10, 2016, 04:42:46 PM
a) private pensions
b) dividends
c) net rents
d) super
e) old age pension(?)- ineligible though at this stage BUT it is a safety net
i believe this will a) keep my financial assets reasonably intact for it to grow as i never want to touch principal
b) the more legs/streams of income, the safer it gets.
i think this 4% strategy may work for people who want to retire earlier and dip into asset base...for me..nah...i'll rather work longer to cover my expenses TOTALLY
Post by: deborah on February 10, 2016, 06:57:13 PM
I do not plan on retiring on this 4% strategy...my passive income on retirement will be from:But d isn't an asset class, it's just a tax shelter.
a) private pensions
b) dividends
c) net rents
d) super
e) old age pension(?)- ineligible though at this stage BUT it is a safety net
i believe this will a) keep my financial assets reasonably intact for it to grow as i never want to touch principal
b) the more legs/streams of income, the safer it gets.
i think this 4% strategy may work for people who want to retire earlier and dip into asset base...for me..nah...i'll rather work longer to cover my expenses TOTALLY
Post by: steveo on February 10, 2016, 07:35:50 PM
A couple of points from my perspective:-
1. I won't have access to private pensions
2. I will never buy an investment property because (a) I own my own house and that will likely constitute at least 50% of my assets by the time I retire which means I wouldn't want to put anymore money into that asset class and (b) I think the yield and potential return on property is not very good in Australia.
3. Super as Deborah states is just part of your generic asset allocation. It has some tax benefits but you can't touch it until you are 60.
If you never tough the principle that is fine. I think you can do this if you have a large enough asset base especially in Australian shares as the dividend yield is so high however I personally want some diversification.
My buffers will be as follows:-
1. I intend to get to a decent asset level and then work part time for a bit.
2. We can spend less.
3. We can downsize the house.
4. We can get the pension.
5. We will probably inherit money.
I feel comfortable with a 5% WR based on those buffers.
Post by: faramund on February 10, 2016, 07:51:14 PM
See
http://www.superguide.com.au/accessing-superannuation/retiring-before-the-age-of-60-the-tax-deal
for what I'm talking about, do a find for 195.
Here's another one, but its a year early, so search for 185 instead (the allowed amount seems to go up by about 10000 a year)
http://www.superguy.com.au/can-i-withdraw-my-super-at-55/
In my case, I will be able to access my 195000, and either my DW will really retire, in which case we'll be able to access her 195000 or her income. In any case each 195000/5 is just under 40000 a year - which is quite a lot.
Post by: bigchrisb on February 10, 2016, 08:03:22 PM
I've seen a few people state that you can't access your super until you are 60. I think that's not the whole truth. I believe you can take out as much as $195000, between age 55 and 59, as long as you are retired.
See
http://www.superguide.com.au/accessing-superannuation/retiring-before-the-age-of-60-the-tax-deal
Sadly, I think what you are talking about is a change on the tax treatment before age 60 - you can take out a portion of it without triggering tax. However, a necessary pre-condition to do this is being past your preservation age. For someone like me, who's preservation age is 60, the tax treatment of withdrawals prior to 60 is (sadly) irrelevant.
There are some hardship allowances that allow early release, but the level of hardship is below what I expect my fire cost of living to be, so won't be viable.
That said, super is still the best (legal) tax shelter available in Australia, and I continue to make full use of it, despite my frustrations about regulatory risk.
Post by: faramund on February 10, 2016, 08:17:05 PM
Well, my preservation age is also 60, so if this doesn't work for you - it doesn't work for me, and after looking into this more, and thinking about what you've written - I'm becoming convinced that you are correct.I've seen a few people state that you can't access your super until you are 60. I think that's not the whole truth. I believe you can take out as much as $195000, between age 55 and 59, as long as you are retired.
See
http://www.superguide.com.au/accessing-superannuation/retiring-before-the-age-of-60-the-tax-deal
Sadly, I think what you are talking about is a change on the tax treatment before age 60 - you can take out a portion of it without triggering tax. However, a necessary pre-condition to do this is being past your preservation age. For someone like me, who's preservation age is 60, the tax treatment of withdrawals prior to 60 is (sadly) irrelevant.
There are some hardship allowances that allow early release, but the level of hardship is below what I expect my fire cost of living to be, so won't be viable.
That said, super is still the best (legal) tax shelter available in Australia, and I continue to make full use of it, despite my frustrations about regulatory risk.
I have some thinking to do ....
Post by: faramund on February 10, 2016, 09:36:52 PM
This just means I'll have to live off my dividends, and sell maybe 1-2% of my stocks until I'm 60, and then I can revert to my previous plan. Which is a pity, my ex-super funds tend to grow by more than my in-super funds (and they're more fun), oh well.
Post by: deborah on February 10, 2016, 09:46:21 PM
Firstly, I think (not 100% sure) that you have to take the 4% pension out of your super as well as the lump sum - and the pension is still subject to tax prior to 60.
Secondly, if you were in super long enough ago, or are in one of a few occupations that appear to have different rules, you can actually take out that part of your super before your preservation age because of the grandfathering clauses that have always been a part of new super regulations.
Post by: FFA on February 10, 2016, 11:44:10 PM
My buffers will be as follows:-5% WR is quite aggressive, but manageable with those buffers.
1. I intend to get to a decent asset level and then work part time for a bit.
2. We can spend less.
3. We can downsize the house.
4. We can get the pension.
5. We will probably inherit money.
I feel comfortable with a 5% WR based on those buffers.
Depends a lot on asset allocation. We've been talking ASX vs global, but the other key point is how much bonds/cash. If you want a smoother ride e.g. 30-50% defensive assets, then 5% WR becomes a stretch or maybe impossible in this low rate world. If you're planning on all equities or 80+% then pls make sure you can stomach it and stick to it.
Sequencing is a key risk with such a high WR. Luck and timing helps. If you retire in a stable / uptrending market you should be fine. However if you retired in 2007 or early 2015, etc, the initial hit on capital has a bigger effect on long term returns and how long your capital lasts.
I quit my job in Mar'15 when the ASX was much higher (15-20% ?). Interest rates were already low, but have got even worse. I'm glad I had a balanced AA, conservative WR (<3%) and some other unexpected buffers (part-time consulting work). Otherwise I'm sure I would've been stressed about finances, which has not been the case fortunately.
Post by: steveo on February 11, 2016, 02:08:26 AM
I think that my targeted spending level will have some buffer built into it once the oldest 2 finish high school. I/We may work up until that point. We may work part time until we feel safer. That will at least minimise our spending but more likely enable us to save more.
I'm not really that concerned.
Post by: happy on February 11, 2016, 04:04:19 AM
Post by: Aussiegirl on February 11, 2016, 02:08:15 PM
Steveo / Happy - I think every one runs the numbers a ranges of 3 - 6% SWR just to see the affect. Ultimately I think it will come down to peoples risk profiles and the ability to do things like go back to work part time / live off the aged pension etc as to whether they go aggressive or conservative on this.
I used to be of the thinking that I'd use 3% or 4% on a good year. Then I started thinking about those years I'd be trading off to get the extra stash to cover the lower SWR - thinking has changed now as I am not OK with that trade off. I'd rather have a small risk that I'll have to go back to work for a little while if needed.
I am thinking that I'll probably use a variable withdrawal rate. Start at 4% but on good years, pull a bit more out (5%) for some overseas travel, new (to us) car, or some home improvements and on bad years, pull our head in and pull out only 3% to cover basic living expenses. My view is that at least 40% will be good years,30% will be scratch and 30% will be bad. So for at least 70% of the years I'll be at 4% or higher and 1 year in 3 I'll have to forgo overseas travel etc. I can live with that.
Post by: wombat on February 11, 2016, 04:56:42 PM
As for the share market - I have been living on Hong Kong for 14 years and seen FOREX rates fluctuate for and against me in that time. I always adopted a floating asset allocation that took into account exchange rates. When the AUD was high I bought less Oz and more international and visa versa on the flip. What I tried to do was keep Oz and international separate as investments but maintain my asset allocation WITHIN those two separate investments. That way I could rebalance my Oz stocks, REIT, Bonds allocation each year even if my buy ins we're able to achieve that balance. TBH after the AUD went north of USD.95 I stopped buying OZ altogether so had to do that once or twice. The upshot was my AUD investment portfolio dropped to under 15% of my whole portfolio towards the end of 2013. This was outside my comfort range but I knew that a number of economic factors were positioning to see the AUD drop so stayed the course and kept patient. As the AUD started to weaken it rose again [breathes sigh of relief!]. Now I'm actually buying in Oz again the home/intl AA is getting back to more normal levels. I see USD.70 as the sweet spot so am happy to 'divvy up' my purchases at the moment between Oz and Intl. In a few months I'll be FIRE'd so buy ins wont be large or regular and (bloody) lucky timing will put me about what I consider to be fair price and optimal AA home/intl.
Post by: dungoofed on February 11, 2016, 05:34:57 PM
"The Company’s investment strategy seeks to take advantage of imbalances in global market valuations through the active management of investments in global exchange traded futures contracts including equity market indices, currency and interest rate futures. While the Company’s investment strategy will primarily be executed through investments in exchange traded futures contracts, the Company may on occasions also invest in listed equities as well as exchange traded futures options (for hedging purposes only)."
Not quite sure what is worth "2 and 23" but good luck to them.
Post by: AussieFirebug on February 11, 2016, 08:06:15 PM
I was checking out some stats to see where some of my traffic was coming from and the link FFA posted got me some hits so thanks FFA for that :)
Looking forward to catching up on this thread to see what I've been missing. Hopefully I can chime in here and there with some good info/opinions.
Looking forward to contributing to this stellar community and I'm glad I stumbled across this post.
P.S. Would you guys say that this site is where most of the Australian FIRE crowd hang out? There is a reddit sub (/fiaustralia) but it's not very active. Maybe the FI community in Aus is just not that big?
Post by: happy on February 11, 2016, 08:20:50 PM
I've not found any other place like this on the interwebs, but thats not to say it doesn't exist. Not many Aussie blogs either.
Post by: steveo on February 12, 2016, 12:03:15 AM
Post by: qwerty8675309 on February 12, 2016, 02:59:33 AM
Post by: FFA on February 12, 2016, 04:33:00 AM
Hi Aussiegirl, I'm not the yelling type and instead i'd probably say well done on those calls ! One good thing about this thread is it's quite diverse in thinking/approach. We have market timers, stock pickers, margin loaners, options trading, etc.. in addition to the usual index ETF's. I don't think there's any right or wrong ways, although some are more reliable than others and it is important to follow an approach with both comfort and conviction.
Post by: andystkilda on February 12, 2016, 02:04:43 PM
Are we the only ones?
We basically just try to build income streams to cover our spending levels and once that's covered we consider that FI. It's probably a function of the fact that we've very heavy real estate at the moment, but we are diversifying and I don't see our non-focus on SWRs changing.
Post by: Rob_S on February 12, 2016, 02:37:29 PM
Our FIRE calculations and strategy have nothing to do with SWRs at all - but rather passive income and multiple semi-passive income streams.
Are we the only ones?
You're not alone. I think Banksie earlier in the thread was going the dividend route. I am too with VHY. Focussing on ever increasing dividends helps as the capital value slides during this bear market.
Post by: FFA on February 12, 2016, 04:15:14 PM
certainly in these approaches with nil capital drawdown, the concept doesn't add much. Australian dividends and interest rates are high enough to give us this luxury. If you looks at dividend yields and rates in the US, EU, Japan, etc, it would not be realistic except for the very wealthy, so they need to take a "total return" approach (i.e. fund retirement with income and capital growth / gradual capital drawdown).
Post by: FFA on February 12, 2016, 06:20:33 PM
for info... A recent paper touching on many issues recently discussed, i.e. SWR, variable WR, sequencing risk. It also explains the 4% rule, while widely adopted/accepted in the US, is not so prevalent in Oz as yet.
Post by: banksie_82 on February 12, 2016, 07:30:27 PM
A number of things about this method appeal to me, number one of which is not drawing down capital when share values are artificially low. I.e. the need to sell more shares to get the same $ value to live on. This goes a long way to mitigating sequencing risk and is a clear differentiator to the more common SWR method with capital drawdown.
Of course, this method works on the fact dividend payouts (in $/share) are fairly steady and predictable, at least in old school LICs and other blue-chips. Although, it certainly isn’t unheard of that payouts do decrease. For this reason, I think a couple of safety buffers are required, such as not spending the whole payout and having a cash buffer.
In my modelling to date, based on historic data (I know, I know) and a few different rules to calculate how much spending money I’ll have, my rate of spend always increases at, or faster than, inflation – allowing me to indulge in a bit of positive lifestyle creep. Some people might see this as conservative, and I could FIRE sooner than planned, but who knows what the future will hold.
My current modelling, when it boils down to it, works out to be a SWR of about 4% (depending on dividend yield at any point in time). But, as I said above, my spending money increases faster than inflation (in fact, faster than average wages, which historically has been higher than inflation in Australia) over the business cycle.
As FFA correctly points out however, dividend yield in Australia is much higher than the rest of the world. This may very well change… Tax benefits may be trimmed, companies may decide to pay out less in an attempt to grow, etc. Adopting this method also runs the risk of 1) only investing in Australia for the dividend and franking, and 2) chasing yield, which is fraught with danger. Both of these traps need to be consciously avoided for the method to work long term, even if that means more capital now.
Post by: AustralianMustachio on February 12, 2016, 09:44:15 PM
The dividends don't have franking attached to them, true. So for things like VGS, and other indexes, they won't have any franking. But if it's an LIC or something where the manager does some more trading (i.e sells his holdings at some point), he pays tax on this, and can distribute franking credits. Obviously this is a lot more alpha seeking or active managing, and probably not to the taste of many people here. There are a few LICs which invest overseas, either fully or partially, and can have different levels of franking, some of them fully franked.
On the SWR and living off dividends - One thing I like about the old school LICs is that some didn't even cut their dividends during the GFC, because of having cash buffers. That shows a pretty dependable income stream if you ask me
Post by: povertystrickenbastard on February 13, 2016, 05:10:58 AM
Post by: steveo on February 13, 2016, 02:34:31 PM
The other thing about SWR in Australia is if you do choose to sell down your holdings you're then liable for CGT, no why would I ever want to pay CGT if I can avoid it by never selling? I would sooner fund my retirement by borrowing against my holdings with a margin loan and spending that, than selling even 1 share.
This is a tough one isn't it. I also don't want to sell or if I sell do it so that I don't pay any tax. I'm not sure if I am 100% correct but I can see that CGT is the same as your personal income tax rate. Therefore you can try to minimise your capital gains each and every year to less than $18k. I also assume money in super is CGT exempt.
Post by: faramund on February 13, 2016, 02:46:38 PM
I'm similar, my current plan is to retire at 52, and live off my 'external from super' dividends until 60, but I'll also have to sell off 1% of my share holdings in each of those 8 years - but as I hold individual shares, I'm hoping to be able to sell off enough shares that I've lost money on, to balance out those I've gained money on. I could do that now (I'm 46), but with another 6.7+ years of average growth, I don't know if I'll have enough losers by then - here's hoping???The other thing about SWR in Australia is if you do choose to sell down your holdings you're then liable for CGT, no why would I ever want to pay CGT if I can avoid it by never selling? I would sooner fund my retirement by borrowing against my holdings with a margin loan and spending that, than selling even 1 share.
This is a tough one isn't it. I also don't want to sell or if I sell do it so that I don't pay any tax. I'm not sure if I am 100% correct but I can see that CGT is the same as your personal income tax rate. Therefore you can try to minimise your capital gains each and every year to less than $18k. I also assume money in super is CGT exempt.
Post by: FFA on February 13, 2016, 03:04:05 PM
Post by: steveo on February 13, 2016, 05:04:51 PM
I'm similar, my current plan is to retire at 52, and live off my 'external from super' dividends until 60, but I'll also have to sell off 1% of my share holdings in each of those 8 years - but as I hold individual shares, I'm hoping to be able to sell off enough shares that I've lost money on, to balance out those I've gained money on. I could do that now (I'm 46), but with another 6.7+ years of average growth, I don't know if I'll have enough losers by then - here's hoping???The other thing about SWR in Australia is if you do choose to sell down your holdings you're then liable for CGT, no why would I ever want to pay CGT if I can avoid it by never selling? I would sooner fund my retirement by borrowing against my holdings with a margin loan and spending that, than selling even 1 share.
This is a tough one isn't it. I also don't want to sell or if I sell do it so that I don't pay any tax. I'm not sure if I am 100% correct but I can see that CGT is the same as your personal income tax rate. Therefore you can try to minimise your capital gains each and every year to less than $18k. I also assume money in super is CGT exempt.
I wish you all the luck in the world !!! Just for Internet purposes that was a joke.
Maybe this isn't that bad if you are using dividends as your first withdrawal method. The dividends will come with tax benefits and then you sell whatever asset makes sense at that time.
Post by: Wadiman on February 14, 2016, 02:52:46 AM
Very insightful indeed.
Post by: detrimental12 on February 15, 2016, 11:29:41 PM
There is a reddit sub (/fiaustralia) but it's not very active. Maybe the FI community in Aus is just not that big?
Hey man, we are growing by the day. We are everywhere, careful what you say :P
Post by: AussieFirebug on February 16, 2016, 03:06:30 PM
There is a reddit sub (/fiaustralia) but it's not very active. Maybe the FI community in Aus is just not that big?
Hey man, we are growing by the day. We are everywhere, careful what you say :P
Wow you are everywhere (*looks over shoulder*)
Great to see the sub is growing. I get sick of seeing the same things over and over again in \r\Australia and \r\ausfinance.
Question for you sir. Are you FI already at age 30? Or is that your goal?
Post by: detrimental12 on February 16, 2016, 05:34:01 PM
There is a reddit sub (/fiaustralia) but it's not very active. Maybe the FI community in Aus is just not that big?
Hey man, we are growing by the day. We are everywhere, careful what you say :P
Wow you are everywhere (*looks over shoulder*)
Great to see the sub is growing. I get sick of seeing the same things over and over again in \r\Australia and \r\ausfinance.
Question for you sir. Are you FI already at age 30? Or is that your goal?
That's my goal, I'm currently 27 :-)
Post by: stashgrower on February 18, 2016, 06:44:00 PM
I've read through all 36 pages!! I know this one has been covered before, but I had a bit of trouble keeping it all straight. I hope you don't mind if I bring it up again?? Trying to get my head around VGS vs VTS/VEU.
VGS: Oz-domiciled, simplifies taxes, do we pay less foreign taxes overall on dividends vs VTS/VEU because we get a credit for those?
VTS/VEU: splits up the US and rest of world, US-domiciled, do we lose taxes e.g. if a non-US country has a tax and then the dividends get siphoned through the extra US withholding tax?
I'm also confused about currencies. All else being equal: is it advantageous to buy when the Aussie dollar is high so we get more parcels for our buck, and sell when it is low? Is there a difference here between VGS vs VTS/VEU? Is there even a way to figure it out or is this too complex?
Why would you go for one over the other? Thanks.
Post by: faramund on February 18, 2016, 07:16:11 PM
Newbie here. Glad to see some fellow Aussies :)
I've read through all 36 pages!! I know this one has been covered before, but I had a bit of trouble keeping it all straight. I hope you don't mind if I bring it up again?? Trying to get my head around VGS vs VTS/VEU.
VGS: Oz-domiciled, simplifies taxes, do we pay less foreign taxes overall on dividends vs VTS/VEU because we get a credit for those?
VTS/VEU: splits up the US and rest of world, US-domiciled, do we lose taxes e.g. if a non-US country has a tax and then the dividends get siphoned through the extra US withholding tax?
I'm also confused about currencies. All else being equal: is it advantageous to buy when the Aussie dollar is high so we get more parcels for our buck, and sell when it is low? Is there a difference here between VGS vs VTS/VEU? Is there even a way to figure it out or is this too complex?
Why would you go for one over the other? Thanks.
Well done on the reading....
When you earn dividends, each year, if its complicated, companies/index funds will annually send out a tax guide, which essentially tells you what number to put in each spot of your tax return.
One of the things they can give you to record - is that you have effectively paid tax in a foreign country - if that happens, the ATO uses a formula that takes into account that tax.
I assume this would happen with VGS, VTS/VEU, i.e. I don't think there's a difference between them.
I've also thought that having sub-indexes that essentially subdivide an overall index, is only there for people to make (informed?) bets.
So if you think US will do better than the rest of the world, but VTS, if you think it'll do worse, buy VEU. If you don't think you can tell (which is my position) buy VGS.
Although I've just noticed that VGS has a higher management fee than VTS and VEU. So if you were really squeezing out return, if you wanted VGS, you'd probably be better just splitting your money evenly between VEU and VTS.
As to currency, who knows what it'll be in the future - personally, I think its now about in its historically typical range, so I think it'll drift around here, and who knows if next time it moves, it'll go up or down. If you think you know which direction will move - better than what the average person in the currency market does - maybe you should do currency trading - although, most people who try to do that, end up doing badly.
I currently have VHY and VAS. Over the next few years, I was planning to add VGS and VGE (to get the whole world), but after thinking about it, rather than VGS, I might do the 50/50 VEU/VTS
Post by: povertystrickenbastard on February 18, 2016, 08:15:45 PM
Post by: MsRichLife on February 18, 2016, 11:03:46 PM
Our FIRE calculations and strategy have nothing to do with SWRs at all - but rather passive income and multiple semi-passive income streams.
Are we the only ones?
This is our approach too. We have already built passive income streams from rental properties, a share portfolio with a focus on good dividends and a couple of defined benefit pensions (Hubby's paying out now, mine when I turned 55). We also plan to have a few nano-businesses like AirBnB, bicycle repair, homesteading hobbies, maybe even some consulting if I get motivated.
I don't intend to sell anything to fund our living expenses unless we get desperate.
Post by: qwerty8675309 on February 19, 2016, 01:10:26 AM
I'm also confused about currencies. All else being equal: is it advantageous to buy when the Aussie dollar is high so we get more parcels for our buck, and sell when it is low? Is there a difference here between VGS vs VTS/VEU? Is there even a way to figure it out or is this too complex?
Yes, it definitely is an advantage to buy when the AUD is strong; however just like with share prices, it's hard to tell whether the AUD will go up or down from here. I think the best approach is to dollar cost average so you can buy when the AUD is both strong and weak.
Post by: stashgrower on February 19, 2016, 04:35:10 AM
Ha, no currency trading for me. I just asked because I don’t have enough money to just buy everything I want all at once. So I am thinking to will save a parcel and buy one ETF at a time. If one particular ETF is more favourable at the time than another, then it makes sense to go for that (asset allocation not withstanding). Then rotate round the wishlist when I save my next parcel.
Similarly it's not so much about guessing the movements, more that I have limited funds so if buying with a strong AUD is an advantage then I am happy to buy other things until I save some more.
As suggested I did think about DCA’ing but after some rough calcs decided on ETFs instead of mutual funds for a long-term outlook...? It will cost me more in (brokerage) fees now while I’m starting, but hopefully in 20 years I’ll have spent less on fees all up. Only downside is entering slowly, so maybe I get less benefit at the start. Make sense? Comments welcome, I’m a newbie and open to changing my approach.
Thanks, I forgot that VEU has Oz in the mix, so I didn’t think about the missing franking credits.
Post by: BattlaP on February 23, 2016, 06:50:23 PM
Would VGAD be the right place to put my future investment dollars if my intention was to reduce my exposure to Australian shares and protect against the possibility of a sinking Aussie dollar? At the moment I don't have any money in anything 'hedged' so I'm just trying to understand how they work and what exactly they are best for.
I gather if there was wild currency fluctuations, up or down, a hedged ETF would ideally be unaffected?
Post by: potm on February 24, 2016, 12:15:49 AM
Post by: povertystrickenbastard on February 24, 2016, 01:15:33 AM
Post by: MsRichLife on February 24, 2016, 01:59:55 AM
I have a large percentage of my share portfolio in high dividend Aussie stocks. Whilst the yields are great, the 'value' has declined a bit in recent times.
I lived though the GFC and lost quite significantly and that really affects how I invest. With less than 6 months to FIRE, I'm certainly not prepared to lose value on my portfolio and so I've been hedging in different ways. I've got quite a holding of GOLD, some USD and have recently added BEAR. I also have some individual shares that are doing very nicely despite what's going on with the ASX.
So far, a small amount of hedging seems to be keeping my portfolio in the black whilst I continue to enjoy the dividend yields. YMMV.
Post by: frugaljo on February 25, 2016, 12:35:22 AM
Post by: banksie_82 on February 25, 2016, 05:44:02 PM
The concept is very immature in Australia, only RateSetter is available to plebs. I don’t know if that is a result of over regulation or the fact the Australian market isn’t big enough for international companies to set up here.
When I first heard about the concept many years ago, mainly from what was offered in the UK, it seemed far more in the spirit of the broader ‘sharing economy’. You knew the name of the person borrowing, you could ask them questions before committing to loan, you knew what the loan was for and there was more detail on their credit history. Lenders would bid for a loan, and the rate worked out by all the lowest bidders that filled the required principal by a certain deadline. Then, and this really appealed to me, there was a secondary market, where you could on-sell a loan, a bit like a bond, which provided some liquidity.
I don’ t know if this is still the way it works overseas, maybe some of the features weren’t popular. But, the version we have in Australia, to me, seems more like a novel marketing trick for the company to transfer risk onto their creditors, and therefore reduce costs. While they claim the ‘market’ sets the rate, in reality it only fluctuates by a few permille points. There is no transparency on the difference between one loan and another, we’re expected to trust them that they have done the due diligence. Basically, there isn’t nearly as many features as I would like to see, but this may be a result of Australian regulation.
While currently the interest rates are good, and from all the information I can gather, the Provision Fund should cover any defaults in the foreseeable future, it hasn’t been tested in a proper economic downturn. There is the real potential for lots of people to lose lots of money.
Post by: andystkilda on February 26, 2016, 01:47:05 AM
I have found them fantastic and consider it a great yield-increasing part of our portfolio - will probably have around 10% of net worth in there - it can help smooth out returns in other asset classes quite nicely, like a rental property - they have some certainty around future returns (as well as a risk of loss of capital).
Post by: faramund on February 27, 2016, 03:38:52 AM
I've been going for several months on Ratesetter and Marketlend (also available to 'retail' investors).ratesetter looks interesting, but even with a 10% annual return, the tax on that would hurt too much. Still, it seems an interesting alternative to a term deposit.
I have found them fantastic and consider it a great yield-increasing part of our portfolio - will probably have around 10% of net worth in there - it can help smooth out returns in other asset classes quite nicely, like a rental property - they have some certainty around future returns (as well as a risk of loss of capital).
Post by: FFA on February 27, 2016, 03:34:59 PM
personally i'd consider these growth investments, as opposed to defensive. even though they pay out an interest rate like a deposit. the credit risk is on another spectrum versus high interest savers / TD's which are Govt guaranteed up to 250k. potential for capital loss, and also return at 10% is comparable to equities.I've been going for several months on Ratesetter and Marketlend (also available to 'retail' investors).ratesetter looks interesting, but even with a 10% annual return, the tax on that would hurt too much. Still, it seems an interesting alternative to a term deposit.
I have found them fantastic and consider it a great yield-increasing part of our portfolio - will probably have around 10% of net worth in there - it can help smooth out returns in other asset classes quite nicely, like a rental property - they have some certainty around future returns (as well as a risk of loss of capital).
so if you're asset allocation is 70 growth / 30 defensive, and you want to add ratesetter 5%. I would suggest you take it out of the growth pool, to keep at a steady level of overall risk.
Post by: KittyZero on February 27, 2016, 08:23:14 PM
Unfortunately I know completely 0 about investing or even where to start. So I have a lot of research to do! I have $6000 debt which I hope to clear in the coming 3 months- it is highest priority, and a home loan of 180000. I'm currently trying to understand the for/against of paying this down vs investing.
I'm 32, and if all goes to plan (yes, I know...first I need a plan) I would like to be retiring or at the very least semi retiring 10 years early.
Post by: MsRichLife on February 27, 2016, 09:55:37 PM
Unfortunately I know completely 0 about investing or even where to start. So I have a lot of research to do! I have $6000 debt which I hope to clear in the coming 3 months- it is highest priority, and a home loan of 180000. I'm currently trying to understand the for/against of paying this down vs investing.
If I were in your position, I'd:
1. Pay down that debt ASAP
2. Set up an offset account against your mortgage and then start saving as much as you can into that account while you work out your plan.
Post by: happy on February 28, 2016, 12:55:13 AM
Post by: dungoofed on February 29, 2016, 09:12:48 PM
Trump being elected POTUS is no longer a black swan event. Any concerns for your VTS? VAS? How about your China-heavy VGE?
Any speculative plays you're considering? Any hedges?
edit: http://www.smh.com.au/business/the-economy/donald-trump-as-us-president-no-longer-a-black-swan-event-20160229-gn70oy.html
Post by: Primm on February 29, 2016, 09:26:32 PM
Post by: dungoofed on March 01, 2016, 12:55:22 AM
Post by: stashgrower on March 01, 2016, 06:35:26 AM
I've been wanting to buy VGS :)
Post by: dungoofed on March 01, 2016, 05:16:58 PM
Analysts are all over the board. A few say he will be pro-business (ie good for US stocks and probably your VGS too). Others are more "doom and gloom" saying that Trump will destroy the US.
Pascoe above seems to be saying that it would be disastrous for the US and therefore Australia.
Buffet says as he always does that people should continue betting on America.
His policies are subject to change but he has at least written down on his site that he will:
- use tax reform to try and balance the budget (a large part of this is lowering corporate tax to 15% and hence limiting corporate inversions).
- go after China and renegotiate trade deals with them.
Post by: stashgrower on March 01, 2016, 08:54:24 PM
"Analysts are all over the board. A few say he will be pro-business (ie good for US stocks and probably your VGS too). Others are more "doom and gloom" saying that Trump will destroy the US."
Good intentions to be pro-business, but I'm not convinced on the well-being of the US in general ("doom and gloom").
Post by: marty998 on March 02, 2016, 12:13:31 AM
Post by: deborah on March 02, 2016, 03:08:04 AM
Trump has economic policies?Haha! Like our Tony - who seems to be turning into the Liberal answer to Mark Latham.
Post by: dungoofed on March 02, 2016, 03:37:02 AM
Trump has economic policies?
Well that's precisely why I found the Pascoe opinion piece odd.
Some existing Australian exporters will have to find some other markets to sell to, and ween themselves off America's teat. Other Australian companies will flourish. A far cry from the doom-and-gloom story Pascoe tries to paint.
Post by: frozzie on March 02, 2016, 08:14:20 PM
Hopefully I'm not hijacking this fantastic thread but my mind is in a loop thinking about options so I wouldn't mind a bit of help/advice.
Here is the current situation :
After 2 years doing 30-45 mins school commutes each way, I finally convinced the wife that we should get closer to the school (same distance for the bike to work commute for me). The school is important to us as it's the only public school with a bilingual program that teaches english as wel as our native language (French) so can't really change that.
Wife is doing casual work and I'm full time at $100K/year (savings ratio at about 50 to 60%)
Buying is out of question (Forestville, Frenchs Forest is about $1.2M and we don't want that kind of mortgage) so we will rent at $800-$900/week... ouch
The question is what to do with our current unit ?
Selling would get us $500k to invest. We bought the unit for $500k on a $300k mortgage in 2009, and started to grow the mustache a couple of years back : $260k left on the mortgage and a $100k offset. The place should sell at around $650K (conservative, some valuation put it at 800k !)
OR
Finding tenants for $600/week and get an income of $5k/year after repaying a Principal+Interest Mortgage ($15k/year on Interest only) maybe a bit more after tax deductions ...
We're both in our early mid-forties with a view to ease down on work in the next 10-15 years.
Wife is for the tenants option but if I get my maths right income would be pretty low compared to investing the $500K.
Over 10 years, this would grow to $760+K at 4% or $1+M at 7% ... we could even use some of the investment income to offset the cost of renting ... all this while having no debt and without caring about housing market.
Am I missing something here ?
Her argument is that share market experience crashes, my argument is that they usually recover better than housing market crash (not sure if/when it will happen in Sydney but don't want to be involved ...)
Appreciate your thoughts, advices, face-punched :)
Renting is nice in theory for passive income, but in this case it feels like putting all our eggs in the same basket (we have just starting investing with about $6K in Vanguard fund and $2K in shares, Super is about $170K).
Post by: FFA on March 03, 2016, 01:30:30 AM
basically it is a call on investing in your unit versus shares, so many of the basic pro/cons lists shares vs property will be applicable. Yes shares are more volatile, but far better diversified, liquid and lower in transactional costs than property. Some of the volatility is apparent, since your property price does not fluctuate every minute in front of your eyes as shares do. Property is also much more hands on, dealing with tenant issues or at minimum a property manager if you can be lucky enough to find a good one. Shares you can be as hands on (active) or passive as you choose. Many Aussies tend to be well overweight property owning their own home plus investment properties, in which case I would suggest shares. In your case you will be renting so this would be the only property investment, so it is not too heavy into property compared to the norm here. I don't know much about Sydney property so won't comment on that.
I invested a lot in property through my life, but if I had my time over I would choose shares, as you can probably tell by the above paragraph. The political tax debate is also quite interesting at the moment, and depending on how it ends up might have implications for the attractiveness of shares vs property, so that is also something to monitor.
Post by: steveo on March 03, 2016, 02:35:33 AM
I basically agree with FFA. We own our house and there is no chance we will pick up an investment property. The yield is simply way too low and it's a hassle. On the flip side if property continues to increase in price there is the possibility you could pay off the house and live there when you retire.
Post by: ynotme on March 03, 2016, 02:47:36 AM
Post by: chasingthegoodlife on March 03, 2016, 04:02:14 AM
Maybe also worth keeping in mind that you have already paid significant transaction costs on this property. Not a good reason to hold onto it if you think shares are a better bet, but may not be worth selling if you see yourself buying a similar property as an IP in the next few years.
How would you feel about keeping your unit as a rental for the first year in case you do not like your new location? Or course, this leaves you exposed to any upcoming crash. On the other hand, you can be sure you will not be 'priced out' if values continue to rise.
Good luck with your decision!
Post by: marty998 on March 03, 2016, 01:56:14 PM
Makes me uncomfortable that you're willing to spend $45k a year on rent. Thats a lot of cash to be pouring away, especially when you have to earn so much more than that, pay your tax on it first and then hand it over afterwards.
Regardless of what you choose (rent vs buy), my view is that you should start salary sacrificing to super as much as you are able to.
Post by: happy on March 03, 2016, 03:36:44 PM
Quote
Am I missing something here ?
Yes, you can't afford it! Sorry this is a face punch post.
This move, which on the face of it sounds mustachian…i.e. a smaller commute, involves a housing upgrade from an apartment to a house whether you are renting or buying.
Secondly its based on the premise of being near the bilingual school. I don't underestimate the importance of the language to a Frenchman, but is this a need or a want? Your child can grow up bilingual if you speak French at home.
As Marty says if your salary is 100k aftertax (not sure you didn't say) and you rent at 40-45k, your saving rate will plummet. I wouldn't necessarily recommend buying in Sydney, but if you did the rent vs buy equation on selling the apartment and buying, there is probably not a lot in it ( quick back of envelop stuff). You're also probably better off staying where you are and driving.
You can have anything you want but not everything!
Post by: frozzie on March 03, 2016, 04:18:58 PM
Yes $45K is a lot and believe me "willing" is not really the word to describe it :)
I guess I'm trying to find a way to compensate the saving rate taking a bashing. Hence why I was considering shares to maybe get more diversified and potentially better growth/income.
Thanks to your comments and facepunch, I'm realising that it might be a bad move no matter what.
I'll go back to my little spreadsheet and reconsider all options ... including staying put.
Post by: oysters on March 03, 2016, 04:25:22 PM
So there is that option for teenagers, too, exchange. And travel. Factor in some travel to help maintain language and culture :-)
Post by: Primm on March 03, 2016, 06:37:30 PM
Post by: frozzie on March 03, 2016, 10:35:28 PM
Renting at those prices would mean having no saving power (or close enough) !
Selling and getting the biggest loan I can get ($700K over 30 years for $3500/month) would equate to $1.1M buying power. Which still means nothing unless relocating far far away, and then I might just consider moving interstate :)
Personal conclusions so far :
- Renting market in Sydney is crazy !
- Buying in Sydney is crazy !
- Bubble or not, I'm not sure I want to take the bet
Post by: deborah on March 03, 2016, 10:45:05 PM
Post by: marty998 on March 03, 2016, 11:47:42 PM
As there are plenty of people who live in Sydney who have half your income, you are looking at a pretty expensive place - either it is in a "good" suburb which is really outside your price range, or it is too big, or both.
He said he wanted to be near the French school... kinda restricts them to the Northern beaches (Frenches Forest).
Maybe as far North as Hornsby/Asquith is an option. It's difficult there with lack of public transport. Train line doesn't really service many of the areas.
Wonder where all the money comes from for young families to be buying up $1.5m+ houses around there.
Post by: steveo on March 04, 2016, 12:38:27 AM
Wonder where all the money comes from for young families to be buying up $1.5m+ houses around there.
I wonder where the money is coming from as well. The median house price in sydney is about $1 million.
Post by: misterhorsey on March 04, 2016, 02:09:14 AM
- a WBC mortgage calculator (http://info.westpac.com.au/homeloans/calculatortools/borrowing-capacity-calculator/)
- asic money smart taxation calculator (https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/income-tax-calculator)
Assuming a couple are on:
- $70k gross ($54k after tax)
- $55k gross ($44k after tax)
then WBC wants them to borrow up to $747,656
It's a bit off a median house price of $1m but its not far off if this hypothetical couple have equity/deposit of $200k (20% of $1m)
Weekly repayments @ 5.4% for this couple come to $924, monthly $4005 (which is about 50% of net income)
I chose a couple as people often buy as a couple, and these income amounts as they are near to average and median earnings, taking into account some amount of gendered pay imbalance.
I'm not saying it makes sense to buy at $1m, but if everyone else is it's easy to confuse price with value, particularly if you garnish with a bit of Fear of Missing Out. And perhaps these are the figures that RBA and other bankers look at when they say house pricing is affordable, or servicable. The debt is definitely servicable at these amounts.
But it doesn't take into account future variations in interest rates and capital growth/loss/stagnation.
Post by: steveo on March 04, 2016, 02:45:43 AM
Then again my mum thinks we are crazy. In her eyes just don't worry about it.
Post by: happy on March 04, 2016, 03:00:35 AM
Post by: Primm on March 04, 2016, 03:01:10 AM
Post by: happy on March 04, 2016, 03:13:19 AM
Post by: BattlaP on March 04, 2016, 03:20:06 AM
Most people don't really like talking about finances so it's hard to know for sure, but on the odd occasion when it comes up people mention 'struggling' to save 20K over the space of a few years or they just simply don't save money and don't think about it. Parking/speeding fines seem to destroy peoples lives for weeks. Most of those with mortgages openly regret buying and I know quite a few people that have ended up selling and been relieved to 'break even' (which probably actually means losing to inflation, but I can't bring myself to rubbing salt in the wound by asking for specifics).
Post by: happy on March 04, 2016, 03:24:33 AM
Post by: nolongerhere on March 04, 2016, 07:32:15 AM
Just started reading MMM and wanted to join to be part of a lifestyle and investing philosophy that reflects my own values too.
My life's pretty cheap at less than 10k PA, everything that makes me happy is basically either free, at home or in my own brain, so I was interested in building up 'a bank' to be able to continue like that.
I've worked casual / PT for about the past 6 years and I'm glad I did as they turned out to be great experiences. The bonus is that I've been able to save up about 10 times PA expenses.
I've read just about every (bad) financial investing forum, and have had about 3-4 years experience in researching and observing and customizing my own beliefs. I'm a high conviction believer in long term index investing (15+ year type timeframes). Interested in the economics of Asset Classes, Risk, Timing and how that juxtaposes with life goals.
Post by: Aussiegirl on March 04, 2016, 02:07:47 PM
I just don't get how "ordinary people", like teachers, cleaners, retail workers etc., anyone on less than $100k family income really, actually survives living in these places. At least here in Brisbane we have not-far-out suburbs where you can pay far less if you want to (we live 35 minutes from the CBD and paid $280k for our house, rentals are $250-$300 per week for 3 bedders), but that option doesn't seem to be available in Sydney. Or am I missing something, and there are pockets where it's possible to live on less but not as desirable?
Bottom line is they don't. They live quite a distance away from their work and commute as they can't afford the rental or mortgage near their work. In WA there was a push a while ago for "affordable housing" for what the government termed essential services because there was a recognition that police, nurses, teachers etc couldn't afford to live in their work districts.
$280k or $250-300 per week for a 3 bedder is a good deal. Not sure if the same is available in WA - a quick search on Realestate.com.au shows the min price available within greater Perth is $250/week.
Post by: frozzie on March 04, 2016, 02:50:19 PM
French's Forest/ Forestville is a middling good suburb. I think couples buying there would be earning more than 70/55k gross and are probably trading up from a cheaper first property. But likely to be servicing 700k or so of debt. Doable but if/when interest rates go up, a disaster waiting to happen.Doable maybe but I wouldn't sleep well at night ...
Looking at Domain, Manly/Hornsby are somewhat affordable to at least rent and in some cases buy ... anything else goes up pretty quickly. Not sure why Frenchs Forest/Forestville is that special apart from the fact that it's mostly houses with not many units, maybe the new Hospital being built ?
Makes me wonder if nurses, teachers, police etc with an average income are all commuting crazy distances ? My school commute doesn't look so bad in comparison ...
Time to reconsider I guess ...
Post by: qwerty8675309 on March 04, 2016, 06:12:56 PM
I just don't get how "ordinary people", like teachers, cleaners, retail workers etc., anyone on less than $100k family income really, actually survives living in these places.
More and more people seem to be sharing places now. Having housemates now doesn't seem so uncommon.
Post by: limeandpepper on March 04, 2016, 08:51:47 PM
By the way, what does everyone think about purchasing investment properties that cannot be owner-occupied e.g. serviced apartments?
Post by: limeandpepper on March 04, 2016, 10:30:54 PM
My life's pretty cheap at less than 10k PA, everything that makes me happy is basically either free, at home or in my own brain, so I was interested in building up 'a bank' to be able to continue like that.
I've worked casual / PT for about the past 6 years and I'm glad I did as they turned out to be great experiences. The bonus is that I've been able to save up about 10 times PA expenses.
Well done! That's an incredibly low number for annual expenditure. If you don't mind me asking, do you have very cheap rent, or do you have fully paid-off housing?
Post by: nolongerhere on March 05, 2016, 12:16:25 AM
If I rented/mortgaged it would take my expenses to $15-20k absolute minimum instead of <$10k
So I want to be smart with what I do with that saving.
Post by: misterhorsey on March 05, 2016, 03:16:49 AM
I just don't get how "ordinary people", like teachers, cleaners, retail workers etc., anyone on less than $100k family income really, actually survives living in these places.
More and more people seem to be sharing places now. Having housemates now doesn't seem so uncommon.
Indeed. I moved back into a share house (of other thirty year sumfinks) at the ripening age of 39, last year.
I have previously owned (underperforming property/didn't hold for long enough/didn't see Sydney's boom coming). I got sick of second guessing whether I should get back into the property market or not, which I think is harder a single person, so I decided to reduce my overall expenditure and upgrade my lifestyle by going back into sharing.
I could easily afford my own place but I couldn't see the value in it. By comparison with renters around the nation I'm still probably paying a lot ($230 a week for a large room, but in a $2m house) but it's still cheaper than $350-500+ for a comparable one bedroom place in my area.
As a result of lowering my rent I'm technically FI, but I don't know that i would count myself as really FI if I have to live with other people to achieve it. Otherwise I could move back in with my parents and call myself FI! (Hi mum. Hi dad).
I see the americans talk about the cost of their housing and when they are outside of NYC and SF, it seems crazily low.
Post by: KittyZero on March 05, 2016, 10:56:03 PM
Unfortunately I know completely 0 about investing or even where to start. So I have a lot of research to do! I have $6000 debt which I hope to clear in the coming 3 months- it is highest priority, and a home loan of 180000. I'm currently trying to understand the for/against of paying this down vs investing.
If I were in your position, I'd:
1. Pay down that debt ASAP
2. Set up an offset account against your mortgage and then start saving as much as you can into that account while you work out your plan.
Thank you for the response :) When you say pay down 'that debt' do you mean my personal Loan? Or both my Personal Loan and my Home Loan? Currently I have a PIF CC, and all my pay gets put in to my personal loan and what is left over my HL so that I can reduce the interest in both.
I know I have to reduce my PL before I start investing, but are you suggesting I need my HL paid off too?
I dont have one of these offset accounts on my mortgage, but every spare cent I have stays in the mortgage. Its like my everyday account and I only take from it what I need and when. Its an ANZ variable loan with 4.86% interest. I dont know what this mortgage offset account thing is, but sounds like im doing this anyway because all my pay is practically deposited in to the homeloan and I only ever withdraw on it to pay my PIF CC Bill?
Post by: Sapphire on March 05, 2016, 11:51:48 PM
Post by: stashgrower on March 06, 2016, 08:02:46 PM
Any suggestions on how to prioritise a house deposit, super and shares? I can see they are all useful but not sure what order to do things in.
The house deposit has been the priority so far, only because I don't know any better. The deposit-saving stage (halfway through) means there is no mortgage interest pressure, but now I see there is opportunity cost to leaving it as cash (in high-interest savings account).
I'd like to build a shares portfolio, mostly in index funds.
Super is low due to circumstance and prior lack of knowledge (do I need a facepunch?), but being in my 30s and on a low income I'm not sure if I should salary sacrifice extra or put it towards the house deposit or shares.
As with KittyZero, I have no interest in borrowing for shares. I prefer to pay down debt asap.
Suggestions welcome.
Post by: Grogounet on March 06, 2016, 09:13:59 PM
French's Forest/ Forestville is a middling good suburb. I think couples buying there would be earning more than 70/55k gross and are probably trading up from a cheaper first property. But likely to be servicing 700k or so of debt. Doable but if/when interest rates go up, a disaster waiting to happen.Doable maybe but I wouldn't sleep well at night ...
Looking at Domain, Manly/Hornsby are somewhat affordable to at least rent and in some cases buy ... anything else goes up pretty quickly. Not sure why Frenchs Forest/Forestville is that special apart from the fact that it's mostly houses with not many units, maybe the new Hospital being built ?
Makes me wonder if nurses, teachers, police etc with an average income are all commuting crazy distances ? My school commute doesn't look so bad in comparison ...
Time to reconsider I guess ...
The Frenchs are in da place :-)
There will be building a lot of units around the hospital and many expect prices to go bananas... I'm like you, I stay in my unit for now and don't want to move to Frenchs Forest until it's becoming a bit more reasonable price wise.
Post by: happy on March 07, 2016, 02:37:52 AM
Oh and there's no French national connection with the name as far as I know… named after John French.
Post by: frozzie on March 07, 2016, 04:36:44 AM
The Frenchs are in da place :-)
I think Grogounet was referring to the 2 mustachians, Frenchies and living on the Northern Beaches :)
But you're right happy, no French connection with the name ... La Perouse, Sans Soucis, Engadine and Vaucluse on the other hand ... :D
Anyway, I've been told today by a Real Estate Agent (so take with a massive grain of salt ...) that the whole area was pretty much "paused" as most owners are waiting to see if they can sell to developers (like those guys http://www.domain.com.au/news/group-of-neighbours-in-sydneys-frenchs-forest-make-200-million-property-play-20160229-gn6amy/ (http://www.domain.com.au/news/group-of-neighbours-in-sydneys-frenchs-forest-make-200-million-property-play-20160229-gn6amy/)) and therefore willing not to get tenants in the meantime.
Post by: stashgrower on March 11, 2016, 06:32:41 PM
Post by: dungoofed on March 11, 2016, 07:33:03 PM
http://forum.mrmoneymustache.com/investor-alley/australiausa-mustachian-philosophy-differences/
I'm not the right person to answer this but what I can say is that buying a home has a lot of other benefits apart from just looking at the dollars and cents.
I think money for a deposit should not be invested in stocks, if that's what you are asking.
If your income isn't great and isn't likely to increase any time soon then my first priority would be seeing if I can cut expenses any further.
And don't worry about being a bit "behind" - you're in a much better position than most of the spendy-pants around you.
(Would it be helpful to have an Aussie thread specifically on the RE vs shares vs super question? It seems to pop up a few times here. I'm only a newbie though, so maybe I'm missing something.)
Any suggestions on how to prioritise a house deposit, super and shares? I can see they are all useful but not sure what order to do things in.
The house deposit has been the priority so far, only because I don't know any better. The deposit-saving stage (halfway through) means there is no mortgage interest pressure, but now I see there is opportunity cost to leaving it as cash (in high-interest savings account).
I'd like to build a shares portfolio, mostly in index funds.
Super is low due to circumstance and prior lack of knowledge (do I need a facepunch?), but being in my 30s and on a low income I'm not sure if I should salary sacrifice extra or put it towards the house deposit or shares.
As with KittyZero, I have no interest in borrowing for shares. I prefer to pay down debt asap.
Suggestions welcome.
Post by: dungoofed on March 11, 2016, 07:37:39 PM
http://forum.mrmoneymustache.com/investor-alley/australian-investor-where-do-i-start/
Post by: stashgrower on March 12, 2016, 04:44:24 AM
My question isn't so much about *whether* to invest in real estate vs shares, I know I want a PPOR for the intangible benefits. It's more a question of *how or in what order*: given a fixed income and the frugality of a good Mustachian, in what order do I direct my money into (house deposit, shares, super)? Re-reading KittyZero's question, I note my confusion is very similar to hers. The difference is that my "mortgage" is still a growing house deposit. Perhaps I should post on KZ's thread for the comparison.
Post by: stashgrower on March 12, 2016, 06:13:26 AM
And thanks for the "don't worry" note, that helps to hear. No spendy-pants here, savings are going well plus I've started another hard look at what I can cut back, though on a not-too-great income it all appears slower.
Post by: Aussiegirl on March 12, 2016, 02:46:38 PM
(Would it be helpful to have an Aussie thread specifically on the RE vs shares vs super question? It seems to pop up a few times here. I'm only a newbie though, so maybe I'm missing something.)
Any suggestions on how to prioritise a house deposit, super and shares? I can see they are all useful but not sure what order to do things in.
The house deposit has been the priority so far, only because I don't know any better. The deposit-saving stage (halfway through) means there is no mortgage interest pressure, but now I see there is opportunity cost to leaving it as cash (in high-interest savings account).
I'd like to build a shares portfolio, mostly in index funds.
Super is low due to circumstance and prior lack of knowledge (do I need a facepunch?), but being in my 30s and on a low income I'm not sure if I should salary sacrifice extra or put it towards the house deposit or shares.
As with KittyZero, I have no interest in borrowing for shares. I prefer to pay down debt asap.
Suggestions welcome.
Shashgrower - unless you are getting a good tax benefit from putting money in super (which you're probably not if you're on a low income), I'd think twice about doing it. The legislative risk, coupled with the fact your money is tied up until retirement make it not worth it - especially if you're saving for a house deposit.
I'd personally save for the house deposit, buy the house, then once I had my loan down to 15 years or under (either by passage of time or by making extra repayments) I'd start directing money into either super or non-super investments. The important consideration here is not buying too much house - you'll pay for it for the next 30 years otherwise which will make your dreams of ER much more difficult to achieve.
Post by: frozzie on March 12, 2016, 03:56:43 PM
I'll just give my 2 cents ...
If house deposit is priority then I would "invest" it in something like a high interest online account (like ING Direct or something alike). That's what I did and you get some returns, at least tracking inflation while still having easy access to it.
We were thinking to invest in shares (index ETF) by investing the difference between interests and inflation once sizeable enough.
In the end it was not a lot and we gave priority to the house deposit.
Post by: happy on March 12, 2016, 04:42:38 PM
Once your stash is big enough, then buy the house. This way you are making money right from the beginning, rather than paying the bank interest. Depending where you buy, and what you believe about property, you may make some capital gain on a house which will offset paying the bank interest, but you need to be in the right market. If you live somewhere where the housing market is stagnant, this is a good alternative. Down the track, you might buy the house outright, or buy it with a large deposit and a small mortgage, thats up to you. As long as house prices are not rising greater than the mortgage interest this is a good strategy.
Just putting this up as an alternative to the usual Aussie concept of "buy the house first". If you have a family, then this option won't work for you.
Post by: BattlaP on March 13, 2016, 12:44:59 AM
Just putting this up as an alternative to the usual Aussie concept of "buy the house first". If you have a family, then this option won't work for you.
Yeah I think the first step is to actually really explore the option of what buying a house means to you and what your long-term goals are (because a house is a seriously long-term investment).
Myself, for example, I can see living overseas sometime in the future (not permanently, maybe just here and there for a couple years), I also quite enjoy moving to a new area within Sydney every few years. These feelings, coupled with the fact that most indicators point to our current environment being a very poor time to buy property when compared to other historical periods (or just to renting), lead me to confidently ignore real estate besides investment in REITs.
I will probably end up buying something in the distant future after my stash is a lot more hefty, but it definitely won't be in the areas that I currently reside in.
Post by: deborah on March 13, 2016, 03:01:36 AM
Post by: stashgrower on March 13, 2016, 03:14:10 AM
Frozzie - haha no worries. Yes, I'm in a high-interest savings account. Good to know I'm on the right track.
Happy and BattlaP - Thanks for the detailed response. bigchrisb has got it down smart! Subsidised rent definately helps. It's been good reading how everyone has approached it. Thanks for outlining another alternative, yes, I have thought about doing that. Problem is, being pretty green I wasn't sure which path was best for me and most efficient. (That's where my confusion comes in, what to prioritise. House first brings an immediate benefit of shelter, house later means I invest a bigger stash before I pay interest.) What I am learning a lot from this forum is hearing different viewpoints so I can weigh them up. BattlaP, most of the points you brought up are relevant to me too, which led me to re-think on housing.
Post by: Aussiegirl on March 15, 2016, 03:21:48 PM
That's the dilemma about a PPOR - given that stamp duty is so much, and conveyancing etc. is also expensive, you have to be living in a place for a lot more than a few years for it to be worth buying.
+1 for this. Unless you turn it into an investment property when you move on... I still own the first "home" that I bought. Its too small now/ in the wrong position for our life 20 years on, but its grown in value, rents awesome and the tenants are now paying it off.
Aussiegirl - you're right, not much tax benefit on super for me. However there is the current co-contribution scheme, which means an extra 50% from the gov if I contribute up to 1k. I hesitated last year, for the same reasons you talk about re changing regulations, but did it this year.
I'd definitely put the $1000 in if you get the government co-contribution. Free money from the government is the best kind!
Post by: Juan Ponce de León on March 16, 2016, 01:10:33 AM
Free money from the government is the best kind!
It's the aussie way.
Post by: Juan Ponce de León on March 16, 2016, 01:49:23 AM
https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1458114455096&chddm=1463494&chls=IntervalBasedLine&cmpto=ASX:ARG;ASX:AFI&cmptdms=0;0&q=INDEXASX:XJO&ntsp=0&ei=aw_pVuv3LtiJ0ATt7pTgDg
Is there something to do with dividend payout ratios and retained/reinvested earnings?
These two LICs are almost in lock-step, well ahead of the XJO and they pay fully franked dividends.
Post by: steveo on March 16, 2016, 04:16:02 AM
Post by: FFA on March 16, 2016, 04:29:47 AM
Assuming that is a share price graph, a chunk of the outperformance is NTA premium, which is a reason I would not buy these until it comes back to a more reasonable level like 2-3% or less.
I also do expect they have outperformed the index on a NTA basis (excluding the growth in premium), as many active managers have basically underweighted resources and this has been a winning ploy. It might not be so easy going forwards though. And the degree of outperformance in my opinion will not warrant paying a 10% premium. At least when I buy VAS I know there is $1 of assets behind $1 of my money. With ARG you need to feel comfortable that there is only 91c of assets behind it, and that they are going to continue to outperform the index for the next X years to recover that value for you and hold their NTA premium.
Anyway having said that, these LIC's have solid track records and are certainly a valid alternative to index ETF's. Especially when the market is riding higher. I've noticed when the index crashes ARG/AFI don't go down nearly as much as VAS (which is a good thing too of course). So if you are buying the dips I think the ETF's give you much better value at those times.
Post by: Juan Ponce de León on March 16, 2016, 04:40:44 AM
i think it needs a proper analysis, but one aspect is the NTA premium. ARG has been steadily around 10% in recent months, AFI at least 5+%. I'm not sure what it was back in 2012, it might even have been a discount.
Assuming that is a share price graph, a chunk of the outperformance is NTA premium, which is a reason I would not buy these until it comes back to a more reasonable level like 2-3% or less.
You are right but shit this graph is huge to me.
https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1458114455096&chddm=1463494&chls=IntervalBasedLine&cmpto=ASX:ARG;ASX:AFI&cmptdms=0;0&q=INDEXASX:XJO&ntsp=0&ei=aw_pVuv3LtiJ0ATt7pTgDg
On a 2000-2016 chart at the depth of the GFC in 2009 the XJO hit 0% gain since 2000, at the same time ARG and AFI had 45% and 52% capital gain. At the end of the 16 years we have XJO at +63% and ARG/AFI at +128%/139%. It's not a NTA variance it's a systemic outperformance that has gone on for decades.
At least that's what it appears to be.
Post by: FFA on March 16, 2016, 04:42:41 AM
http://www.afi.com.au/Investment-performance.aspx
http://www.argoinvestments.com.au/portfolio-performance/portfolio-performance
Using 5 year returns we have 5.9 / 6.0 / 5.7% (AFI/ARG/ ASX200 accumulation)
Using 10 year returns we have 5.6 / 4.8 / 4.7% (AFI/ARG/ ASX200 accumulation)
So as I said, there is some track record of outperformance, but perhaps it is not the quantum that your chart suggests. I think you might overpay for the reputation by stumping up a 7-10% premium to NTA.
Edit : just crossed over with your post there trevor reznik.... anyway like I said you shouldn't go too far wrong with AFI/ARG but equally I doubt they can deliver huge outperformance just look at their holdings, it is not too different from the index. And I just suggest you be mindful of the NTA premium when you buy. Also to note the above figures are as of 31 Jan 2016, as per the websites today. I'm never 100% confident in google financials and if it that is Total shareholder return, I think their own stat's should be reliable as a listed company.
Post by: steveo on March 16, 2016, 04:54:41 AM
So as I said, there is some track record of outperformance, but perhaps it is not the quantum that your chart suggests. I think you might overpay for the reputation by stumping up a 7-10% premium to NTA.
When I saw the results my initial thought is that at some point in the future it will revert to the mean and therefore I prefer the index. Still the index is all I intend to buy anyway so that isn't stating much.
Post by: Juan Ponce de León on March 16, 2016, 04:54:58 AM
Using 5 year returns we have 5.9 / 6.0 / 5.7% (AFI/ARG/ ASX200 accumulation)
Using 10 year returns we have 5.6 / 4.8 / 4.7% (AFI/ARG/ ASX200 accumulation)
So as I said, there is some track record of outperformance, but perhaps it is not the quantum that your chart suggests. I think you might overpay for the reputation by stumping up a 7-10% premium to NTA.
Thanks for the quick research! I'm a holder of VAS/STW, so it shocked me to see the chart results where the LICs are in step and always well ahead of the index. What has also spike my interest in these LICs is their discounted DRP plans and share purchase plans where you are invited to buy shares directly at a discounted price on a yearly basis. I think it may be worth at least replacing a few of my regular VAS purchases with AFI/ARG to then be invited to the discounted purchases and also compare performance between my index holdings and LICs.
Post by: FFA on March 16, 2016, 05:58:51 AM
I can imagine their portfolio management meeting, which share should we sell ? Well if we assume A, B and C then this company might outperform, but the risks are X, Y and Z. It is hard work with a crystal ball. Yet then they come to this option, well we can always sell more of our own shares at a 5+% premium to their underlying worth, and there's an army of loyal shareholders out there willing to scoop them up and thank us for the 2.5% discount ! I know which option I would choose if I was AFI/ARG.
The whole concept of the LIC is a fixed number of shares on issue. That is what is supposed to give rise to the NTA premium/discount. If you want them you need to buy in the secondary market and pay prevailing value. But in reality the number of shares is not fixed, it keeps growing. And each time they do a DRP/SPP at a discount it is eroding the NTA premium of the shares you already hold.
As you can probably tell, I don't hold LIC's, but I would happily buy AFI/ARG instead of an index ETF if the NTA premium came down towards zero, or certainly if they ever go to discounts again. But above 5% in my opinion the value is not so good, and the risk is quite high should they ever have an off period with their stock selection you will get the double whammy of poor NTA return as well as erosion of NTA premium.
Post by: bigchrisb on March 16, 2016, 01:08:30 PM
This thread is getting too large and cumbersome, the ETF/LIC out performance was discussed back on page 4/5.
Post by: banksie_82 on March 16, 2016, 04:55:53 PM
The reason most of us avoid active managers is the fees, something I think people on this website lose sight of. A fee of 2% isn’t uncommon for many funds and if you assume returns average 8%, they immediately need to do 25% better than the index just to break even.
But any LIC worth having only charges 0.1% - 0.2%. Better than most Australian ETFs.
LICs also have other benefits, that have been outlined further up thread.
Disclaimer - I only hold LICs for my Australian shares, and only use ETFs for international.
Post by: FFA on March 16, 2016, 10:53:04 PM
Based on share price, the outperformance can look greater due to the high NTA premiums currently. If you think they will remain that high or even higher, then of course it's all good. I just like to inform people there is nothing stopping the NTA premium from adjusting. Indeed fundamentally we should expect the LIC's to trade around the NTA over the long term. I also wonder how AFI/ARG can generate material outperformance if you just look at their top20 holdings. They don't deviate that much from the index actually. And in that case what will generate this huge outperformance ?
My approach is as per bigchrisb "LICs if they are trading at or below NTA, and ETFs if the LICs are at a significant premium" , but admittedly I have not explored LIC options widely and tend to focus on the big names AFI/ARG.
Post by: banksie_82 on March 17, 2016, 12:25:58 AM
$1,000 @ 6.0% for 10yrs = $1,790
$1,000 @ 7.0% for 10yrs = $1,967 (22% more gain)
It’s even more stark with longer periods…
$1,000 @ 6.0% for 25yrs = $4,291
$1,000 @ 7.0% for 25yrs = $5,427 (34% more gain)
In saying all that however, I too believe that 10% premium is hefty and most likely temporary, so now is not a good time to be buying those particular LICs. Although, to me, a slight premium is worth stumping up, which you yourself also say in your last post - ‘ETFs if the LICs are at a significant premium’.
This becomes a game of what’s your number? Mine is 5%, but I wince when I go that high.
Post by: FFA on March 17, 2016, 12:48:56 AM
And again I would note the numbers as per ARG/AFI themselves are somewhat *less than* 1%, rather than 1%. As per the data, the 5 years is 0.2 to 0.3%, and 10 years average AFI/ARG is 0.5%. And I wouldn't go as far as bigchris to say it's *systemic* and sustained. Certainly they have a great track record but we should all remember the past is no guarantee of future. There is no systemic process that ensures ARG/AFI must outperform the index. I would be willing to bet they will have a period of underpeformance at some time in the next 10-15 years, they are only human, afterall.
Anyway i think we broadly agree, my number would be a bit lower like 2-3%, but I'd be willing to pay a small premium for these guys. Current premiums especially for ARG are hard to fathom. Maybe it's the bradman effect.
Post by: qwerty8675309 on March 17, 2016, 07:29:20 AM
From my understanding, the ARG/AFI also use some leverage, which probably helps boost their returns a little.
I have a small holding in ARG and ARG (10% of my portfolio). At the moment, I believe they are good investments, but I'm weary in investing more because of active management risks. I'm also well aware that changes in management may mean that their investing philosophy can change.
Post by: pistolpete on March 17, 2016, 08:28:08 PM
just curious as im seeking to build up my super to fund retirement from 60 to 85 however im also trying to build up my non super portfolio to fund expenses from say age 50 to 60!
Post by: dungoofed on March 17, 2016, 09:11:31 PM
Post by: AustralianMustachio on March 17, 2016, 09:19:40 PM
It would be interesting to see what the accumulated gains are from AFI/ARG (full reinvestment of dividends at the discounted rate) compared to the the ASX 200 accumulated index.
From my understanding, the ARG/AFI also use some leverage, which probably helps boost their returns a little.
I have a small holding in ARG and ARG (10% of my portfolio). At the moment, I believe they are good investments, but I'm weary in investing more because of active management risks. I'm also well aware that changes in management may mean that their investing philosophy can change.
This information is available on their websites, without taking into account the DRP rate. You can't take into account the DRP rate without taking into account the discount/premium as well, which throws out the fair comparison vs the ASX200.
E.g go to Milton's website - look at TPR (total portfolio return) vs the ASX200 accumulation index. I think it's a 1% or so higher pa over the last 15 years.
Quote from: bigchrisb
This thread is getting too large and cumbersome, the ETF/LIC out performance was discussed back on page 4/5.
I agree, it will probably just start repeating itself soon
Post by: FFA on March 18, 2016, 02:17:24 AM
Post by: dungoofed on March 18, 2016, 02:17:47 AM
Once we have the basics in wiki format it will give us something to refer people to.
It's a bit unorthodox to cross-pollinate like this but I have always been embarrassed by the lack of an "Australia" section on the Bogleheads site. And this monster-thread wouldn't have been out of place if it had have appeared on the Bogleheads site instead.
Post by: FFA on March 18, 2016, 03:17:46 AM
if NTA premiums +>3% - 100k VAS
between 0 and 3% - 50/50
NTA discounts - 100k LIC
Post by: dungoofed on March 18, 2016, 04:49:36 AM
https://www.bogleheads.org/wiki/Investing_in_Australia
Post by: dungoofed on March 18, 2016, 04:51:20 AM
I'm also going to give a heads-up to the folks on the actual Bogleheads forum, in case they want to get involved.
Post by: stashgrower on March 18, 2016, 07:01:08 AM
Post by: dungoofed on March 18, 2016, 04:18:05 PM
http://www.etfwatch.com.au/blog/2016-australian-robo-adviser-roundup
Post by: Shaz_Au on March 22, 2016, 06:53:55 PM
Post by: dungoofed on March 23, 2016, 06:30:27 AM
It's awesome, actually. My first time involved with a wiki.
Post by: slothman on March 23, 2016, 02:58:36 PM
Just wondering where I can read up on the 3.5% SWR for Aussies. I would've thought it would be higher given that dividend yields for Aussie stocks are typically higher than US markets, plus we get the benefit of franking credits.
My approach is to live off an ever growing stream of dividends without having to sell to fund living expenses like MMM.
Is it because capital growth is not as strong over the long term?
Post by: Wadiman on March 23, 2016, 03:59:48 PM
One idea for content addition - what about Insurance/Investment Bonds? Some providers eg Ausstock Life have investment options that use Vanguard products. The tax advantages could be really useful for those with a 10yr+ investment horizon.
Post by: dungoofed on March 23, 2016, 05:03:14 PM
Great work dungoofed!
Thanks!
Quote
Just wondering where I can read up on the 3.5% SWR for Aussies.
The one article referenced on the wiki cites 3.56% from memory. This is far from conclusive, and I will flesh it out as I go through the 200-odd pages of useful info here (not to mention elsewhere on the web), but in the Australian Investing Philosophy thread no-one really gave a "better" figure which I took to mean acknowledgement/implicit agreement. I know some people have mentioned they plan to live off dividends which implies they are aiming for 4.5% or so. Keep in mind the 3.56% comes from an assumption of 75/25 equities to bonds.
Good stuff Dungoofed! This is already useful and will no doubt grow into something amazing. Good on you for taking the time and effort to get this up & running.
Thanks!!
Quote
One idea for content addition - what about Insurance/Investment Bonds? Some providers eg Ausstock Life have investment options that use Vanguard products. The tax advantages could be really useful for those with a 10yr+ investment horizon.
Agreed. Adding now, and adding sections for Annuities and SMSFs
What about trusts as a tax strategy? My understanding is that this is a way to essentially wrap a company around some investments, so that you get taxed at the company rate instead of your personal rate, plus you get all the other benefits available to companies (the ability to pay yourself a distribution, employ your kids, etc). I'm way out of my league here but there is a fair bit of information in the various threads and I think Chris' journal too.
Post by: steveo on March 23, 2016, 05:13:02 PM
Post by: TJEH on March 23, 2016, 09:33:17 PM
I looked at MVW a while back, but with no better ideas, I decided to have another look. On their website, they state "True diversification across securities and market sectors reducing concentration risk". Sounds good....but Financials and Resources make up 33.1% and 19.6% respectively according to their most recent publication.
Here is a snapshot of VAS and MVW holdings, and a comparison:
Sector VAS % MVW % MVW V VAS
Financials 45.5 33.1 -12.4
Materials 12.9 19.6 6.7
Industrials 8.6 14.4 5.8
Consumer Staples 7.3 5.7 -1.6
Health Care 7.3 5.5 -1.8
Telecommunications 5.6 2.7 -2.9
Consumer Discretionary 5.1 8.5 3.4
Energy 4 6.5 2.5
Utilities 2.5 2.9 0.4
IT 1.2 1.1 -0.1
I'm new to the concept of equal weight indexes, but I think I understand the fundamentals. Although CBA\ANZ\NAB\WPC and BHP\RIO etc don't have the same clout within MVW, the financials and resources are still more than half the index. I'm not picking on MVW, but I'm also not seeing how it offers diversification. Maybe I'm missing something, keen to hear your thoughts.
Post by: FFA on March 24, 2016, 12:40:39 AM
I posted in Jan about my switch from IOZ to MVW and while early days i'm happy so far with the move. I checked the return the other day and it was up over 4% versus IOZ in a few months. I still hold most oz exposure in VAS but i'm happy to have added MVW and hope it continues.
Post by: FFA on March 24, 2016, 01:16:01 AM
Post by: marty998 on March 24, 2016, 01:27:10 AM
What about trusts as a tax strategy? My understanding is that this is a way to essentially wrap a company around some investments, so that you get taxed at the company rate instead of your personal rate, plus you get all the other benefits available to companies (the ability to pay yourself a distribution, employ your kids, etc). I'm way out of my league here but there is a fair bit of information in the various threads and I think Chris' journal too.
If you put your investments through a company you lose the 50% CGT discount.
Trust allow some measure of income splitting, but you can't really distribute much unearned income to kids before being taxed at punitive rates. You need a lot of kids, grandkids, nieces and nephews for it to be worthwhile.
Post by: potm on March 24, 2016, 01:38:16 AM
This income is taxed at 28.5% for a small company which is a saving of 20.5% for someone on the highest marginal tax rate.
The money is then invested in the company which loses the CGT discount but the instant tax saving more than makes up for this.
Post by: TJEH on March 24, 2016, 04:49:21 AM
Hi TJEH, on a sector level perhaps it doesn't look as different as one might expect, but certainly if you compare top 10 holdings (and their weightings) you can see you're really getting something different. As opposed to say ARG/AFI etc where to me it does not really seem that different from the index. Also bear in mind the sectors are quite wide pigeonholes. CBA is a financial, as could be a debt collector like CCP/CLH, and Challenger, etc. So while you get 33% instead of 45.5% financials (which is quite a substantial difference anyway), you also might consider the 45.5 is hugely tilted towards banks, whereas i expect the 33% would be spread around different types of financials. The same can apply in other sectors. Finally as per your observation from the top 10 holdings it's very obvious MVW is giving you much more diversification across company size whereas the index is heavily concentrated in large caps.
I posted in Jan about my switch from IOZ to MVW and while early days i'm happy so far with the move. I checked the return the other day and it was up over 4% versus IOZ in a few months. I still hold most oz exposure in VAS but i'm happy to have added MVW and hope it continues.
Hi FFA, good points. I think I was just quite surprised at the makeup of the index, but as you say it's still broader than it suggests at first glance. I think what I am looking for ideally is not really possible with the AUS market, so MVW probably isn't a bad bet as a supplement to VAS (and a very small holding in CTN as a dabble).
Post by: FFA on March 24, 2016, 05:08:52 AM
Post by: TJEH on March 24, 2016, 05:20:15 AM
Post by: superannuationfreak on March 24, 2016, 05:25:05 AM
I still struggle with the same issues (although I probably have proportionally more allocated to international shares than most Australians). I'm gradually moving towards getting more of my Australian diversification to unlisted property, infrastructure, etc. in industry funds (full disclosure for any latecomers: I now work for one). It's a much more tax effective place for things which are "different" from a cap weighted index fund.
But focusing on listed assets I did the calculations on an earlier page. For the price of MVW or QOZ we could buy a mix of pure ASX300 (VAS) and something more different like FGX, QVE or even Market Vectors newer offering MVS (Small cap dividend payers - still too new, too expensive and prone to the same lock-in as MVW for my liking but at least it's a very different exposure) or Realindex Small Cap (class A if you can stump up $25,000).
Post by: Juan Ponce de León on March 24, 2016, 01:20:44 PM
Today is a good illustration, as commodity prices fell causing bhp/rio down 3-4%. on top anz/wbc announce bad debts in commodity sector wiping 4-5% plus 2-3% off cba/nab too. VAS was down 1.1%, MVW was flat. I'm not trying to focus on daily price moves here, but just highlighting how MVW gives you a different exposure than VAS.
Yep and when the banks and the miners go on a bull run MVW might do nothing. There's a reason the index is market weighted so heavily to certain companies, they're the companies that are making all the money and paying out the FF divs. If I want to diversify I think I'd prefer to buy international market cap weighted indexes than change up ours.
Post by: FFA on March 24, 2016, 04:15:02 PM
Hi Superannuationfreak, yeah MVW at 0.35% is a bit high compared to VAS but it's a smaller fund and the equal weight index does involve more work to rebalance. Also if you step back from the VAS benchmark, 0.35% would still be considered in the "low" bracket. Anyway, lowest cost does not always equal best, and in this case I believe having some MVW adds value to my portfolio. But everyone should do their own research and assessment.
Post by: superannuationfreak on March 24, 2016, 05:53:38 PM
yes Trevor Reznik, the context of my comment is not which is better, the question was are they really different ? I've been a big advocate of international diversification in this thread. I still suggest a VAS/VGS 50/50 portfolio as a good base case for simple investing. For people who wanted to tweak it, or who have bigger portfolios and start to wonder if they want all that money in these two funds, then you might supplement some of the VAS with MVW (or other alternative ETF/LIC's).
Hi Superannuationfreak, yeah MVW at 0.35% is a bit high compared to VAS but it's a smaller fund and the equal weight index does involve more work to rebalance. Also if you step back from the VAS benchmark, 0.35% would still be considered in the "low" bracket. Anyway, lowest cost does not always equal best, and in this case I believe having some MVW adds value to my portfolio. But everyone should do their own research and assessment.
Indeed VAS/VGS 50/50 is a great starting point.
To be clear re: MVW, I'm not directly comparing it with VAS. I'm saying, for example, instead of $20,000 of MVW I could invest in an additional $10,000 in VAS and $10,000 in MVS at lower overall cost and, at a first glance, greater diversification. Not suggesting this is the right combination (as I said, MVS is too small and too new for me), just an example of the principle.
For my Mum's pension we use HostPlus (I don't work for them and have no other ties to them). A small amount of her Australian 'risk' allocation has been allocated to Industry Super Property Trust, and next time we rebalance some might go into IFM – Australian Infrastructure. Fees were 0.4% and 0.5% p.a. respectively last financial year, for assets I expect to be more diversifying than MVW or MVS.
Of course she doesn't need life and tpd insurance, and much more of her allocation is in cash and fixed interest (rather than international shares, which HostPlus don't do especially cheaply outside of their Indexed Balanced all-in-one) so they may not suit everyone (including me at this stage).
Post by: Wadiman on March 24, 2016, 07:23:06 PM
Many of you may be well across this model - i've heard it mentioned quite a few times here and elsewhere but haven't seen a detailed account of how to make it work.
After a bit of googling I found this: http://www.forbes.com/sites/investor/2014/02/12/how-to-create-a-model-bucket-portfolio-for-your-retirement/#3b57213829c8
While a little US in focus the basic principles would be the same for us.
I like the approach espoused here. For those who want a simple (seven step) summary refer to the gallery on page 1.
Post by: stashgrower on March 24, 2016, 11:50:20 PM
Let's say the MER for a Vanguard mutual fund is 0.90%. I understand that the 0.90% fee is applied for every year I hold the mutual fund account. I can imagine this as a sum of money taken out of my account each year.
Now how does the ETF work? Let's say I buy VAS which has an MER of 0.15%. When/how is the 0.15% applied? Is the 0.15% skimmed off in the year of entry and exit, or is there some way Vanguard applies it annually? Thanks.
In other words: do I pay the fee annually regardless of whether I'm in a mutual fund or ETF, or do I pay annually for the mutual fund and only twice (at entry/exit points) for the EFT?
Thanks.
Post by: superannuationfreak on March 25, 2016, 12:17:06 AM
Post by: stashgrower on March 25, 2016, 01:42:41 AM
Post by: pistolpete on March 25, 2016, 01:47:32 AM
thanks!
Post by: steveo on March 25, 2016, 02:51:56 AM
hey guys, just wondering of the ppl who prefer vanguard managed funds over the etfs, what was your thought process in opting for lifestrategy funds over say 50/50 australian and international shares. i called vanguard and they will accept 100k buy in to the wholesale funds and am debating on going into lifestrategy growth fund or go 50 50 into australian shares and international shares with expense ratio at .18% a piece!
thanks!
I think this is the type of question that is a win/win. I'm investing now and I've gone the ETF option and I'm going 50% VAS/25%VAF/25%VGS. I'm comfortable with that because of the low fees and I'm confident that will work out for me. At the same time I think both your options will work out for you.
I like the wholesale fund options and I might have gone that way if I was prepared to save to 100k prior to investing.
Honestly though I just can't see you making a mistake no matter which option you choose.
Post by: pistolpete on March 25, 2016, 03:05:45 AM
Post by: steveo on March 25, 2016, 03:43:26 AM
cheers for that, yes i have read previous posts from yourself as well as murdoch, falcon among others and i have been waiting patiently for some opinions!
I think it comes down to how simple and easy you want it. Those all in one funds are great. You just save money and forget about it completely. No need to even worry about rebalancing. I would probably have gone for that if I had 100k saved up. At the same time maybe it's cool to try and eek out a few basis points with the lower fee option.
It comes down to what you think will work for you. I think out of those options though whatever you choose will work out great.
Post by: stashgrower on March 25, 2016, 04:15:43 AM
I went for ETFs for the lower fees as I'd only be eligible for the retail fund. If I'd had 100k and could spring for wholesale upfront, I would have considered the mutual fund in more detail. It may have helped with the psychology of it too haha.
Post by: The Falcon on March 25, 2016, 05:22:34 AM
What about trusts as a tax strategy? My understanding is that this is a way to essentially wrap a company around some investments, so that you get taxed at the company rate instead of your personal rate, plus you get all the other benefits available to companies (the ability to pay yourself a distribution, employ your kids, etc). I'm way out of my league here but there is a fair bit of information in the various threads and I think Chris' journal too.
If you put your investments through a company you lose the 50% CGT discount.
Trust allow some measure of income splitting, but you can't really distribute much unearned income to kids before being taxed at punitive rates. You need a lot of kids, grandkids, nieces and nephews for it to be worthwhile.
Use of a trust is a no brainer. The value flexibility it provides over the decades as your life changes cannot be overestimated. A lot of beneficiaries for it to be worthwhile? Rubbish. Married couple over 20-30 years will have different times one is working and the other isn't, and often they will be at different tax rates...kids come of age, and then there is the ability to distribute to a pty ltd. kick the overs out to a pty ltd to compound fixed interest at company rates, or just buy income stocks in it that you will never sell. Collect franking credits and pass them on with divis to a trust when you need the money.
A trust buys flexibility that years from now folks will wish they had.
Post by: steveo on March 25, 2016, 06:31:18 AM
Would the other advantage be the exposure to a few more things than just a straight VAS / VGS (or VTS+VEU)? E.g. Life Strategy also has emerging markets, property etc. You could, of course, get those as ETFs but LS simplifies things.
I went for ETFs for the lower fees as I'd only be eligible for the retail fund. If I'd had 100k and could spring for wholesale upfront, I would have considered the mutual fund in more detail. It may have helped with the psychology of it too haha.
I completely agree with you. I like the wholesale fund option. It's a little more diversified and there is no need for rebalancing. I probably would have gone with that if I started off with 100k. When I get some inheritance or a chunk of money I may use this option at that time.
Post by: insolent librarian on March 25, 2016, 07:53:02 AM
The two sides are usually:
Yes, pay it off, you get 5% discount! (Used to be 10%..., and may end up being 0%.)
No, don't pay it off, you get more money from leaving the money sitting in the bank than you lose from inflation.
Also, new rules about having to tell the government everything about what you earn overseas, even if you aren't resident for tax purposes in Australia (and therefore don't have to put in a tax return).
Cheers.
Post by: dungoofed on March 25, 2016, 05:44:12 PM
The HECS one you're right, we have discussed it before here and elsewhere.
Post by: coin on March 27, 2016, 11:15:07 PM
The wiki page looks like it has a good structure. My suggestion is to add something on HECS. It's a very common discussion point, and it's not like usual debt (as the rate it increases at is less than the rate of bank account interest).
The two sides are usually:
Yes, pay it off, you get 5% discount! (Used to be 10%..., and may end up being 0%.)
No, don't pay it off, you get more money from leaving the money sitting in the bank than you lose from inflation.
Also, new rules about having to tell the government everything about what you earn overseas, even if you aren't resident for tax purposes in Australia (and therefore don't have to put in a tax return).
Cheers.
Yeah I'm strongly in the 'pay it back' camp, the new rules seem to complicate things unnecessarily - once it's done you don't have to think about it again. When I paid mine off a few years ago there was even an option in eTax to pay it back using your tax return, though I'm not sure that's still an option given they've killed eTax from this financial year onward.
Does anyone use any "rules of thumb" to determine if their superannuation is on track? There's not much Australia-specific info, but there was an American article I read saying you should ideally have a years salary in retirement by 30, twice that at 40, four years salary at 50 etc. I'm not sure how that's supposed to scale as your income increases (e.g. if I started at age 22 earning 35k, then at 28 got a job paying 70k, should I still be angling to have 70k in retirement by 30?), or if that really applies to the average early retiree, but I've been using it as a guideline. I figure I'm not exactly going to miss the extra couple of grand that I'm funnelling into super a year, but was wondering if it factored into the plans of the younger FI'ers, why/why not and if super is even all that necessary for the average early retiree.
Post by: stashgrower on March 30, 2016, 04:06:59 AM
Post by: FFA on March 30, 2016, 06:59:04 AM
As for trusts, need to make a long-term call on it. I agree with Falcon, the flexibility can be worth a lot even if you don't see it right now. This year is a case in point for me, where I might've saved a lot of tax if I had one. But best to decide at the start and get your assets in the right structure from the get go, otherwise change-over costs can be high, especially properties. I also have a slight distaste for trusts, but that's just me. Personally I hope the Govt will one day change the rules to allow tax thresholds to be applied on a family household basis instead of individually. IMHO couples with one breadwinner should be able to pool their income without needing to use a trust. I don't see why a couple earning $70k each should be substantially tax advantaged versus a couple earning $140k/nil. Especially since many welfare benefits, medicare levy, etc are income tested on family basis too.
Post by: nolongerhere on March 31, 2016, 08:59:56 AM
- Increased Fee / Less Franking / Less Track Record is a disadvantage.
- Having 5% weighting instead of 30% to the Big 4 Banks in a financial crisis is the main advantage.
So effectively paying a little in insurance each year to hedge against a potential bank collapse.
Also on ARG and other LICs mentioned as outperforming, their portfolios have outperformed over some times historically. It is mathematically impossible for all funds to underperform, so obviously some will outperform.
Research has shown that the pool of funds that underperform are much more numerous than those that outperform, so you are essentially placing a bet that requires you to philosophically for example, pick 1 out of 3 at a rate of better than 1 out of 2.
Post by: FFA on March 31, 2016, 04:57:22 PM
I researched MVW as well, my takeaways:agree it's worth considering the crisis scenario, but I wouldn't base my entire judgement on it.
- Increased Fee / Less Franking / Less Track Record is a disadvantage.
- Having 5% weighting instead of 30% to the Big 4 Banks in a financial crisis is the main advantage.
So effectively paying a little in insurance each year to hedge against a potential bank collapse.
For me the key point is the ASX concentration (in both crisis, and more "normal/expected" scenarios). A lot of Bogle's thinking on market cap weighting is in the US context where the index is much better diversified. The ASX200/300 are substantially different from the S&P500.
Bear in mind there is nothing written in stone saying market cap weighting is the right way to index. However it has become the accepted norm, mainly based on it's formation/development in the US context.
Anyway, enough from me on MVW !
Post by: Juan Ponce de León on March 31, 2016, 07:05:38 PM
Post by: AussieCat on April 01, 2016, 07:55:24 AM
Post by: marty998 on April 01, 2016, 04:37:21 PM
I was thinking VAS tanking awfully hard this morning, just realised it's ex-div day :D
Interesting how comparatively small the VHY dividend is to VAS. Too much allocation to BHP and RIO....
Makes a mockery of the high-yield strategy when they pick low yielding stocks to comprise that index...
Post by: potm on April 01, 2016, 05:39:02 PM
I guess as with any non-index based fund you are relying on the manager's judement.
Post by: Juan Ponce de León on April 01, 2016, 07:33:23 PM
Post by: FFA on April 01, 2016, 09:23:13 PM
Post by: qwerty8675309 on April 02, 2016, 04:30:23 AM
Post by: steveo on April 02, 2016, 07:29:04 AM
trying hard not to say I told you so (oops!).... I've been suggesting VAS a better bet than VHY (inclusion of WPL, BHP, RIO as per it's method ; increased concentration ; slightly higher fee ...) for over a year in various threads. Rob_S are you going to stay the course with VHY or open to adjust plans ?
It's the same reason why I'd stay away from MVW. Smart beta, as Jack Bogle says, is dumb beta! It's just another way for active management to sneak back into our portfolios. This happens whenever you deviate from a market cap weighted index. It all just reverts to the mean over time anyway.
I just stick with VAS as well. I think focussing on fees and simplicity is the best approach.
At the same time I have a lot of ASX shares (mostly VAS - my other shares were given to me via employee benefits) in my asset allocation. I would prefer to just buy the total world index but I think that is risky because I live and intend to retire in Australia.
Post by: Rob_S on April 02, 2016, 08:45:48 PM
trying hard not to say I told you so (oops!).... I've been suggesting VAS a better bet than VHY (inclusion of WPL, BHP, RIO as per it's method ; increased concentration ; slightly higher fee ...) for over a year in various threads. Rob_S are you going to stay the course with VHY or open to adjust plans ?
March dividends were a blow. It had me question the 100% VHY plan. The wife was concerned for the first time since we started this journey, normally she trusts me, but now she wanted me to crunch numbers so I stayed up and did a comparison with other dividend index funds. The problem is VHY hasn't been around all that long with a 2011 inception date so while the 2012 to 2015 data looks great and had convinced me that it was the way to go. It really doesnt have a long enough history to back the decision up.
I agree with everyone that commodities and resource stocks, being cyclical, don't deserve a spot in VHY. Given its rules based and as long as RIO and BHP keep meeting the criteria then they'd stay. With their recent slashing of dividends I expect they will drop out of the index and no longer be a dividend drag. Maybe in 6 months time the dividend payout will be back to normal. If BHP, RIO and Woodside are still in the index in 6 months I'll start to seriously consider the alternatives. - Edit: VHY rebalance their portfolio in June and December.
But before we get too doom and gloom lets put the March dividend into context. Here's the historic VHY March payout:
March 2012 - 58.6
March 2013 - 48.8
March 2014 - 42.5
March 2015 - 73.4
March 2016 - 43.5
I'm considering LIC's for consistency but the premiums they go far are making the decision a tough one. RDV has a more attractive list of holdings and could be a viable alternative to VHY.
Post by: pistolpete on April 02, 2016, 09:07:23 PM
or do you guys prefer the traditional lic's basically hugging an index? (argo, afic, milton)
Post by: steveo on April 02, 2016, 09:42:55 PM
does anybody have any time for wilson asset management and his lic's? they seem to perform well but do have higher fees with performance fees!
or do you guys prefer the traditional lic's basically hugging an index? (argo, afic, milton)
When I read higher fees I just think why bother. Why not just stick with VAS (ASX index), VGS (world) and VAF (Aussie bonds) ? It's so simple with low fees and no need to worry about swapping funds around because something underperforms. I think it's easier for you to manage your emotions with a plan like this one.
I'd be interested in why anyone would go for anything else. I suppose to argue against what I'm stating I can see why adding some gold or commodities or emerging markets may be a good option to diversify further if you have a reasonable sized fund but if you are like me and intend to retire with approximately a 4-5% SWR I see getting the extra diversification as probably being more risky.
Post by: dungoofed on April 02, 2016, 10:04:52 PM
does anybody have any time for wilson asset management and his lic's? they seem to perform well but do have higher fees with performance fees!
or do you guys prefer the traditional lic's basically hugging an index? (argo, afic, milton)
When I read higher fees I just think why bother. Why not just stick with VAS (ASX index), VGS (world) and VAF (Aussie bonds) ? It's so simple with low fees and no need to worry about swapping funds around because something underperforms. I think it's easier for you to manage your emotions with a plan like this one.
I'd be interested in why anyone would go for anything else. I suppose to argue against what I'm stating I can see why adding some gold or commodities or emerging markets may be a good option to diversify further if you have a reasonable sized fund but if you are like me and intend to retire with approximately a 4-5% SWR I see getting the extra diversification as probably being more risky.
Tend to agree, it's extremely hard to justify the fees. I'd personally prefer to do the fundamental research and pick a few stocks myself.
Post by: dungoofed on April 02, 2016, 10:12:43 PM
A question I've long debated on LICs and not managed to get an answer from (either from the ATO, the ASX or the LICs themselves). Do you know if the post tax NTA accounts for the value of the LIC capital gains credits or not? i.e. is the CGT calculated at 30% or 15% in that stat?
Ok, here is an answer. LIC Post tax NTA is CG paid at company tax rate 30% but no LIC investor CG credit is applied.
The value of the investor CG credit will depend on investors individual tax situation, ie it is not company tax @ 30% / 2 , as LIC structure does not get 50% CGT discount but the individual shareholders get the flow through discount on the underlying holdings. Hope this makes sense.
I think that's good news - in other words, in the hands of an individual shareholder, the difference between the pre and post tax NTA would be halved?
Thanks for coming back to me on this one.
Roughly yes for low tax bracket, but still a better outcome than you might assume for top tax bracket, given the limited portfolio turnover, there is a lot of discounted CG to be had so you would have to expect an actual of 25% effective on top bracket for CG component, so yes I would suggest that Post tax NTA figure is probably a pretty pessimistic number (as it should be) and that would be top bracket, and a pretty high turnover year for one of the traditional LICs to get there.
No worries at all mate :)
Post by: marty998 on April 03, 2016, 03:58:18 PM
Guys I need some help. I don't want to lose the following (from page 2 of this thread) but the problem is I don't quite understand it. Doesn't have to be bigchrisb/The Falcon, would just appreciate if someone could give me some more background so I can wiki it.A question I've long debated on LICs and not managed to get an answer from (either from the ATO, the ASX or the LICs themselves). Do you know if the post tax NTA accounts for the value of the LIC capital gains credits or not? i.e. is the CGT calculated at 30% or 15% in that stat?
Ok, here is an answer. LIC Post tax NTA is CG paid at company tax rate 30% but no LIC investor CG credit is applied.
The value of the investor CG credit will depend on investors individual tax situation, ie it is not company tax @ 30% / 2 , as LIC structure does not get 50% CGT discount but the individual shareholders get the flow through discount on the underlying holdings. Hope this makes sense.I think that's good news - in other words, in the hands of an individual shareholder, the difference between the pre and post tax NTA would be halved?
Thanks for coming back to me on this one.Roughly yes for low tax bracket, but still a better outcome than you might assume for top tax bracket, given the limited portfolio turnover, there is a lot of discounted CG to be had so you would have to expect an actual of 25% effective on top bracket for CG component, so yes I would suggest that Post tax NTA figure is probably a pretty pessimistic number (as it should be) and that would be top bracket, and a pretty high turnover year for one of the traditional LICs to get there.
No worries at all mate :)
Some background for others who are interested.
Companies are not permitted access to the 50% CGT discount.
However in order for LICs to compete with Australian share funds that are run via trusts (e.g. MLC, Colonial, Advance, Anteras, Perpetual etc), LICs have effectively lobbied the tax office to allow them to pass through discounted capital gains in the same way that these trusts can.
Many LICs publish several NTAs: pre tax, post tax, post franking benefits... some then publish diluted NAVs (such as QVE, where all those $1 options will be a drag on performance for years to come).
You can always ring them up and ask them to clarify their policies.
Post by: AustralianMustachio on April 03, 2016, 08:11:14 PM
It actually always annoys me when they don't, in the case of FGG and FGX they just say "not diluted for outstanding options."
Must be Geoff Wilson's influence, because there is something that annoys me with his LICs too (in answer to an above question about this):
With WAM and the other Wilson LICs that despite their obviously high performance well above the ASX index over a long period of time, they don't publish their after fee returns. CDM is the same.
I find it annoying rather than overly worrying, since those LICs quote publications by the ASX which shows their after fee returns being the highest amongst available LICs over five, seven, ten years. So you are getting outperformance with those LICs, but just how much extra is taken out is hidden, since it must be quite large.
Post by: FFA on April 03, 2016, 09:49:42 PM
It's the same reason why I'd stay away from MVW. Smart beta, as Jack Bogle says, is dumb beta! It's just another way for active management to sneak back into our portfolios. This happens whenever you deviate from a market cap weighted index. It all just reverts to the mean over time anyway.Yeah I used to be in the same camp, and still am basically. I guess in the case of MVW I personally wouldn't classify it as smart beta, but rather a different index methodology. It is not trying to make some strategy around dividends, value, quality, etc. It is purely saying use equal weights instead of market cap. I wonder what Bogle would say about market cap weightings in the Australian context.
Regarding Wilson, they have an excellent reputation. I've been tempted to give it a try, but for me the bigger issue is the NTA premium. The fees are probably warranted based on track record at least. I think even Wilson himself suggested people shouldn't buy his funds at these 10% premiums (smart marketing I reckon, good way to attract people by telling them to stay away as we're just too successful lately!). Alas, I still have nil LIC's....
Post by: AustralianMustachio on April 03, 2016, 11:03:01 PM
However, I think with some of the outperforming, higher yielding LICs (ALF, WAM, CDM, etc), they seem to surge pre dividend. Then drop afterwards by more than the dividend amount, even taking into account the franking credits (for example, look at ALF - was 1.54 cum dividend, now around 1.41. The fully franked div = around 7 cents).
So if you're interested, buying them ex dividend might be a better bet. The Australian investing herd and their yield chasing behaviour, might throw up some opportunities for us!
Post by: Eamesy on April 07, 2016, 05:12:38 AM
I am after some tips on tracking my portfolio. Does anyone use online based platforms such as sharesight? I have also read previous posts mentioning excel spreadsheets to keep track of dividend reinvestments, new parcel purchases etc. Also is the main purpose of keeping track of these details for when the time comes to sell and to work out CGT?
I have had some VAS & VGS for just over a year now and would like to keep track of these before any more time slips away.
Cheers
Post by: qwerty8675309 on April 07, 2016, 06:25:55 AM
I am after some tips on tracking my portfolio. Does anyone use online based platforms such as sharesight? I have also read previous posts mentioning excel spreadsheets to keep track of dividend reinvestments, new parcel purchases etc. Also is the main purpose of keeping track of these details for when the time comes to sell and to work out CGT?
Cheers
Yup this is all to work out CGT events. In most cases, this will be from a sale of units, but it can also happen in other situations. For ETFs, you want to also record any tax deferred distributions because it is a unit trust (I'll be in the yearly tax statement you get from Vanguard). This reduces your cost base for the units that you've purchased.
https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Trusts/Non-assessable-capital-payments-from-a-trust/?page=3
To track my parcels, I've just got a spreadsheet that has the headings for each of my holdings (eg, VAS, VTS, VEU, etc)
- Date of event (eg, purchase date, sale date, DRP allocation date, tax deferred distribution date)
- Bought / Sold units
- Unit price at which you bought/sold (you can find this on your contract note from your broker)
- Brokerage paid (this is considered as a direct investment expense, so you can adjust your cost base with these amounts)
- Cost base for purchases (ie, (units x unit price) + brokerage)
- Cost base adjustments (for deferred distributions - see link above)
- Cost of sales (ie, (unit x unit price) - brokerage)
- Capital gains (ie, cost of sales less cost base of purchases for units sold less cost base for adjustments.. this will be negative for a capital loss)
Remember that if you've signed up for the DRP, you also need to keep track of the extra units you've been allocated. The cost base of these units is the price that they state in their announcement to the ASX.
During a sale, the ATO allows you a few different methods to work out which parcels you've sold. Depending on the method you choose, this can affect your capital gains. eg, FIFO, average cost, or specific parcel. Using specific parcel can reduce your capital gains if you keep detailed records of each parcel because you can choose which parcels are disposed of.
https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Shares,-units-and-similar-investments/Identifying-when-shares-or-units-were-acquired/
Also remember that if you hold a parcel for a year or more, you are entitled to a 50% CGT discount when you sell these shares. eg, if your purchase shares for 1000, and you sell your shares for 2000 a year later, your capital gains is (2000 - 1000) x 50% = 500.
I've also got another spreadsheet that tracks a running balance of capital losses that I've carried forward for each tax year. These capital losses can be used to offset capital gains in the future.
https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Shares,-units-and-similar-investments/Claiming-losses-from-the-disposal-of-investments/?page=2
I think that's all. Feel free to correct me if I've stuffed anything up :)
Post by: Aus_Stashington on April 10, 2016, 10:14:17 PM
Got a question regarding VTS/VEU vs VGS.
From everything I've read on the subject so far, VTS/VEU wins out easily with better diversification, lower expense ratio, exposure to emerging markets, better liquidity (and subsequent lower buy/sell spread), ability to control split between US/rest of world stocks.
The drawback being no DRP and no foreign tax rebates except from the US.
One thing I haven't been able to find any info on from a MMM perspective is the impact of the 15% tax payable on US derived income. You pay this personally with VTS/VEU but does VGS pay this on your behalf inside the fund itself (with it reflected in the share price)? If one had an income of 18,000 or less from VTS only, they would be paying 15% tax vs 0 with the Australian tax free threshold of 18,000. Is this also true of VGS?
Does anyone know the answer?
Post by: FFA on April 11, 2016, 01:46:14 AM
Re: VTS/VEU vs VGS, if you hunt around (including earlier in this thread and also on reddit) you can find pros/cons lists. Another con is the US estate tax issue, which is safer in the case of VGS as an oz domiciled fund. It might be a non issue but I never fully confirmed. You might want to consider this in your decision.
AFAIK the 15% foreign resident withholding tax is the same. In VTS/VEU you pay it yourself. In VGS it is inside the fund and extracted from the share price/NAV. Vanguard have told me this over the phone, so it should be correct.
However there might be differences in other withholding taxes / foreign tax rebates, as you mentioned. I think superannuationfreak.blogspot did an analysis of it and the difference in MER was quite small after these effects, if I recall correctly.
Post by: Juan Ponce de León on April 11, 2016, 02:28:51 AM
Post by: Aus_Stashington on April 11, 2016, 07:01:12 AM
Good post qwerty !
Re: VTS/VEU vs VGS, if you hunt around (including earlier in this thread and also on reddit) you can find pros/cons lists. Another con is the US estate tax issue, which is safer in the case of VGS as an oz domiciled fund. It might be a non issue but I never fully confirmed. You might want to consider this in your decision.
AFAIK the 15% foreign resident withholding tax is the same. In VTS/VEU you pay it yourself. In VGS it is inside the fund and extracted from the share price/NAV. Vanguard have told me this over the phone, so it should be correct.
However there might be differences in other withholding taxes / foreign tax rebates, as you mentioned. I think superannuationfreak.blogspot did an analysis of it and the difference in MER was quite small after these effects, if I recall correctly.
Thanks mate, your call to vanguard directly answers my query. In respect of US estate tax I read on another forum that aus has a tax treaty with the US extending the $60,000 limit before estate tax kicks in to $5,000,000.
Found a great comparison of VTS/VEU vs VGs on whirlpool forum
Post by: limeandpepper on April 11, 2016, 09:26:28 AM
Post by: steveo on April 11, 2016, 04:05:37 PM
Post by: FFA on April 11, 2016, 04:12:17 PM
Post by: Aus_Stashington on April 11, 2016, 04:29:42 PM
I have also been wondering about VGS vs. VTS+VEU. I would love to know what other people decide. I see that VGS is simpler but VTS+VEU looks more diversified and the management costs are lower. But I didn't even know about the foreign resident withholding tax thing.
here's the best source I've found: http://forums.whirlpool.net.au/archive/2449117
Post by: englyn on April 11, 2016, 08:01:50 PM
Post by: Eamesy on April 12, 2016, 04:22:28 AM
Post by: Juan Ponce de León on April 12, 2016, 04:49:32 AM
Post by: FFA on April 12, 2016, 05:04:37 AM
it's a good reference / analysis. I still think it boils down to VGS is a simpler option for most people, at a negligible cost increment. For those who like to optimise, by all means consider VTS/VEU.I have also been wondering about VGS vs. VTS+VEU. I would love to know what other people decide. I see that VGS is simpler but VTS+VEU looks more diversified and the management costs are lower. But I didn't even know about the foreign resident withholding tax thing.
here's the best source I've found: http://forums.whirlpool.net.au/archive/2449117
just on diversification, some studies suggest there's limited benefit beyond 10-20 companies. So what's the value of 1,500 vs 6,000? the bigger point is missing emerging markets, but you can always cover it if you so desire with a touch of VGE (which i'm doing). again if you want the 80/20 solution, just use VGS, IMHO.
Post by: Abundant life on April 12, 2016, 09:32:25 AM
http://forum.mrmoneymustache.com/investor-alley/aussie-superannuation-and-why-centrelink-is-a-pita/new/?topicseen#new
if any of you smart people would like to contribute I'd appreciate it.
Post by: Aus_Stashington on April 13, 2016, 05:24:57 PM
I don't understand the benefit of fully franked shares.
This is my (probably flawed) understanding.
If there's no franking on distributions the company hasn't paid tax on its distributions and you pay at your full marginal rate -- 46.5% or whatever.
With fully franked shares you receive a refund of the 30% tax the company has paid -- and you pay the additional 16.5% tax yourself.
In both instances the total amount of tax paid on the distribution by a combination of you personally and the company is 46.5%. So at the end of the day you have the exact same amount of money in your bank either way?
To my understanding it is literally just avoiding double taxation, yet people seem to actively seek out fully franked shares?
Post by: limeandpepper on April 13, 2016, 10:02:09 PM
Post by: chasingthegoodlife on April 14, 2016, 02:52:13 PM
If two companies each pay a $10 per share dividend to you it doesn't really matter what tax the companies have paid up to that point, in both cases you got $10. Then, if Company 1 has no franking credits and your marginal tax rate is 30% you get $7 in you pocket. If Company 2 is fully franked you get $10. Company 2 is the better performer.
Of course, if Company 1 is paying out a higher dividend reflecting their lower operating expenses (tax paid) up to that point then you have to factor that into your calculations.
It's not MAGIC FREE MONEY but it's a boost to your return above the basic amount paid out, that you wouldn't receive from other type of investment like interest on a saving account. So you need to add that benefit onto the return so you can compare apples for apples.
If you go to the Vanguard website they have different sets of historical return figures for their products for different tax brackets, which might be helpful in understand how the returns compare with other investment types eg property.
Sent from my iPhone using Tapatalk
Post by: Aus_Stashington on April 14, 2016, 04:35:14 PM
If you aren't considering franking % you aren't comparing apples to apples. Makes perfect sense now.
Post by: andystkilda on April 16, 2016, 05:07:45 AM
YMAX and P2P lending like Ratesetter.
My understanding is that Ratesetter would be considered 'interest' income and therefore just be subject to a 10% withholding tax (assuming no other agreed rate in a tax treaty).
YMAX gives largely (usually ~80%) tax-deferred income which I believe a non-resident would still be entitled to receive without having to pay tax or even declare it. Then when a non-resident sells YMAX they are not liable for CGT so therefore never pay tax on this tax deferred income (which is deducted from the cost-base) or on any capital gains arising from a rise in value of the ETF.
Any thoughts?
Post by: qwerty8675309 on April 16, 2016, 07:10:53 PM
http://beta.betterwealth.com.au/portfolio/anon?pageurl=/portfolio?hm=1
Post by: Wadiman on April 18, 2016, 03:07:42 PM
Have an aussie bond ETF (IAF) but also want some international fixed interest.
Have looked at Vanguard's latest offerings (VCF and VIF) but the yield and long average duration don't look too appealing.
Ishares IHHY looks like it has a high yield and relatively low average duration but the liquidity seems very low with only $2M under management and the fee is high (0.56%). The other option is IHCB but yield is low.
How have you incorporated international fixed income into your portfolio?
Post by: coin on April 18, 2016, 11:13:42 PM
Post by: steveo on April 19, 2016, 05:00:11 AM
I have VAF in my portfolio, mostly as as hedge - I have a strategy and I stick to it.
I use VAF as well.
Post by: Wadiman on April 19, 2016, 05:33:16 AM
Post by: FFA on April 19, 2016, 06:52:48 AM
qwerty, useful link, thanks. I looked up a 50/50 vas/vgs portfolio and funny 9 of the top 10 holdings are Oz. Apple just scrapes in a #10.
wadiman, I used to hold bonds in my Super instead of outside Super. with Sunsuper they have an international index FI option which is low fees. However I quit it a year or two ago and kept all my bonds in the Australian FI option as I was getting quite concerned about the unconventional monetary policy / ultra low interest / QE /etc. For me those concerns are still there, at least the RBA has maintained a 2% interest rate through all this... so far ! Outside super I hold a lot in HISA's at 3.37-3.6%. I took a 5 yr TD about a year ago at 4.15% but you can't find such rates anymore. Tough these days for savers !
Post by: steveo on April 19, 2016, 03:14:42 PM
qwerty, useful link, thanks. I looked up a 50/50 vas/vgs portfolio and funny 9 of the top 10 holdings are Oz. Apple just scrapes in a #10.
I looked this up as well for my portfolio. I'm overweight CBA. I also work there and have staff provided shares. I don't like it but I'll deal with it over time.
Post by: andystkilda on April 19, 2016, 08:13:29 PM
Once you declare your tax status as non-resident the fund should deduct the appropriate amount of withholding tax, so they should know really. As a side note i'm surprised YMAX would have so much tax deferred income, any idea why is that ?
They said the tax-deferred income was from their 'option trading strategies' - that's all they could give me.
May be something to do with a way you can calculate profits on option-trades and somehow tie the tax liability to the underlying asset, therefore the tax liability only arises when the underlying asset is sold?
Post by: FFA on April 20, 2016, 06:20:53 AM
Once you declare your tax status as non-resident the fund should deduct the appropriate amount of withholding tax, so they should know really. As a side note i'm surprised YMAX would have so much tax deferred income, any idea why is that ?
They said the tax-deferred income was from their 'option trading strategies' - that's all they could give me.
May be something to do with a way you can calculate profits on option-trades and somehow tie the tax liability to the underlying asset, therefore the tax liability only arises when the underlying asset is sold?
thanks for the feedback, sounds a bit dodgy to a layperson such as myself, but i'm sure they have an army of accountants (or perhaps just one big 'un) telling them it's all okay.
I also reckon the betashares hvst etf is somewhat aggressive on the tax side. it openly markets itself as a franking credit harvesting strategy. I would've thought the ATO could attack it if they want to, under their blanket rule that investments cannot be primarily focused on tax reduction.
i'm no tax expert but I have a personal dislike of aggressive tax minimisation, so these kind of products are out for me.
Post by: Shaz_Au on April 21, 2016, 12:03:12 AM
I thought I'd post my question on discretionary trusts (family trusts) in Australia as a new topic. If you are able to help then please check it out.
http://forum.mrmoneymustache.com/investor-alley/australia-discretionary-trusts/ (http://forum.mrmoneymustache.com/investor-alley/australia-discretionary-trusts/)
Thanks,
Shaz
Post by: chasingthegoodlife on April 21, 2016, 03:56:05 PM
The ATO's publication You and Your Shares was very helpful in understanding how this works https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/You-and-your-shares-2015.pdf
Post by: qwerty8675309 on April 23, 2016, 05:27:29 PM
https://www.reddit.com/r/fiaustralia/comments/4g108s/where_as_a_group_are_we_at_with_our_fire_a_quick/
Some of the stats are pretty amazing, particularly the income levels and the savings rates
Post by: nick69 on May 05, 2016, 09:46:16 PM
My first ever trade in an ETF so hopefully it pans out as I plan on adding quite of bit of it to my portfolio over the coming years.
Post by: steveo on May 06, 2016, 04:43:41 PM
I thought that this was interesting. It's about doing everything wrong.
Post by: sammie123 on May 12, 2016, 11:22:13 PM
My goal is to save for retirement and would like to initially start with 6k in the VAS ETF for the long term due to the low fees, with dividends re-invested and a yearly 1k-5k contribution. I've read and read and it seems VAS is recommended a lot so I thought maybe I'd start with this as my first investment and use it as a set and forget and see how it does after 10 or so years.
Reading about how compound interest works in a mutual fund over a 30 year period had me thinking about how this would reflect in the situation of me buying $6000 worth of VAS and wanting the same outcome.
My questions would be:
-are the dividends re-invested used to by more VAS units
-does it make it harder to calculate capital gains on units if I participate in the DRP
-what happens if the amount is not enough to buy the extra unit, what happens to that portion of money
-would you suggest VAS for the long term as in 20years or is it something you would suggest selling as soon as there were significant gains
-i also read about allocations between different ETF's. If I had 6k in VAS and I wanted VEU and VTS would I have to buy the ETF separately or can i split that 6k between the 3 ETF's? Is there a charge for this?
most importantly
-is there any compounding effect in buying and holding ETF for the long term (end balance similar to a managed fund after 30 years)
OR am I only banking on the growth of the unit price overtime
How well do you think these VAS holdings would do, compared to a mutual fund given the timeframe, initial capital and yearly contributions.
Sorry for the silly questions, I have read many forums and am now asking questions to what I still don't understand before jumping into VAS or a mutual fund. The amount I get from a compounding calculator for a mutual fund at retirement age is something I'm after and I was wondering how or if that would work in holding VAS before investing in it with the wrong expectations.
If you could help me with the questions above or suggest any advice/product for my goal, that would be highly appreciated.
Thanks in advance,
Sammie
Post by: BattlaP on May 13, 2016, 02:39:40 AM
-are the dividends re-invested used to by more VAS unitsYes.
Quote
-does it make it harder to calculate capital gains on units if I participate in the DRPI know for yearly tax purposes they send you out a summary that you can just plug in, and also they send stuff to the tax office so eTax normally just auto-fills it for me. If you mean after you sell units - I don't know, never sold any units.
Quote
-what happens if the amount is not enough to buy the extra unit, what happens to that portion of moneyYou can own fractions of units.
Quote
-would you suggest VAS for the long term as in 20years or is it something you would suggest selling as soon as there were significant gainsBuy and buy and buy and never sell until you are an old, rich man/woman.
Quote
-i also read about allocations between different ETF's. If I had 6k in VAS and I wanted VEU and VTS would I have to buy the ETF separately or can i split that 6k between the 3 ETF's? Is there a charge for this?Depends if you are talking about the ETFs (traded on the market) or the Managed Funds (purchased through Vanguard). The managed funds each require a minimum buy-in of $5000. The ETFs have no minimum and you can buy whatever units you want of whatever ETFs just like you could shares in different companies.
Quote
most importantlyThe compounding comes from your dividend reinvestment as well as the value of the shares held over time. This is no different to how the managed funds/mutual funds work. Increase in the value of any stock is literally capital growth + any dividends paid out/reinvested.
-is there any compounding effect in buying and holding ETF for the long term (end balance similar to a managed fund after 30 years)
OR am I only banking on the growth of the unit price overtime
Quote
How well do you think these VAS holdings would do, compared to a mutual fund given the timeframe, initial capital and yearly contributions.Over the long-term, index ETFs such as VAS, will definitely outperform mutual funds in the same sector. A small percentage of mutual funds will outperform each year, but because it's never the same funds outperforming for very long, the inevitable victor is the index.
Quote
Sorry for the silly questions, I have read many forums and am now asking questions to what I still don't understand before jumping into VAS or a mutual fund.
There were no silly questions in there.
I got a little confused in how you seemed to use the terms 'mutual fund' and 'managed fund' interchangeably. Try to understand the differences between Vanguard ETFs, Vanguard Managed Funds, and all other non-index tracking 'mutual funds'. Vanguard's ETFs and Managed Funds track the same indexes, but are purchased differently and have different expense ratios.
The Vanguard Managed Funds have higher management costs but you can BPAY small amounts of money into them every week essentially like you would a savings account (there is still a buy/sell spread but it's a minor enough thing to ignore). They are great for trickling money into long-term, and when your balance gets over 100,000 you can shift into a wholesale fund where the management costs are close enough to the ETFs to be negligible (in my opinion).
The Vanguard ETFs are bought on the stock market and will cost you for each trade (cost varies depending on who you are with - nabtrade, commbank, etc). For this reason they are best purchased in bulk, ie save up and buy them all at once - monthly, quarterly or yearly.
Other non-index-tracking mutual funds are all different and I have no specific opinion on them except the general opinion that it is dumb to try and beat the index, so Vanguard is better.
Post by: sammie123 on May 13, 2016, 03:37:21 AM
thanks again!
Post by: steveo on May 13, 2016, 04:08:59 AM
Thank you so much BattlaP for your informative response :) . I'm just itching to finally start investing in it after reading about it for the past 3 months. I noticed VAS was at $60 a few months back and is now at $67. If I were investing for the very long term as I said before, should it matter what price I buy in at or should I wait for it to drop a little further before I purchase? Anyone's opinion on this would be welcomed :)
thanks again!
Ideally you want to buy at a low but how do you do that. I just buy when I have the money but I try to buy every 4-6 weeks. I buy when I have 10k to invest. It's up to you to figure out what works for you.
Post by: stashgrower on May 13, 2016, 05:13:15 AM
Post by: steveo on May 13, 2016, 10:03:59 PM
Nobody for international fixed? I do like the additional diversity.
I'm wondering if this is a good idea as well. Does anyone know the pros and cons ?
Post by: FFA on May 14, 2016, 05:08:08 PM
hi wadiman, steveo, i'm not.... generally I prefer cash over FI for my defensive assets, because if you scramble around you can still find better deposit rates 3.15-3.35% than govt bond yields. For the FI, I have a term deposit outside super, and an Australian FI option in super. For international FI you have FX risk, but it can be managed by taking a hedged ETF or fund. Apart from that it's a different interest rate environment, taking into account what the Fed, ECB, BOJ etc are doing. I would rather set my FI assets locally around what the RBA is doing, since that relates to the economy where I live and the inflation/growth/employment situation here. For growth assets it's good to diversify. For defensive I would rather link it back to my local situation to minimise any disconnect. I'm not sure if that is correct theoretically, but it makes sense to me.Nobody for international fixed? I do like the additional diversity.
I'm wondering if this is a good idea as well. Does anyone know the pros and cons ?
Post by: steveo on May 14, 2016, 05:41:30 PM
hi wadiman, steveo, i'm not.... generally I prefer cash over FI for my defensive assets, because if you scramble around you can still find better deposit rates 3.15-3.35% than govt bond yields. For the FI, I have a term deposit outside super, and an Australian FI option in super. For international FI you have FX risk, but it can be managed by taking a hedged ETF or fund. Apart from that it's a different interest rate environment, taking into account what the Fed, ECB, BOJ etc are doing. I would rather set my FI assets locally around what the RBA is doing, since that relates to the economy where I live and the inflation/growth/employment situation here. For growth assets it's good to diversify. For defensive I would rather link it back to my local situation to minimise any disconnect. I'm not sure if that is correct theoretically, but it makes sense to me.Nobody for international fixed? I do like the additional diversity.
I'm wondering if this is a good idea as well. Does anyone know the pros and cons ?
Thanks - this is a good perspective.
The advantage that I can see is that you would have another uncorrelated asset especially if it was unhedged that you could use for rebalancing purposes. Still I'm searching for a good reason and that isn't really a good enough reason as foreign stocks may do the job just as well.
Post by: stashgrower on May 14, 2016, 11:07:22 PM
Post by: SamFinn on May 16, 2016, 01:48:54 AM
Post by: Aussiegirl on May 16, 2016, 12:23:09 PM
I'm taking full advantage of the low interest rates to smash our non tax deductable debt
Great idea SamFinn. Those extra repayments now will make a huge difference as they compound.
Post by: jan62 on May 17, 2016, 02:37:00 PM
Post by: Wadiman on May 18, 2016, 05:33:45 AM
hi wadiman, steveo, i'm not.... generally I prefer cash over FI for my defensive assets, because if you scramble around you can still find better deposit rates 3.15-3.35% than govt bond yields. For the FI, I have a term deposit outside super, and an Australian FI option in super. For international FI you have FX risk, but it can be managed by taking a hedged ETF or fund. Apart from that it's a different interest rate environment, taking into account what the Fed, ECB, BOJ etc are doing. I would rather set my FI assets locally around what the RBA is doing, since that relates to the economy where I live and the inflation/growth/employment situation here. For growth assets it's good to diversify. For defensive I would rather link it back to my local situation to minimise any disconnect. I'm not sure if that is correct theoretically, but it makes sense to me.Nobody for international fixed? I do like the additional diversity.
I'm wondering if this is a good idea as well. Does anyone know the pros and cons ?
Thanks - this is a good perspective.
The advantage that I can see is that you would have another uncorrelated asset especially if it was unhedged that you could use for rebalancing purposes. Still I'm searching for a good reason and that isn't really a good enough reason as foreign stocks may do the job just as well.
I've decided to get into some International hedged FI simply due to the desire to get better diversification. Notwithstanding the old adage of 'past performance isn't indicative of future performance', there have been a number of occasions over the past 15 years when international bonds have bettered aus bonds (https://www.vanguardinvestments.com.au/retail/ret/investor-resources/learning/calculators.jsp) in returns. I have an equal % allocation to Aus bonds (IAF) and Int hedged bonds (VIF). There have also been marked differences in returns between cash and FI over the years. Anyhoo - I am comfortable with this approach and am also powering down the mortgage balance concurrently.
Post by: Rustycage on May 23, 2016, 03:32:41 AM
I realise USA forumites have a bit more flexibility regarding withdrawal of funds from 401k's/IRA's, do we Australians have any options?
I'm currently holding most investments in my own name, and am looking to RE wayyyyyy before having access to super. Trust structures don't seem to be ideal for a single person either.
Any thoughts?
Post by: JamesSyd on May 23, 2016, 03:41:27 AM
Trust structures don't seem to be ideal for a single person either.
Any thoughts?
I believe trust structures for a single person can work, for example if you have a corporate beneficiary, you can pay out to that company which will pay the corporate tax rate (~30%) which for some people is a lot less then their current marginal tax rate. You can then pay out a franked dividend to yourself in the future when you are on a lower tax rate (i.e. not working)
Post by: bigchrisb on May 23, 2016, 03:44:08 PM
Trust structures don't seem to be ideal for a single person either.
Any thoughts?
I believe trust structures for a single person can work, for example if you have a corporate beneficiary, you can pay out to that company which will pay the corporate tax rate (~30%) which for some people is a lot less then their current marginal tax rate. You can then pay out a franked dividend to yourself in the future when you are on a lower tax rate (i.e. not working)
This is what i do. Invest in a trust, use a corporate beneficiary for earnings at 28.5% (soon 27.5?). The franking credits stay with the company, and can then be used (paid as a dividend) in a low income year. Shifts tax from high to low tax years over your life, and if circumstances change (partner/kids/support patents) you have maximum flexibility
Post by: settlement on May 23, 2016, 06:06:26 PM
I have decided to invest with interactive brokers. I have already got ETFs in euro with a european broker from when I lived in europe but don't want to lose out on currency risk as the oz dollar is currently weak against the euro. I want to buy similar shares to what i have in euro already: I have 75% MSCI World the other 25% in EM.
Any advice on how to invest in similar stocks? I'm not exactly used to the australian investing situation.
Post by: potm on May 23, 2016, 08:19:31 PM
If you want Australian listed ETFs, look at VGS, VGE, VTS and VEU.
Post by: settlement on May 25, 2016, 05:56:47 AM
With interactive brokers you will be able to keep buying the ETFs you currently have. You will just need to convert the money to euros which can be done at very good rates.
If you want Australian listed ETFs, look at VGS, VGE, VTS and VEU.
Thanks for response. Is the money converted through the broker (and hence cheaper than going through currency fair and investing with my european broker to buy the same stocks)?
Is there an advantage (perhaps tax reasons?) to men buying australian listed etfs vs buying more of my current etfs?
Post by: FFA on May 28, 2016, 10:30:21 PM
Any thoughts on this, if it's really different or just another cycle passing. Has a big impact on retirement plans though.
To some extent it's offset by lower inflation, i.e. returns 3% lower, but inflation 1-2% lower too, so the impact on SWR required is maybe 1-2% instead of the full 3%. But that 1-2% can add a lot of years on your working life !
Post by: steveo on May 29, 2016, 02:38:37 AM
I don't see a 4% WR being any less safe.
Post by: FFA on May 29, 2016, 06:34:41 AM
A lot of people are saying expect less from the sharemarket, but I guess it's in one ear out the other at the moment since we are at a recent market high.
Personally I feel a 4% WR is a little less safe than it used to be. Especially for mustachian types who consume less and may not benefit as much from the lower inflation (yet still pay council rates, insurance etc which seem to go up by 4-5% !)
Post by: chasingthegoodlife on May 30, 2016, 02:58:41 PM
However, as I am 7+ years away myself, I have thought 'Is there any action I can take if I believe this to be true?' and for me the answer is no. I don't want higher risk investments, and I don't want to stop investing and buy a giant TV instead. So I will worry about it closer to the day.
Is anyone here considering changing their investment strategy based on the current environment?
Post by: steveo on May 30, 2016, 04:13:47 PM
Is anyone here considering changing their investment strategy based on the current environment?
Good question. The answer is no.
The question really is can you have an investment strategy that is specific to our environment ? When I ask this question it makes me think that in reality that there is no difference between now and in the past. Of course there are tonnes of differences but a diversified low cost portfolio should work as well as any other option.
Post by: bigchrisb on May 30, 2016, 07:39:12 PM
- Lower nominal returns are partially offset by lower inflation, with a smaller impact on real returns.
- There isn't a lot I can do about it, as all asset classes seem to be impacted. In accumulation phase, it isn't changing a lot.
- Perhaps the one difference is from how cheap debt and leverage is. I'm less focused on paying down investment debt at the moment - I'm paying 4% interest and getting 6+% yield (including franking etc). That means I can bank a 2% spread per year, and keep exposure to any potential upside
- It might impact on how I feel about draw down rates. However, I've been aiming at having a ~2% SWR rather than 4%, so not intending on changing this. Even with no real returns, 2% SWR gives 50 years coverage.
(for anyone interested, the rationale for a lower SWR for me is mostly because I feel I'm on a very high income at the moment, and for various reasons I'd struggle to replicate it if I came back to work after FIRE. An extra year working now would be like 3-4 extra years working then. Hence I'd rather have a couple more years padding now, and lower risk of needing to return to work).
Post by: insolent librarian on May 31, 2016, 08:32:26 AM
However, as I am 7+ years away myself, I have thought 'Is there any action I can take if I believe this to be true?' and for me the answer is no. I don't want higher risk investments, and I don't want to stop investing and buy a giant TV instead. So I will worry about it closer to the day.Much like yourself, I've considered the risks, and there really isn't much I can do. I'm staying the course, which I think reflects well on past-me, who decided to setup the current strategy.
Is anyone here considering changing their investment strategy based on the current environment?
Two things I am thinking about are:
* With such low interest rates, is it worth getting the guaranteed 5% for paying off part of my HECS debt, as compared to the 3% I get for leaving it in the bank? Especially as that 5% option goes away at the end of the year.
* Is P2P lending something that could take up part of the Australian higher-risk part of my portfolio? (RateSetter had a promotion a few weeks back which was an almost guaranteed 10% return (invest $1000 and they gave you $100, assuming you got your capital back, you got $1100 + interest on the $1000 of ~6%). I'm still kicking myself slightly for not throwing some money in.)
Post by: FFA on June 01, 2016, 04:50:03 PM
Post by: BattlaP on June 02, 2016, 02:06:38 AM
* With such low interest rates, is it worth getting the guaranteed 5% for paying off part of my HECS debt, as compared to the 3% I get for leaving it in the bank? Especially as that 5% option goes away at the end of the year.
I would totally take advantage of this man, I paid off a 30k HECS over a couple months in 2015 and I look back on it as a highlight of the year. The numbers will never make it the mathematically best direction but fuck it feels good being totally debt free.
Post by: Juan Ponce de León on June 08, 2016, 03:34:59 PM
Seems like the LICS (AFI and ARG anyway) are trading very close to NAV now, after quite some time trading at a premium. I'm due to make an ETF purchase tomorrow and was going to get some more STW, but now I'm weighing up if it may be time to make my first LIC purchase for a bit of active managed diversification and to take advantage of their discounted DRP schemes etc. Any thoughts? And which is the better of the two?
Post by: hodor on June 08, 2016, 05:45:08 PM
Thread has gone a bit quiet.
Seems like the LICS (AFI and ARG anyway) are trading very close to NAV now, after quite some time trading at a premium. I'm due to make an ETF purchase tomorrow and was going to get some more STW, but now I'm weighing up if it may be time to make my first LIC purchase for a bit of active managed diversification and to take advantage of their discounted DRP schemes etc. Any thoughts? And which is the better of the two?
Sounds like a good plan. Pick up an (old school) LIC when trading near/at a discount and the index when they are at a premium.
Both are very similar and have a long history of outperforming the index. Maybe pick up the one with the greatest discount...? ARG has less mining exposure than AFI which in my mind makes it preferable.
Post by: englyn on June 08, 2016, 08:51:55 PM
This decision would be easier if I had a target % domestic/international allocation, but I don't. I haven't seen a sufficiently good argument for any particular setpoint yet. Currently 25% international split evenly between VTS/VEU.
Post by: Juan Ponce de León on June 09, 2016, 02:42:22 AM
Post by: faramund on June 09, 2016, 11:58:55 PM
I have some ARG, bought when it was at a discount. Haven't quite got my head around whether to buy more when it's near equal to NAV. Problem being that the value of ARG hasn't changed that much (since February) but the value of the index (and hence NAV) has climbed to match it. So is it that they're both overpriced now and I should go buy more VEU instead?I hadn't really thought about ARG, so after reading this I looked at their web page, and from what I saw, they seem reasonable. But they gave their performance as:
This decision would be easier if I had a target % domestic/international allocation, but I don't. I haven't seen a sufficiently good argument for any particular setpoint yet. Currently 25% international split evenly between VTS/VEU.
Argo Share Price S&P/ASX 200 Acc. Index
1 Year -5.7% -2.4%
3 Years 7.7% 7.7%
5 Years 8.9% 7.5%
10 Year 4.8% 5.3%
I'm pretty sure VAS is about the same as the ASX200 Acc Index, so what's the point of something like ARG over VAS?
Post by: hodor on June 10, 2016, 02:33:42 AM
I have some ARG, bought when it was at a discount. Haven't quite got my head around whether to buy more when it's near equal to NAV. Problem being that the value of ARG hasn't changed that much (since February) but the value of the index (and hence NAV) has climbed to match it. So is it that they're both overpriced now and I should go buy more VEU instead?I hadn't really thought about ARG, so after reading this I looked at their web page, and from what I saw, they seem reasonable. But they gave their performance as:
This decision would be easier if I had a target % domestic/international allocation, but I don't. I haven't seen a sufficiently good argument for any particular setpoint yet. Currently 25% international split evenly between VTS/VEU.
Argo Share Price S&P/ASX 200 Acc. Index
1 Year -5.7% -2.4%
3 Years 7.7% 7.7%
5 Years 8.9% 7.5%
10 Year 4.8% 5.3%
I'm pretty sure VAS is about the same as the ASX200 Acc Index, so what's the point of something like ARG over VAS?
It appears you're comparing an accumulation index to a share price without dividends. If both came from their site it is strange that didn't mention if the share price included dividends. I have their 10 year performance (NTA) at 6.5%pa to December 2015 per bell Potter report.
Post by: faramund on June 10, 2016, 05:29:25 AM
No, I used http://www.argoinvestments.com.au/portfolio-performance/share-price-performanceI have some ARG, bought when it was at a discount. Haven't quite got my head around whether to buy more when it's near equal to NAV. Problem being that the value of ARG hasn't changed that much (since February) but the value of the index (and hence NAV) has climbed to match it. So is it that they're both overpriced now and I should go buy more VEU instead?I hadn't really thought about ARG, so after reading this I looked at their web page, and from what I saw, they seem reasonable. But they gave their performance as:
This decision would be easier if I had a target % domestic/international allocation, but I don't. I haven't seen a sufficiently good argument for any particular setpoint yet. Currently 25% international split evenly between VTS/VEU.
Argo Share Price S&P/ASX 200 Acc. Index
1 Year -5.7% -2.4%
3 Years 7.7% 7.7%
5 Years 8.9% 7.5%
10 Year 4.8% 5.3%
I'm pretty sure VAS is about the same as the ASX200 Acc Index, so what's the point of something like ARG over VAS?
It appears you're comparing an accumulation index to a share price without dividends. If both came from their site it is strange that didn't mention if the share price included dividends. I have their 10 year performance (NTA) at 6.5%pa to December 2015 per bell Potter report.
which says that they are showing ARG while assuming that they reinvested dividends.
If Potter in 2015 has a different figure, I assume that's because ARG is showing the latest results (do you know what 10 year annual performance for the ASX in 2015 was?). In any case, if ARG shows worse performance than a report, I'd trust ARG.
In general, ARG seems very 'honest', but looking at their share holdings, it really just seems to be an ASX index fund... so I don't understand why one would buy it, instead of VAS that does the same, with lower management costs.
Post by: hodor on June 10, 2016, 03:36:14 PM
VAS and ARG both have a MER of 0.15%
Post by: Juan Ponce de León on June 10, 2016, 07:13:46 PM
https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1465607597889&chddm=1484793&chls=IntervalBasedLine&cmpto=ASX:ARG&cmptdms=0&q=INDEXASX:XJO&ntsp=0&ei=mGVbV8i-DYOB0gSyqquIBA
Post by: faramund on June 10, 2016, 07:37:13 PM
Maybe this is why someone would buy it:
https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1465607597889&chddm=1484793&chls=IntervalBasedLine&cmpto=ASX:ARG&cmptdms=0&q=INDEXASX:XJO&ntsp=0&ei=mGVbV8i-DYOB0gSyqquIBA
This was interesting to look at, although if you change the time scale, sometimes ARG is better and sometimes VAS - but, given as pointed out in the previous reply, ARG has the same MER as VAS, I've softened my opinion about it. ARG probably isn't too bad, it has a low MER, they seem to be an honest company - so buying some of it for diversity seems like a fair enough idea.
Post by: hodor on June 10, 2016, 11:00:12 PM
Maybe this is why someone would buy it:
https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1465607597889&chddm=1484793&chls=IntervalBasedLine&cmpto=ASX:ARG&cmptdms=0&q=INDEXASX:XJO&ntsp=0&ei=mGVbV8i-DYOB0gSyqquIBA
That is what I meant by a long history of out performance. I hadn't seen the comparison on their website which showed them trailing the index so it came as a surprise.
LICs like ARG appear to hold a lot of the index with a few exceptions and different weightings, which is what appears (I presume) to have given them the edge long term. I am fairly new to a lot of this, however my reading and understanding of things points to buying one of the low MER (similar to indexing) LICs when they are at or at a discount to NTA and picking up the index if they are trading at a premium. Given ARG has been around since the 1940's I am not concerned about them going anywhere.
If anyone has an argument against this kind of strategy I would be happy to hear it.
Post by: marty998 on June 11, 2016, 05:13:08 PM
Thinking it gives time to keep powder dry for some buying in September/October.
Very low inflation/deflation is going to hurt the Banks, Wesfarmers/Woolworths, most industrials who will struggle to get revenue growth in this environment. The only way costs can be managed is by staff cuts or wage freezes so it is likely many firms profits will be steady or down.
Reporting season will give us a better idea. I've moved my super from 80/20 equities/cash to 45/55, and am holding onto cash and margin loan capacity in anticipation.
Post by: faramund on June 11, 2016, 06:30:48 PM
Anyone think the market is going to be flat/neutral to negative until the election is over?
Thinking it gives time to keep powder dry for some buying in September/October.
Very low inflation/deflation is going to hurt the Banks, Wesfarmers/Woolworths, most industrials who will struggle to get revenue growth in this environment. The only way costs can be managed is by staff cuts or wage freezes so it is likely many firms profits will be steady or down.
Reporting season will give us a better idea. I've moved my super from 80/20 equities/cash to 45/55, and am holding onto cash and margin loan capacity in anticipation.
I have no confidence in my ability to predict the future - so I just average in, any investment money I get, regardless of the market, but this is a bit of an interesting idea.
So, September 1, is just on 3 months away, the long term average growth rate of the all ords is about 7%, so I'd guess, 2% or so growth by then... So allords is now 5391.6. So my guess for 1 September is 5500. Does anyone else want to make a claim for fame or ignominy?
Post by: marty998 on June 11, 2016, 06:36:29 PM
The market does have a mood and can be seasonal in nature. Confidence comes in waves.
Dow went above 18,000 last week before pulling back slightly. We got to 5400 and started teetering... the insurers will cop a hammering for the storms that hit the east coast - Suncorp, IAG fell but they should be adequately reinsured to limit the losses somewhat.
Post by: marty998 on June 18, 2016, 08:51:11 PM
Post by: bigchrisb on June 19, 2016, 05:30:27 PM
The only tactical change I've made is to swap back from ETFs to LICs for new purchases, as the premium to NTA has come back to about par value.
Post by: hodor on June 20, 2016, 04:52:51 PM
I'm actually starting to believe the whole "sell in May and go away" and "santa rally" evidence.
The market does have a mood and can be seasonal in nature. Confidence comes in waves.
Dow went above 18,000 last week before pulling back slightly. We got to 5400 and started teetering... the insurers will cop a hammering for the storms that hit the east coast - Suncorp, IAG fell but they should be adequately reinsured to limit the losses somewhat.
Don't confuse coincidence with a repeating pattern you can take advantage of, human nature means we like to see patterns in randomness.
Post by: micase on June 20, 2016, 10:31:50 PM
lots of talk these days about deflation, low interest rates, deleveraging etc. 10 year govt bonds at 2% instead of the old 5%. And we should expect 4-5% average returns from shares instead of 7-8%. And this is here to stay for some time.
Any thoughts on this, if it's really different or just another cycle passing. Has a big impact on retirement plans though.
To some extent it's offset by lower inflation, i.e. returns 3% lower, but inflation 1-2% lower too, so the impact on SWR required is maybe 1-2% instead of the full 3%. But that 1-2% can add a lot of years on your working life !
While this doesn't impact me greatly regarding retirement plans (I'm still many years off retiring,) it has a very large impact on me saving for a deposit on a PPOR. After reading a MMM book recommendation ' The Magic of Thinking Big' and another book 'One Page Financial Plan', I went about setting myself long term financial goals that serve as a compass aiding in shorter term financial decisions. The biggest goal out of this which many people in Australia share is to own my own house.
Coming up with the goal was the easy part, the tough part I'm finding now is determining what path I will take in order to achieve this goal. Living and working in Sydney I see RE prices are still climbing higher and higher while the returns I get on my money in a HISA account are getting lower and lower. Currently 90% of my networth is in cash as I can't justify to myself that taking on extra risk with equities is worth it for what could be like you said 4-5% average returns over the next few years. It is hard not to feel like I've missed the boat with how much RE prices have increased over the past few years in Sydney and how easy servicing a loan would be at these rates.
The positive out of this is that the goals I came up with after reading the above mentioned books (which I would recommend to anyone out there) help guide me in making the right financial choices in day to day life. It feels like I'm treading water now but I've got plenty time to educate myself with all things investing and finance so that one day down the line when an opportunity arises I'll be ready to grab it.
Post by: bigchrisb on June 23, 2016, 09:21:35 PM
Post by: marty998 on June 24, 2016, 04:08:06 AM
Pound dropping 8% against the USD. It's all a bit ridiculous
ASX down 3.5%, FTSE futures down 6%! Shanghai market down 8%..... Japan down 12%.
Seriously it's such a gigantic overreaction
Post by: faramund on June 25, 2016, 01:46:09 AM
Post by: limeandpepper on June 25, 2016, 02:42:05 AM
Post by: JamesSyd on June 25, 2016, 04:38:43 PM
Is there something I'm missing - I had a quick look at the markets and VAS, VTS and VEU are all down, but VGS is up??
I saw that as well and it made me think twice. It must be that the aussie dollar
Edit:
I looked into it a bit more and it looks like VGS has a strange closing price. It was down ~3% right before it closed and closed much higher for whatever reason
Post by: FFA on June 25, 2016, 06:46:02 PM
Post by: Juan Ponce de León on June 26, 2016, 03:09:01 AM
Post by: turboslob on June 27, 2016, 04:02:17 AM
First question, is there anywhere where all of the acronyms are spelled out? I get some of them, others, not so much.
If I get a few responses, I don't mind editing this post and making a central spot, if it doesn't already exist.
Thanks.
Post by: FFA on June 27, 2016, 04:19:29 AM
VGS corrected itself today !
Post by: stashgrower on June 27, 2016, 07:20:10 AM
Post by: deborah on June 27, 2016, 12:45:40 PM
Post by: happy on June 27, 2016, 08:19:52 PM
http://forum.mrmoneymustache.com/investor-alley/basic-australian-investing-thread/ (http://forum.mrmoneymustache.com/investor-alley/basic-australian-investing-thread/)
Post by: cakie on June 28, 2016, 01:31:23 AM
Post by: cakie on June 28, 2016, 01:37:22 AM
So... Vanguard released dividend estimates today. But I have a question about MVW - apparently there was a distribution in January? Looks as if it is part of a DRP. (I don't have a record of getting a dividend from them like I do Vanguard). How do I set this up to get the cash for the upcoming one? I was trying to avoid DRPs to keep things simpler! No idea how I set it up last year with Vanguard though, I've already forgotten.
I think I've figured it out! I've got to go through the registry - Link Market Services in this case.
Post by: bigchrisb on June 28, 2016, 01:49:03 AM
Post by: marty998 on June 28, 2016, 01:49:15 AM
Post by: marty998 on June 28, 2016, 01:50:55 AM
Anyone else struggling to understand the VAS dividend? 15.5 cents. Less than a third of last year's. I know that some payers such as BHP, ORG, STO and WPL slashed payouts, but I'm surprised the change was this large?
There will be a revision to the estimate on 30 June and another revision when it goes ex.
Don't know why they even bother publishing the estimate....
Post by: bigchrisb on June 28, 2016, 02:27:28 AM
Anyone else struggling to understand the VAS dividend? 15.5 cents. Less than a third of last year's. I know that some payers such as BHP, ORG, STO and WPL slashed payouts, but I'm surprised the change was this large?
There will be a revision to the estimate on 30 June and another revision when it goes ex.
Don't know why they even bother publishing the estimate....
Indeed! The error in the estimates seems to be pretty volatile too. Given that its all for dividends/distributions declared in the past, I don't see how they can get it so wrong? Makes me like the more open accounting in the LICs annual reports!
Post by: terrier56 on June 29, 2016, 10:18:12 PM
VAS still in the gutter at 0.19C and surprise hit for VGS.
Post by: FFA on June 29, 2016, 11:36:09 PM
I wonder if it's a timing issue especially with ANZ, WBC and NAB payments due on 1, 4, 5 july. (last year was 1, 2, 3 july instead). So maybe this year WBC and NAB are out in 3q instead of 2q, whereas last year they were all in 2q. I wouldn't be rushing to conclusions on the quarterly dividend due to these effects
Post by: coin on June 30, 2016, 02:38:45 AM
Are the ones that have come out today still an estimate?
VAS still in the gutter at 0.19C and surprise hit for VGS.
Really surprised by the estimate for VGS, none of my ETF's before today have given a dividend over a dollar before. I genuinely thought it was a typo when I first saw it, but I doubt it'd still be up there if it were.
Post by: marty998 on June 30, 2016, 03:45:29 PM
The dividends in theory should get accrued in the index fund when the companies go ex, not when they get paid (at least I thought so)... ANZ, WBC, NAB all should be in the June Qtr...?
Either way...$0.19 is still way too low
Post by: Juan Ponce de León on June 30, 2016, 04:35:26 PM
Post by: Abundant life on June 30, 2016, 06:05:31 PM
Quote
Anyone asked Vanguard what is going on with their divs?
I haven't, but I was comparing various efts and lics last night and most are down by about half compared to their dividends of the last couple of years.
Post by: Juan Ponce de León on June 30, 2016, 06:09:34 PM
Post by: Abundant life on June 30, 2016, 06:49:43 PM
Post by: PDM on June 30, 2016, 08:35:35 PM
Glad I bought STW a few weeks back and got in on the 84c 6 monthly div. That VAS payout just makes no sense at all.
Hey Trevor - good to see a familiar name around here (I'm pretty new) but recognise you from Whirlpool. Particularly dropping truth bombs on fools wanting huge mortgages and to speculate on property.
Post by: FFA on June 30, 2016, 09:58:31 PM
Maybe the work experience kid at the fund accounting/administrators has mixed them all around.Hi marty, I agree it should be accrued in the NAV once the company goes ex div. As for payment though, I understood Vanguard would need to receive the cash to pay out the cash ? And once the ETF goes ex div, then it should come out of the NAV. I don't know this for sure but that's my logic on how it should work...
The dividends in theory should get accrued in the index fund when the companies go ex, not when they get paid (at least I thought so)... ANZ, WBC, NAB all should be in the June Qtr...?
Either way...$0.19 is still way too low
Post by: marty998 on July 01, 2016, 02:43:01 AM
Maybe the work experience kid at the fund accounting/administrators has mixed them all around.Hi marty, I agree it should be accrued in the NAV once the company goes ex div. As for payment though, I understood Vanguard would need to receive the cash to pay out the cash ? And once the ETF goes ex div, then it should come out of the NAV. I don't know this for sure but that's my logic on how it should work...
The dividends in theory should get accrued in the index fund when the companies go ex, not when they get paid (at least I thought so)... ANZ, WBC, NAB all should be in the June Qtr...?
Either way...$0.19 is still way too low
Payment date is 18 of July.. .so by then Vanguard has the cash from all the banks but not the property trusts like Westfield and Dexus which go ex on 30 June.
More I think about it the more I wonder how the hell Vanguard does it...
And how Vanguard gets the tax statement out before all the property trusts send their tax component statements out too...
Doing my head in on a Friday night
Post by: FFA on July 01, 2016, 03:56:53 AM
My next guess would be some capital losses being distributed, maybe on re-balancing of the index. Eg. if there are cases like SGH or others falling off the index.
Post by: marty998 on July 01, 2016, 05:38:13 AM
But even at its peak SGH was under a couple of billion... in a market worth 1.7 trillion?
It's all very odd.
Post by: bigchrisb on July 03, 2016, 06:45:16 PM
Anyone been following the activists in AGF, a high cost LIC focused on china? Its been trading a long way below NTA for years. I'm thinking that it might be worth doing a good scan among the other entities for things trading below NTA - on my list to look at are SOL and SVW. Not a lot showing among the usual LICs though? Anyone else scanning this space?
Post by: FFA on July 03, 2016, 06:54:43 PM
Hi bigchris, I bought a small parcel of SOL recently, although it is mostly TPM these days (which I am keen on). Seems to have a decent after tax NTA discount even though it is not a LIC (which is probably one of the problems as LIC would be a better structure since it has now basically become a holding structure). Great track record / family history.
Post by: bigchrisb on July 03, 2016, 07:21:15 PM
NTA = $12.24 on page 3. This suggests a premium.
Consolidated financial position of $3748M (p22) in net assets and 239m shares ($15.68/share), roughly in line with price
Portfolio value: $5407M (p6) $22.62/share, significant discount.
Same story for its sister company BKW.
Anyone got a good handle on this?
Post by: Juan Ponce de León on July 03, 2016, 07:49:27 PM
Final dist's are up for Vanguard. VGS is two thirds capital gains. VAS is only 8% franked and mostly tax deferred, so I think it might be timing as I suggested earlier. The same dividend last year was 75% franked. Therefore I think those big bank dividends slipping out is likely. Perhaps no issue here if you are a long-term investor.
Thanks FFA that makes sense, so sounds like the next VAS dividend should be quite a big one with those bank divs moving into the following quarter?
Post by: FFA on July 03, 2016, 08:35:34 PM
I also own some stock in SOL and BKW. However, I always struggle to get to the bottom of what the parts are actually worth. Example, from the half yearly report:I look at it based on the portfolio value 5407M less the unrealised tax liability 1.1BN = After tax portfolio value = 4.3 BN -> $18.05/share. They have emphasised this in some of their analyst slides, e.g ASX announcement on 23 May 2016, "CEO sessions", slide 9. So that was my reference point when I suggested an after tax NTA discount.
NTA = $12.24 on page 3. This suggests a premium.
Consolidated financial position of $3748M (p22) in net assets and 239m shares ($15.68/share), roughly in line with price
Portfolio value: $5407M (p6) $22.62/share, significant discount.
Same story for its sister company BKW.
Anyone got a good handle on this?
I think the statutory accounts can be difficult to figure out due to consolidated accounting of the various assets.
Post by: FFA on July 04, 2016, 12:18:50 AM
Yes Trevor I expect so if the theory is correct. ANZ/WBC/NAB are 17% of VAS and assuming their recent dividends were approx. 3% yield, that works out to 0.5% of VAS or roughly $0.35. So it seems to fit the gap between $0.18 (this year) and $0.55 (last year).Final dist's are up for Vanguard. VGS is two thirds capital gains. VAS is only 8% franked and mostly tax deferred, so I think it might be timing as I suggested earlier. The same dividend last year was 75% franked. Therefore I think those big bank dividends slipping out is likely. Perhaps no issue here if you are a long-term investor.
Thanks FFA that makes sense, so sounds like the next VAS dividend should be quite a big one with those bank divs moving into the following quarter?
Post by: marty998 on July 04, 2016, 02:10:10 AM
Ergo Vanguard is just aligning now to what would occur if you held the shares directly?
Does make the cash a little lumpy, because you get 2 in the second half of the year (July and December) and none in the first half.
Either way, September should be massive with also TLS, WES and maybe CBA included too?
Post by: birthday on July 11, 2016, 10:33:40 PM
This is simply a post so that I don't have to keep using the broken search feature to try find this thread.
On page 8 at the moment, working my way up to... 42?
Incredibly insightful so far, it is awesome to have so many educated people sharing their knowledge!
Will post more about my situation, and any questions (to avoid duplication) when I finally catch up.
Ciao for now!
Post by: marty998 on July 12, 2016, 01:47:18 AM
Anyone been following the activists in AGF, a high cost LIC focused on china? Its been trading a long way below NTA for years. I'm thinking that it might be worth doing a good scan among the other entities for things trading below NTA - on my list to look at are SOL and SVW. Not a lot showing among the usual LICs though? Anyone else scanning this space?
I have followed / made myself aware of the AMP China saga for quite some time. There's a lot of conflicts of interest but this exists on every responsible entity board. They have to act in the best interests of the unit holders, and not in the interests of the parent (AMP). Having AMP Capital as a unit holder as well is an additional complication, but ultimately one that can still be managed.
AMP Capital should come to the conclusion that winding up the fund is in the best interests of itself, even if it costs fees to another part of AMP.
My view is that the negative publicity alone is grounds for doing something. There is no chance AMP will be able to sell a new Asian fund to investors anytime soon given this saga that is ongoing.
Post by: Lawro on July 17, 2016, 07:45:56 AM
Firstly, thank you for all the above wisdom and creating this thread.
Secondly, my apologies for interrupting the thread with a more general query about FIRE in Australia. I am hesitant to post the below as it is slightly “how long is a piece of string” – so please be patient.
We are a family of five currently living in Middle East but wishing to FIRE to Queensland Australia in the next few years (all being well and subject to any responses to this post!). Our house is, fortunately, paid off. It is located down the coast from Noosa on the Sunshine Coast.
Our issue is getting sufficient comfort around our predicted spending post FIRE in Australia – i.e. what is our FI number! We have created the obligatory spreadsheets etc, so think we have a decent idea, but because we are overseas it would provide additional comfort to hear from those of you actually living and raising a family in Australia. Basically we are looking to canvass opinion on what like-minded Mustachian people with similar sized families are getting by on as an annual budget (excluding mortgage and holidays).
We are probably bog standard middle class – we like the odd meal or lunch out, a good coffee, a nice bottle of wine and will probably need one second hand car – but ultimately we have fairly simple tastes. I would also not describe us as hard-core Mustachians but because of our decent jobs and tax free income we have a paid off house and saved enough that FIRE within next three years (according to our current calculations and estimates) appears feasible.
We would be very grateful for any insights or experience any of you can offer us. Having the information could possibly help me avoid the “one more year” syndrome which my wife is starting to suspect I have a bad case of….
Many thanks in advance.
Post by: faramund on July 17, 2016, 04:59:56 PM
I am a long time lurker but first time poster.Well, we're a family of 5 - with 3 kids of high school age - who are publicly schooled, and I think we are probably similar. We spend $AUD72000 a year on what I'd call core expenses, i.e. everything besides what we give each other as whatever spending money, and our travelling/whatever fund (also doesn't include our house payments, our the costs of our second car - to try to be equivalent). I'm sure this could be reduced - but its comfortable for us, and particularly my wife who really isn't interested in ER.
Firstly, thank you for all the above wisdom and creating this thread.
Secondly, my apologies for interrupting the thread with a more general query about FIRE in Australia. I am hesitant to post the below as it is slightly “how long is a piece of string” – so please be patient.
We are a family of five currently living in Middle East but wishing to FIRE to Queensland Australia in the next few years (all being well and subject to any responses to this post!). Our house is, fortunately, paid off. It is located down the coast from Noosa on the Sunshine Coast.
Our issue is getting sufficient comfort around our predicted spending post FIRE in Australia – i.e. what is our FI number! We have created the obligatory spreadsheets etc, so think we have a decent idea, but because we are overseas it would provide additional comfort to hear from those of you actually living and raising a family in Australia. Basically we are looking to canvass opinion on what like-minded Mustachian people with similar sized families are getting by on as an annual budget (excluding mortgage and holidays).
We are probably bog standard middle class – we like the odd meal or lunch out, a good coffee, a nice bottle of wine and will probably need one second hand car – but ultimately we have fairly simple tastes. I would also not describe us as hard-core Mustachians but because of our decent jobs and tax free income we have a paid off house and saved enough that FIRE within next three years (according to our current calculations and estimates) appears feasible.
We would be very grateful for any insights or experience any of you can offer us. Having the information could possibly help me avoid the “one more year” syndrome which my wife is starting to suspect I have a bad case of….
Many thanks in advance.
Post by: Ozstache on July 17, 2016, 07:22:40 PM
We would be very grateful for any insights or experience any of you can offer us.
While I don't have three young kids in my financial mix, I am FIREd and have a pretty good handle on what the expenses for my wife and I are. Our core living expenses (which covers amenities, 2 dogs, house rates/insurance/maintenance, medical, 2 cars, and groceries) is around $26K pa. Our general spending (which covers clothing, dining, and entertainment) adds another $6K pa, so $32K pa all up. Our baseline for holidays, capital projects (eg vehicle/appliance/furniture/major gadget replacements) and special events (major birthdays/anniversaries) is about $12K a year averaged over a 10 year period.
Post by: Juan Ponce de León on July 17, 2016, 11:28:13 PM
Post by: BattlaP on July 18, 2016, 01:43:59 AM
Is there anywhere yet that just lets me put my own money in the funds that I want (Vanguard ETFs) and doesn't charge me extra for the privilege?
I'll be educating myself over the next couple days but if anyone has any immediate suggestions, chuck em at me.
Post by: Rob_S on July 18, 2016, 01:57:15 AM
Post by: marty998 on July 18, 2016, 02:02:29 AM
Sunsuper Have A Variety Of Indexes That They Have Vanguard Manage. ShoUld Be cheap And Give You What you want.
I Don't Know Why You Are Posting With Initial Capitals But It Gave Me A Good Laugh Just Now
Many super funds would have had flat to small declines this year. ASX finished right where it started and Brexit caused a currency jump that would have hurt international holdings in June.
My Super performance was impacted by a decision I took back in July last year to scale back equities, and then earlier this year to dive back in when the market hit 4800. I scaled back again in June just before Brexit... .missed the fall but missed the rebound too.
In any case the market timing meant that I've done quite well this year, notwithstanding the flat markets. Won't pretend I'll get it right overtime, but this time I came out on top.
Post by: faramund on July 18, 2016, 02:59:31 AM
So when do STW and Vanguard send out the annual tax statements? Thought I would have had them by now.In 2014 mine were issued on 30/7 for VAS.
Post by: Rob_S on July 18, 2016, 03:05:39 AM
Sunsuper Have A Variety Of Indexes That They Have Vanguard Manage. ShoUld Be cheap And Give You What you want.
I Don't Know Why You Are Posting With Initial Capitals But It Gave Me A Good Laugh Just Now
Posting from my phone didn't work too well. I'd hoped to sneak in and fix it but was too late :)
Agree that most Super in a default balanced option went no where last year. Most places will offer you index funds you just need to find one that keeps the fees down. That would suggest an industry fund more often than not. There was a bit in the news a last year about SunSuper cutting some sort of deal with Vanguard so that they would manage their indexes. Depending on their fees they could be worth a go.
ING could be another option as they offer direct investments - a few super fund do - that would let you pick the Vanguard ETFs directly. A member direct investment option where you can pick ETFs, LICs and Stocks will cost more. For me its worth if for the transparency.
Post by: nora on July 18, 2016, 03:12:30 AM
Post by: steveo on July 18, 2016, 04:13:21 PM
I am a long time lurker but first time poster.Well, we're a family of 5 - with 3 kids of high school age - who are publicly schooled, and I think we are probably similar. We spend $AUD72000 a year on what I'd call core expenses, i.e. everything besides what we give each other as whatever spending money, and our travelling/whatever fund (also doesn't include our house payments, our the costs of our second car - to try to be equivalent). I'm sure this could be reduced - but its comfortable for us, and particularly my wife who really isn't interested in ER.
Firstly, thank you for all the above wisdom and creating this thread.
Secondly, my apologies for interrupting the thread with a more general query about FIRE in Australia. I am hesitant to post the below as it is slightly “how long is a piece of string” – so please be patient.
We are a family of five currently living in Middle East but wishing to FIRE to Queensland Australia in the next few years (all being well and subject to any responses to this post!). Our house is, fortunately, paid off. It is located down the coast from Noosa on the Sunshine Coast.
Our issue is getting sufficient comfort around our predicted spending post FIRE in Australia – i.e. what is our FI number! We have created the obligatory spreadsheets etc, so think we have a decent idea, but because we are overseas it would provide additional comfort to hear from those of you actually living and raising a family in Australia. Basically we are looking to canvass opinion on what like-minded Mustachian people with similar sized families are getting by on as an annual budget (excluding mortgage and holidays).
We are probably bog standard middle class – we like the odd meal or lunch out, a good coffee, a nice bottle of wine and will probably need one second hand car – but ultimately we have fairly simple tastes. I would also not describe us as hard-core Mustachians but because of our decent jobs and tax free income we have a paid off house and saved enough that FIRE within next three years (according to our current calculations and estimates) appears feasible.
We would be very grateful for any insights or experience any of you can offer us. Having the information could possibly help me avoid the “one more year” syndrome which my wife is starting to suspect I have a bad case of….
Many thanks in advance.
We spend about $40k. Maybe a little less. We have 2 high school kids and one primary school kid. The wife and myself are both interested in ER. Our $40k includes our daughters braces so I don't think it's that tight.
Post by: Juan Ponce de León on July 18, 2016, 04:41:26 PM
So when do STW and Vanguard send out the annual tax statements? Thought I would have had them by now.In 2014 mine were issued on 30/7 for VAS.
Thanks mate :)
Post by: oysters on July 18, 2016, 09:33:49 PM
* With such low interest rates, is it worth getting the guaranteed 5% for paying off part of my HECS debt, as compared to the 3% I get for leaving it in the bank? Especially as that 5% option goes away at the end of the year.
I would totally take advantage of this man, I paid off a 30k HECS over a couple months in 2015 and I look back on it as a highlight of the year. The numbers will never make it the mathematically best direction but fuck it feels good being totally debt free.
I've just done my tax, and filled out my "Hecs-help benefit" form for the year. This is the first year I'll actually claim it. Science graduate, employed in a Science job, and a year post postgrad studies that I actually went over the threshold for Hecs repayments.
The Hecs-help benefit is worth ~$1800/yr at the moment, and you get it for five years (260weeks). So its not to be sniffed at.
I did a careful spreadsheet calculation, applying 2.2%CPI in the future (they apply this to Hecs debts every 1st June), and carefully, slightly conservatively, estimating my future earnings through pay rises.
Bare in mind my Hecs debt is ~$29000 currently.
I will JUST be able to take advantage of all that free HECS-HELP Benefit money! At the end of the fifth year, I'll have ~$110 of balance left! Which obviously will pay off very quickly (I'll just pay it once its all been aquitted at the start of that year and tell my employer to stop taking out HECS payments off my salary).
As this value of $110 is less than $525, there is no point in me trying to make a compulsory repayment prior to the 5% repayment bonus deadline of the end of 2016. If I did, I would just end up missing out on free money through the HECS-HELP benefit scheme for Science graduates working in a Science field.
An alternative way of looking at this, I added up all the indexation over this period, and it came to $1413.19. Much less than the final Hecs-help benefit payment (which would be $1948.61). So I'm garanteed to be in front.
If you are outside of the fields of Science, Education, or Midwifery, you wouldn't apply for this HECS-HELP Benefit. In which case your calculations might come out differently on whether or not to apply the 5% upfront.
If my salary was lower, and/or my initial Hecs debt were higher, it would be more feasible (though still probably better to put the money into investments) to take advantage of the 5% bonus now, but only as much as to reduce the balance after I've received my five years worth of Hecs Help Benefit.
Hope this helps some people :-)
Post by: oysters on July 18, 2016, 10:22:58 PM
This might be a useful tool for some people, in working out whether to put money into their mortgage, or instead do pre-tax super salary sacrificing.
https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/super-vs-mortgage-calculator
Super seems to win, at least for me at my current pay rate (and planned PPOR mortgage-aiming to buy in 12-18months, currently renting), and current interest rates. Interestingly, I have to push the interest rates up to 8.05% to reach the break even mark, where I would be better off putting extra into the mortgage.
I did read other advice elsewhere though, saying that its a good strategy to be half paid off on your mortgage before considering extra super repayments.
Given that advice, and that if I wait a few years I'll be into the next tax bracket (and thus salary sacrificing super is more beneficial), and that I could pay off my planned mortgage well within 8 years (if that's all I concentrated on), I think that's what I'll aim to do.
Post by: Little Aussie Battler on July 18, 2016, 11:29:43 PM
I also liked the risk-free nature of the return from repaying my mortgage.
Post by: oysters on July 18, 2016, 11:35:07 PM
I would rather have access to my money well before I turn 60.
I also liked the risk-free nature of the return from repaying my mortgage.
Oh definitely. Depends on your age and situation as well, as to whether Super is a useful investment vehicle for you. And your own personal risk tolerances. For me, even though the math says that I should preference Super as much as possible over extra mortgage repayments, the thought of doing so (maintaining that PPOR debt much longer) feels pretty uncomfortable, especially when I know that I can be done of it in such a relatively short time frame.
What would be good would be if that tool could be combined for Australians with some other useful tools out there like Firecalc, etc, to help with decision making.
Post by: BattlaP on July 19, 2016, 01:10:05 AM
Post by: Little Aussie Battler on July 19, 2016, 05:41:48 AM
I'm sitting on some cash, but no asset class feels like good value right now.
Post by: marty998 on July 19, 2016, 06:02:36 AM
Market will move when CBA, Wesfarmers and Telstra release their full year results in early August, and the other banks will give their 1st Qtr results updates. Until then I would expect the Australian market to be quite stable and quiet.
Expectation is that all the banks will be hurt by the extra capital required to be held which will depress earnings per share growth this year and possibly next year.
The big 4 will also need to take provisions for lending losses against Arrium, Dick Smith and Slater & Gordon to name just a few. Potentially there are other large institutional lending losses out there that we don't know about (oil and gas industry perhaps?)
Post by: SS on July 20, 2016, 02:43:46 AM
Post by: marty998 on July 20, 2016, 02:57:22 AM
Hi! Just wondering if anyone has thoughts on this.. I've slowly started investing in Vanguard's Life Strategy High Growth Fund but it only puts 18.8% of my money in the US market. AFAIK, we have a lower safe withdrawal rate here than in the US. With MMM (and others in the field) relying on, and recommending Vanguard's Total Market Index Fund in the US, would it be better for Aussies to invest solely in the VTS ETF to mimic the MMM path? It's hard to come across ER stories where they have invested in international markets - they all seem to point to VTSMX/VTSAX. The argument I've heard against diversifying internationally is that many US companies are international in nature already.
You need to bear in mind currency risk. Our A$ can be very volatile, and will likely put a dampner on returns (both positive and negative)
In goods times such as a resources boom, a rising Aussie dollar will partly offset any gains in rising global markets. Conversely in bad times a falling dollar will partly offset losses in falling global markets.
There are windows where the strategy works beautifully (rising markets, falling Aussie and vice-versa) but they are rare.
Post by: steveo on July 20, 2016, 06:47:53 AM
The problem I see with the ASX is diversification.
Post by: cakie on July 20, 2016, 02:48:57 PM
Are people buying the index at current levels?I just did my 1st bit of 'market timing' yesterday...bought vgs instead of vas. I was low on vgs, but overweight on emerging markets so total international was already high. I'll still buy vas next month regardless, but I went against my spreadsheet
I'm sitting on some cash, but no asset class feels like good value right now.
Post by: Juan Ponce de León on July 22, 2016, 11:50:35 AM
Other deductions
You may claim at this section:
"debt deductions incurred in earning assessable income that are not disallowed under the thin capitalisation rules and have not been claimed elsewhere"
Post by: marty998 on July 22, 2016, 08:08:18 PM
ATO won't penalise you if you can prove you are trying to do the right thing.
Post by: Lawro on July 22, 2016, 11:47:23 PM
Mark31 superb work with starting the new thread, this is very helpful for us to plough through.
Thanks all!
Post by: andrewjohnporter on July 23, 2016, 02:40:38 PM
I came across the MMM blog and since then I’ve been spending hours poring through the content of this site, many other sites, podcasts and videos. I did notice that the problem was that nearly all the content was focused on the US or UK market so I’m glad I found this thread to find out how this thinking relates to Australia (still working through the 42 pages of comments!).
Are there any other decent financial education Australian blogs/podcasts/books out there? So far I’ve found the following:
- https://barefootinvestor.com/ (https://barefootinvestor.com/)
- A couple of bits on http://forums.whirlpool.net.au/ (http://forums.whirlpool.net.au/)
- http://fpa.com.au/blog/
- Free financial courses (not focused on any particular market: https://www.coursera.org
- The below site and those particular articles:
https://www.intelligentinvestor.com.au/the-ins-and-outs-of-index-investing-pt-1 (https://www.intelligentinvestor.com.au/the-ins-and-outs-of-index-investing-pt-1)
https://www.intelligentinvestor.com.au/the-ins-and-outs-of-index-investing-pt-ii (https://www.intelligentinvestor.com.au/the-ins-and-outs-of-index-investing-pt-ii)
- www.justinbrand.com.au (http://www.justinbrand.com.au) (haven’t checked this aussie blogger out fully yet)
- www.moneysmart.gov.au (http://www.moneysmart.gov.au)
- ASX free courses: http://www.asx.com.au/education/online-courses.htm (http://www.asx.com.au/education/online-courses.htm)
- Anita Bell Books
- Pete Wargent Books
I’m originally from the UK and so have less idea of what you can do in Oz and also a little confused by some of the acronyms used here. In the UK you have two types of incentivised Tax ‘free’ wrappers in the form of Pensions (0% tax on your contributions until you withdraw after the 55+ age limit) and ISAs (lets you invest in the stock market with no capital gains tax – can withdraw at any time). It seems the government is a bit less accommodating to investors in Oz.
- Are there any saving/investment schemes in Oz that are the equivalent to an ISA or is the only option Super?
From my googling it seems that the only tax efficient method of saving in Australia is with a Super. The problem there lies in that you won’t be able to access the money there until you’re 60.
- Should you be putting money in your Super or putting it towards your Early Retirement Plan? (I guess, if you can, it’s best to do both and maybe lower the Early Retirement target as you’ll be covered later on by your Super income)
Another benefit that I see in Australia in franking credits.
- Does this mean (if you are in a higher tax bracket) that your asset allocation should be more heavily targeted at the Aussie market as you’ll automatically receive a 30% boost to your dividend earnings from tax savings?
Although a problem I see in the Australia market is that it’s dominated by a few Banks and Oil/Mining companies. I feel that it could increase the risk being over exposed in the ASX especially when there could be a turndown in property and the emergence of P2P lending firms which I think could impact the banking sector heavily.
I’ve also read that the Australia stock exchange is ‘less efficient’ and therefore fund managers have a better chance of achieving higher returns than in more efficient markets:
- Are index funds/ETF’s in Australia not as good an option over funds as they are in the UK and US?
I would like to diversify by having money in Shares and Rental Property in the future. From me it looks like any rental income gained is just added to all your other annual income and will be taxed depending on the tax bracket that puts you in.
- For example, if you earn 80,000 from your job and then another $20,000 from your rental income the rental income is taxed at 37%. Ignoring possible tax deductions is that right?
I suppose the more you look into things the more questions you have and it’s best just to get started with something like an All World Index as your core and then adjust as you learn more. Apologies if some of these points have already been covered but this thread is crazily long!
Maybe it would be a good idea to collect all relevant information for resources, investments, etc somewhere?
Cheers,
Porter
Post by: faramund on July 23, 2016, 06:02:09 PM
Hi all,So.. many points..
I came across the MMM blog and since then I’ve been spending hours poring through the content of this site, many other sites, podcasts and videos. I did notice that the problem was that nearly all the content was focused on the US or UK market so I’m glad I found this thread to find out how this thinking relates to Australia (still working through the 42 pages of comments!).
Are there any other decent financial education Australian blogs/podcasts/books out there? So far I’ve found the following:
- https://barefootinvestor.com/ (https://barefootinvestor.com/)
- A couple of bits on http://forums.whirlpool.net.au/ (http://forums.whirlpool.net.au/)
- http://fpa.com.au/blog/
- Free financial courses (not focused on any particular market: https://www.coursera.org
- The below site and those particular articles:
https://www.intelligentinvestor.com.au/the-ins-and-outs-of-index-investing-pt-1 (https://www.intelligentinvestor.com.au/the-ins-and-outs-of-index-investing-pt-1)
https://www.intelligentinvestor.com.au/the-ins-and-outs-of-index-investing-pt-ii (https://www.intelligentinvestor.com.au/the-ins-and-outs-of-index-investing-pt-ii)
- www.justinbrand.com.au (http://www.justinbrand.com.au) (haven’t checked this aussie blogger out fully yet)
- www.moneysmart.gov.au (http://www.moneysmart.gov.au)
- ASX free courses: http://www.asx.com.au/education/online-courses.htm (http://www.asx.com.au/education/online-courses.htm)
- Anita Bell Books
- Pete Wargent Books
I’m originally from the UK and so have less idea of what you can do in Oz and also a little confused by some of the acronyms used here. In the UK you have two types of incentivised Tax ‘free’ wrappers in the form of Pensions (0% tax on your contributions until you withdraw after the 55+ age limit) and ISAs (lets you invest in the stock market with no capital gains tax – can withdraw at any time). It seems the government is a bit less accommodating to investors in Oz.
- Are there any saving/investment schemes in Oz that are the equivalent to an ISA or is the only option Super?
From my googling it seems that the only tax efficient method of saving in Australia is with a Super. The problem there lies in that you won’t be able to access the money there until you’re 60.
- Should you be putting money in your Super or putting it towards your Early Retirement Plan? (I guess, if you can, it’s best to do both and maybe lower the Early Retirement target as you’ll be covered later on by your Super income)
Another benefit that I see in Australia in franking credits.
- Does this mean (if you are in a higher tax bracket) that your asset allocation should be more heavily targeted at the Aussie market as you’ll automatically receive a 30% boost to your dividend earnings from tax savings?
Although a problem I see in the Australia market is that it’s dominated by a few Banks and Oil/Mining companies. I feel that it could increase the risk being over exposed in the ASX especially when there could be a turndown in property and the emergence of P2P lending firms which I think could impact the banking sector heavily.
I’ve also read that the Australia stock exchange is ‘less efficient’ and therefore fund managers have a better chance of achieving higher returns than in more efficient markets:
- Are index funds/ETF’s in Australia not as good an option over funds as they are in the UK and US?
I would like to diversify by having money in Shares and Rental Property in the future. From me it looks like any rental income gained is just added to all your other annual income and will be taxed depending on the tax bracket that puts you in.
- For example, if you earn 80,000 from your job and then another $20,000 from your rental income the rental income is taxed at 37%. Ignoring possible tax deductions is that right?
I suppose the more you look into things the more questions you have and it’s best just to get started with something like an All World Index as your core and then adjust as you learn more. Apologies if some of these points have already been covered but this thread is crazily long!
Maybe it would be a good idea to collect all relevant information for resources, investments, etc somewhere?
Cheers,
Porter
I do think super (besides dividend imputation, and using debt gearing) is pretty much the only tax-efficient structure,
So, yes, if someone wants to retire early, most people need some sort of outside-of-super funds. Although there is some sort of 'financial hardship' clause that lets you access some super before 60 - I don't know the details of that, and I'm at least working on the assumption that there's no point in me trying to access it.
I hold shares independently, as well as a bit of VAS and VHY. With some shares, I receive an annual tax statement, and part of that indicates a section about foreign tax paid - and then there's a non-obvious process that the ATO does which they say aims at treating that tax on the same terms as if it was paid on income earned in Australia - which gives some of the effects of dividend franking credits on foreign income.
On your last two questions - yes - any dividend+franking credits, rent or whatever income is taxed at your marginal rate - unless its in super.
Also, not all shares pay 30% franking credits - with some its lower, even to sometimes being 0. It essentially depends on how much company tax the shares pay.
Lastly, as to how biases towards mining and bank shares, I agree - my solution is to hold individual stocks with a more even spread. I have around 50 different holdings (primarily because I enjoy doing so) - but I've seen some claims that once you have 10 different holdings you have largely the same diversity benefits as an index. So, given my biases, a possible approach would be to find the list of holdings of VHY (VHY is vanguard's high dividend index) - and pick 10 of them (making sure you don't choose more than 2 banks and not more than 2 mining stocks - these companies are all good dividend payers and are medium-to-large in size). Then split your money evenly between them - or do the same but also allocate money to VAS (and maybe VHY) to further increase your balance.
Post by: marty998 on July 24, 2016, 02:30:33 AM
It's all added to your total income line, then you knock off deductions and you arrive at taxable income. The only type of income with a different tax rate is capital gains on assets held for longer than a year - 50% of the gain is added to your income.
* The tax law, when defining whether something is income or capital, calls something income if it falls within the "ordinary concepts and usages of mankind", except where legislation negates this.
I've always liked that phrase...
Post by: terrier56 on July 25, 2016, 12:24:36 AM
- Are there any saving/investment schemes in Oz that are the equivalent to an ISA or is the only option Super?
From my googling it seems that the only tax efficient method of saving in Australia is with a Super. The problem there lies in that you won’t be able to access the money there until you’re 60.
It is true that super is your best option and for most this will be locked away until your 60 but this doesn't mean you have to wait this long until you retire. To combat this fact I have built a model in excel which works on the following principle.
You only need the 4% draw-down of your fund outside of super not to run out until you get to 60. You can do some calculations on this to get a better idea but basically works like this.
If you can live off 40K per year and have 500k inside super and 500k outside you should be able to comfortably retire around age 48. It is not guaranteed to work in every market scenario but no draw down gives 100% and you can always go back to work.
Post by: SS on July 25, 2016, 10:13:31 PM
Post by: nnls on July 25, 2016, 10:24:08 PM
- Are there any saving/investment schemes in Oz that are the equivalent to an ISA or is the only option Super?
From my googling it seems that the only tax efficient method of saving in Australia is with a Super. The problem there lies in that you won’t be able to access the money there until you’re 60.
It is true that super is your best option and for most this will be locked away until your 60 but this doesn't mean you have to wait this long until you retire. To combat this fact I have built a model in excel which works on the following principle.
You only need the 4% draw-down of your fund outside of super not to run out until you get to 60. You can do some calculations on this to get a better idea but basically works like this.
If you can live off 40K per year and have 500k inside super and 500k outside you should be able to comfortably retire around age 48. It is not guaranteed to work in every market scenario but no draw down gives 100% and you can always go back to work.
Thats kind of how I am working my plan, I am putting a bit extra into super for the tax benefits and will focus on retirement saving to get me to age 60, when I can then access my super
Post by: oysters on July 25, 2016, 10:28:18 PM
- Are there any saving/investment schemes in Oz that are the equivalent to an ISA or is the only option Super?
From my googling it seems that the only tax efficient method of saving in Australia is with a Super. The problem there lies in that you won’t be able to access the money there until you’re 60.
It is true that super is your best option and for most this will be locked away until your 60 but this doesn't mean you have to wait this long until you retire. To combat this fact I have built a model in excel which works on the following principle.
You only need the 4% draw-down of your fund outside of super not to run out until you get to 60. You can do some calculations on this to get a better idea but basically works like this.
If you can live off 40K per year and have 500k inside super and 500k outside you should be able to comfortably retire around age 48. It is not guaranteed to work in every market scenario but no draw down gives 100% and you can always go back to work.
Thats kind of how I am working my plan, I am putting a bit extra into super for the tax benefits and will focus on retirement saving to get me to age 60, when I can then access my super
Yeah, the option to go back to work is far more feasible between the ages of 48 and 60, than 60+ (especially if you haven't worked from 48-60...).
Anyone have any thoughts on what a good indicator might be to go back to work in the first few years of your FIRE, based on market performance? What is a good guideline? Eg, your portfolio loses 5% in a calendar year?
Post by: marty998 on July 26, 2016, 02:40:18 AM
If you plan to sell a portion of capital each year to fund the 4% SWR then you may run into difficulty.
Post by: Primm on July 26, 2016, 03:20:24 AM
Just as well nobody here listens to the experts!
But that leads to my question, who here is locking in at current rates because sub-5% is pretty much as low as they will go? I'm seriously considering it.
Post by: oysters on July 26, 2016, 04:28:33 AM
I was just watching an episode of Selling Houses Australia from 2011-12 and the host was talking about locking in interest rates if they're <8% (the Reserve rate was 7.8% at the time according to the show) because "rates are as low as they will get, they will only go up from here".
Just as well nobody here listens to the experts!
But that leads to my question, who here is locking in at current rates because sub-5% is pretty much as low as they will go? I'm seriously considering it.
What's the best rate you can get locking in at the moment?
I look at some of the fixed rates from overseas and go WOW. Way, way below 4%...
Post by: marty998 on July 26, 2016, 05:16:56 AM
I locked in one of my investment loans 5yrs at 4.89% Thought that was a great deal :( It runs out in September 2019.
Every time I think it has bottomed it goes and plumbs new depths. Imagine the Sydney property market with 2% rates... medians will be $2million.
Post by: oysters on July 26, 2016, 05:19:48 AM
NAB is offering 3 yr fixed at 3.79% for owner occupiers I think.
I locked in one of my investment loans 5yrs at 4.89% Thought that was a great deal :( It runs out in September 2019.
Every time I think it has bottomed it goes and plumbs new depths. Imagine the Sydney property market with 2% rates... medians will be $2million.
Wow, I think the cheapest variable I've seen (not that I've looked super hard) is 3.74%.
When they are locking in that low for three years, it makes you think; do they expect things to go lower in the future, thus, they are trying to lock you in at a higher rate than what you are going to get soon? All speculation of course ;-)
Post by: BattlaP on July 26, 2016, 05:33:56 AM
I was just watching an episode of Selling Houses Australia from 2011-12 and the host was talking about locking in interest rates if they're <8% (the Reserve rate was 7.8% at the time according to the show) because "rates are as low as they will get, they will only go up from here".
Just as well nobody here listens to the experts!
But that leads to my question, who here is locking in at current rates because sub-5% is pretty much as low as they will go? I'm seriously considering it.
This post is either unintentionally hilarious, or a mighty good jape.
Post by: Primm on July 26, 2016, 04:34:28 PM
I was just watching an episode of Selling Houses Australia from 2011-12 and the host was talking about locking in interest rates if they're <8% (the Reserve rate was 7.8% at the time according to the show) because "rates are as low as they will get, they will only go up from here".
Just as well nobody here listens to the experts!
But that leads to my question, who here is locking in at current rates because sub-5% is pretty much as low as they will go? I'm seriously considering it.
This post is either unintentionally hilarious, or a mighty good jape.
??? I'm not sure why. Yes, I had to google jape, but no. The 5 year fixed rates are around the 4.7% mark at the moment.
I don't know if you're old enough to remember the 17%+ nominal rates of the late 80s (real rates around 8%), but when you've lived through that, despite the fact that 5% may be a little above variable at the moment, the idea of locking down a real rate of around 3% for the next 5 years seems pretty attractive.
Post by: andrewjohnporter on July 26, 2016, 07:41:54 PM
@terrier56 -I was thinking that same, split the investments, build up enough to last between 45 (fingers crossed) and 60 in investments and enough in a Super to take over after.
When you say 500k in Super I imagine you mean it will be valued at 500k when you are 60, not when you are 48?
Good question @oysters, I would also like to know this.
Post by: englyn on July 26, 2016, 07:48:00 PM
Dividends across the market as a whole tend to be quite stable even in times of volatility.Hi Marty, do you have a good reference for this? I've been curious about this for a while and not found any solid info.
Post by: BattlaP on July 26, 2016, 10:21:00 PM
I was just watching an episode of Selling Houses Australia from 2011-12 and the host was talking about locking in interest rates if they're <8% (the Reserve rate was 7.8% at the time according to the show) because "rates are as low as they will get, they will only go up from here".
Just as well nobody here listens to the experts!
But that leads to my question, who here is locking in at current rates because sub-5% is pretty much as low as they will go? I'm seriously considering it.
This post is either unintentionally hilarious, or a mighty good jape.
??? I'm not sure why. Yes, I had to google jape, but no. The 5 year fixed rates are around the 4.7% mark at the moment.
I don't know if you're old enough to remember the 17%+ nominal rates of the late 80s (real rates around 8%), but when you've lived through that, despite the fact that 5% may be a little above variable at the moment, the idea of locking down a real rate of around 3% for the next 5 years seems pretty attractive.
I was laughing because you scoffed at the silly people in the past that thought they could predict the future, and then in literally the next sentence you did the exact same thing. Of course rates can only drop so far so I understand what you're saying (although negative rates are currently a thing in some countries) but the way you said it was just funny.
Post by: Juan Ponce de León on July 27, 2016, 05:18:25 PM
Post by: FFA on July 27, 2016, 08:55:13 PM
Also to clarify the dividend is added into the NAV on ex div date (offsetting the share price fall). However the dividend is included in the distribution in the same period as when the payment occurs, i.e. Paid in July will be in the Q1 distribution paid in Oct.
Post by: marty998 on July 28, 2016, 02:30:43 AM
to close out the earlier discussion re: VAS dividend paid in July. I just called Vanguard to ask and he said they've had many queries. It was a timing impact where some distribution was brought forward from Q4 into Q3 (i.e. April payment was higher and July lower). They say over the financial year the total distribution is similar 2014/15 vs 15/16. So it's not the bank shares paying in early July as I had postulated, those dividends will be includes in the next Q1 distribution (paid Oct) both last financial year and this time also.
Also to clarify the dividend is added into the NAV on ex div date (offsetting the share price fall). However the dividend is included in the distribution in the same period as when the payment occurs, i.e. Paid in July will be in the Q1 distribution paid in Oct.
Makes sense, thanks FFA
Dividends across the market as a whole tend to be quite stable even in times of volatility.Hi Marty, do you have a good reference for this? I've been curious about this for a while and not found any solid info.
I don't... only going off what happened in 08/09... Bank dividends dropped a little I believe then snapped back very quickly. BHP dividend kept rising all the way through. TLS was steady at 14c through the GFC too (memory is really hazy lol)
Given the top 10 make up half the market, their dividends were going to be a significant chunk of the average punters income portfolio.
However, there was quite a problem with Property Trusts, and Infrastructure Funds. The ones that didn't fall over like Transurban, were able to carry on their merry way.
Post by: englyn on July 28, 2016, 02:58:11 AM
http://www.asx.com.au/education/investor-update-newsletter/201602-dividends-what-to-expect-in-2016.htm
The first graph is very educational!
Post by: andrewjohnporter on July 28, 2016, 10:57:20 AM
- Retail managed funds (min $5k)
- Wholesale managed funds (min $50k)
- Exchange traded funds
Is it that the top two you can invest directly with Vanguard (base don the amount you have to invest) while with ETFs you have to go through a broker? Could anyone supply a link to a guide on selecting the best (cheapest) broker?
Cheers,
Porter
Post by: chasingthegoodlife on July 28, 2016, 02:53:35 PM
Lots of discussion around the start of this thread about the pros and cons of each. Eg The retail managed fund has higher ongoing investment management costs than the other two, there are some slight differences in complexity of reporting at tax time, etc. Lots of great info if you have time to read through the thread.
Re: online brokers, I think one of the cheapest is CMC Markets but I have not used them. I'm sure others will have some useful input on this?
Post by: oysters on July 28, 2016, 06:37:57 PM
Porter, yes you are right that the first two options are purchased directly from vanguard and the ETF is purchased through a broker, the same way you buy any other shares.
Lots of discussion around the start of this thread about the pros and cons of each. Eg The retail managed fund has higher ongoing investment management costs than the other two, there are some slight differences in complexity of reporting at tax time, etc. Lots of great info if you have time to read through the thread.
Re: online brokers, I think one of the cheapest is CMC Markets but I have not used them. I'm sure others will have some useful input on this?
At least a few months ago CMC markets was the cheapest available in Aus from what I could tell. I set it up-pretty good, but haven't made a trade on it yet (holding off cash reserves for a house deposit over the next 12months or so).
Post by: andrewjohnporter on July 30, 2016, 11:48:20 AM
I'm only up to page 4 of this forum so far so will get cracking!
It looks like the Vanguard LifeStrategy 100% equity fund isn't available in Australia yet, just the Vanguard LifeStrategy® High Growth Fund which appears to be about 90/10 split (although if you've got under $100k the charges are pretty high)
What's the very basic advice for starting off a portfolio in Australia (I'm guessing that I'll come across more on this while reading through the rest of the thread). I would image, if its not just to get a LifeStrategy fund then it's something like starting off with the one of the below two options:
Vanguard International Shares Index Fund (VGS) 0.18%)
Vanguard Australian Shares Index Fund (VAS) (0.15%)
or
Vanguard All-World ex-US Shares Index ETF (VEU) (0.13%)
Vanguard US Total Market Shares Index ETF (VTS (0.05%)
and then over time add some exposure to small caps, emerging markets, etc
Cheers again - I've got a few hours ahead of me today to catch up now!
Post by: SydFin on August 01, 2016, 04:14:05 AM
I almost read every of the 42 pages, it takes longer than I realise! I'm looking for some advice, so I'll tell you a bit about myself...
I became interested in FIRE about a 1.5 years ago...soon after I had a health scare (all good now) and am now even more interested in FI!
Recently I’ve been going over the calculations and keep going backwards and forwards, I was wondering if anyone had any suggestions.
My situation, basically I’ve accumulated a few investment properties, and invested in Vanguard about a year ago (using equity in IP (Investment property) loans). I rent in Sydney. No kids or spouse. Properties valued just over a year ago.
a) Vanguard High Growth Index Fund: 340k (yes, I now realise that was silly because of fees)
b) IP1: Valued 400k, capital gain 240k
c) IP2: Valued 440k, capital gain 0 (would be a loss counting expenses)
f) IP3: Valued 600k, gain 288 (I could live in this one)
g) Super 220k
h) Cash = 80k
i) Income: lowish-mid 100k
j) Carried fwd losses 25k
k) Loan over properties: 1,066,000 (total property value 1,440,000)
l) Car 7k
Capital gains from Real estate if I sold as per values above = 528k (240k+288k)...(I'd pay about 92k tax if I sold them all in the same year with no other income).
Total surplus if I sold all properties: (1,440,000 - 1,066,000) = 374k
Basically, I could:
a) Retire in say a year
b) sell all property, pay 92k tax (with 92k cash I have by then)
c) Be debt free with 714k in Vanguard (340k currently + 374k properties less loan).
d) Be free to do work that I liked/be healthier, less stressed/work only some months/pursue my hobbies and interests more etc
I could alternatively keep the 600k rental property (currently producing 19k/yr net from agent each year). This is a rental property I could live in in Sydney (near the city). I currently rent myself and my tenant pays me more than I pay in rent.
I'm (a young) 43 year old, my job is just a job and I want to do something different and also want to take the slower road. I've recently started eating better/exercising more, enjoying life more (after health scare) and don't see the point of working any more, as I am happy with having fewer 'thing' these days. I have reduced my expenses a lot, and love the simple life, as opposed to the $25 cocktails life.
I wouldn't sell all properties in one year because of the capital gains, there would also be selling expenses, but I've put conservative prices, and I would sell my car. Spending a year in say Vietnam or Bali after I retire would be an option, in order to ease into it...
This is a rather long post so sorry! I understand that this is an investment thread, not a how should I sort out my finances thread, but thoughts would be appreciated, especially about incurring (some) capital gains on investment properties in order to be debt free with cash spare to invest in say VAS, VGS, VGE, wherever that takes me. I think I'll also get professional advice, but also think that forums are often just as good as the experts.
Also, I realise I could do all the above except keep working and sell a property a year for 3 years then retire with say $1m in vanguard. But I have the FIRE bug now and wonder if that extra time doing a job I'm not passionate about would be worth it.
Also, I could live in IP3, find a more satisfying job and sell IP1 and IP2 to significantly reduce my debt whilst still having a PPOR...this kind of appeals but I am left with only 340k in vanguard, still have debt/I haven't retired.
OK, time to stop writing now. Thanks in advance for any advice!
Post by: steveo on August 01, 2016, 04:38:43 AM
I invest in VGS, VAU & VAF however that is only because I don't have a lump sum and I invest whenever I get about $10k saved up. I like the whole fund option. Just buy it and do nothing.
I think in Australia you wouldn't go wrong with a low cost Super fund and a Vanguard all in one fund that matches your investment profile. The only issue I can see is where are you going to live ? Is renting okay ? Would your expenses be about 4% of your portfolio ? Would you still work a little ?
Post by: SydFin on August 01, 2016, 04:59:44 AM
I am in wholesale at the moment but the 'High Growth Index Fund' (0.37% fees)...the least I should do is change to cheaper collection of wholesale funds I guess.
Is renting okay ? - Yep, I currently rent but would have to find a cheaper place though.
Would your expenses be about 4% of your portfolio? - Well, they'd have to be...which isn't a great answer. I don't have many expenses, and have just acquired a taste for lentils...
Would you still work a little ? - Hmm, I'd have a side hobby, but whether that would produce income I'm not sure. I could work for 3mths say/yr in contracting (as that's my field) if I needed to.
Post by: happy on August 01, 2016, 05:46:30 AM
If you have itchy feet now, have you thought about taking a mini retirement instead? 80k cash should keep you for 2-3years. Also you should consider if will you be able to get another job if you take time out in your industry.
Post by: SydFin on August 01, 2016, 06:26:01 AM
The mini-retirement idea is a great idea also, I'm pretty sure I could get a year away from work, we're all contractors so it's kind of fluid, people come and go. Work likes me so they would probably accept that, even if they didn't love it.
Actually, just by the two responses here and me writing responses has helped me clarify things (or see reality maybe)...I don't think I want to retire and live on 28k a year...I think I more want to follow my interest, that I've been too scared in the past to do (partially because I may be sacked if work found out!...although people dispute this)...but I think I should pursue my interest in conjunction with reducing expenses/organising my finances better so it's not the end of the world if things don't work out...
Wow, MMM has become a self-help forum! I'm quite chuffed, I've been thinking about this for ages and it's amazing the difference discussing it with impartial, interested, knowledgeable people can make...after just two responses!:) I think already this has helped me with having a goal to work towards, along the lines of what I've just said.
So, thanks heaps, it's really appreciated!
[Edit]: I said this before but it's also reassuring to get support/affirmation of my reasoning/investment ideas, it's good to know that it's not just a hair-brained idea that only makes sense in my mind.
Post by: steveo on August 01, 2016, 06:49:21 AM
Hi steveo, thanks for the quick reply, I appreciate it! Its kind of gratifying to see that I'm not insane for at least thinking about this.
I am in wholesale at the moment but the 'High Growth Index Fund' (0.37% fees)...the least I should do is change to cheaper collection of wholesale funds I guess.
Is renting okay ? - Yep, I currently rent but would have to find a cheaper place though.
Would your expenses be about 4% of your portfolio? - Well, they'd have to be...which isn't a great answer. I don't have many expenses, and have just acquired a taste for lentils...
Would you still work a little ? - Hmm, I'd have a side hobby, but whether that would produce income I'm not sure. I could work for 3mths say/yr in contracting (as that's my field) if I needed to.
I don't think that fee is really too high. It gives you an all in one solution. There is no rebalancing. It's easy. The wholesale option is cheaper and if you could switch to that I'd go for it.
Post by: FFA on August 01, 2016, 06:56:26 AM
I wouldn't say the Vanguard high growth is a silly choice. You can do slightly better on fees but it is a convenient single fund option that will automatically rebalance. Also gives you those smaller exposures like emerging markets, REIT's etc. If you don't care much for those then it's easier to go for VAS/VGS/VAF and cut the fees down, especially if you're more hands-on and keen to be a bit involved in managing it. Low fees are important but it's more of an issue if you're paying 1+%.
I also have three IP's and want to gradually offload (at least two of them) but am taking my time doing so. In my case they are debt free and I'm already FIRE'd. Also the way the share market and interest rates are now, I'm not sure where I'd put the cash if I sold ! However in your situation I can see it would be desireable to lower your borrowings, especially before you go and quit your day job.
In my case, I've ended up drifting back into part-time consulting work not that long after FIRE'ing. I quite like it, much more balanced going to office 2 days a week and stress-free in the knowledge you don't really need to be there.
Regarding withdrawal rate assumptions, personally I would choose 3-3.5% the way interest rates and share markets are right now. 4% is still probably an okay number provided you have flexibility and it won't be the end of the world if things go pear shaped to head back to work for a stint.... All the best !
Post by: happy on August 01, 2016, 07:20:20 AM
Regarding withdrawal rate assumptions, personally I would choose 3-3.5% the way interest rates and share markets are right now. 4% is still probably an okay number provided you have flexibility and it won't be the end of the world if things go pear shaped to head back to work for a stint.... All the best !Just in case its not completely obvious, I worked out 28k on a 4%WR, 3-3.5% would be less, getting down towards low 20s. And FFA has a good point about WRs.
Post by: SydFin on August 01, 2016, 02:16:56 PM
Post by: Ozstache on August 01, 2016, 03:32:10 PM
Would your expenses be about 4% of your portfolio? - Well, they'd have to be...which isn't a great answer. I don't have many expenses, and have just acquired a taste for lentils...This statement raises my eyebrows, particularly as < $28K pa draw down to cover expenses that you are not really sure of that include living and renting in Australia's most expensive city. My suggestion is that you start tracking your expenses and prove to yourself that you can live on < $28K pa in Sydney for at least a year or two before you hand in your job resignation.
Post by: faramund on August 01, 2016, 03:35:33 PM
Thanks for the feedback re Vanguard and the encouragement, including words of wisdom! I think I'll spend the next year reducing my expenses and outgoings (maybe sell the slight loss property and the one with lowest gains) and move into a cheaper place to live also, as well as making a start on this interest/hobby that I've been too worried about to start. I think doing the above whilst still working will give me both income and motivation to make this interest work for me, as well as a sense of freedom that it'll be OK regardless of what happens.
Also, on selling your IPs, can't you wait until you're not working? Then wouldn't you be selling when you would be in a lower income tax bracket - and so the capital gains tax would be much less? Also, that would let you keep accumulating capital gains until then. (I've seen some studies that seem to say that real estate and shares have about the same annual return - so all things being equal - it seems like you're better off to wait)
Post by: deborah on August 01, 2016, 03:48:18 PM
Although, if one of the IPs has no capital gains, I'd be selling it now. It has no tax down side and releases that money for other things.Thanks for the feedback re Vanguard and the encouragement, including words of wisdom! I think I'll spend the next year reducing my expenses and outgoings (maybe sell the slight loss property and the one with lowest gains) and move into a cheaper place to live also, as well as making a start on this interest/hobby that I've been too worried about to start. I think doing the above whilst still working will give me both income and motivation to make this interest work for me, as well as a sense of freedom that it'll be OK regardless of what happens.
Also, on selling your IPs, can't you wait until you're not working? Then wouldn't you be selling when you would be in a lower income tax bracket - and so the capital gains tax would be much less? Also, that would let you keep accumulating capital gains until then. (I've seen some studies that seem to say that real estate and shares have about the same annual return - so all things being equal - it seems like you're better off to wait)
Post by: SydFin on August 01, 2016, 04:34:48 PM
Also, yes selling the low/no gain property now would make sense and leave the other two to (separate) years when my income is less/I've retired...this would also increase my stash as I'd have (hopefully) more gain by then and less tax to pay as I wouldn't be working.
I guess this has encouraged me to take some action now (saving more/reducing expenses) in order to smooth the transition to FIRE (or close to it) in a year or two. It seems much more realistic now, and at very least is a goal to work towards.
One thing maybe overlooked is that I'd also have Super of 221k (on top of the 714k(+) stash) that would be growing away for me.
Post by: happy on August 01, 2016, 06:22:53 PM
Post by: Ozstache on August 01, 2016, 06:46:51 PM
One thing maybe overlooked is that I'd also have Super of 221k (on top of the 714k(+) stash) that would be growing away for me.Something to think about is that you are at least 17 years away from preservation age, so your growing (but otherwise inaccessible) Super balance will only serve to taunt you if you run out of non-super money in the early years of FIRE.
Post by: pistolpete on August 01, 2016, 07:29:09 PM
I have a query in relation to long term investment
Im currently invested in Vanguard retail managed fund (international share fund mer.90% for first 50k then tapered down once you hit 100k).
In addition i also hold argo investments as my vas component (15k) and some WAM capital for small and mod cap exposure in additon to a couple other blue chips with employee share schemes.
I hope to hit 100k in a year or 2 and then sell and reopen the same fund in wholesale fund with.18% mer.
However im thinking of going 50k aust shares.18% mer and 50k inter share fund .18% mer also.
Im worried about overlapping however as my argo shares are basically the same as the vanguard aust share fund!!!
Would a lifestrategy growth fund be better or ??? I prefer at least 40% of my portfolio to be Australian shares due to the franking credits!
Has anyone else had any similar issues like this?
Hopefully someone can suggest a few opinions to help me out!
Post by: englyn on August 01, 2016, 08:22:28 PM
sorry, didn't pull that out of your post. That makes it a little better, but the most important thing is that you start to track your expenses NOW. All the calculations are useless if you don't really know what you spend.I work out my spending quarterly by going back through a spreadsheet export of my bank statement and categorising each transaction. You could do that for the last year and get the answer straight away.
Post by: SydFin on August 01, 2016, 08:49:16 PM
Quote
I work out my spending quarterly by going back through a spreadsheet export of my bank statement and categorising each transaction. You could do that for the last year and get the answer straight away.
Yes, expenses are key to all this...I find it hard to reduce spending whilst still working though. I guess I could go back over my bank balance/credit card statements and find what I'm spending money on (and get an idea what I'd be happy to reduce/stop if I stopped working).
Post by: Grogounet on August 01, 2016, 09:05:42 PM
Pocketbook
While it's not 100% great and you have to trust the developers not to use your bank details, it gives you almost automated monthly, weekly, annual reports and easy to set up https://getpocketbook.com/signin
Post by: oysters on August 01, 2016, 09:14:17 PM
Using pocketbook for a couple of months first might help you ID the areas you spend on if you have no idea. Commbank has a similar functionality now in that they can autoID transactions, etc, and put them in a category (and you can train it). Similar to Pocketbook in many ways. Your bank might have a similar tool, or might not.
YNAB is similar to Goodbudget, but I haven't tried it. Both of these allow you to input bank transactions yourself, eg, as .csv files. However, personally I'm going to avoid that. Why? Well I think one of the most powerful things about these tools is that you are made very aware of your spending habits as they happen, by being forced to vigiliently record. If you wait say a couple of weeks or more and input the csv and get it to auto allocate or whatever, its not in-the-moment enough for you to change your spending behaviour.
Post by: Grogounet on August 01, 2016, 09:33:16 PM
Post by: oysters on August 01, 2016, 09:37:52 PM
Good one, I've just been to check it out, does this work for Aussies too?
I'm in Adelaide.
Pocketbook works, connects up to Commbank. Probably works with lots of other banks, I don't know.
Goodbudget works. I haven't connected it to commbank, not sure if you can directly (as in like a permanent link) but to be honest I prefer not to for the aforementioned reasons.
I'm sure YNAB works for Aussies too.
Mint is similar to Pocketbook in that its a kind of post-spending analysis tool. But I hear that Mint doesn't work with Aussie banks, at least that was the deal late last year when I signed up for Pocketbook which did. Maybe it does now, but I've moved on in what I want from my budgeting tools.
Post by: Grogounet on August 01, 2016, 09:44:19 PM
The main reason is that you have to import manually your accounts.
With Pocketbook, sure I cant budget but I literally spend maybe 5 or 10 mins per month to track my spending and adjust if necessary
Post by: oysters on August 01, 2016, 09:45:25 PM
Ok, I ve just been there and now I remember. I tried it a few months back and Goodbudget didn't work out for me.
The main reason is that you have to import manually your accounts.
With Pocketbook, sure I cant budget but I literally spend maybe 5 or 10 mins per month to track my spending and adjust if necessary
Fair enough. Different things work for different people :-)
Post by: FFA on August 01, 2016, 10:09:20 PM
Outstanding thread ppl i myself have read every page and im very impressed with the knowledge and feedback given on helping ppl acheive FI!
I have a query in relation to long term investment
Im currently invested in Vanguard retail managed fund (international share fund mer.90% for first 50k then tapered down once you hit 100k).
In addition i also hold argo investments as my vas component (15k) and some WAM capital for small and mod cap exposure in additon to a couple other blue chips with employee share schemes.
I hope to hit 100k in a year or 2 and then sell and reopen the same fund in wholesale fund with.18% mer.
However im thinking of going 50k aust shares.18% mer and 50k inter share fund .18% mer also.
Im worried about overlapping however as my argo shares are basically the same as the vanguard aust share fund!!!
Would a lifestrategy growth fund be better or ??? I prefer at least 40% of my portfolio to be Australian shares due to the franking credits!
Has anyone else had any similar issues like this?
Hopefully someone can suggest a few opinions to help me out!
one is not better than the other, just depending on your preference/situation. If you want a simple, set and forget, hands-off fund then the single fund options are ideal. MER is higher, maybe double, but off a low base and so long as you are below 0.5% it's still in the low category. The other benefit is you will get some of those other smaller exposures (emerging mkts, REITs, etc) thrown in.
However if you are more hands on, MER sensitive, want to adjust the ratios (e.g. more Oz shares for franking), then the DIY solution might be better suited. Here you have another choice whether to use the wholesale fund or trade ETF's. This again comes down to practical issues. Prefer to trade online and track portfolio in online broker. Or prefer to go via a managed fund style and make contributions via EFT / BPay. The MER is slightly better for ETF's but the difference is negligible at this level.
Regarding traditional LIC's, e.g. ARG/AFI, I would consider them VAS/STW substitutes. So decide your allocation to Australian shares and then include both in the same bucket. You might treat the small cap as a subcategory, e.g. something like 10% of your Australian equity exposure held in WAM (or not more than 20% I'd suggest).
Post by: pistolpete on August 01, 2016, 11:05:31 PM
As it doesnt make sense to buy more parcels at a premium, instead i will pump into either the wholesale growth fund or if i go with the 2 individual wholesale funds, international shares and australian share funds whilst leaving the reit, emerging markets etc etc on the table!
Very unsure and if i see and advisor im certain they will try and flog off their own products!
Post by: PDM on August 02, 2016, 12:11:56 AM
Pocketbook works, connects up to Commbank. Probably works with lots of other banks, I don't know.
Can confirm works with Ubank. Pretty sure it works across most Australian banks. Just make sure you code correctly when you shuffle money around otherwise it gets weird. Say putting $5k into a high interest account, unless you put it as 'transferring money' it thinks you've spent that money from one account and made income in another.
Post by: marty998 on August 02, 2016, 01:57:27 AM
Fairfax is preempting it's own results by announcing another billion in write downs... at what point does a regular annual write down of impairments become just another above the line expense???
RIO reports this week, profit will be all over the place thanks to volatile Iron Ore prices.
RBA cut the cash rate today to a record low of 1.50%. CBA is passing on only 13bps to home loan and business customers. On the flip side, CBA is raising 1,2 and 3 yr term deposit rates.
Post by: FFA on August 02, 2016, 06:01:04 PM
Post by: oysters on August 02, 2016, 06:10:34 PM
I hope they don't pass through fully to online/bonus savers either, or even better raise them like term deposits !! When I came back to oz early last year I think ing was still paying 4.5% if I recall correctly. they are down to 3% (before yesterday's announcement). adding to the misery they are stopping their 2% cash back from 30 sept.... tough environment for savers these days, good for those with home loans though !
Yeah I'm hoping the online savings rates stay too. I signed up with Rabobank; 3.25% for four months...not sure if they will stick to that or not now. I'll shop around when the four months is up again (reverts to 2.3%...that might also drop...).
Pretty easy to get 0% on purchases on credit cards at the moment. NAB is offering 15months of 0%.
Post by: happy on August 03, 2016, 06:11:37 AM
RBA cut the cash rate today to a record low of 1.50%.
Ugh, craziness. Growth is so last century.
Post by: Stimulated on August 04, 2016, 05:18:06 PM
I'm very familiar with share investing outside super and have a good portfolio but I have a few questions about investing in shares within Super.
I need some advice on a manual superannuation transfer. Currently I have a super fund with AU$174k invested as follows -
2.67% Macquarie International Infrastructure
33.74% Vanguard Growth Index Fund
9.16% Macquarie Diversified Fixed Interest
54.43% CASH!!!!
I guess that may have cushioned me from Brexit falls but it's time to move the cash into something else. I was thinking one of the Vanguard indexes and would appreciated any thoughts.
Also - dividends from shares held in Super - what happens to them? Do they top up the cash account or how does it work?
Thanks for any advice.
Post by: deborah on August 04, 2016, 06:42:44 PM
Post by: FFA on August 04, 2016, 09:38:38 PM
Post by: Rob_S on August 05, 2016, 03:28:20 AM
Also - dividends from shares held in Super - what happens to them? Do they top up the cash account or how does it work?
Thanks for any advice.
Here's my best guess, while I work in Super this isn't really my specialty. If your in a Super funds investment strategy like 'Australian shares' the fund pools everyone's money and invests in Australian shares like BHP, WOW etc. You then own 'units' of Australian shares. At the time you invest you are given a unit price. Each Australian share might be initally worth $1.00. If you have $1000 invested in Australian Shares then you own 1000 units. The assets that support these units grow/increase due to capital gains, dividend payments, franking credits, options etc... Based on the movement of assets the value of your Australian share 'units' will change. By the end of the year each unit might be worth $1.20. So dividends are priced into the value of you unit, its not just capital gains.
Post by: Stimulated on August 05, 2016, 03:48:04 AM
"Vanguard Australian Shares Index ETF (VAS)"
and
"Vanguard Index Australian Shares Fund"
because I can't see the difference, apart from the fund one is allowed by my Super as an investment, and has considerably higher fees.
Post by: marty998 on August 05, 2016, 05:32:06 AM
OK, this may be where I am getting confused between
"Vanguard Australian Shares Index ETF (VAS)"
and
"Vanguard Index Australian Shares Fund"
because I can't see the difference, apart from the fund one is allowed by my Super as an investment, and has considerably higher fees.
One is the ETF traded on the ASX and one is the managed fund (unlisted)
Also - dividends from shares held in Super - what happens to them? Do they top up the cash account or how does it work?
Thanks for any advice.
Here's my best guess, while I work in Super this isn't really my specialty. If your in a Super funds investment strategy like 'Australian shares' the fund pools everyone's money and invests in Australian shares like BHP, WOW etc. You then own 'units' of Australian shares. At the time you invest you are given a unit price. Each Australian share might be initally worth $1.00. If you have $1000 invested in Australian Shares then you own 1000 units. The assets that support these units grow/increase due to capital gains, dividend payments, franking credits, options etc... Based on the movement of assets the value of your Australian share 'units' will change. By the end of the year each unit might be worth $1.20. So dividends are priced into the value of you unit, its not just capital gains.
Yes this is along the lines of what happens. Industry and retail Super funds will appoint a fund manager (a "mandate") to manage a pool of money in a particular asset class. The fund manager buys and sells the assets as a group, and then the Super fund's back office will maintain the allocations back to individual investors.
So when you switch out of an Aus shares option for example, you don't trigger CGT... the pool of money is still invested, but the Super Fund will change your allocations via unit prices.
You might wonder then how they can accurately credit returns on investments... here's the rub, it's not 100% accurate.
Most industry funds will maintain a small reserve of uncredited investment returns in order to smooth out the differences between the actual pot of money invested in an asset class, and the sum of the total amount invested by all members in the fund in that asset class. You will see this on the balance sheet of the fund in its annual report.
The system works because not everyone asks to redeem their money at the same time. The only time when the entire books reconcile exactly will be when the Fund decides to wind up, liquidate all assets to cash and return all money.
Post by: marty998 on August 05, 2016, 05:40:27 AM
Down a little. Insurance profit was down, but the banking profit was up. SE Qld property market must be going alright for that to happen.
More wet and wild weather in Sydney this past couple of days will not be good for the Insurance division in 1H17 as well....
Post by: FFA on August 05, 2016, 07:11:39 AM
So when you switch out of an Aus shares option for example, you don't trigger CGT... the pool of money is still invested, but the Super Fund will change your allocations via unit prices.When you switch, wouldn't the fund pass on the instruction to the fund manager (e.g. sell $X of Australian shares and buy $Y of Global shares, ... or whatever the switch happens to be). So it might trigger a capital gain (inside the "pool", not for you personally) if the fund manager then goes and sells the actual shares within the portfolio to effect this. However as per most managed funds, they might have a small cash allocation to manage redemptions, in which case there is no capital gain triggered. Or it might be offset by inflows in which case shares would also not be sold and no CGT.
In any case going back to the original question, I still interpret this as per my earlier post that the dividends (net of 15% tax) are re-invested in the same category. They do not go into cash or get re-invested as per your desired allocation for future contributions.
Post by: marty998 on August 05, 2016, 08:03:28 AM
So when you switch out of an Aus shares option for example, you don't trigger CGT... the pool of money is still invested, but the Super Fund will change your allocations via unit prices.When you switch, wouldn't the fund pass on the instruction to the fund manager (e.g. sell $X of Australian shares and buy $Y of Global shares, ... or whatever the switch happens to be). So it might trigger a capital gain (inside the "pool", not for you personally) if the fund manager then goes and sells the actual shares within the portfolio to effect this. However as per most managed funds, they might have a small cash allocation to manage redemptions, in which case there is no capital gain triggered. Or it might be offset by inflows in which case shares would also not be sold and no CGT.
In any case going back to the original question, I still interpret this as per my earlier post that the dividends (net of 15% tax) are re-invested in the same category. They do not go into cash or get re-invested as per your desired allocation for future contributions.
If I recall correctly Perpetual manages $30 billion on behalf of Australian Super in the Australian shares option. Chances are in this example there will be hundreds of people switching in and out of the shares option, as well as contributions going in so when you switch your money it will be grouped and netted with every other transaction and whatnot.... I guess it's impossible to determine.
Dividends do get reinvested in the same option however I do not believe fund managers will automatically opt for DRPs if available. This is because automatically reinvesting dividends may quickly result in unbalanced portfolios (especially with Banks paying comparatively larger dividends), and managers may breach stock limits (e.g. 5% substantial shareholding disclosure, 20% takeover provisions etc).
Dividends go into a general cash account within the mandate and then are invested as per the Fund Managers' portfolio strategy and investment style. Most Aus shares mandates written between a manager and a Fund/client will permit a 0-5% cash allocation. Fund managers actually hate having cash because any allocation to cash over the long term is a drag on performance.
Post by: chasingthegoodlife on August 06, 2016, 12:39:08 AM
I have done my own taxes for years using eTax but this is my first time using MyTax and also my first year inputting income from ETFs, as opposed to mutual funds.
My mutual fund income was easy, but looking at the tax statements from my Vanguard ETFs, the amounts have 'Individual Tax Return Label' codes next to them that only seem to correspond to the Mutual Funds section of MyTax. The Dividends section only allows franked/unfranked/franking credits and withheld tax to be entered. A quick google found someone on Whirlpool suggesting it should be input under the 'Trusts' section but that doesn't seem to match up either.
Can anyone point me in the direction of a good explanation on how to enter this ETF tax summary into MyTax?
If it's too complicated I'll see an accountant but it seems a shame for such a small amount of income.
I guess another alternative would be to wait until Vanguard make the data available to the ATO for pre-fill, if in fact they do this?
Any info is welcome!
Post by: marty998 on August 06, 2016, 01:18:48 AM
You should not enter it in the dividend income section.
Post by: Juan Ponce de León on August 06, 2016, 02:41:14 AM
Yes it should be ok to enter the data into the trusts/managed funds sections. Why doesn't it match up? It works the same way, and all the labels will be there. The only item that is not entered into your tax return is tax deferred income.
You should not enter it in the dividend income section.
This. Just enter it exactly where the Vanguard statement tells you to. If you already have amounts there from mutual funds etc than you need to add your vanguard amounts onto that.
Post by: Stimulated on August 06, 2016, 02:48:36 AM
Hopefully that should grow faster than the tiddly % I was getting.
Post by: slothman on August 06, 2016, 10:13:18 PM
I'm trying to replicate the following scenario from the "Comprehensive tax calculator 2015" into the "Income tax estimator 2016":
Quote
Individual receives $28,571 in gross dividend income ($20,000 net dividend and $8,571 in franking credits) and no other income. Tax resident for the full year. $0 tax payable and franking credits fully refunded. Note: $8,571 in franking credit assumes dividends are fully franked and company tax rate of 30%.
Screenshot below:
http://imgur.com/a/P3W40
Link to estimator tool:
https://www.ato.gov.au/calculators-and-tools/Income-tax-estimator/
However I can't seem to find where I can input "Franking tax offset (imputation credit)" into the 2016 tax estimator tool. Any ideas?
Post by: faramund on August 07, 2016, 02:57:33 PM
Is anyone familiar with the ATO's income tax estimator tools?
I'm trying to replicate the following scenario from the "Comprehensive tax calculator 2015" into the "Income tax estimator 2016":QuoteIndividual receives $28,571 in gross dividend income ($20,000 net dividend and $8,571 in franking credits) and no other income. Tax resident for the full year. $0 tax payable and franking credits fully refunded. Note: $8,571 in franking credit assumes dividends are fully franked and company tax rate of 30%.
Screenshot below:
http://imgur.com/a/P3W40
Link to estimator tool:
https://www.ato.gov.au/calculators-and-tools/Income-tax-estimator/
However I can't seem to find where I can input "Franking tax offset (imputation credit)" into the 2016 tax estimator tool. Any ideas?
Isn't there a simple and a more complex calculator on the ATO site. In any case, if you put your income as being ~$28000 from shares, once it spits back your tax bill - I believe all you have to do is take the franking credit off that - to find out what your tax bill is.
(so if you say you have income from shares of ~28000 and it says your tax is ~3000, You should get about ~3000-$8500 = $5500 back from the ATO.
Post by: Ozstache on August 07, 2016, 05:25:11 PM
In any case, if you put your income as being ~$28000 from shares, once it spits back your tax bill - I believe all you have to do is take the franking credit off that - to find out what your tax bill is.That is my understanding as well ie. you gross up your income to $28571, work out what tax is payable on that then subtract the franking credit from the tax payable. It is done this way to make the tax calculation compatible with whatever tax bracket you actually fall in.
I couldn't find where to input franking credits in the 2016 calculator linked either, so the franking credits have to be subtracted manually in the last step.
Post by: Stimulated on August 07, 2016, 09:13:24 PM
Should I be maximising concessional superannuation salary sacrifice payments to my limit of $30,000, or should I be using the money instead to pay off my mortgage?
If I pay extra into super, paying off my mortgage will be delayed by about 1 year at 3.9%. If I continue to put all my money into paying off the mortgage it will be gone by around April 2017.
So it seems that its a no-brainer to pay extra into super but I wanted to check if I had missed anything?
Post by: Ozstache on August 08, 2016, 12:20:49 AM
Hi, question about prioritisation.That depends on how many years between the age you intend to FIRE (if indeed FIRE is your intention) and your preservation age. Putting too much into super, despite its significant tax advantages, early on can work against a young FIRE age quite simply because you can't access it for such a long time. See http://forum.mrmoneymustache.com/investor-alley/australia-early-retirement-planning-calculator/msg1011873/#msg1011873 (http://forum.mrmoneymustache.com/investor-alley/australia-early-retirement-planning-calculator/msg1011873/#msg1011873) for further discussion of this concept.
Should I be maximising concessional superannuation salary sacrifice payments to my limit of $30,000, or should I be using the money instead to pay off my mortgage?
If I pay extra into super, paying off my mortgage will be delayed by about 1 year at 3.9%. If I continue to put all my money into paying off the mortgage it will be gone by around April 2017.
So it seems that its a no-brainer to pay extra into super but I wanted to check if I had missed anything?
Post by: Stimulated on August 08, 2016, 12:27:05 AM
Hi, question about prioritisation.That depends on how many years between the age you intend to FIRE (if indeed FIRE is your intention) and your preservation age.
Should I be maximising concessional superannuation salary sacrifice payments to my limit of $30,000, or should I be using the money instead to pay off my mortgage?
If I pay extra into super, paying off my mortgage will be delayed by about 1 year at 3.9%. If I continue to put all my money into paying off the mortgage it will be gone by around April 2017.
So it seems that its a no-brainer to pay extra into super but I wanted to check if I had missed anything?
Between 8 and 13 years until FIRE. Nearer 8 hopefully. And 13 years until Super preservation age.
Post by: faramund on August 08, 2016, 01:54:14 AM
I'm a bit similar 5 year until FIRE, and then 9 after that until I get super. So I don't put extra into super, but also, not into my mortgage, but .... into shares directly.Hi, question about prioritisation.That depends on how many years between the age you intend to FIRE (if indeed FIRE is your intention) and your preservation age.
Should I be maximising concessional superannuation salary sacrifice payments to my limit of $30,000, or should I be using the money instead to pay off my mortgage?
If I pay extra into super, paying off my mortgage will be delayed by about 1 year at 3.9%. If I continue to put all my money into paying off the mortgage it will be gone by around April 2017.
So it seems that its a no-brainer to pay extra into super but I wanted to check if I had missed anything?
Between 8 and 13 years until FIRE. Nearer 8 hopefully. And 13 years until Super preservation age.
Post by: Stimulated on August 08, 2016, 01:59:20 AM
I'm a bit similar 5 year until FIRE, and then 9 after that until I get super. So I don't put extra into super, but also, not into my mortgage, but .... into shares directly.
That was another option for me, I just wondered whether that was tax efficient given the 15% tax rate we are charged to put the $30k into super and the fact that eventual super payouts are tax free. It seems to buy shares out of fully-taxed income and then be taxed again on the dividends is more expensive?
Post by: marty998 on August 08, 2016, 02:01:06 AM
Post by: ynotme on August 08, 2016, 04:35:44 AM
Post by: Stimulated on August 08, 2016, 04:39:01 AM
I think of super as old lady/man money and a buffer when I need it later. If you believe you will have enough outside of super to see you through to preservation age, then you could salary sacrifice and make the most of it. If you have a lot in super already and need to build up funds outside super to get you through till you can access your super, then it may be better to keep the money outside of it.
Balanced approach. Like it. Will have to do some sums.
Post by: faramund on August 08, 2016, 06:44:19 PM
I'm a bit similar 5 year until FIRE, and then 9 after that until I get super. So I don't put extra into super, but also, not into my mortgage, but .... into shares directly.
That was another option for me, I just wondered whether that was tax efficient given the 15% tax rate we are charged to put the $30k into super and the fact that eventual super payouts are tax free. It seems to buy shares out of fully-taxed income and then be taxed again on the dividends is more expensive?
If you imagine having most of your income coming from super-tax free. You can then earn around 40-50K annually from share income with very low taxes - so I think I do have a bit of a tax hit in not putting money into super, but I don't think its so big when it comes out.
I'm in the above situation - I have a large amount in super because of compulsory allocations, and about one-third as much out of super.
I also like to use leverage/debt with all the associated risks of that, but with hopes of higher annual returns - I can do that with my out-of-super funds, but not with the in super funds.
Post by: Stimulated on August 08, 2016, 08:15:53 PM
I think......
Post by: Ozstache on August 08, 2016, 09:24:19 PM
I take what you're saying here to mean you will have 5 years to run after you FIRE until you can access super (ie. 13 - 8).That depends on how many years between the age you intend to FIRE (if indeed FIRE is your intention) and your preservation age.Between 8 and 13 years until FIRE. Nearer 8 hopefully. And 13 years until Super preservation age.
(http://ei.marketwatch.com//Multimedia/2013/01/07/Photos/ME/MW-AX900_safema_20130107210919_ME.jpg?uuid=6c9f65dc-5938-11e2-8515-002128040cf6)
Based on the above graph from the post I linked earlier, a 5 year run is achievable by an approximately 15% SWR (notwithstanding sequence of return risk that can be mitigated by holding mostly cash for such a short period and that it is a US-centric graph so a slightly lower SWR than shown is more applicable for Oz) ie. you will need approx 7 times your estimated annual FIRE expenses to get you through to preservation age, after which your super kicks in. If this is the case, once I knew I could produce that 7x expenses outside of super, I would then be loading up super too.
Post by: marty998 on August 09, 2016, 04:28:31 AM
Scott Morrisson holding firm... his argument seems to be that Rich people are complaining about not being able to earn hundreds of thousands tax free in super earnings.
I think he's onto a winner... needs to hold firm on this. Even though it is not the proposal I wouldn't mind seeing the 15% tax on earnings come back on pension earnings
Post by: oysters on August 09, 2016, 04:40:47 AM
More discussion in the papers today about super changes.
Scott Morrisson holding firm... his argument seems to be that Rich people are complaining about not being able to earn hundreds of thousands tax free in super earnings.
I think he's onto a winner... needs to hold firm on this. Even though it is not the proposal I wouldn't mind seeing the 15% tax on earnings come back on pension earnings
That's not a bad idea actually; set aside taxes on Super for future pensions.
I was surprised to find out the other week that compulsory super goes up to 12% in a few years. Not a bad thing at all. Did some calcs, and even with a potential FIRE date at 46 years old, and, given many years of little income/super due to study, I won't have much trouble past 60 when super cuts in. Luckily my fund is pretty low fee and well managed. If they remain gainfully employed for most of their lives from the age of early 20s to 60, most Australians in the future will easily get by on the compulsory employer 12%. Even if the extra 3% ends up really coming out of a lack of salary increases, I think its worth it.
Post by: Fresh Bread on August 09, 2016, 07:20:46 PM
Ratesetter sent me an email today saying market rates for 5 year loans are at 12%. No doubt by the time everyone reads their email a lot more money will go on and bring the rate down but I just check and it's saying 12.7%.
Does anyone invest any significant amounts with them? I only have $500 invested in a 5 year loan to try it out but have had no problems. The first couple of loans made from my investment were even paid back early. It's not something we can stick a lot of money in right now as we need the money liquid but it's v tempting at 12%.
Post by: oysters on August 09, 2016, 07:39:13 PM
Hello everyone,
Ratesetter sent me an email today saying market rates for 5 year loans are at 12%. No doubt by the time everyone reads their email a lot more money will go on and bring the rate down but I just check and it's saying 12.7%.
Does anyone invest any significant amounts with them? I only have $500 invested in a 5 year loan to try it out but have had no problems. The first couple of loans made from my investment were even paid back early. It's not something we can stick a lot of money in right now as we need the money liquid but it's v tempting at 12%.
That's fairly impressive. The 1 month rates are listed at 3.3%, which is slightly better than what I just got on an online savings account with Rabobank (3.25%, reverts to 2.3% in four months). I might put some in it when my honeymoon rate expires.
Post by: Fresh Bread on August 09, 2016, 07:47:11 PM
Post by: oysters on August 09, 2016, 09:32:43 PM
Is this possible in Australia? How does it work?
Currently I'm saving for a deposit for a PPOR, but it strikes me that it could work out better for FIRE if I instead invested this money directly into ETFs now, and then was able to use the equity in them to get a loan. Is this possible, similar to how it is done with leveraging one property off another?
Post by: birthday on August 09, 2016, 10:04:38 PM
I was hoping to get your thoughts on a fund available through my super.
There is a fund available called Perpetual Wholesale Geared Australian Share Fund.
The fund essentially gears up (for free) and allows me double the exposure to the shares they have invested in.
The management cost is a percentage of gross asset value, so 1.17%, at a gearing level of 50% becomes 2.34%.
Now I know this is a very high fee, but to gain double the exposure, with no risk of a margin call, it could almost be worth it…
I am not the greatest fan of their stock picks, with a significant exposure to big banks, top 10 below:
• Commonwealth Bank of Australia 6.6%
• Woolworths Ltd 6.5%
• ANZ Banking Group Ltd. 6.0%
• Boral Limited 4.7%
• National Australia Bank Limited 4.5%
• Premier Investments Limited 4.4%
• QBE Insurance Group Limited 4.2% Z
• Energy Ltd. 4.1%
• Westpac Banking Corporation 4.1%
• Reece Limited 3.8%
But I was wondering what you thought about the concept, and the fund as a whole, in order to get greater exposure at a fairly decent rate?
Cheers!
Post by: faramund on August 10, 2016, 01:36:00 AM
Using ETFs as equity for home depositWell, you can certainly take out a margin loan - but that's risky if a lot, and a high-ish interest rate.
Is this possible in Australia? How does it work?
Currently I'm saving for a deposit for a PPOR, but it strikes me that it could work out better for FIRE if I instead invested this money directly into ETFs now, and then was able to use the equity in them to get a loan. Is this possible, similar to how it is done with leveraging one property off another?
Interestingly, I'm in the same situation, we are going to upgrade our house, and I will be talking to a bank next week about using my shares as equity for that - I'll report back next week on how it goes.
Post by: marty998 on August 10, 2016, 04:32:15 AM
It will do very well in good times however.
Post by: marty998 on August 10, 2016, 04:54:56 AM
Loan impairment expense is starting to tick up, not withstanding exceptionally low interest rates a growing number of people are having trouble with their mortgages.
Transurban released a pretty solid result. Great position to be in - monopoly provider of motorways to cash-strapped governments around the world. Good business model that will always work, provided the masses continue to drive cars.
Post by: birthday on August 10, 2016, 08:57:20 PM
Geared funds generally don't bounce well after bear markets... the fund always gets creamed because of the impacts of leverage, and there's not enough capital remaining when markets start to recover.
It will do very well in good times however.
Thanks Marty, I felt the pain between Aug'14 and the beginning of this year.
I might just leave what I have already put in the fund in there and put the rest in index funds.
See how we go? :)
Post by: slothman on August 11, 2016, 05:21:39 AM
In any case, if you put your income as being ~$28000 from shares, once it spits back your tax bill - I believe all you have to do is take the franking credit off that - to find out what your tax bill is.
(so if you say you have income from shares of ~28000 and it says your tax is ~3000, You should get about ~3000-$8500 = $5500 back from the ATO.
Wow I can't believe I made such a rookie error. Many thanks for clearing that up!
Fixed such that taxable income is $20,542 ($14,379 in dividends and $6,163 in franking credits) = 100% refund of franking credits and $0 tax payable
http://imgur.com/a/ytq5Z
Post by: marty998 on August 11, 2016, 05:32:46 AM
Underlying result was pretty ordinary, boosted by one-off asset sales.
Market didn't like it. Watch the SMSFs buy in for the buyback and strip the franking credits which will more than offset the capital losses. Only the ATO loses...
Post by: oysters on August 17, 2016, 08:03:25 PM
1. Do people worry about geographical diversifying their bonds, eg, holding Aus bond etfs as well as OS bond etfs (eg some kind of global bond etf)?
2. It seems that there isn't an unhedged international bond etf available in Aus, all of them listed on the ASX are hedged. Is hedging ok with international bonds?
Post by: pistolpete on August 18, 2016, 11:44:09 PM
Post by: marty998 on August 19, 2016, 03:26:00 AM
I intend to have enough down the line... so you can say I've made the mistake of not effectively future planning my affairs. But nobody knows the future for sure.
Post by: happy on August 19, 2016, 03:28:13 AM
Just a quick question from left field , im wondering who here invest solely in their own name at their own marginal tax rate compared to others who have set up a family trust or discretionary trust of some sort to split income and or dividends?!Bigchrisb has a trust.. have a look at his journal, there are some details there.
Post by: marty998 on August 19, 2016, 03:31:23 AM
FUM not growing in line with system which means the Wealth division isn't performing and Insurance division posted poor earnings as well. Bright spot was the banking division, however it's coming off a very low base and anyone can make money while there's a property boom on.
AMP Capital Investors division will continue to shrink as fee pressures bite. They used to have some extraordinary fat margins... now, not so much with all the competition and fees rates being shrunk.
Post by: Wadiman on August 19, 2016, 07:12:52 PM
Some questions for others about bonds.
1. Do people worry about geographical diversifying their bonds, eg, holding Aus bond etfs as well as OS bond etfs (eg some kind of global bond etf)?
2. It seems that there isn't an unhedged international bond etf available in Aus, all of them listed on the ASX are hedged. Is hedging ok with international bonds?
Hi Eucalyptus - I hold some VIF in my portfolio for the very reason you mention.
Post by: oysters on August 19, 2016, 07:32:16 PM
Some questions for others about bonds.
1. Do people worry about geographical diversifying their bonds, eg, holding Aus bond etfs as well as OS bond etfs (eg some kind of global bond etf)?
2. It seems that there isn't an unhedged international bond etf available in Aus, all of them listed on the ASX are hedged. Is hedging ok with international bonds?
Hi Eucalyptus - I hold some VIF in my portfolio for the very reason you mention.
Yeah, VIF looks good with 885 holdings of BBB- to AAA rated bonds, with a good geographical distribution.
Post by: FFA on August 19, 2016, 09:14:16 PM
AMP released another awful result. There is something fundamentally broken with that company.yeah my folks have some which I've been trying to tell them to sell... they say they got them for free so it doesn't really matter !
Post by: marty998 on August 20, 2016, 05:52:05 AM
AMP released another awful result. There is something fundamentally broken with that company.yeah my folks have some which I've been trying to tell them to sell... they say they got them for free so it doesn't really matter !
Funny that... my parents said the same thing until I sold theirs many years back in a small shareholder sale facility that was open at the time.
Peak share price on day 1 of listing in 1998 and it has been downhill pretty much ever since. Executives still hand themselves their bonuses for keeping the lights on & the cosy oligopoly of the large Wealth Management players in Australia ensures they are still limping along.
Post by: chasingthegoodlife on August 21, 2016, 03:03:49 AM
Post by: JuicyCrab on August 24, 2016, 02:19:39 AM
I have a bit of a noob question regarding buying ETFs that's been troubling me. What is the general rule of thumb for parcel size relative to transaction cost? I'm using commsec at the moment at about $20/transaction and buying in 2k or 3k lots (accumulating index funds mainly). What does everyone prefer for minimum share parcel sizes to negate transaction costs? I've heard 1% of a good rule of thumb.
Cheers
Crabby
Post by: tim_oz on August 24, 2016, 02:36:26 AM
What does everyone prefer for minimum share parcel sizes to negate transaction costs? I've heard 1% of a good rule of thumb.
I tend to save up and buy in $5k minimum lots, which is approx 0.4%.
tim
Post by: FFA on August 24, 2016, 04:10:01 PM
i would say 1% max. $5k is better if you can, but depending how long it takes you to accumulate $5k, if more than 4 months, it might be better to invest at least quarterly and incur the slightly higher brokerage whilst staying within 1%.What does everyone prefer for minimum share parcel sizes to negate transaction costs? I've heard 1% of a good rule of thumb.
I tend to save up and buy in $5k minimum lots, which is approx 0.4%.
tim
Post by: englyn on August 24, 2016, 08:31:30 PM
Post by: marty998 on August 25, 2016, 02:20:50 AM
Individual stocks have been all over the place but overall the index is enjoying a strange little period of calm...
Post by: coin on August 25, 2016, 05:30:05 AM
Hey guys,
I have a bit of a noob question regarding buying ETFs that's been troubling me. What is the general rule of thumb for parcel size relative to transaction cost? I'm using commsec at the moment at about $20/transaction and buying in 2k or 3k lots (accumulating index funds mainly). What does everyone prefer for minimum share parcel sizes to negate transaction costs? I've heard 1% of a good rule of thumb.
Cheers
Crabby
I tend to buy every $5k or every 6 months. It's not a hard and fast rule, and I'm finding the more I accumulate, the less frequently I buy - every 6 months is enough for me.
Post by: Juan Ponce de León on August 25, 2016, 05:39:33 AM
Post by: FFA on August 25, 2016, 06:18:57 AM
Is it just me or anyone else finding it weird that the market hasn't really done anything the last 3 weeks after being up 6% over July?it feels bullish to me. shrugged off the brexit and on it's merry way. even after 6% in july just to drift sideways is actually quite positive, I thought it might be pulling back.
Individual stocks have been all over the place but overall the index is enjoying a strange little period of calm...
doesn't seem sustainable though, especially when people are saying to expect 5-6% total returns going forwards (i.e. dividends and hardly any cap growth). that is per annum, not per month!
Post by: faramund on August 25, 2016, 04:08:53 PM
(I do have a reputation for over complicating anything involving numbers)
Post by: faramund on August 26, 2016, 11:00:17 PM
Using ETFs as equity for home depositWell, you can certainly take out a margin loan - but that's risky if a lot, and a high-ish interest rate.
Is this possible in Australia? How does it work?
Currently I'm saving for a deposit for a PPOR, but it strikes me that it could work out better for FIRE if I instead invested this money directly into ETFs now, and then was able to use the equity in them to get a loan. Is this possible, similar to how it is done with leveraging one property off another?
Interestingly, I'm in the same situation, we are going to upgrade our house, and I will be talking to a bank next week about using my shares as equity for that - I'll report back next week on how it goes.
Well, oddly when I was sending the bank my finances, I got the first quote on our house from a real estate agent, which was 20% more than the conservation amount that I had told the bank our house was work. I also forwarded the real estate quote to the bank.
So, the bank worked out how much they would lend me based on the real estate quote - i.e. solely on the value of the house, and not our other equity - but that was enough to pretty much give us what we wanted. So, in the end, I didn't really test what the bank would let us do with our share equity. They did say if we wanted more than they offered, we'd have to use some of our other equity - but because what they offered was close enough, I didn't go into what that meant with them.
Post by: faramund on September 02, 2016, 02:42:36 AM
Its now almost a scientific test - the bank did decide to value the house, and that came back with a lower price than the real estate quote. So now, to avoid buying mortgage insurance - they will only lend up to 80% of the (value of the house + cash). So they won't accept any of the equity I have in shares for this, i.e. I'd have to sell off a chunk of shares if I did want to use that equity.Using ETFs as equity for home depositWell, you can certainly take out a margin loan - but that's risky if a lot, and a high-ish interest rate.
Is this possible in Australia? How does it work?
Currently I'm saving for a deposit for a PPOR, but it strikes me that it could work out better for FIRE if I instead invested this money directly into ETFs now, and then was able to use the equity in them to get a loan. Is this possible, similar to how it is done with leveraging one property off another?
Interestingly, I'm in the same situation, we are going to upgrade our house, and I will be talking to a bank next week about using my shares as equity for that - I'll report back next week on how it goes.
Well, oddly when I was sending the bank my finances, I got the first quote on our house from a real estate agent, which was 20% more than the conservation amount that I had told the bank our house was work. I also forwarded the real estate quote to the bank.
So, the bank worked out how much they would lend me based on the real estate quote - i.e. solely on the value of the house, and not our other equity - but that was enough to pretty much give us what we wanted. So, in the end, I didn't really test what the bank would let us do with our share equity. They did say if we wanted more than they offered, we'd have to use some of our other equity - but because what they offered was close enough, I didn't go into what that meant with them.
Post by: Raven 900 on September 03, 2016, 03:19:57 PM
We have a good nest egg but it's just sitting in Ubank at the moment. I'm a convert to the index fund philosophy but I'd also like to put a small amount, say 10%, into something more...speculative (relatively).
It's hard to ignore the 5 year returns on the A-REIT index and associated funds such as VAP, and also infrastructure funds such as SYD and TCL (both >20% annualized returns for the last 5 years, with about 3% yield as well).
Nobody here talks about putting money into these areas of the market. What am I missing? Is it just the fear of a correction? i.e., what has gone up must now come down?
I could be convinced about a property bubble that's about to burst, but surely infrastructure isn't going to go away?
Appreciate anyone's thoughts.
Post by: misterhorsey on September 03, 2016, 05:06:54 PM
We have a good nest egg but it's just sitting in Ubank at the moment. I'm a convert to the index fund philosophy but I'd also like to put a small amount, say 10%, into something more...speculative (relatively).
It's hard to ignore the 5 year returns on the A-REIT index and associated funds such as VAP, and also infrastructure funds such as SYD and TCL (both >20% annualized returns for the last 5 years, with about 3% yield as well).
Nobody here talks about putting money into these areas of the market. What am I missing? Is it just the fear of a correction? i.e., what has gone up must now come down?
I could be convinced about a property bubble that's about to burst, but surely infrastructure isn't going to go away?
Hey Raven
Your post provoked me to check out the performance of VAP and yes, it is a stellar 20% per annum return for the past 5 years.
https://www.vanguardinvestments.com.au/adviser/jsp/investments/etf?portId=8206##overview-tab
However, as the old adage goes, past performance is not an indicator of future performance.
Not only that, but as Ben Graham says in the Intelligent Investor, good performance attracts higher valuations which tends to lead to lower yields, which increases the risk of the investment. I'm paraphrasing terribly here, but this is what I took from it.
Also, you mention you want to allocate 10% towards more speculative investments. I just checked the composition of my Vanguard High Growth Wholesale fund and it allocates 5% to Australian Property Securities and 5% to International Property Securities. Bingo. There's your 10%
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/adv/vhif.pdf?20160831|110000
The retail fund has the same composition.
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/adv/vlshgf.pdf?20160831|110000
So you can allocate a little more to this sector within a suite of indexes via the Vanguard funds, to the allocation that you were thinking, but perhaps without the sweaty palms and sleepless nights of direct investments.
Post by: bigchrisb on September 03, 2016, 06:27:19 PM
Post by: marty998 on September 04, 2016, 05:27:20 AM
People have a short memory with the areits. Many had a pretty rough time through the gfc, with a lot of insolvencies and huge shareholder losses. Have a look at the 10 year returns for the sector to get an idea of how much of the last 5 years has been bouncing off apocalyptic lows. At that stage no one wanted to touch them. I did a bit of buying of reits through that phase, and have done ok. But I'm struggling to see the same value now. Instead I've been putting more focus on the currently beaten up sectors, which in my opinion are resources energy and banks. Market timing, sure is. I'm happy to play with 10-20% speculation in my portfolio.
I lost a lot of money with Westpac Office Trust. No matter how nice the building and how long the lease, a CMBS debt can spell disaster.
They can deliver stable consistent returns, until SHTF and then you're stuffed.
Post by: Wadiman on September 04, 2016, 03:15:12 PM
People have a short memory with the areits. Many had a pretty rough time through the gfc, with a lot of insolvencies and huge shareholder losses. Have a look at the 10 year returns for the sector to get an idea of how much of the last 5 years has been bouncing off apocalyptic lows. At that stage no one wanted to touch them. I did a bit of buying of reits through that phase, and have done ok. But I'm struggling to see the same value now. Instead I've been putting more focus on the currently beaten up sectors, which in my opinion are resources energy and banks. Market timing, sure is. I'm happy to play with 10-20% speculation in my portfolio.
I lost a lot of money with Westpac Office Trust. No matter how nice the building and how long the lease, a CMBS debt can spell disaster.
They can deliver stable consistent returns, until SHTF and then you're stuffed.
Acronym police here : Got the SHTF but CMBS?
Post by: marty998 on September 04, 2016, 03:38:37 PM
Brought a number of office, industrial and retail (shopping centre) REITs undone in 2007-2009 when credit markets froze and they could not be refinanced at their maturity date.
Takes a long time to offload commercial buildings - you can't just liquidate them the next day. Only other options are to sell the trust or go into administration.
Or place your trust in those vampire investment bankers doing outrageous deals.
Post by: GT on September 04, 2016, 07:39:08 PM
Regarding concessional superannuation contribution caps, the limit is $30K per annum for those under 49 years of age.
Is that:
1. Work contributions ($27K) and personal contributions ($3K)
or
2. Work contributions ($27K) and personal contributions ($30K)
Just trying to nut out some choices we may need to make in the near future.
Post by: deborah on September 04, 2016, 08:49:50 PM
I must be just having one of those days.1. Work contributions ($27K) and personal contributions ($3K)
Regarding concessional superannuation contribution caps, the limit is $30K per annum for those under 49 years of age.
Is that:
1. Work contributions ($27K) and personal contributions ($3K)
or
2. Work contributions ($27K) and personal contributions ($30K)
Just trying to nut out some choices we may need to make in the near future.
It is more complicated than that because your work doesn't have to put their contribution in immediately, so you need to check that they have and continue to do so. Some people have been caught out when their work has put the last contribution for the previous year in after the end of that financial year, so they have gone over the limit for the current year.
Post by: oysters on September 05, 2016, 05:08:05 AM
I must be just having one of those days.1. Work contributions ($27K) and personal contributions ($3K)
Regarding concessional superannuation contribution caps, the limit is $30K per annum for those under 49 years of age.
Is that:
1. Work contributions ($27K) and personal contributions ($3K)
or
2. Work contributions ($27K) and personal contributions ($30K)
Just trying to nut out some choices we may need to make in the near future.
It is more complicated than that because your work doesn't have to put their contribution in immediately, so you need to check that they have and continue to do so. Some people have been caught out when their work has put the last contribution for the previous year in after the end of that financial year, so they have gone over the limit for the current year.
I thought I also read recently (might have even been on this forum thread...) that the 9% compulsory isnt't a true compulsory contribution by the employer. So if you salary sacrafice some, intending to hit that 30k annual limit for example, your employer can leave off their 9% that would otherwise go on top of your salary, as long as the 9% rule is met. So be careful!
Post by: marty998 on September 05, 2016, 05:15:40 AM
I must be just having one of those days.1. Work contributions ($27K) and personal contributions ($3K)
Regarding concessional superannuation contribution caps, the limit is $30K per annum for those under 49 years of age.
Is that:
1. Work contributions ($27K) and personal contributions ($3K)
or
2. Work contributions ($27K) and personal contributions ($30K)
Just trying to nut out some choices we may need to make in the near future.
It is more complicated than that because your work doesn't have to put their contribution in immediately, so you need to check that they have and continue to do so. Some people have been caught out when their work has put the last contribution for the previous year in after the end of that financial year, so they have gone over the limit for the current year.
I thought I also read recently (might have even been on this forum thread...) that the 9% compulsory isnt't a true compulsory contribution by the employer. So if you salary sacrafice some, intending to hit that 30k annual limit for example, your employer can leave off their 9% that would otherwise go on top of your salary, as long as the 9% rule is met. So be careful!
Nope that's against the rules, you have to pay the 9.5% on the pre-salary sacrifice salary, but some employers try and get away with it and pay on the post-salary sacrifice one.
Watch out for it.
Post by: Stimulated on September 05, 2016, 03:26:48 PM
Nope that's against the rules, you have to pay the 9.5% on the pre-salary sacrifice salary, but some employers try and get away with it and pay on the post-salary sacrifice one.
Watch out for it.
What about other salary sacrificed items, such as purchased annual leave?
Post by: deborah on September 05, 2016, 05:35:18 PM
That's why you purchase such annual leave - you still get the same amount of super if you do.
Nope that's against the rules, you have to pay the 9.5% on the pre-salary sacrifice salary, but some employers try and get away with it and pay on the post-salary sacrifice one.
Watch out for it.
What about other salary sacrificed items, such as purchased annual leave?
When I worked at the bank they split your salary into base and perks (it's a long time now and I've forgotten what perks were called). Your superannuation was only on your base salary. Perks could be taken as cash, a cheap loan, salary sacrificed super... but were the bank's way of not paying all the super they should have. On the other hand, some of the perks were quite good - it depended upon what level you were what you could get.
Post by: JLR on September 05, 2016, 10:08:13 PM
Must look into whether he is currently being paid on pre- or post- salary sacrifice.
Post by: nnls on September 05, 2016, 10:37:53 PM
I must be just having one of those days.1. Work contributions ($27K) and personal contributions ($3K)
Regarding concessional superannuation contribution caps, the limit is $30K per annum for those under 49 years of age.
Is that:
1. Work contributions ($27K) and personal contributions ($3K)
or
2. Work contributions ($27K) and personal contributions ($30K)
Just trying to nut out some choices we may need to make in the near future.
It is more complicated than that because your work doesn't have to put their contribution in immediately, so you need to check that they have and continue to do so. Some people have been caught out when their work has put the last contribution for the previous year in after the end of that financial year, so they have gone over the limit for the current year.
I thought I also read recently (might have even been on this forum thread...) that the 9% compulsory isnt't a true compulsory contribution by the employer. So if you salary sacrafice some, intending to hit that 30k annual limit for example, your employer can leave off their 9% that would otherwise go on top of your salary, as long as the 9% rule is met. So be careful!
Nope that's against the rules, you have to pay the 9.5% on the pre-salary sacrifice salary, but some employers try and get away with it and pay on the post-salary sacrifice one.
Watch out for it.
Just went and checked my payslip, thankfully my company are doing the right thing
Post by: GT on September 05, 2016, 10:38:14 PM
Yep, we've found the same thing. For the past 10 years about 30% of my husband's income was from overtime - there was no super paid on the overtime.That's shit.
But we also get Super taken out of our annual bonuses (when we get them), and we are taxed at the maximum amount even if we aren't in that category to ensure no-one gets a bill at tax time. It does generate a minimal return, but sucks when you see your bonus almost halved.
Worked out that less than $400 a month will max out one of our super contributions, but it is $2K per month on the other. Definate earning disparity in this household.
Also, how do you make sure you don't go over the $30K contribution threshold? Does the pay department at your work have to balance it out, or do you nominate an amount and then ride the luck wave to see if you matched it to exactly $30K or get spanked by the ATO if you go over? And if the ATO get all S&M on you, how bad is it? Do you need a safe word?
Post by: marty998 on September 06, 2016, 02:18:18 AM
Yep, we've found the same thing. For the past 10 years about 30% of my husband's income was from overtime - there was no super paid on the overtime.That's shit.
But we also get Super taken out of our annual bonuses (when we get them), and we are taxed at the maximum amount even if we aren't in that category to ensure no-one gets a bill at tax time. It does generate a minimal return, but sucks when you see your bonus almost halved.
Worked out that less than $400 a month will max out one of our super contributions, but it is $2K per month on the other. Definate earning disparity in this household.
Also, how do you make sure you don't go over the $30K contribution threshold? Does the pay department at your work have to balance it out, or do you nominate an amount and then ride the luck wave to see if you matched it to exactly $30K or get spanked by the ATO if you go over? And if the ATO get all S&M on you, how bad is it? Do you need a safe word?
That is shit JLR, it's also not kosher. However there is a salary ($203,240) above which employers do not have to pay super on... maybe he was above that?
Post by: deborah on September 06, 2016, 03:14:51 AM
Also, how do you make sure you don't go over the $30K contribution threshold? Does the pay department at your work have to balance it out, or do you nominate an amount and then ride the luck wave to see if you matched it to exactly $30K or get spanked by the ATO if you go over? And if the ATO get all S&M on you, how bad is it? Do you need a safe word?You work it out very very carefully. Theoretically, the ATO have become a bit more lenient since they changed the legislation, but there were some real horror stories (especially with people who had put in the maximum after tax contribution, and then their pre-tax contribution went over - if my memory is right they ended up with an absolutely enormous tax bill). When I had these concerns, I checked my superannuation statements every fortnight to make sure what was deposited by my work and when, and I had a spreadsheet with the total so far this financial year in it. My payslip said how much had been put in by them in total, but not how much extra had been salary sacrificed in total. If anything happened that I didn't expect (such as when I went on leave at half pay, and public holidays were at full pay, so I got more deposited than I expected), I'd work out exactly how I was going to fix things so I didn't go over.
Most articles I read at the time said that you could salary sacrifice about $2000 less than you actually could, probably because people were getting into a lot of trouble if they went over.
Post by: GT on September 06, 2016, 04:49:27 AM
Post by: stripey on September 06, 2016, 05:10:24 AM
I'll admit I'm a little shy about salary sacrificing because my net pay is so damn unpredictable (I get penalties- sometimes large penalties- but sporadically) so I don't think I will ever try to hit the $30k mark- I'll try and undershoot
Post by: Adram on September 06, 2016, 07:54:13 AM
It's not shit or not kosher, since overtime is not ordinary time, they are following the requirements of the legislation. You are compensated for overtime by a higher hourly rate.
Post by: JLR on September 06, 2016, 05:36:09 PM
Yep, we've found the same thing. For the past 10 years about 30% of my husband's income was from overtime - there was no super paid on the overtime.
That is shit JLR, it's also not kosher. However there is a salary ($203,240) above which employers do not have to pay super on... maybe he was above that?
No, Marty. He wasn't above $203, 240. It must have been as Adram says, and that super is paid on ordinary time earnings.
I checked this morning and he is currently being paid 9.5% on his gross earnings, not his post-salary packaging pay.
Post by: Primm on September 06, 2016, 11:16:14 PM
Having said that I do have a very sweet setup where if I SS 5% my employer contributes 12.75%. So there is that. Probably works out to more than 9.5% of my total earnings anyway.
Post by: marty998 on September 07, 2016, 01:05:06 AM
Yep, we've found the same thing. For the past 10 years about 30% of my husband's income was from overtime - there was no super paid on the overtime.
That is shit JLR, it's also not kosher. However there is a salary ($203,240) above which employers do not have to pay super on... maybe he was above that?
No, Marty. He wasn't above $203, 240. It must have been as Adram says, and that super is paid on ordinary time earnings.
I checked this morning and he is currently being paid 9.5% on his gross earnings, not his post-salary packaging pay.
TIL. Thanks guys :)
Post by: rasics82 on September 07, 2016, 08:34:03 AM
I went through this conversation in the past few months and I feel a bit overwhelmed by information.
I need a clarification about a topic already discussed a million times in the forum: Vanguard Wholesale index Funds Vs a LICs/ETFs mixed portfolio:
While is pretty easy to calculate how much I would spend yearly for the fund, I have some issues with the ETFs mixed portfolio.
How is it possible to keep the expenses competitive?
If you start having a mix of 5/6 LICs/ETFs and you keep investing,let say, quarterly, plus re-balancing, I'm scared the brokerage fees will be massive.
Am I just overestimating the trades I'll do to keep my portfolio on track? What would be a "good number"? 15/20 trades a year for 5/6 ETFs?? (roughly $200, I'm with CMC)
Still I haven't invested anything in ETFs, just few stocks, but I'll star very soon. I'm oriented to the to the wholesale index funds (Growth or High Growth), I should be able to meet the minimum requirements ($100k), but I think I can manage the ETFs as well and build some experience over time. At the moment I'm just worried of overspending.
I have another thread, some of you already landed there, If someone want to have a look, check my signature, I have some other questions also there! :-)
Thanks in advance, this community is super helpful!!!
Post by: BattlaP on September 07, 2016, 03:20:59 PM
Hi everyone, I'm quite new on the forum,a bit inexperienced, but I would consider myself pretty mustachian since forever, at least for the "be frugal" part.
I went through this conversation in the past few months and I feel a bit overwhelmed by information.
I need a clarification about a topic already discussed a million times in the forum: Vanguard Wholesale index Funds Vs a LICs/ETFs mixed portfolio:
While is pretty easy to calculate how much I would spend yearly for the fund, I have some issues with the ETFs mixed portfolio.
How is it possible to keep the expenses competitive?
If you start having a mix of 5/6 LICs/ETFs and you keep investing,let say, quarterly, plus re-balancing, I'm scared the brokerage fees will be massive.
Am I just overestimating the trades I'll do to keep my portfolio on track? What would be a "good number"? 15/20 trades a year for 5/6 ETFs?? (roughly $200, I'm with CMC)
Still I haven't invested anything in ETFs, just few stocks, but I'll star very soon. I'm oriented to the to the wholesale index funds (Growth or High Growth), I should be able to meet the minimum requirements ($100k), but I think I can manage the ETFs as well and build some experience over time. At the moment I'm just worried of overspending.
I have another thread, some of you already landed there, If someone want to have a look, check my signature, I have some other questions also there! :-)
Thanks in advance, this community is super helpful!!!
Just quickly, I think the minimum is actually $50K. At least that's what they said to my partner when she switched over to wholesale. I have to switch over too so I'll call them to confirm.
Personally we have found the wholesale funds great, I like contributing weekly, takes all thought out of investing. However if you're counting pennies the ETF trading costs, given 12 monthly trades at $25, even out with the wholesale High Growth fund (0.37%) at about an $80,000 balance in your fund. Above that the ETFs will steadily become the better financial option.
In the FIRE stage (and mid-late accumulation stage) the ETFs are definitely the better option. With a balance of 750,000 in that particular fund you're paying $2775 in fees.
I hadn't really thought about this too much myself but having done the maths just now I'd say I will stick with the funds until our balances go over about $150,000, meaning the management costs start to go above $500. Maybe a bit longer, that's not too bad for the accumulation phase. Then I'd withdraw the whole balance and buy ETFs. And hope to hell that the few days in between the markets were down and not up. Maybe I'd do it in pieces. Maybe I just wouldn't do it at all and decide that the management costs were worth the money to not have to think about rebalancing. I guess I'll find out soon enough.
Post by: GT on September 08, 2016, 12:12:01 AM
Post by: urbanista on September 08, 2016, 12:57:06 AM
there were some real horror stories
I went over in super contributions in 2015 (total contributions around $33,000, when $30,000 allowed). Apparently, ATO changed rules to be more fair as I was charged marginal tax rate on overpayment (so 39% * 3,000) in tax plus $112 in penalty. Still want to be careful though.
Post by: BattlaP on September 08, 2016, 12:59:27 AM
For those that have flipped their Superannuation over to SunSuper (lowest cost super around currently from my understanding), what Investment Option have you chosen?
I put 20% Australian Shares Index (Based on the S&P/ASX 300 Accumulation Index, 0.08% fee) and 80% International Shares Index Unhedged (Based on the MSCI World Ex-Australia Investable Market Index, 0.09% fee). For completeness sake I take it there is also admin fees of $1.50 per week and 0.10% p.a. on the first $800,000 of your account balance.
20/80 because I have irrational fears of an inevitable Australian recession, unhedged international because it is my understanding that hedging comes at a performance cost.
Post by: potm on September 08, 2016, 01:27:51 AM
Also worried about concentration to Aus but those sweet sweet franking credits :D
Post by: rasics82 on September 08, 2016, 08:48:12 AM
Just quickly, I think the minimum is actually $50K. At least that's what they said to my partner when she switched over to wholesale. I have to switch over too so I'll call them to confirm.
I was emailing them this week, 100k is fine, maybe I should have said I had 50K
Personally we have found the wholesale funds great, I like contributing weekly, takes all thought out of investing. However if you're counting pennies the ETF trading costs, given 12 monthly trades at $25, even out with the wholesale High Growth fund (0.37%) at about an $80,000 balance in your fund. Above that the ETFs will steadily become the better financial option.
In the FIRE stage (and mid-late accumulation stage) the ETFs are definitely the better option. With a balance of 750,000 in that particular fund you're paying $2775 in fees.
I hadn't really thought about this too much myself but having done the maths just now I'd say I will stick with the funds until our balances go over about $150,000, meaning the management costs start to go above $500. Maybe a bit longer, that's not too bad for the accumulation phase. Then I'd withdraw the whole balance and buy ETFs. And hope to hell that the few days in between the markets were down and not up. Maybe I'd do it in pieces. Maybe I just wouldn't do it at all and decide that the management costs were worth the money to not have to think about rebalancing. I guess I'll find out soon enough.
This is an interesting point of view as apparently most of the people in this forum are thinking to do the other way around. Reach 100k in ETFs and move to the wholesale index funds.
Still a bit puzzled, I think it will take few months to reach 100K, if I cannot access with less to the wholesale Growth/High Growth index fund I'll go with and easy ETFs portfolio first, VAS 45%, VGS 45%, VGE 10% some cash in my saving account and live happy with that.
Post by: BattlaP on September 08, 2016, 02:20:54 PM
If you have a partner you could abuse the signup bonuses for the first couple years of bulk purchases.
Post by: andrewjohnporter on September 09, 2016, 06:50:19 AM
- Claim back my super when I leave the country but I have to pay 38% tax on top of the 15% I've already paid (If I do take it, it will take me 10 years at 7% interest to build back up what I've lost)
- Leave my super in Australia but six months after my visa expires my super gets transferred by the government and I wont earn any interest on it.
Cheers.
Post by: chasingthegoodlife on September 09, 2016, 03:06:58 PM
Post by: steveo on September 09, 2016, 05:45:37 PM
People thinking about moving between ETFS and wholesale funds once their balance has built up to a certain level - make sure you consider the capital gains tax implications of this (depending on how the assets are held and your marginal tax rate at the time, etc etc).
I can't see myself doing this based upon the capital gains tax being paid. It's also why I can't see myself re-balancing much until post retirement when my income is lower.
Post by: goldenmoustache on September 10, 2016, 01:30:53 AM
Post by: marty998 on September 10, 2016, 04:16:33 AM
Go to Wholesale Managed Funds section and click the link for "Transfers"
You will have to eat the capital gains
If you can stomach the wait, I would consider redeeming a portion between now and June 2017 and the rest in July 2017 next year. Time it right and if your accountant delays the lodging the tax return you may not have to pay tax until May 2018 (for the FY 2017 redemption, and May 2019 (for the July 2017 redemption.
This splits the capital gain (if any) across 2 financial years, and may stop you going up into higher marginal tax brackets, depending on your situation.
Post by: goldenmoustache on September 10, 2016, 06:17:43 AM
Good point in splitting across tax years. I will have to do some math as on the other hand, I have the opportunity to distribute to my 18 years old uni student daughter up to $18,000 tax free.
Post by: FFA on September 10, 2016, 04:23:25 PM
Post by: marty998 on September 10, 2016, 04:28:58 PM
thanks Marty998!! Do you know if there is something similar for ETFs? I've got some ETF based investments in a Westpac brokerage account in my name. Same situation, would like to gift them to family trust.
Good point in splitting across tax years. I will have to do some math as on the other hand, I have the opportunity to distribute to my 18 years old uni student daughter up to $18,000 tax free.
Add franking credits and low income tax offset, and subtract any employment income she may earn and you could effectively distribute a lot more to her than $18,000.
She may be a little bit upset that you are "using" her in this manner though
"Daddy... did you and mum have me just so you could save on tax???" :D
Post by: goldenmoustache on September 10, 2016, 07:46:53 PM
thanks Marty998!! Do you know if there is something similar for ETFs? I've got some ETF based investments in a Westpac brokerage account in my name. Same situation, would like to gift them to family trust.
Good point in splitting across tax years. I will have to do some math as on the other hand, I have the opportunity to distribute to my 18 years old uni student daughter up to $18,000 tax free.
Add franking credits and low income tax offset, and subtract any employment income she may earn and you could effectively distribute a lot more to her than $18,000.
She may be a little bit upset that you are "using" her in this manner though
"Daddy... did you and mum have me just so you could save on tax???" :D
:D well... I am sure I will be able to find an amicable arrangement with her, most likely involving some (non moustachian) shopping at Westfield to compensate for her emotional distress...
Post by: marty998 on September 10, 2016, 09:34:06 PM
Post by: goldenmoustache on September 10, 2016, 11:18:26 PM
Post by: qwerty8675309 on September 11, 2016, 08:00:31 AM
For those that have flipped their Superannuation over to SunSuper (lowest cost super around currently from my understanding), what Investment Option have you chosen?
50% Australian indexed, and 50% International indexed (unhedged). I've just replicated my portfolio that I have outside of super. I rebalance every quarter by changing where new super money is contributed to.
Post by: MajorTom on September 11, 2016, 04:35:03 PM
For those that have flipped their Superannuation over to SunSuper (lowest cost super around currently from my understanding), what Investment Option have you chosen?
50% Australian indexed, and 50% International indexed (unhedged). I've just replicated my portfolio that I have outside of super. I rebalance every quarter by changing where new super money is contributed to.
Do you mean you have to manually rebalance in super?- does Sunsuper just divide all new super payments 50:50 with your allocation and you have to keep track of how the allocations go after that, or will Sunsuper allocate payments to keep overall amounts at 50:50?
I'm planning on changing from First State high growth to Sunsuper with a 50:50 Oz:international split.
Post by: Primm on September 11, 2016, 08:36:02 PM
Do you mean you have to manually rebalance in super?- does Sunsuper (a) just divide all new super payments 50:50 with your allocation and you have to keep track of how the allocations go after that, or will Sunsuper (b) allocate payments to keep overall amounts at 50:50?
I'm planning on changing from First State high growth to Sunsuper with a 50:50 Oz:international split.
Option a. You log in and select to change current allocations or ongoing allocations or both, but as far as I know there's no way to automatically allocate to keep the overall amount at 50:50 so you have to do this yourself.
Post by: terrier56 on September 11, 2016, 09:21:30 PM
Value town coming back in a big way as panic spreads about US interest rate hike. Is there any other reasoning?
Post by: GT on September 11, 2016, 10:02:46 PM
Interesting to see a 3yr low on Commbank.
Post by: marty998 on September 12, 2016, 01:39:10 AM
I am satisfied enough though, and will purchase another $20 odd thousand at the end of the month.
Post by: qwerty8675309 on September 12, 2016, 04:54:10 AM
Do you mean you have to manually rebalance in super?- does Sunsuper just divide all new super payments 50:50 with your allocation and you have to keep track of how the allocations go after that, or will Sunsuper allocate payments to keep overall amounts at 50:50?
When you set up your account for the first time, they'll allocate any funds you're switching over based on the allocation that you set out. New funds after the switch-over that are contributed (eg, from compulsory or voluntary super contributions) will be made using the 50/50 split too; however over time, either the Australian index or international index have a higher return than the other, so eventually the allocation will drift. You have to manage this drift yourself. You have two options:
1. Direct new funds to the lower allocation to prop up the poorly performing allocation. This involves logging in and changing the way new funds are deposited.
2. You could direct Sunsuper to sell an overweighted allocation to buy a underweighted allocation. From memory, there is a buy/sell spread involved in doing this.
Post by: GT on September 12, 2016, 11:29:21 PM
15 million shares are being issued to existing share holders and the market in general to raise a portion of the money required for the $870M buyout.
Post by: faramund on September 12, 2016, 11:36:50 PM
JB HiFi buying Good Guys will have an interesting effect on their share price. They've been on a five day slide.Seems fine to me: they seem to be buying good guys at a low multiple, and before this they really had very little debt. I hold JBH directly, and I'll be taking up my allocation.
15 million shares are being issued to existing share holders and the market in general to raise a portion of the money required for the $870M buyout.
Post by: bigchrisb on September 13, 2016, 12:50:45 AM
Post by: marty998 on September 13, 2016, 01:43:38 AM
All they need now is a bedding department... perhaps 40 Winks?
Post by: faramund on September 13, 2016, 01:48:29 AM
Post by: Notch on September 14, 2016, 06:33:49 AM
- You will have to sell your existing assets and repurchase them inside the trust, if you want to move them. Due to the change in ownership, this is a CGT event. So if you're thinking of starting one, don't put it off.
- I sold and rebought my shares the old-fashioned way, on the open market. I waited about a month until the market fell and rebought the same number of shares at a lower price and used the leftover cash to pay the CGT bill.
- You don't need a lawyer to open a trust, just an accountant. I paid $700 to create it, and $660 each year for them to do the tax return.
Post by: Aussiegirl on September 14, 2016, 05:11:29 PM
Post by: Grogounet on September 16, 2016, 10:16:23 PM
Bought $10,000 of VAS at $67.32 today (148 shares). Thought I got the low for the day around lunch but it settled in the 67.20's for much of the afternoon.
I am satisfied enough though, and will purchase another $20 odd thousand at the end of the month.
Isn't the market trading at all time high?
Post by: superannuationfreak on September 16, 2016, 11:16:16 PM
I see many messages asking things like "do I need international bonds?". I tend to make more complex choices too, so I fully understand the instinct. But its important to take a step back and think about:
What are my goals?
What allocation/decisions will help me achieve those goals? (and usually saving is the biggest decision for the mustache-inclined)
First, in terms of saving in Super vs. Non-Super: As hopeful early-FI folks we need to save outside Super. If very-low-spending then our tax rates outside Super after early-retirement may even be comparable or lower than inside Super. However if likely to have a larger nest-egg then Super will probably still be lower tax rate after a point. And importantly, if currently making a reasonable wage, salary sacrifice is very appealing so long as you're still able to save enough outside super to last you until preservation age.
In terms of what assets you need to hold and where you hold them, for an early retiree (we've discussed this before):
- Cash outside super, while not especially tax efficient, is important unless you have such a large nest-egg that you can afford a 50+% drop without impacting your ability to make it to preservation age. Cash also has substantial liquidity advantages.
- Other fixed income (bonds) is much more efficient in Super.
- Indexed or low-turnover shares are pretty efficient both inside and outside super (some prefer their higher-dividend Australian shares inside super which can make sense at the margin).
- Higher-turnover share allocations (unless US-domiciled) are inefficient outside super, even in LICs.
What I'd like to highlight are the cost, tax and other advantages of holding any bond allocation or allocation to higher turnover shares (e.g. Australian Small Caps) inside super rather than outside.
- Higher-turnover Australian-domiciled ETFs and managed funds (or individual share portfolios if that is your thing) will produce capital gains (either for yourself, or in a LIC taxed within the corporate structure at ~30%). This makes them less efficient to hold outside super than lower-turnover ETFs and funds which can defer capital gains taxes until in a lower tax bracket (such as broad index ETFs or buy-and-hold-forever portfolios).
- In addition if you're looking at an allocation to Australian small companies, industry funds have tended to be overweight these relative to the ASX300 but have negotiated much better fees for actively managed funds than we are able to. Indexed small company funds (particularly those tracking the Small Ords) have tended to perform poorly over the long-term (check out the SPIVA scorecards from S&P every year) even if the last 12 months have been pretty good for these funds/ETFs so if you want to allocate to this space, and an industry fund can do it actively for you at low cost, then I'd avoid the passive allocation (which can also be pretty tax inefficient at times as a higher turnover strategy).
- Bonds and Cash tend to be higher-taxed outside Super. In the case of cash, higher online savings account/term deposit rates outside super mitigate this, and having rapid access to liquidity either to spend if needed or to rebalance in a downturn can be valuable. Neither of these compensating factors apply to bond ETFs: We tend to pay more to manage them than an institutional investor (such as a good super fund) would pay to manage bonds, and bond ETFs are not especially liquid and come with brokerage costs if we do want to buy and sell them. Also in most cases rebalancing will be cheaper to do in Super (most funds don't charge for switching options not-too-often, and any capital gains taxes are pooled if not in an SMSF).
So what are my actionable take-aways?
- Keep any allocations to bonds and likely-higher-turnover shares (such as Australian Small Caps) in Super rather than outside Super.
(cash and lower-turnover shares such as broad index funds or LICs are OK inside or outside Super)
- Rebalance within Super if possible, rather than selling ETFs outside Super.
How can you implement them?
- Many Super funds have one or more low-cost bonds/fixed income option.
- If you want Australian Small Companies exposure I believe that will be most efficiently gained through using an Industry Super fund Australian Shares option instead of an ASX index fund/ETF. Using Australian Super as a low-cost, well-know example (note: I work for an Industry Fund but not Australian Super) you'd pay about 0.3% p.a. for their Australian Shares option with substantially more small cap exposure than the market but still at reasonably low cost. Some other industry funds Australian Shares options may still cost more than I'd want to pay.
And of course, if you want to keep things super-simple, there's nothing wrong with:
- Keeping your Super in a single low-cost diversified fund in-line with your willingness, ability and need to take risk
- Outside super just investing in VAS (or a low-cost LIC), VGS and an online savings account/term deposits
- Only rebalancing by adding new money to the lowest performing of VAS/VGS/Cash
Post by: deborah on September 17, 2016, 12:06:42 AM
Post by: Wadiman on September 17, 2016, 03:23:21 AM
Do you happen to know if CTN has much turnover in its portfolio? I was attracted to this LIC due to the high dividend and some franking (50%).
Post by: superannuationfreak on September 17, 2016, 05:05:05 AM
Superannuationfreak -
Do you happen to know if CTN has much turnover in its portfolio? I was attracted to this LIC due to the high dividend and some franking (50%).
I found a 2012 research report suggesting it had ~80% p.a. turnover. Morningstar's website suggested even higher. This is quite a lot compared to an ASX300 fund but it may well be in-line with other micro-cap funds, I don't know them that well. But where capital gains occur CTN will either pay tax on capital gains at the corporate rate (which then gets turns into franking credits) or possibly be able to pass some through to the investor (which then gets taxed for the investor). Note Legal Super and ING Living Super both offer it in their direct investing option if you wanted to hold it in Super without setting up an SMSF. But these do come with other fees and constraints that may not be appealing.
Unless you're paying <30% marginal tax rate (i.e. in super or possibly outside post-retirement), high dividends (particularly unfranked, even at 15% tax in super) will be a tax drag on returns. Whether the investment is appealing enough to hold it anyway is for you to determine.
Post by: marty998 on September 20, 2016, 03:19:35 AM
I don't buy the PR spin that they put out about hardware problems and such. Surely they have got a backup system?
Post by: deborah on September 20, 2016, 03:32:16 AM
I wonder if we will ever be told why the ASX had to close the market on Monday....I've seen that sort of thing happen - and worse.
I don't buy the PR spin that they put out about hardware problems and such. Surely they have got a backup system?
Post by: Grogounet on September 20, 2016, 10:24:38 PM
I work in IT and I see this everyday, small and large business the same
They went back online actually pretty fast I found.
Post by: marty998 on September 27, 2016, 04:16:13 AM
Post by: Primm on September 27, 2016, 08:12:50 PM
Has the VAS ETF dividend estimate been published yet? Maybe tomorrow?
Entity name
VANGUARD AUSTRALIAN SHARES INDEX ETF
Security on which the Distribution will be paid
VAS - EXCHANGE TRADED FUND UNITS FULLY PAID
Announcement Type
New announcement
Date of this announcement
Tuesday September 27, 2016
Distribution Amount
AUD 1.01268959
Ex Date
Tuesday October 4, 2016
Record Date
Wednesday October 5, 2016
Payment Date
Wednesday October 19, 2016
DRP election date
Wednesday October 5, 2016 17:00:00
Post by: FFA on September 28, 2016, 03:25:49 PM
In terms of what assets you need to hold and where you hold them, for an early retiree (we've discussed this before):hi superannuationfreak, hope you are well, excellent posting above!
- Cash outside super, while not especially tax efficient, is important unless you have such a large nest-egg that you can afford a 50+% drop without impacting your ability to make it to preservation age. Cash also has substantial liquidity advantages.
- Other fixed income (bonds) is much more efficient in Super.
- Indexed or low-turnover shares are pretty efficient both inside and outside super (some prefer their higher-dividend Australian shares inside super which can make sense at the margin).
- Higher-turnover share allocations (unless US-domiciled) are inefficient outside super, even in LICs.
...
And of course, if you want to keep things super-simple, there's nothing wrong with:
- Keeping your Super in a single low-cost diversified fund in-line with your willingness, ability and need to take risk
- Outside super just investing in VAS (or a low-cost LIC), VGS and an online savings account/term deposits
- Only rebalancing by adding new money to the lowest performing of VAS/VGS/Cash
regarding asset placement, you didn't mention oz vs global shares. I've been thinking about it lately as I think I may have set-up the wrong way with a skew to oz shares ex super, and more global shares in super. Also considering I've taken on some part-time work which was not part of the original plan, pushing us both into the 37c marginal tax bracket (not that it really matters that much).
All our shares ex super are in wife's name and the oz share franking credits really push up the taxable income. And since I now still have some active income there is less need for all the dividend income ex Super which is probably the reason I lent towards having more oz shares.
So I'm looking at moving the other way, switching some VAS into VGS ex super, and the reverse inside Super. No change to overall asset allocation. In addition to the franking credit effect on taxable income (which is progressive ex Super but flat rate in Super), there is also probably the more basic point that Oz shares have a much higher yield vs global. As I vaguely recall posting upthread, I wouldn't skew it too extremely (i.e. all VGS ex Super and all VAS in Super) as I think you need to keep some diversification in each bucket. e.g. if there is some weird event that means hurts VAS badly vs VGS, as still need assets/income ex Super to be FIRE.
The other thought I'm having is insurance/investment bonds. Depends on whether I keep up the part-time work. But if we are both paying 37% plus medicare levy they look an interesting option. Super is better still, but as I'm still 39 and with young kids, the 10 year time frame on investment bonds is interesting as I can access in my 50's (and kids mid teens) and it will be capital gains free from that point. I'm loathe to add the complexity to our affairs, so will not jump into this, but seems an interesting option to consider in my circumstances...
Post by: misterhorsey on September 28, 2016, 07:16:59 PM
Post by: marty998 on September 29, 2016, 05:49:24 AM
Has the VAS ETF dividend estimate been published yet? Maybe tomorrow?
Entity name
VANGUARD AUSTRALIAN SHARES INDEX ETF
Security on which the Distribution will be paid
VAS - EXCHANGE TRADED FUND UNITS FULLY PAID
Announcement Type
New announcement
Date of this announcement
Tuesday September 27, 2016
Distribution Amount
AUD 1.01268959
Ex Date
Tuesday October 4, 2016
Record Date
Wednesday October 5, 2016
Payment Date
Wednesday October 19, 2016
DRP election date
Wednesday October 5, 2016 17:00:00
A buck a share? Woo! $1000 for me :)
Reinvested at $70 each = 14 more VAS units...
Post by: superannuationfreak on September 29, 2016, 06:24:16 AM
regarding asset placement, you didn't mention oz vs global shares. I've been thinking about it lately as I think I may have set-up the wrong way with a skew to oz shares ex super, and more global shares in super. Also considering I've taken on some part-time work which was not part of the original plan, pushing us both into the 37c marginal tax bracket (not that it really matters that much).
All our shares ex super are in wife's name and the oz share franking credits really push up the taxable income. And since I now still have some active income there is less need for all the dividend income ex Super which is probably the reason I lent towards having more oz shares.
So I'm looking at moving the other way, switching some VAS into VGS ex super, and the reverse inside Super. No change to overall asset allocation. In addition to the franking credit effect on taxable income (which is progressive ex Super but flat rate in Super), there is also probably the more basic point that Oz shares have a much higher yield vs global. As I vaguely recall posting upthread, I wouldn't skew it too extremely (i.e. all VGS ex Super and all VAS in Super) as I think you need to keep some diversification in each bucket. e.g. if there is some weird event that means hurts VAS badly vs VGS, as still need assets/income ex Super to be FIRE.
The other thought I'm having is insurance/investment bonds. Depends on whether I keep up the part-time work. But if we are both paying 37% plus medicare levy they look an interesting option. Super is better still, but as I'm still 39 and with young kids, the 10 year time frame on investment bonds is interesting as I can access in my 50's (and kids mid teens) and it will be capital gains free from that point. I'm loathe to add the complexity to our affairs, so will not jump into this, but seems an interesting option to consider in my circumstances...
After franking VAS is probably being taxed at ~10% while international dividends after offsets are probably well over 20% (although there tend to be less of them to tax). I don't have an issue holding VAS outside Super (in fact, I do it myself). I was more talking about people specifically targeting high dividend shares (which I don't).
If I wanted to migrate more towards international without CGT after re-starting earning wage income I'd probably just invest my dividends into international and let the transition happen naturally over time (adjusting my Super allocation every year or two also to be roughly on target in aggregate). Long-term it depends also how long I expect to be taxed at 37+% - if there's a chance I or my wife would end up below the tax-free threshold for a decent period of time I'd definitely prefer to hold Australian shares as the foreign tax offset of international shares isn't refundable if you wouldn't otherwise pay tax.
TL;DR I personally don't see holding VAS outside Super and more international in Super as a big deal. A higher-turnover or high dividend focused strategy outside super was my main concern.
Post by: potm on September 29, 2016, 07:26:44 PM
It's not really correct to consider the tax rate as lower because of franking credits. If anything you should consider the higher gross yield including franking credits.
Post by: marty998 on October 01, 2016, 08:30:17 PM
They are now publishing their full investment portfolio as at 30 June and 31 December each year. Some insights:
Australian shares option
Total portfolio size is $19.6billion (369 holdings)
Top 20 are CBA 7.70% through WBC, TLS, ANZ, NAB, CSL (3.36%), BHP, WES, HSO (2.12%), MQG, SUN, TCL, SYD, RIO, WOW, AMP, CTX, JHX, TTS and IAG (0.97%)
Total top 20 are 52.35% and top 5 are 25.07% (yikes).
International shares option
Total portfolio size is $1.0 billion (~2000 holdings)
Top 20 are Amazon (1.38%), TenCent Holdings, Facebook, Baidu, Accenture (1.00%), VISA, TimeWarner, Oracle, Nestle, Illumina, Tesla, Microsoft, Reckitt Benckiser, Thermo Fisher Scientific, Medtronic, Honeywell, Alphabet (Google) (0.75%), Qualcomm, Samsung, British American Tobacco (0.71%)
Apple is down in 37th place at 0.5% of the portfolio
The actual largest holding is cash at 16.95% of the portfolio ($170 million).
Diversified Fixed Interest option
Total portfolio size is $1.284 billion in bonds/treasuries
Commonwealth of Australia (9.62%)
Commonwealth Bank of Australia (6.60%)
Queensland Treasury Corporation (3.74%)
Westpac Banking Corporation (3.65%)
Treasury, United States Department of (2.82%)
New South Wales Treasury Corporation (2.60%)
Australia and New Zealand Banking Group Limited (2.08%)
AGL Energy Limited
National Australia Bank Limited
KfW Bankengruppe
Gobierno Federal de los Estados Unidos Mexicanos
International Bank for Reconstruction & Development
Inter-American Development Bank
Treasury Corporation of Victoria
Apple Inc.
Bridgewater Pure Alpha Fund II Ltd
Western Australian Treasury Corporation
Dexus Finance Pty Limited
Ministerio da Fazenda
International Finance Corporation (0.72%)
Post by: marty998 on October 01, 2016, 08:40:57 PM
For example, CBA shares make up just under 2% of the balanced portfolio - as you would expect because of allocations to every other asset class in the portfolio, and the fixed interest portfolio includes allocations to the Governments of Malaysia, Indonesia, New Zealand and Korea.
I need to do some research now on this Bridgewater Pure Alpha Fund they have in the FIC portfolio....
Post by: superannuationfreak on October 01, 2016, 09:44:18 PM
I need to do some research now on this Bridgewater Pure Alpha Fund they have in the FIC portfolio....
I would estimate it is the biggest hedge fund in the world.
Post by: marty998 on October 01, 2016, 09:50:07 PM
Also learned something else today.....Aus Super's indexed diversified option is simply a collection of Vanguard index funds - Aus, International, International Hedged, Fixed Interest and Property.
Post by: stripey on October 02, 2016, 08:03:24 AM
Post by: marty998 on October 02, 2016, 03:56:39 PM
Also a little annoyed at the allocation to both James Hardie and Tatts Group....
Post by: Wadiman on October 04, 2016, 04:19:46 AM
Is anyone aware of alternatives to Sharesight for automated portfolio and dividend tracking?
Love the functionality but now have more than 10 equities so the free version doesn't give me the full picture and i'm not sure of the value of the $25/month investor plan.
What i really like is the way it provides total returns including dividends.
I do know that i could do this all manually with a bit of effort and discipline but thought i would check in with you fine folk first!
Post by: marty998 on October 04, 2016, 04:40:50 AM
VAS changed from 0.15% to 0.14%
VAP from 0.25% to 0.23%
Every basis point counts :)
Post by: steveo on October 04, 2016, 04:58:21 AM
Vanguard have just dropped their fee rates on a couple of ETFs effective 1 October 2016.
VAS changed from 0.15% to 0.14%
VAP from 0.25% to 0.23%
Every basis point counts :)
That is good to hear. You are correct in that every basis point counts.
Post by: rasics82 on October 04, 2016, 06:52:49 AM
I'm holding some JBH stocks, not many and I kind of love them at the moment.
Just before dividend time (10 days ago) I checked my account and I found that I was also holding some extra stocks called JBHX, valued $3/$4 each roughly.
They were there for few days and suddenly they were gone again.
Can anyone explain me what those stocks were?
There was something I should have done with them?
Post by: misterhorsey on October 04, 2016, 08:53:02 PM
Vanguard have just dropped their fee rates on a couple of ETFs effective 1 October 2016.
VAS changed from 0.15% to 0.14%
VAP from 0.25% to 0.23%
Every basis point counts :)
I love how they do it with very little/no fanfare. Just a simple email. No spin or self congratulatory pat on the back. My kind of people
Post by: PDM on October 04, 2016, 10:42:17 PM
hi guys, just a quick question, I've noticed something strange (...for me, but maybe very normal) on my CMC account few days ago:
I'm holding some JBH stocks, not many and I kind of love them at the moment.
Just before dividend time (10 days ago) I checked my account and I found that I was also holding some extra stocks called JBHX, valued $3/$4 each roughly.
They were there for few days and suddenly they were gone again.
Can anyone explain me what those stocks were?
There was something I should have done with them?
Hey,
I've seen something similar before in a stock I hold. It looks like JB Hi Fi did a share issue, based on 1 : 6.6 for existing holders.
http://www.asx.com.au/asxpdf/20160916/pdf/43b793y93jwyfw.pdf
As a part of this, as an existing holder you get the opportunity to buy more shares. I believe what you saw was the opportunity to sell that entitlement. It is gone now as the shares have listed. You could have sold it or excercised it (bought the shares you were entitled to).
Post by: potm on October 05, 2016, 03:18:37 AM
Post by: FFA on October 05, 2016, 03:45:11 AM
but equally I'm sure it's marketing driven to keep their nose in front of IOZ who had matched 0.15%. Vanguard by it's brand has to be the cheapest!Vanguard have just dropped their fee rates on a couple of ETFs effective 1 October 2016.
VAS changed from 0.15% to 0.14%
VAP from 0.25% to 0.23%
Every basis point counts :)
I love how they do it with very little/no fanfare. Just a simple email. No spin or self congratulatory pat on the back. My kind of people
Post by: rasics82 on October 06, 2016, 07:55:47 AM
hi guys, just a quick question, I've noticed something strange (...for me, but maybe very normal) on my CMC account few days ago:
I'm holding some JBH stocks, not many and I kind of love them at the moment.
Just before dividend time (10 days ago) I checked my account and I found that I was also holding some extra stocks called JBHX, valued $3/$4 each roughly.
They were there for few days and suddenly they were gone again.
Can anyone explain me what those stocks were?
There was something I should have done with them?
Hey,
I've seen something similar before in a stock I hold. It looks like JB Hi Fi did a share issue, based on 1 : 6.6 for existing holders.
http://www.asx.com.au/asxpdf/20160916/pdf/43b793y93jwyfw.pdf
As a part of this, as an existing holder you get the opportunity to buy more shares. I believe what you saw was the opportunity to sell that entitlement. It is gone now as the shares have listed. You could have sold it or excercised it (bought the shares you were entitled to).
JBH did a renounceable rights issue as PDM mentioned. As you have not sold or exercised your rights, they will now be auctioned and you will receive the proceeds above the exercise price.
Thanks guys, I was at work and I saw all the documentation just yesterday
Post by: Daniel S on October 07, 2016, 06:49:26 AM
Is there any way to search just within this thread? Reading all 46 pages seems a bit daunting.
Post by: Daniel S on October 07, 2016, 11:48:39 AM
Hi, I'm new to MMM and glad to see there is an Australian thread going.
Is there any way to search just within this thread? Reading all 46 pages seems a bit daunting.
site:forum.mrmoneymustache.com/investor-alley/australian-investing-thread
Here's an example if you were looking for all posts containing "telstra":
https://www.google.com.au/search?num=30&newwindow=1&q=telstra+site%3Aforum.mrmoneymustache.com%2Finvestor-alley%2Faustralian-investing-thread&oq=telstra+site%3Aforum.mrmoneymustache.com%2Finvestor-alley%2Faustralian-investing-thread&gs_l=serp.12..0i71k1l8.0.0.0.40444.0.0.0.0.0.0.0.0..0.0....0...1c..64.serp..0.0.0.NCnd510rD5E (https://www.google.com.au/search?num=30&newwindow=1&q=telstra+site%3Aforum.mrmoneymustache.com%2Finvestor-alley%2Faustralian-investing-thread&oq=telstra+site%3Aforum.mrmoneymustache.com%2Finvestor-alley%2Faustralian-investing-thread&gs_l=serp.12..0i71k1l8.0.0.0.40444.0.0.0.0.0.0.0.0..0.0....0...1c..64.serp..0.0.0.NCnd510rD5E)
Hope this helps!
Forget everything. I've realised that the search box on the upper right is context-sensitive, meaning that if you are viewing this thread when you use it, it automatically searches only this thread.
Post by: chasingthegoodlife on October 07, 2016, 04:02:23 PM
I read the entire thread during a particularly memorable sick day. To distract myself from a ahem... gastric upset I started reading up on portfolio allocation and got inspired to run my numbers for FI. Working in the community sector I hadn't thought this would be a realistic option for me, and I was surprised and inspired. Good luck with your goals, there is lots of useful information here.
Post by: dndln on October 11, 2016, 03:16:50 AM
Currently, my portfolio looks like this:
50% US stock - VTS
30% International Stock - VGS
20% bonds - VAF
However, I'd also like to invest in VAS (Australian Shares). How should I restructure my percentages? Or should I just leave it as three funds? Also slightly worried about the extra commission from four funds.
Thanks in advance!
Post by: GT on October 11, 2016, 03:57:31 AM
If you're in your 20's you should be growing your stache as fast as you can. 20% of your asset allocation in bonds won't do that for you.
VGS includes US stocks, so you'll be double dipping if you have both VGS and VTS (would need to nut out the purchases within each fund to see how much).
Where is your super located? Some on here prefer to keep their Australian stocks within their super.
Post by: marty998 on October 11, 2016, 04:47:01 AM
VEU is all world ex US.
So swap VGS for VEU, swap VAF for VAS, and keep your spare cash in an online saver.
Post by: dndln on October 11, 2016, 05:50:16 AM
Portfolio v2:
30% VTS (US)
30% VEU (International) - replaces VGS
30% VAS (Aus)
10% VAP (Property)
0% bonds (VAF)
Super is with ING, I put my allocation as 100% shares (unhedged). Not really sure what's going on there, I'll have to take a look.
I'm not a big fan of relying on my super, as 60 seems a very long time away.
Any thoughts?
Post by: englyn on October 11, 2016, 10:14:41 PM
Quote
Hi Scott
Last week, you advised Dennis that he would be better off investing in AFI. However, he would have done even better with Vanguard’s ASX 200 index fund (VAS). I punched the numbers and the total return over 10 years for AFIC was 6.4 per cent versus VAS at 9.12 per cent. I know you like AFIC, but LICs can be tricky and you still can’t beat low-cost, broad-based, index-tracking ETFs.
Regards,
Ben
Quote
Hi Ben,
I’m a huge fan of international index funds -- not only have I promoted them heavily in the past decade, I’m an investor in Vanguard’s funds myself. The problem with indexing here in Australia is that our market is too concentrated. Our index is basically four banks, a couple of retailers, a couple of miners, and a telco. Besides, your figures are incorrect: VAS has only been around since 2009, and in any case, AFIC has slightly outperformed the index over the last decade.
Post by: dndln on October 12, 2016, 04:58:10 AM
The main differences it seems (to me):
LIC's are managed, so they're more likely to overperform or underperform the ETF, depending on your LIC manager.
ETF's trade at about the NAV, but LIC's might trade far below or far above their NAV for extended periods of time.
ETF's are more transparent with taxation, LIC's behave like managed funds.
ETF's pass on any income within the financial year, LIC's pay company tax and pass through franked credits.
I had a look at AFI's holdings, and they're pretty much the same as VAS.
(http://www.afi.com.au/List-of-Investments.aspx)
(https://au.finance.yahoo.com/q/hl?s=VAS.AX)
So I'm leaning more towards VAS, because it seems more transparent and sticks closer to the market, while LIC's operate more like shares in a company.
The investments in AFI look pretty concentrated too, so not much benefit there.
portfolio v3:
30% VTS
30% VEU
30% VAS or AFI or ARG or what-have-you (still leaning towards VAS unless convinced otherwise)
10% VAP
Any thoughts?
Post by: marty998 on October 12, 2016, 05:29:37 AM
Some of them (Like AFI and ARG) have been around for 50+ years. You don't survive that long without doing something right.
VAP stocks are included in VAS so you are doubling up there as well. Truthfully though I think you've missed the boat on VAP, property trust stocks have done very well the past few years due to falling interest rates. They will get slaughtered when rates start to rise.
Post by: Juan Ponce de León on October 12, 2016, 06:02:15 AM
property trust stocks have done very well the past few years due to falling interest rates. They will get slaughtered when rates start to rise.
When will that be? Australia is mortgaged to the hilt, house prices are through the roof since the last cycle of rate rises. The second rates even think about rising people will be foreclosing/forced selling and putting a brake on the economy quick smart = no more rate rises. Just look at the rest of the world. Even the thought of a rate rise in the US sends shockwaves through global markets.
Post by: englyn on October 12, 2016, 10:01:10 PM
I had a look at AFI's holdings, and they're pretty much the same as VAS.
(http://www.afi.com.au/List-of-Investments.aspx)
(https://au.finance.yahoo.com/q/hl?s=VAS.AX)
So I'm leaning more towards VAS, because it seems more transparent and sticks closer to the market, while LIC's operate more like shares in a company.
The investments in AFI look pretty concentrated too, so not much benefit there.
portfolio v3:
30% VTS
30% VEU
30% VAS or AFI or ARG or what-have-you (still leaning towards VAS unless convinced otherwise)
10% VAP
Any thoughts?
When I researched ARG before starting to buy it, it did seem to weight the holdings slightly away from the top few, so the diversification's a bit better. I suppose it's a natural follow on from that, that it's done worse than the index recently, while the miners and banks have been doing particularly well. I have about twice as much VAS as I have ARG, and I'm fairly pleased with that ratio.
Post by: marty998 on October 13, 2016, 12:54:50 AM
property trust stocks have done very well the past few years due to falling interest rates. They will get slaughtered when rates start to rise.
When will that be? Australia is mortgaged to the hilt, house prices are through the roof since the last cycle of rate rises. The second rates even think about rising people will be foreclosing/forced selling and putting a brake on the economy quick smart = no more rate rises. Just look at the rest of the world. Even the thought of a rate rise in the US sends shockwaves through global markets.
Just because markets get spooked is no reason not to raise rates if necessary. You can't have the tail wagging the dog, and the longer rates are left low, the worse the inevitable crash will be.
If inflation picks up in Australia it's a near certainty that the RBA will raise rates. Yes there will be pain. That is the point. To stop further "irrational exuberance" as the former governor put it.
Post by: FFA on October 13, 2016, 04:07:23 PM
For info - EX20 by betashares has just came out and might also be a good diversifier to consider for those interested in reducing concentration to the top20.
Post by: terrier56 on October 13, 2016, 05:48:13 PM
If inflation picks up in Australia it's a near certainty that the RBA will raise rates. Yes there will be pain. That is the point. To stop further "irrational exuberance" as the former governor put it.
Very true and I am guessing a recovery in oil price will almost certainly lead to pressure on inflation since the costs are passed on to every good and service.
Post by: Daniel S on October 14, 2016, 04:07:44 AM
Some possible advantages:
- Get away from the top heavy and finance/mining heavy weightings in the ASX200
- Much wider choice of ETFs
- Most commentary and analysis is US-centric. How well will these same strategies work outside of US? A non-issue if you just do it exactly like they do.
Some disadvantages:
- Introduced currency risk (could be a potential benefit)
- Broker exchange rates could be poor
- No franking credits
- Possibility of increased counter-party risks
I'm throwing this out there because I've been looking at some of the more diverse portfolios on portfoliocharts.com and wondering how some of these could be implemented from Australia.
How about attempting to emulate the more diversified portfolios using funds, and/or ASX listed ETFs (or LICs)? Anyone doing this to implement an Aus-based portfolio like Coffeehouse, Permanent Portfolio, Golden Butterfly, Merriman etc? How is it working out?
Post by: PDM on October 15, 2016, 05:08:52 PM
I'm wondering if any Aussie investors would consider build their portfolio on entirely NYSE US listed ETFs, using a local broker like CommSec international or similar (I think there are plenty of options)?
Some possible advantages:
- Get away from the top heavy and finance/mining heavy weightings in the ASX200
- Much wider choice of ETFs
- Most commentary and analysis is US-centric. How well will these same strategies work outside of US? A non-issue if you just do it exactly like they do.
Some disadvantages:
- Introduced currency risk (could be a potential benefit)
- Broker exchange rates could be poor
- No franking credits
- Possibility of increased counter-party risks
I'm throwing this out there because I've been looking at some of the more diverse portfolios on portfoliocharts.com and wondering how some of these could be implemented from Australia.
How about attempting to emulate the more diversified portfolios using funds, and/or ASX listed ETFs (or LICs)? Anyone doing this to implement an Aus-based portfolio like Coffeehouse, Permanent Portfolio, Golden Butterfly, Merriman etc? How is it working out?
Agree with the thinking on avoiding too much exposure to the ASX200. Here is a some lazy analysis of the top 20 companies in the ASX from a post I made in a similar topic elsewhere:
"Here are the top 20 companies (by market cap in the ASX50):
Commonwealth Bank – Bank
Westpac Banking Corp – Bank
ANZ Banking Group Ltd – Bank
National Aust. Bank – Bank
BHP Billiton Ltd – Mining
Telstra Corporation – Telco
Wesfarmers Ltd – Retail + Industrial (mining exposure)
CSL Ltd – Biotech
Woolworths Ltd – Retail
Macquarie Group Ltd - Investment Bank
Scentre Group Stapled Securities – Westfields Australia – Retail
Woodside Petroleum – Oil and Gas
Transurban Group Ordinary Shares/Units FP Triple Stapled – Infrastructure/Toll Roads
RIO Tinto Ltd - Mining
Westfield Corp Stapled Securities – Westfields Rest of world – Retail
Brambles Ltd -Transport/Logistics
Amcor Ltd – Manufacturing
Newcrest Mining - Mining
Suncorp Group Ltd – Bank
Ramsay Health Care – Health
Hows that sweet sweet diversity? No risks here...banks, mining and retail... "
I already work in a mining exposed industry and think the current housing boom will end in tears for the banks. We have limited our ASX exposure by buying VGS (international shares ex Australia) and VGE (emerging markets) so far.
Post by: FFA on October 15, 2016, 06:46:09 PM
For info - EX20 by betashares has just came out and might also be a good diversifier to consider for those interested in reducing concentration to the top20.As per my earlier post, this might be a product to consider to supplement VAS and improve diversification if you're worried about top20 concentration. MVW is another I've posted about in the past which also addresses the same. I hold MVW but not EX20. Still by far my core holding is VAS.
Post by: Grogounet on October 17, 2016, 11:17:32 PM
I'm wondering if any Aussie investors would consider build their portfolio on entirely NYSE US listed ETFs, using a local broker like CommSec international or similar (I think there are plenty of options)?
Some possible advantages:
- Get away from the top heavy and finance/mining heavy weightings in the ASX200
- Much wider choice of ETFs
- Most commentary and analysis is US-centric. How well will these same strategies work outside of US? A non-issue if you just do it exactly like they do.
Some disadvantages:
- Introduced currency risk (could be a potential benefit)
- Broker exchange rates could be poor
- No franking credits
- Possibility of increased counter-party risks
I'm throwing this out there because I've been looking at some of the more diverse portfolios on portfoliocharts.com and wondering how some of these could be implemented from Australia.
How about attempting to emulate the more diversified portfolios using funds, and/or ASX listed ETFs (or LICs)? Anyone doing this to implement an Aus-based portfolio like Coffeehouse, Permanent Portfolio, Golden Butterfly, Merriman etc? How is it working out?
Just doing this ATM with Interactive Brokers
I leave all my Australian investments with LICs that will capture value
The rest is done via IB directly using Paul Meriman's recommendations, which are not available in Australia EFT
So yes, completely possible
Post by: Wadiman on October 18, 2016, 04:09:00 AM
As this is a very new ETF with limited liquidity wondering if anyone had thoughts on the pros/cons in buying into it early?
Also - called up Betashares and asked them about likely franking credit % - they indicated about 50%
Post by: marty998 on October 18, 2016, 05:03:51 AM
The problem is tax and distribution related. If you have a signifiant investor redeem out, then it will cause CGT problems for everyone else. Alternatively if you get very large investors come in mid quarter, it may dilute that quarter's dividend significantly.
Post by: FFA on October 19, 2016, 05:55:49 AM
Regarding the distribution case, I could see that more likely as the fund is growing from scratch. But even still I don't think you really get penalized. In that scenario if a large inflow occurs after many stocks in the portfolio already went ex div, yes your distribution will be reduced maybe it will be 7c instead of 10c. But the unit price will only go down by 7c instead of 10c on the ex div date. If you consider capital plus dividend, I'm not sure it's that much of an issue for most people to worry about, unless I'm missing something?
Post by: FFA on October 19, 2016, 05:59:03 AM
Post by: Daniel S on October 19, 2016, 06:07:31 AM
Just doing this ATM with Interactive Brokers
I leave all my Australian investments with LICs that will capture value
The rest is done via IB directly using Paul Meriman's recommendations, which are not available in Australia EFT
So yes, completely possible
Thanks for the reply. Are you happy with IB? How do they compare to say NabTrade which charge 0.11% brokerage and a 0.50% custody fee if no trades in a year? How are the spreads?
Post by: FFA on October 19, 2016, 03:32:52 PM
Post by: englyn on October 19, 2016, 07:41:07 PM
Post by: bigchrisb on October 19, 2016, 08:04:40 PM
http://www.ey.com/Publication/vwLUAssets/2013-international-estate-and-inheritance-tax-guide/$FILE/2013-international-estate-and-inheritance-tax-guide.pdf (http://www.ey.com/Publication/vwLUAssets/2013-international-estate-and-inheritance-tax-guide/$FILE/2013-international-estate-and-inheritance-tax-guide.pdf)
Its long and complex, refer page 334 for the US parts.
My reading is (do your own research):
- The US has an estate tax of 40% at death.
- For US citizens there is a $5m exemption (so you would only be taxed estate tax on the value above this)
- For non resident aliens (the rest of us), this limit is only $60k. You are taxed 40% of the value of the balance at death. This is a big deal.
I don't know how effective the cross border audit is of these. I suspect (but haven't tested) that holding these in a trust will get around this issue (ownership doesn't change on death).
Post by: FFA on October 19, 2016, 08:10:09 PM
http://forums.whirlpool.net.au/archive/2531401
I haven't seen any 100% clear answers online. The only way to be confident would be to take professional tax advice. But from what I deduced it seems reasonably safe provided you remain an Australian resident and the tax treaty with the US remains in place. As I understand, Australian residents should be exempt from US estate taxes up to an asset threshold of US$5 million or thereabouts. However there are some other online posters who state quite authoritatively that the estate tax would apply for any assets beyond $60k. I don't think they are correct but those opinions have blurred the situation. And in any case there is risk that tax regulations/treaties will change. So buying an Australian domiciled ETF seems safer.
I decided mostly for other reasons to gradually switch my VTS/VEU over to VGS. I'm in no hurry to do so but feel it will be simpler this way, and have already started.
Post by: JuicyCrab on October 19, 2016, 08:12:59 PM
Got a DRP question. I have a small portfolio of IOZ (ASX200 index with ishares), a recent dividend payout of $220.41 paid on 17/10/16. This resulted in an allocated +9 of shares reinvested into IOZ, this would mean a price of $24.49 ($220.41/9) . On the 17/10/16 it has a high price of $22.25, so how on earth did I only receive 9 shares at $24.49 per share? :S
Sorry, I am just dumbfounded by this and it appears that DRP is not a cost effective way of receiving dividends. I understand there would be a 'spread' cost for reinvestment without brokerage costs but surely not this high.
Thoughts?
Post by: FFA on October 19, 2016, 08:13:24 PM
However as I said if you really want to be sure, take professional advice [and tell us the answer here :) ] , or avoid buying US based assets.
Post by: FFA on October 19, 2016, 08:16:16 PM
Post by: JuicyCrab on October 19, 2016, 08:42:05 PM
Hi juicycrab, the DRP price is usually fixed earlier, around the time of the dividend announcement. The market has fallen a bit in the past few weeks. Also might be some rounding as you can only have a round number of shares. Usually if there is a balance it is carried forward to the next dividend. This would inflate your effective DRP purchase price if you are not accounting for the balance carried forward.
Ah yes that makes sense. Sorry I was told you could own decimals of shares, so a carry over balance on partial amounts makes sense :).
Post by: englyn on October 20, 2016, 09:52:11 PM
Hey, Juicycrab, have you found the Perth meetup thread yet? It's usually very active :)
Post by: Daniel S on October 21, 2016, 05:29:09 AM
Post by: FFA on October 21, 2016, 06:24:48 PM
Post by: Juan Ponce de León on October 22, 2016, 12:59:24 PM
Post by: chasingthegoodlife on October 22, 2016, 03:28:19 PM
It's telling me I need to upgrade to the latest version but when I go to the app store it looks like I already have it?
Perhaps this is the price I must pay for having a 6 year old phone :)
Post by: dndln on October 22, 2016, 05:25:37 PM
https://www.irs.gov/businesses/small-businesses-self-employed/estate-gift-tax-treaties-international
This link says: Status of [1953] ATS 4 Treaty == In Force
http://www.treasury.gov.au/Policy-Topics/Taxation/Tax-Treaties/HTML/Estate-Gift-Tax-Treaties
This link says: Status of Treaty [1953] ATS 4 == No Longer In Force
http://www.info.dfat.gov.au/Info/Treaties/Treaties.nsf/AllDocIDs/8C0E2D8FA544A50FCA256B6D00042524
But they're the same treaty??
Says the treaty has been "Terminated by [1983] ATS 16, which entered into force on 31/10/1983."
Link to the actual text of the [1983] ATS 16 treaty:
http://www.austlii.edu.au/au/other/dfat/treaties/1983/16.html
I think I'm going to ask a tax accountant about this...
Post by: goldenmoustache on October 24, 2016, 05:10:51 AM
I was discussing family trust structures with my accountant and he told me that to clarify the outcome of the “Bamford Case” the Government enacted legislation to enable the streaming of capital gains and franked distributions (including any attached franking credits) of a trust to beneficiaries. His position is that all other income (interests, unfranked dividends...) could not be streamed but apportioned to named beneficiaries.
a) is this in line with your view?
b) assuming it is correct, what is the impact on the types of ETFs that should be held in a trust as not all will have franked distributions and therefore (according to the above) could not be streamed.
Your views (with standard caveat) appreciated
Post by: TJEH on October 24, 2016, 05:35:35 AM
I posted to in another thread (http://forum.mrmoneymustache.com/investor-alley/gbp-fx-uk-investment-for-non-resident) and discovred I can open an account with IB, fund the account in GBP, and then trade in equitites listed on the UK market.
My target AA is:
- AUS, 50% (VAS, and others)
- USA, 25% (VTS)
- World, Ex-US, 25% (VEU)
So I am thinking of loading up with a VEU equivalent with IB via the UK market (haven't researched what exactly yet). Is anyone doing something similar? There are bound to be some downsides I'm sure. Specifically, I'm wondering what the tax implications are.
At some point, when I sell the equities, I'll be left with GBP that I will redeem to AUD. I can wait many years for this. In the meantime, I hope to do better than my current return in a UK high interest account (ha!), and for the GBP>AUD FX to improve.
Thoughts.....?
Post by: goldenmoustache on October 24, 2016, 05:51:15 AM
I am a bit confused.
I was discussing family trust structures with my accountant and he told me that to clarify the outcome of the “Bamford Case” the Government enacted legislation to enable the streaming of capital gains and franked distributions (including any attached franking credits) of a trust to beneficiaries. His position is that all other income (interests, unfranked dividends...) could not be streamed but apportioned to named beneficiaries.
a) is this in line with your view?
b) assuming it is correct, what is the impact on the types of ETFs that should be held in a trust as not all will have franked distributions and therefore (according to the above) could not be streamed.
Your views (with standard caveat) appreciated
From ATO site: https://www.ato.gov.au/General/Trusts/In-detail/Trust-tax-time-toolkit/Resolutions-checklist/
Are you seeking to ‘stream’ other types of income?
The tax attributes of other types of income cannot be separately streamed to different beneficiaries in the way that capital gains and franked distributions may be streamed. Under the general trust-assessing provisions in tax law, each beneficiary is taxed on a proportionate share of each component of the trust's net (taxable) income and cannot be treated as having a share of net income that consists of one category of income (for example, foreign income).
----
Hence my question:
what is your view on the types of ETFs that should be held in a trust as not all will have franked distributions and therefore (according to the above) could not be streamed.
Post by: potm on October 24, 2016, 06:38:15 AM
I'm holding a fair bit of cash in GBP, which I have slowly been converting to AUD and then investing in ASX listed equities. Then I got brexited! With the exchange rate way down, I'm looking to other long term solutions.
I posted to in another thread (http://forum.mrmoneymustache.com/investor-alley/gbp-fx-uk-investment-for-non-resident) and discovred I can open an account with IB, fund the account in GBP, and then trade in equitites listed on the UK market.
My target AA is:
- AUS, 50% (VAS, and others)
- USA, 25% (VTS)
- World, Ex-US, 25% (VEU)
So I am thinking of loading up with a VEU equivalent with IB via the UK market (haven't researched what exactly yet). Is anyone doing something similar? There are bound to be some downsides I'm sure. Specifically, I'm wondering what the tax implications are.
At some point, when I sell the equities, I'll be left with GBP that I will redeem to AUD. I can wait many years for this. In the meantime, I hope to do better than my current return in a UK high interest account (ha!), and for the GBP>AUD FX to improve.
Thoughts.....?
If you are buying the same underlying assets, it doesn't matter if they are denominated in GBP or AUD. If anything having Australian domiciled ETFs would have some tax benefits. Plus what's stopping the GBP to fall further against the Aussie.
Post by: marty998 on October 24, 2016, 02:29:07 PM
Currency speculation is a sure fire way to go broke IMO. Very very hard to do it right because often it just doesn't follow fundamentals.
Post by: FFA on October 24, 2016, 04:32:38 PM
On the family trust I don't use them so not that knowledgeable, but I'd be surprised. Certainly I have seen rental net income being split differently to beneficiaries. AFAIK, there just needs to be a meeting held on or before 30 June of the taxation year declaring the intended split. I don't think it can be done retrospectively when you fill out your tax return. Maybe someone with more intimate knowledge will comment further, bigchrisb and others who use a family trust ?
Post by: bigchrisb on October 24, 2016, 07:36:02 PM
My understanding is that you can only stream income classifications. I basically have three buckets, capital gains, tax deferred income and other income that I stream.
My understanding of the streaming rules is that its largely to stop gaming and splitting up different parts of income - for example you can't split up the franking credits from a dividend, otherwise you could game these tax credits.
Post by: TJEH on October 25, 2016, 04:47:57 AM
I am struggling a bit with converting back at the current rate, as the difference (compared to pre-brexit) would work out to be AUD ~70k (yes, could get worse....). I have no debt to pay down, which would make my choice easier to transfer it back. Ultimately the funds are earmarked for long term investment, so I have a pretty big timeframe available. I won't make any rash decisions just yet but I am leaning towards tipping in some % of the funds into the UK market via IB, but I will ponder this a little more.
Post by: FFA on October 26, 2016, 07:48:15 PM
for info again re: US estate tax issue and other potential risks of non-Australia domiciled ETF's or CDI's. Unfortunately it identifies the risks without going the extra step of providing many answers. I think most of betashare ETF's are Australia domiciled so it probably serves their interest to highlight the potential concerns !
Post by: Daniel S on October 26, 2016, 08:36:58 PM
re: US estate tax issue
We must abide by the rules...
... the unavailable and/or contradictory rules
Post by: Stashcashordie on October 26, 2016, 09:03:32 PM
Or does the Commsec interface present info in a similar way?
Post by: FFA on October 26, 2016, 10:59:05 PM
let's hope dndln does indeed ask an accountant and share the learnings here :)re: US estate tax issue
We must abide by the rules...
... the unavailable and/or contradictory rules
Post by: Grogounet on October 27, 2016, 06:08:22 PM
Does anyone know of an Australian equivalent to the Personal Capital website?
Or does the Commsec interface present info in a similar way?
I use Pocket book, not as complete as personal capital but efficient enough and entirely free
Post by: Grogounet on October 27, 2016, 06:10:50 PM
let's hope dndln does indeed ask an accountant and share the learnings here :)re: US estate tax issue
We must abide by the rules...
... the unavailable and/or contradictory rules
There is a tax treaty between most countries and Australia.
In this case, this is the exact reason why I have chosen to invest through IB on the US stock market and then be applied the withdrawal tax instead of the income tax.
I have asked many accountants and none could give a clear answer. I have had some asking for ridiculous amount of money to investigate.
Post by: marty998 on October 28, 2016, 05:11:39 AM
(Too soon?)
Post by: potm on October 28, 2016, 08:37:21 AM
Post by: mustachepungoeshere on October 28, 2016, 01:16:02 PM
Funny, it's almost like 10 years editing The Australian Women's Weekly didn't prepare her for this.
Post by: marty998 on October 28, 2016, 01:41:40 PM
Days like this you really earn your money as a top level manager. Sorts out who is worth the big pay packets and who is not.
Post by: marty998 on October 28, 2016, 06:22:51 PM
Cash profit $6.48 billion
Statutory profit just a tiny $352 million, on the back of all the write downs associated with Clydesdale Bank sale/IPO and the sale of 80% of the Life insurance business of MLC.
It pretty much destroys whatever capital they raised in the rights issue last year, and puts them even further behind CBA, WBC and ANZ. No doubt the executive bonuses will be calculated on the cash profit figure, which tends to be "earnings before all the bad stuff".
Again, nobody is really held accountable for continuing to blow up billions of shareholder value, repeatedly. Every couple of years they invent a new way to lose money. I wish VAS could exclude this stock :)
Speaking of which, VAS briefly went under 68 on Friday. I topped up at 67.32 a few weeks back and looks like my usual entry points of 65-67 will be back around again soon.
Post by: limeandpepper on October 29, 2016, 01:10:49 AM
Speaking of which, VAS briefly went under 68 on Friday. I topped up at 67.32 a few weeks back and looks like my usual entry points of 65-67 will be back around again soon.
That reminds me, this would be a good time to add a small chunk of money to my super soon, as I haven't yet this financial year, and my income is low enough to qualify for the government co-contribution.
Post by: englyn on October 31, 2016, 11:08:01 PM
let's hope dndln does indeed ask an accountant and share the learnings here :)re: US estate tax issue
We must abide by the rules...
... the unavailable and/or contradictory rules
There is a tax treaty between most countries and Australia.
In this case, this is the exact reason why I have chosen to invest through IB on the US stock market and then be applied the withdrawal tax instead of the income tax.
I have asked many accountants and none could give a clear answer. I have had some asking for ridiculous amount of money to investigate.
Ooookay, VGS it is from now on. And plan to dump existing holdings of vts/veu at some point before I kick the bucket.
Post by: FFA on November 02, 2016, 05:53:01 AM
Post by: marty998 on November 04, 2016, 01:18:21 AM
Wonder if everyone is just taking the dividend and running for the exits of all the major banks. ANZ underwhelmed as well with their full year result.
Remains to be seen if Westpac will do any better.
Post by: bigchrisb on November 09, 2016, 12:16:46 AM
Post by: turboslob on November 09, 2016, 12:29:57 AM
Not decided yet if to buy in the Aussie or US market though....
Post by: steveo on November 09, 2016, 02:49:43 AM
Post by: Abundant life on November 09, 2016, 05:14:38 AM
I got in at 3.55pm and bought some IOO. I originally was going to buy them at $94.40 back in July, but I missed the boat and couldn't bring myself to buy them at over $100. Got them for $93.56 today.
I'm thinking of bumping up VTS or some Aussie indexes, I'll see how it goes tomorrow.
Post by: FFA on November 09, 2016, 05:26:07 AM
Post by: marty998 on November 09, 2016, 01:38:53 PM
Missed the window of opportunity at 64.40 to 65.00 as I was not looking too closely after 11am when the count still had Hillary in front and the market was still up 1%.
Commsec then crashed which added to my frustration and cost me $75 by not getting in at the depths.
Post by: terrier56 on November 09, 2016, 09:23:33 PM
Post by: marty998 on November 09, 2016, 11:25:54 PM
He gets the benefit of franking credits in super as well provided his investment option is Australian shares. Unlikely to be a significant % given his age, and most balanced funds only have a 25% max allocation to Aus shares.
He absolutely loathes the idea of using his savings for regular living expenses...
I think this is the quote that annoyed terrier56 (and it annoyed me too).
Oldies need to get used to living off their savings and spending down capital. It's patently unfair for them to draw welfare from the taxpayer and maintain hundreds of thousands of savings until after death, to be passed down as inheritances to their children.
I don't question your motives on this, but yes I am advocating my view on this to all who will listen :)
Post by: Rob_S on November 10, 2016, 03:31:11 AM
I wish I had something substantial to add. I am no expert at the pension test. I did however come across this on the super guide website a while ago. http://www.superguide.com.au/smsfs/guest-contributor-how-1-million-can-last-longer-than-you
The comments are worth a read. I liked the strategy. Its all about franked dividends. You could do this inside or outside of super. If it was inside super the cheaper option would be with a fund that offered direct selections: http://www.smh.com.au/money/super-and-funds/direct-investment-an-alternative-for-those-who-cant-be-bothered-with-diy-super-20160520-gozw9n.html
Some of the funds that offer direct are ING, Care and AusSuper. There are others.
If you go down the franked credit route your dad needs to be OK with the capital value fluctuating; the consolation is the dividends shouldn't move about all that much but should track up over time. The dividends will be even more dependable if he invests in LICs. In fact I think LICs would be the best option - smooth steady dependable fully franked dividends.
Franked dividends is a sound strategy for retirees. There's a reason Self Managed Super Funds go nuts for LIC's and dependable dividend payers like Telstra and the Banks.
While I have read two of Noel Whittaker's books I was never that taken by his idea's. His ideas felt very safe/common sense. I much prefer Peter Thornhill's take on things.
Good luck hunting down a good adviser.
Post by: Abundant life on November 10, 2016, 10:06:54 AM
Quote
I think this is the quote that annoyed terrier56 (and it annoyed me too).
Oldies need to get used to living off their savings and spending down capital. It's patently unfair for them to draw welfare from the taxpayer and maintain hundreds of thousands of savings until after death
Well, yes and no.
These older people were the original mustachians, I know my parents were/are.
Savers, when their peers spent every weekend living the high life from payday to payday, (you know, the types that mustachians today deride for their lavish lifestyle).
Savers, before ordinary people had access to managed funds and the stock market, (so no capital gain unless it was the family home).
They also were taxpayers when the Australian Government increased tax substantially in the 1940s supposedly to fund said old age pension. They lived through the Great Depression, and WWII and knew deprivation. They started work at 13 or 14 and paid taxes in advance they thought, to fund the OAP.
Instead they are bearing the brunt of various governments syphoning off funds earmarked for the OAP, so that it's but a distant memory now and they are accused of living too long or 'drawing welfare from (today's) taxpayer'.
Mark31, I think I heard the other night some finance guru say old age pensioners could earn up to $25k each before they pay tax.
Also Centrelink Financial Information Service apparently is available to all, not just Centrelink recipients. They cannot give financial advice, but they can inform you of your options and their consequences.
Post by: 11ducks on November 10, 2016, 06:15:12 PM
I searched up the Australian investing thread with plans to read it, before realising it was 40 pages. Eep. I'm seeking advice, simplified for my tiny mind.
I've never invested before, but i'd like to start. I've saved $10000 to put into investments, and hope to add to it regularly ($1000 or so a month). The plan is to leave it in for the long term (20 ish years) - and use it to retire early. (I'm also saving for a house deposit, but keeping that money in a high-interest account). I'm also putting aside $50 per f/t into an ABC gold bullion gold saver account (I'd put more in, but the fees seem pretty high - 3% per transaction, and I'm not sure whether to continue that.
I want to invest in something
a) easy, that I can set and forget (with direct deposit or similar)
b) low fee
c) something where profits are directly reinvested
d) something that is as simple as possible for tax purposes
I understand the ASX200 in only the most general of ways. Can anyone point me towards a well-established, easy to understand option for investment that will give good returns over time? I'm ok with a low-moderate risk. Thank you!
Post by: Notch on November 10, 2016, 10:03:59 PM
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/retail/portId=8120/?overview
Given your 20-year outlook however, I'd take on a bit more risk and go for the growth or high-growth option.
Post by: marty998 on November 11, 2016, 02:55:30 AM
Hey all,
I searched up the Australian investing thread with plans to read it, before realising it was 40 pages. Eep. I'm seeking advice, simplified for my tiny mind.
I've never invested before, but i'd like to start. I've saved $10000 to put into investments, and hope to add to it regularly ($1000 or so a month). The plan is to leave it in for the long term (20 ish years) - and use it to retire early. (I'm also saving for a house deposit, but keeping that money in a high-interest account). I'm also putting aside $50 per f/t into an ABC gold bullion gold saver account (I'd put more in, but the fees seem pretty high - 3% per transaction, and I'm not sure whether to continue that.
I want to invest in something
a) easy, that I can set and forget (with direct deposit or similar)
b) low fee
c) something where profits are directly reinvested
d) something that is as simple as possible for tax purposes
I understand the ASX200 in only the most general of ways. Can anyone point me towards a well-established, easy to understand option for investment that will give good returns over time? I'm ok with a low-moderate risk. Thank you!
Probably the best thing to do would be to buy AFI shares (Australian Foundation Investment Company).
Been around forever, and good, honest, inexpensive management.
Post by: 11ducks on November 11, 2016, 03:14:43 AM
Post by: Wadiman on November 12, 2016, 03:23:25 PM
I am currently with ING and am frustrated with their user interface and difficulties in readily determining returns/performance.
Any thoughts re the user-friendliness and level of satisfaction for those of you with Aus Super?
Thanks!
Post by: Grogounet on November 13, 2016, 03:18:37 AM
Hey all,
I searched up the Australian investing thread with plans to read it, before realising it was 40 pages. Eep. I'm seeking advice, simplified for my tiny mind.
I've never invested before, but i'd like to start. I've saved $10000 to put into investments, and hope to add to it regularly ($1000 or so a month). The plan is to leave it in for the long term (20 ish years) - and use it to retire early. (I'm also saving for a house deposit, but keeping that money in a high-interest account). I'm also putting aside $50 per f/t into an ABC gold bullion gold saver account (I'd put more in, but the fees seem pretty high - 3% per transaction, and I'm not sure whether to continue that.
I want to invest in something
a) easy, that I can set and forget (with direct deposit or similar)
b) low fee
c) something where profits are directly reinvested
d) something that is as simple as possible for tax purposes
I understand the ASX200 in only the most general of ways. Can anyone point me towards a well-established, easy to understand option for investment that will give good returns over time? I'm ok with a low-moderate risk. Thank you!
Probably the best thing to do would be to buy AFI shares (Australian Foundation Investment Company).
Been around forever, and good, honest, inexpensive management.
I second that. And would add to be sure you have at least 3 months (if not 6) of living expenses aside before you start investing.
Depending on your goals, salary sacrifice might be an option - I know a lot on the forum won't agree but I consider it as a good tax deferred investment that kicks in your 60s
Lastly, don't forget to have a look at your super (fees and investment option)
I would recommend you to spend time to read "the barefoot investor" He just released a new book, might be your best $30 investment made this year (well $23 until tonight + some free stuff too)
Post by: 11ducks on November 13, 2016, 05:43:46 AM
Does the barefoot investor start simple? (Like, investing for idiots simple?) I'll give it a try thankyou!
Post by: Grogounet on November 13, 2016, 11:25:00 AM
From memory, there is a section "where to start" on his website.
The other resource I would use is (and you can google it): How to invest between the flags - By Moneysmart
Moneysmart has tons of tips to help you getting started.
Post by: Gruffy on November 13, 2016, 09:16:59 PM
Do you mean you have to manually rebalance in super?- does Sunsuper (a) just divide all new super payments 50:50 with your allocation and you have to keep track of how the allocations go after that, or will Sunsuper (b) allocate payments to keep overall amounts at 50:50?
I'm planning on changing from First State high growth to Sunsuper with a 50:50 Oz:international split.
Option a. You log in and select to change current allocations or ongoing allocations or both, but as far as I know there's no way to automatically allocate to keep the overall amount at 50:50 so you have to do this yourself.
Hello all,
Firstly this thread is awesome!
I'm a first time poster, so a little about me. I'm in the mid thirties and have always been an okay saver. But now am looking at how to better manage my savings. This year I read "Investing Demystified" by Lars Kroijer (https://www.amazon.co.uk/Investing-Demystified-Speculation-Sleepless-Financial/dp/0273781340/ref=sr_1_1?ie=UTF8&qid=1479095932&sr=8-1&keywords=investing+demystified+by+lars+kroijer), which has convinced me to approach investing as a rational investor by looking for a low cost, diversified market returns from investing in market indexes. Which has lead me to this blog where I think the goals are similar.
I am looking at what I should do with my Super and read the above comment in this thread and had some questions.
Are Mustachians looking at SunSuper because it has low fees but have more control in asset allocations? What if I don't want to rebalance the asset allocations. Are their options for that? When you look at the SunSuper website https://www.sunsuper.com.au/Grow_your_Super/Choose_your_investment_stategy/Make_your_super_investment_choice/ it doesn't mention that you need to log and monitor your assest allocation.
Apologies if these are basic questions, I am a newb.
thanks for any input,
Gruffy
Post by: marty998 on November 13, 2016, 11:55:11 PM
Or you can choose your own allocation, in which case you will have to do your own rebalancing every now and again.
rebalancing every day is over the top... I normally do it every 6 months or so...
Post by: FFA on November 14, 2016, 12:30:13 AM
Post by: Notch on November 14, 2016, 04:19:01 AM
Post by: Wadiman on November 17, 2016, 12:23:42 AM
I am currently with ING Direct for super who are ok but am considering establishing a SMSF as I have been looking into Exchange Traded Bonds (XTBs) https://xtbs.com.au/ (https://xtbs.com.au/) and really like the look of them as a holding inside super given tax implications. Retail super funds do not (to my knowledge) offer XTBs and ING Direct certsainly don't.
It seems as though (via Esuperfund) that the cost would be around $800 pa (I currently pay close to $500 pa) and there aren't any costs for the first year.
Do many posters on this thread have a SMSF?
Anyone hold any XTB's? The coupon rates look excellent - range from circa 3% to 8%.
Post by: marty998 on November 17, 2016, 03:48:25 AM
I think this is the end in terms of low interest rates, but all of those people holding long dated bonds are in for a world of hurt.
Of course an opinion is exactly just that, but I'm tempted to hop out of fixed interest for the foreseeable future.
Post by: Abundant life on November 17, 2016, 04:32:23 AM
SMSFs and XTBs
I am currently with ING Direct for super who are ok but am considering establishing a SMSF as I have been looking into Exchange Traded Bonds (XTBs) https://xtbs.com.au/ (https://xtbs.com.au/) and really like the look of them as a holding inside super given tax implications. Retail super funds do not (to my knowledge) offer XTBs and ING Direct certsainly don't.
It seems as though (via Esuperfund) that the cost would be around $800 pa (I currently pay close to $500 pa) and there aren't any costs for the first year.
Do many posters on this thread have a SMSF?
Anyone hold any XTB's? The coupon rates look excellent - range from circa 3% to 8%.
Various super funds now offer what some call, SMSF lite. To establish and report on a SMSF can be pricey for those with modest balances.
ING have an option called Direct Shares, where you pay $300 p.a. plus on top of that you pay for each trade. They include many ETFs that are popular with MMMers, as well as individual shares, but I don't know about XTBs. There are limits to how much you can hold of any one share or XTF (no more than 20% of your balance I think).
Have you read Jim Collin's stock series? Although written from a US perspective, has lots of good information.
http://jlcollinsnh.com/stock-series/
Post by: potm on November 17, 2016, 04:52:34 AM
SMSFs and XTBs
I am currently with ING Direct for super who are ok but am considering establishing a SMSF as I have been looking into Exchange Traded Bonds (XTBs) https://xtbs.com.au/ (https://xtbs.com.au/) and really like the look of them as a holding inside super given tax implications. Retail super funds do not (to my knowledge) offer XTBs and ING Direct certsainly don't.
It seems as though (via Esuperfund) that the cost would be around $800 pa (I currently pay close to $500 pa) and there aren't any costs for the first year.
Do many posters on this thread have a SMSF?
Anyone hold any XTB's? The coupon rates look excellent - range from circa 3% to 8%.
There is also a $259 regulatory levy for SMSFs and another $48 or so for a corporate trustee.
Post by: Wadiman on November 17, 2016, 05:41:33 PM
If you hold an individual bond to maturity (as opposed to an ETF like IAF) then bond pricing doesn't matter as you get the full face value back at maturity plus the ongoing coupon rate.
Total cost for the SMSF is $800 pa I believe.
Post by: FFA on November 17, 2016, 11:03:36 PM
I think you need to look at Yield To Maturity, not coupon rate ? The coupon rate is only relevant if you paid face value.
Anyone hold any XTB's? The coupon rates look excellent - range from circa 3% to 8%.
Post by: Little Aussie Battler on November 18, 2016, 06:53:56 PM
Post by: Wadiman on November 19, 2016, 12:26:09 AM
I think you need to look at Yield To Maturity, not coupon rate ? The coupon rate is only relevant if you paid face value.
Anyone hold any XTB's? The coupon rates look excellent - range from circa 3% to 8%.
You're dead right FFA - newbie bond ignorance - thanks.
YTM rates are around 2-4.5% - far less attractive than coupon rates.
Post by: Wadiman on November 19, 2016, 12:27:36 AM
Is anybody investing in P2P lending?
Like the general idea but may not be tax effective if you are on a high marginal rate.
Post by: cakie on November 19, 2016, 12:35:23 AM
Have it as part of our 20% bond allocation, but my SO is in a very low tax bracket (it's in his name). Also young, early in accumulation phase still so we can be riskier.Is anybody investing in P2P lending?
Like the general idea but may not be tax effective if you are on a high marginal rate.
Sent from my InFocus M808 using Tapatalk
Post by: FFA on November 19, 2016, 03:24:24 PM
I haven't looked at it much but I would think it belongs in the equity allocation, from a risk perspective. Bonds are supposed to be the safe/low risk/low return anchor for your portfolio. I wouldn't put P2P lending in that bucket.Have it as part of our 20% bond allocation, but my SO is in a very low tax bracket (it's in his name). Also young, early in accumulation phase still so we can be riskier.Is anybody investing in P2P lending?
Like the general idea but may not be tax effective if you are on a high marginal rate.
Post by: goldenmoustache on November 20, 2016, 11:45:37 PM
I haven't looked at it much but I would think it belongs in the equity allocation, from a risk perspective. Bonds are supposed to be the safe/low risk/low return anchor for your portfolio. I wouldn't put P2P lending in that bucket.Have it as part of our 20% bond allocation, but my SO is in a very low tax bracket (it's in his name). Also young, early in accumulation phase still so we can be riskier.Is anybody investing in P2P lending?
Like the general idea but may not be tax effective if you are on a high marginal rate.
I used to like the idea a lot and initially put 10% allocation in P2P, but I am now changing my mind it and I am gradually pulling out (by taking principal and interest repayments out and no new lending). In my view, there are quite similar to junk bonds, but with the disadvantage of no secondary market, hence no liquidity. So, if I want to participate to that type of investment in the future, I believe I am better off with low grade bonds.
This said, they have been performing well so far and returned about 9% per year (inclusive of defaults).
Of course, from tax perspective, best to do it if you are on a low tax bracket or from discretionary trust if you can distribute to low tax bracket individual.
Post by: marty998 on November 23, 2016, 04:26:52 AM
As well it seems the Iron Ore price is lifting all boats again :O
Can't believe after buying VAS at ~65 earlier on Trump day it's now already back over 70...
Post by: bigchrisb on November 23, 2016, 02:43:52 PM
Its been equally interesting watching bond and interest rates start to head upwards. I'm debating how quickly this will play out here, and how much of it will flow through to our crazy property market. The lack of loading up may have been a blessing in disguise, as it means a bit of deleveraging through savings. With my current interest rates sitting with a 3 at the front, I'm sitting very pretty. However, replace that 3 with a 7 or 8, and things look significantly less rosy.
Anyone come up with a useful way to harness a rising rate environment? I would have thought fixing debt, floating rate bonds/hybrids and lowering property exposure?
Post by: steveo on November 23, 2016, 04:25:09 PM
Post by: 11ducks on November 24, 2016, 12:36:39 AM
I got some good advice from you guys a week ago re investing (I was looking for easy, low fee, set and forget)- so am just checking in before I take the plunge - I've signed up with Commsec (as stockbroker) - and plan to purchase online (through my bank account - cost is $29.95/trade) - shares in AFI and ARGO LTD - both are listed investment companies with decent diversity who have been around for ages, with super low management fees and fully franked dividends (which I don't totally grasp yet but have been told will make it easier for taxes).
I'll put in $10k to start ($5k per company), and add another $1k or so each month to one or the other. The plan is to add to it regularly and have it grow over the next 15 or so years to bridge the gap between quitting work and accessing my superannuation.
Does this seem reasonable? Is two companies like this enough to invest in, or would one (or more) be better? Any gigantic/obvious flaws in my plan? Thank you!
Post by: marty998 on November 24, 2016, 01:39:04 AM
Hey all,
I got some good advice from you guys a week ago re investing (I was looking for easy, low fee, set and forget)- so am just checking in before I take the plunge - I've signed up with Commsec (as stockbroker) - and plan to purchase online (through my bank account - cost is $29.95/trade) - shares in AFI and ARGO LTD - both are listed investment companies with decent diversity who have been around for ages, with super low management fees and fully franked dividends (which I don't totally grasp yet but have been told will make it easier for taxes).
I'll put in $10k to start ($5k per company), and add another $1k or so each month to one or the other. The plan is to add to it regularly and have it grow over the next 15 or so years to bridge the gap between quitting work and accessing my superannuation.
Does this seem reasonable? Is two companies like this enough to invest in, or would one (or more) be better? Any gigantic/obvious flaws in my plan? Thank you!
$30 is a lot to pay for only adding $1k at a time.
You wouldn't pay a 3% contribution fee to a managed fund, so it doesn't make sense to pay the same for brokerage.
I'd save up and purchase in $5-$10k lots. It'll be easier to track fewer parcels for CGT purposes as well.
Or you can open a CDIA account and access the $19.95 brokerage rate for trades under $10k. It works just like another bank account through Netbank.
Post by: FFF on November 24, 2016, 01:39:59 AM
Hey all,
I got some good advice from you guys a week ago re investing (I was looking for easy, low fee, set and forget)- so am just checking in before I take the plunge - I've signed up with Commsec (as stockbroker) - and plan to purchase online (through my bank account - cost is $29.95/trade) - shares in AFI and ARGO LTD - both are listed investment companies with decent diversity who have been around for ages, with super low management fees and fully franked dividends (which I don't totally grasp yet but have been told will make it easier for taxes).
I'll put in $10k to start ($5k per company), and add another $1k or so each month to one or the other. The plan is to add to it regularly and have it grow over the next 15 or so years to bridge the gap between quitting work and accessing my superannuation.
Does this seem reasonable? Is two companies like this enough to invest in, or would one (or more) be better? Any gigantic/obvious flaws in my plan? Thank you!
11 ducks, a few things jump out at me:
1. $29.95/trade is expensive, especially if you are planning on investing a grand each month or so. Personally, I would take advantage of Commsecs introductory offer of $600 free brokerage, and then move over to a CMC account which is only $11/trade. (I did a similar thing when starting with NABtrade, used their free brokerage offer and then transferred over my shares from my NABtrade HIN to my CMC HIN. It's an easy process, only 1 form to fill in and will save you a lot in the long run)
2. I would consider saving up more than $1k to invest each time, as even at $11/trade brokerage is quite a large % of your invested amount. It's also slightly easier to keep record of if you make less trades a year.
3. You mentioned diversity with AFI and ARGO. They are both investing solely in the Aussie market, which carries concentration risk. I would pick one or the other (or alternatively VAS).
4. What about further diversity beyond the Aussie market, VTS (US market), VEU (rest of world ex. US) etc.?
Post by: marty998 on November 24, 2016, 01:43:32 AM
Indeed! So much for deploying some capital while it was cheap... I managed a parcel of VAS in the 67's, some BRK-B at 144 and some TCL in the high 9's.
Its been equally interesting watching bond and interest rates start to head upwards. I'm debating how quickly this will play out here, and how much of it will flow through to our crazy property market. The lack of loading up may have been a blessing in disguise, as it means a bit of deleveraging through savings. With my current interest rates sitting with a 3 at the front, I'm sitting very pretty. However, replace that 3 with a 7 or 8, and things look significantly less rosy.
Anyone come up with a useful way to harness a rising rate environment? I would have thought fixing debt, floating rate bonds/hybrids and lowering property exposure?
Am considering fixing some more of my property loans (2 yr @3.99% is tempting). However I would prefer to have some more flexibility to use offsets, as you can only get partial offset on fixed rate loans.
There will be significant economic problems long before rates get to 7%. I can see 5.5% being a tipping point for many recent investors to hang the "for sale" sign out the front. The negative gear on many of the 3% yielding houses in inner city will be too much to bear for the unprepared.
Post by: FFA on November 24, 2016, 04:56:59 AM
Indeed! So much for deploying some capital while it was cheap... I managed a parcel of VAS in the 67's, some BRK-B at 144 and some TCL in the high 9's.
Its been equally interesting watching bond and interest rates start to head upwards. I'm debating how quickly this will play out here, and how much of it will flow through to our crazy property market. The lack of loading up may have been a blessing in disguise, as it means a bit of deleveraging through savings. With my current interest rates sitting with a 3 at the front, I'm sitting very pretty. However, replace that 3 with a 7 or 8, and things look significantly less rosy.
Anyone come up with a useful way to harness a rising rate environment? I would have thought fixing debt, floating rate bonds/hybrids and lowering property exposure?
Am considering fixing some more of my property loans (2 yr @3.99% is tempting). However I would prefer to have some more flexibility to use offsets, as you can only get partial offset on fixed rate loans.
There will be significant economic problems long before rates get to 7%. I can see 5.5% being a tipping point for many recent investors to hang the "for sale" sign out the front. The negative gear on many of the 3% yielding houses in inner city will be too much to bear for the unprepared.
firstly, I'm not sure rates are onwards and upwards from here. A few months ago everyone was saying lower for longer and expect low rates/yields/returns for decades. The tune changed quickly, and it can change back quickly again.
secondly, even if you call it right and rates have bottomed, it's hard to be confident how to play it. e.g. all the people holding cash/gold/index shorts in case Trump won, well they didn't work out so well for them....
So my thoughts are just to keep doing the same, re-balance. I will consider adding bonds once the pendulum swings which I have been avoiding for years due to QE (and regretting it for a while). REITs and infrastructure stocks also, as the pendulum usually overshoots, but that is thinking a fair way ahead.....
Post by: marty998 on November 25, 2016, 08:41:51 PM
They are all valued on a DCF basis, and as everyone knows if you increase the discount rate, which is based on a risk free rate (e.g. treasuries) + a margin, then the asset value will go down.
Not saying it's a bad idea to invest, but if you're confident you're getting something that has been beaten down more what one could consider reasonable, then you'll be ok.
Post by: sirdeets on November 25, 2016, 09:18:38 PM
Anyone have any experience with Nab trade? Seems international trades have come down a lot in price also through them.. and that 3 month deal includes foreign trades but excludes the foreign forex... and may simplify tax as it appears no need to lodge the W8BEN (forget exact name).
Post by: MissPiggy on November 27, 2016, 04:49:11 AM
Just introducing myself to the thread and to MMM - starting my FI journey and love reading this thread. Starting from the first post back in July 2014 and making my way up to the most recent, already having learnt so much along the way.
Looking forward to getting to know all of you!
Post by: Wadiman on November 27, 2016, 01:44:50 PM
NAB has a 3 month free brokerage deal at the moment. Getting on it as just sold my property (to rent) and pumping the proceeds into shares.
Anyone have any experience with Nab trade? Seems international trades have come down a lot in price also through them.. and that 3 month deal includes foreign trades but excludes the foreign forex... and may simplify tax as it appears no need to lodge the W8BEN (forget exact name).
Hi SirDeets - Have been with NABtrade for about 9 months and quite like them - especially for their pricing on international trades as you have mentioned. The research is also useful although the website experience could be improved.
Post by: sirdeets on November 27, 2016, 03:11:22 PM
Post by: Wadiman on November 27, 2016, 07:42:58 PM
Cheers Wadiman. One concerning thing I heard was for international shares the dividends were converted into AUD and paid.. same with the proceeds from the sale of shares, both being subjected to the banks FOREX rate. I haven't been able to confirm. I use optionsxpress currently and its all done in USD for US shares.
Hmm - interesting - let me know if you find out any more re this.
Post by: bigchrisb on November 27, 2016, 08:34:57 PM
I'm yet to receive a dividend (only buying BRK-B direct), so can't comment on that.
Post by: MissPiggy on November 28, 2016, 03:20:17 AM
1) VAS: I've set aside $6000 to invest in VAS but the price has risen from $65 to $70 in the past few weeks since Trump's win. I know it's anti-mustachian to time the market however it seems to be highly priced. Should I wait or should I just buy at the $70 share price?
2) Is it better to invest in Vanguard's Index Australian Shares Fund (VAN0010AU) in VAS? Apart from the difference in fees, what are the reasons to invest directly with Vanguard if they index the same S&P300?
What do you think?
Post by: FFA on November 28, 2016, 03:50:58 AM
2) the main difference is the fees. There might be some other very subtle differences but the portfolio and underlying investments are basically the same. The managed fund gives you a bit more service to call Vanguard, invest via BPay/EFT, capital gains tax statements, etc. The ETF might be slightly more work but nothing insurmountable. Personally I use the ETF's VAS, VGS, etc. If you're trading in $5k parcels or more ETF's would be more cost effective.
Post by: MissPiggy on November 28, 2016, 04:05:28 AM
Generally MMM forum would give a definitive NO to 1), but I think this particular thread is a bit more open minded to a bit of market timing.... rogue aussies! I tend to time a little at the margin but the core of my allocation is fixed. if you do, you need to be disciplined and have some process you can follow consistently. Without that, I think the answer is it's best to regularly invest on a schedule and don't mind the prices.
2) the main difference is the fees. There might be some other very subtle differences but the portfolio and underlying investments are basically the same. The managed fund gives you a bit more service to call Vanguard, invest via BPay/EFT, capital gains tax statements, etc. The ETF might be slightly more work but nothing insurmountable. Personally I use the ETF's VAS, VGS, etc. If you're trading in $5k parcels or more ETF's would be more cost effective.
Thanks FFA! Very helpful.
I am planning to invest $6k initial amount following $1k monthly contributions. From what you've mentioned investing directly in Vanguard may the better option once fees are considered.
Post by: FFA on November 28, 2016, 05:25:59 PM
Pleasure, yeah brokerage on $1k might be a bit expensive (>1%). Another option you could just invest $3k quarterly, assuming $15 brokerage (eg nabtrade) would be 0.5%, which I think is acceptable. Otherwise the fees in the retail fund at 0.9% are rather steep versus the ETF at 0.14%. Adds up over the long run. Good luck !Generally MMM forum would give a definitive NO to 1), but I think this particular thread is a bit more open minded to a bit of market timing.... rogue aussies! I tend to time a little at the margin but the core of my allocation is fixed. if you do, you need to be disciplined and have some process you can follow consistently. Without that, I think the answer is it's best to regularly invest on a schedule and don't mind the prices.
2) the main difference is the fees. There might be some other very subtle differences but the portfolio and underlying investments are basically the same. The managed fund gives you a bit more service to call Vanguard, invest via BPay/EFT, capital gains tax statements, etc. The ETF might be slightly more work but nothing insurmountable. Personally I use the ETF's VAS, VGS, etc. If you're trading in $5k parcels or more ETF's would be more cost effective.
Thanks FFA! Very helpful.
I am planning to invest $6k initial amount following $1k monthly contributions. From what you've mentioned investing directly in Vanguard may the better option once fees are considered.
Post by: AnotherGoodGuy on November 29, 2016, 05:58:55 PM
ANZ, NAB, CBA, MQG, COH, CSL, TPM, VIT, BHP, MPL, ORG, TLS, RHC, ISD & WOW
We have our own PPOR and an IP in Sydney and we both are 43 years old and have 2 school going kids.
Our combined gross income is 260k per annum. We have a mortgage of 820k on our PPOR and
220k loan on the IP which is positively geared. We don’t have any other loans and have 50k for emergency.
Few weeks ago we started our own SMSF with 310k and I am keen to invest a portion of the money in few ETFs.
I am leaning towards investing 50k in VTS and I would like to keep some in cash to spread the risk. I was thinking of investing a portion in VEU and VAP but I am not entirely convinced. Since I already have the individual parcels that are mostly made up of bluechip companies, I think I shouldn't invest in VAS. I would be interested in hearing other people’s ideas please.
Thanks
Post by: steveo on November 29, 2016, 09:54:30 PM
G'day all. I have the below individual parcels which I bought in the last 2 years with the combined worth of around 100-110k
ANZ, NAB, CBA, MQG, COH, CSL, TPM, VIT, BHP, MPL, ORG, TLS, RHC, ISD & WOW
We have our own PPOR and an IP in Sydney and we both are 43 years old and have 2 school going kids.
Our combined gross income is 260k per annum. We have a mortgage of 820k on our PPOR and
220k loan on the IP which is positively geared. We don’t have any other loans and have 50k for emergency.
Few weeks ago we started our own SMSF with 310k and I am keen to invest a portion of the money in few ETFs.
I am leaning towards investing 50k in VTS and I would like to keep some in cash to spread the risk. I was thinking of investing a portion in VEU and VAP but I am not entirely convinced. Since I already have the individual parcels that are mostly made up of bluechip companies, I think I shouldn't invest in VAS. I would be interested in hearing other people’s ideas please.
Thanks
My take is:-
1. Sell the IP.
2. Use the proceeds to pay off debt.
3. Invest all available money in relation to the SMSF into 100% stocks. I'd go VAS and VGS but I'd probably lean towards more in VGS.
4. I'm assuming the Shares are outside of Super and if so I'd probably just stick with them.
5. Save a tonne of money outside of super and bare minimum into Super. I'd invest mostly in VAS, VAF and VGS after all your debts are paid off.
6. Retire when you have enough to get to your Super from money outside of super and you reach whatever target you think is going to work -i.e. a 3%-5% WR.
One question - do you really need the SMSF ?
Post by: marty998 on November 30, 2016, 12:20:40 AM
G'day all. I have the below individual parcels which I bought in the last 2 years with the combined worth of around 100-110k
ANZ, NAB, CBA, MQG, COH, CSL, TPM, VIT, BHP, MPL, ORG, TLS, RHC, ISD & WOW
We have our own PPOR and an IP in Sydney and we both are 43 years old and have 2 school going kids.
Our combined gross income is 260k per annum. We have a mortgage of 820k on our PPOR and
220k loan on the IP which is positively geared. We don’t have any other loans and have 50k for emergency.
Few weeks ago we started our own SMSF with 310k and I am keen to invest a portion of the money in few ETFs.
I am leaning towards investing 50k in VTS and I would like to keep some in cash to spread the risk. I was thinking of investing a portion in VEU and VAP but I am not entirely convinced. Since I already have the individual parcels that are mostly made up of bluechip companies, I think I shouldn't invest in VAS. I would be interested in hearing other people’s ideas please.
Thanks
My take is:-
1. Sell the IP.
2. Use the proceeds to pay off debt.
3. Invest all available money in relation to the SMSF into 100% stocks. I'd go VAS and VGS but I'd probably lean towards more in VGS.
4. I'm assuming the Shares are outside of Super and if so I'd probably just stick with them.
5. Save a tonne of money outside of super and bare minimum into Super. I'd invest mostly in VAS, VAF and VGS after all your debts are paid off.
6. Retire when you have enough to get to your Super from money outside of super and you reach whatever target you think is going to work -i.e. a 3%-5% WR.
One question - do you really need the SMSF ?
Whoa whoa whoa whoa whoa back it up a second!
1. Selling the IP will incur significant capital gains taxes, especially at their current incomes. If the IP is in Sydney they've probably done really well out of it.
2. Open an offset account against the PPOR and put the $50k emergency fund there. This reduces your interest bill on the mortgage, and you are no longer taxed on the interest income on this "savings"
3. An SMSF only really works if you actually do all the work yourself. No use having to pay $5k to an administrator for the accounting work, might as well pay $100 a year to an industry fund. Not a big fan of international (don't like currency volatility), so try and find a hedged option for investments.
4. I would sell the shares and pay down the PPOR mortgage (in an offset account). This is personal preference. It would be better to sell the shares and just hold VAS. Easy to administer, unless you know you're onto a winner with your picks. Do you have a reason for holding what you do?
5. Salary sacrifice your maximum $30k this year, and $25k a year afterwards. With the balance of your wage surplus, pay down PPOR mortgage and invest in shares in a 50:50 ratio.
6. Retire when you think you're done. Might be good to downsize and free up capital from the PPOR in future when the kids have left home. PPOR sale will be CGT free, better outcome than selling the IP. You can live off the rent plus the surplus from the PPOR sale + the dividends from VAS.
This only needs to get you to 60 at which point you can draw a big pension from Super.
Post by: steveo on November 30, 2016, 01:15:50 AM
1. Selling the IP will incur significant capital gains taxes, especially at their current incomes. If the IP is in Sydney they've probably done really well out of it.
This is a really good point. I hate IP especially in Australia but if you get smashed with capital gains tax then it is probably not a good idea to sell. When can you sell that thing though ?
2. Open an offset account against the PPOR and put the $50k emergency fund there. This reduces your interest bill on the mortgage, and you are no longer taxed on the interest income on this "savings"
Good idea.
4. I would sell the shares and pay down the PPOR mortgage (in an offset account). This is personal preference. It would be better to sell the shares and just hold VAS. Easy to administer, unless you know you're onto a winner with your picks. Do you have a reason for holding what you do?
I agree with this but the capital gains tax is why I would hold on the shares. Sell them when you are retired with a lower income.
5. Salary sacrifice your maximum $30k this year, and $25k a year afterwards. With the balance of your wage surplus, pay down PPOR mortgage and invest in shares in a 50:50 ratio.
I get your point here but if you are going to retire early I think you need a lot of money outside of super. I would salary sacrifice when I know that I have enough outside of super.
6. Retire when you think you're done. Might be good to downsize and free up capital from the PPOR in future when the kids have left home. PPOR sale will be CGT free, better outcome than selling the IP. You can live off the rent plus the surplus from the PPOR sale + the dividends from VAS.
This only needs to get you to 60 at which point you can draw a big pension from Super.
This is a good option. VAS outside of super and sell PPOR. Why not go and live in the IP after that and then sell it as well.
Post by: AnotherGoodGuy on November 30, 2016, 02:04:57 AM
1. Selling the IP is not an option for the very obvious reason.....to avoid CGT. Also the IP has almost doubled since we bought in 2007.
Also it will be atleast another 15 years before the kids move out.
2. Sorry, forgot to mention that 50k is already sitting in the Offset account
3. I can consider selling the shares but 70% are doing good and the rest are not. So far, I've had a growth of 3.1% plus I collected couple of grand of dividends along the way. I don't hold any VAS or any other ETF's.
4. The annual cost for running the SMSF is $799/annum and the fee for the first 2 years has been waived as part of their offer at the time
My main question is, how effectively do I invest the money that is in SMSF? I was leaning towards investing 70% in ETF's (particularly Vanguard....VTS & VEU) and leave 30% of cash in SMSF. Please let me know your thoughts on this.
Thanks again.
Post by: steveo on November 30, 2016, 03:27:21 AM
I think the general principles for long term investments (super) and a large amount of capital ($300k) are:-
1. Invest now with everything that you have - i.e. don't dollar cost average into the market.
2. Use a low cost world index tracker.
I use VGS rather than VTS/VEU but that is your call for your world index tracker. I think that there is some information within this thread on the advantages of either option. I choose VGS and I can't remember the pros and cons of VGS versus VTS/VEU. Someone else might provide some more info here.
You do though have some other options. Do you want to be 100% allocated to stocks ? Do you want to have some cash/bonds as part of your asset allocation ? Do you want to have some money invested into the Australian Index - i.e. VAS.
I would personally just go 100% VGS right now and invest in VAS outside of Super but I think that there are arguments to do the reverse. If you want to dollar cost average into the market or just have some cash on the side I think that is fine as well but from a rational perspective it's probably better to just invest it all at once.
Post by: urbanista on December 01, 2016, 08:43:56 PM
3. I can consider selling the shares but 70% are doing good and the rest are not. So far, I've had a growth of 3.1% plus I collected couple of grand of dividends along the way. I don't hold any VAS or any other ETF's.
You absolutely should sell shares and put the money into your offset account. Then do mortgage redraw for the same amount and buy shares again (but different shares, VAS, for example). That way mortgage interest for the part that you redraw will be tax deductible. This strategy will give you $4,000 tax deductions ($1600 after tax) per year if your mortgage is at 4% and amount invested is $100K. That's what we did with our shares. Otherwise it is suboptimal to have mortgage on PPOR and shares sitting outside super.
Post by: urbanista on December 01, 2016, 08:51:36 PM
... sell PPOR. Why not go and live in the IP after that and then sell it as well.
The moment you move into your IP, it becomes a PPOR and triggers the CGT event, i.e. CGT is payable as if you sold the IP.
Post by: urbanista on December 01, 2016, 08:54:04 PM
Post by: urbanista on December 01, 2016, 08:55:37 PM
NAB has a 3 month free brokerage deal at the moment. Getting on it as just sold my property (to rent) and pumping the proceeds into shares.
Anyone have any experience with Nab trade? Seems international trades have come down a lot in price also through them.. and that 3 month deal includes foreign trades but excludes the foreign forex... and may simplify tax as it appears no need to lodge the W8BEN (forget exact name).
I had nabtrade for 2 years. They gave me 3 months trading for free as well, and generally, I had no issues with them.
Post by: deborah on December 01, 2016, 10:46:01 PM
You can only claim for one PPOR at a time. Yes, you can move into your IP and then it becomes a PPOR, but you can only claim PPOR status for it for the time that it actually was a PPOR, NOT for the whole time you have owned it. Actually I think you can claim for the time you haven't claimed for another PPOR, so in theory you possibly could claim for when you owned the IP but no PPOR - that's a bit dodgy though.
Moving into a IP changes its status, but the CGT event only occurs when you eventually sell it. You need to have a valuation done when you are about to move into it, so that you know what your capital gains liability will be when you eventually sell it.
Post by: steveo on December 02, 2016, 12:34:09 AM
Wait a minute.
You can only claim for one PPOR at a time. Yes, you can move into your IP and then it becomes a PPOR, but you can only claim PPOR status for it for the time that it actually was a PPOR, NOT for the whole time you have owned it. Actually I think you can claim for the time you haven't claimed for another PPOR, so in theory you possibly could claim for when you owned the IP but no PPOR - that's a bit dodgy though.
Moving into a IP changes its status, but the CGT event only occurs when you eventually sell it. You need to have a valuation done when you are about to move into it, so that you know what your capital gains liability will be when you eventually sell it.
That sucks. It just reinforces to me though how poor an investment investment properties are. In stating that the capital growth has been out of this world.
Post by: urbanista on December 02, 2016, 03:57:46 AM
Moving into a IP changes its status, but the CGT event only occurs when you eventually sell it. You need to have a valuation done when you are about to move into it, so that you know what your capital gains liability will be when you eventually sell it.
That's right, I stand corrected :)
Post by: AnotherGoodGuy on December 02, 2016, 04:09:41 AM
Back to my main query now. I have around 300k in my SMSF that we recently setup. What are my options for investing that money wisely?
Post by: marty998 on December 02, 2016, 04:41:51 AM
3. I can consider selling the shares but 70% are doing good and the rest are not. So far, I've had a growth of 3.1% plus I collected couple of grand of dividends along the way. I don't hold any VAS or any other ETF's.
You absolutely should sell shares and put the money into your offset account. Then do mortgage redraw for the same amount and buy shares again (but different shares, VAS, for example). That way mortgage interest for the part that you redraw will be tax deductible. This strategy will give you $4,000 tax deductions ($1600 after tax) per year if your mortgage is at 4% and amount invested is $100K. That's what we did with our shares. Otherwise it is suboptimal to have mortgage on PPOR and shares sitting outside super.
Oh god I hope you didn't redraw, and thus have a mixed purpose loan. You really need to have a split loan in place.
Gets incredibly messy with a part PPOR loan part investment loan and having to apportion interest, repayments and redraws.
You can piss in a pot but see how far you get trying to un-mix it afterwards...
Post by: marty998 on December 02, 2016, 04:45:03 AM
... sell PPOR. Why not go and live in the IP after that and then sell it as well.
The moment you move into your IP, it becomes a PPOR and triggers the CGT event, i.e. CGT is payable as if you sold the IP.
This isn't true either. A specified CGT event has to occur.
Once you finally sell the IP that you have moved into, then you work out an apportioned gain based on the number of days held as an IP and number of days held as a PPOR.
For example if your gain is $300,000, and you lived in it as a PPOR for 40% of the time, then your taxable gain is $180,000 x 50% if eligible for the CGT discount.
Post by: AnotherGoodGuy on December 02, 2016, 04:51:52 AM
Additionally, the parcels (approx 45k) that I've bought in the last 12-14 months has been doing really well....have gone up by more than 10%.
Post by: AnotherGoodGuy on December 02, 2016, 04:55:27 AM
... sell PPOR. Why not go and live in the IP after that and then sell it as well.
The moment you move into your IP, it becomes a PPOR and triggers the CGT event, i.e. CGT is payable as if you sold the IP.
This isn't true either. A specified CGT event has to occur.
Once you finally sell the IP that you have moved into, then you work out an apportioned gain based on the number of days held as an IP and number of days held as a PPOR.
For example if your gain is $300,000, and you lived in it as a PPOR for 40% of the time, then your taxable gain is $180,000 x 50% if eligible for the CGT discount.
I agree, this is my understanding as well. We bought the apartment in 2007 and lived there until end of 2009. It has been rented out from then till now and if I were to sell, the appreciation since I've moved out will only be taken into consideration when paying CGT.
Post by: marty998 on December 02, 2016, 05:05:39 AM
... sell PPOR. Why not go and live in the IP after that and then sell it as well.
The moment you move into your IP, it becomes a PPOR and triggers the CGT event, i.e. CGT is payable as if you sold the IP.
This isn't true either. A specified CGT event has to occur.
Once you finally sell the IP that you have moved into, then you work out an apportioned gain based on the number of days held as an IP and number of days held as a PPOR.
For example if your gain is $300,000, and you lived in it as a PPOR for 40% of the time, then your taxable gain is $180,000 x 50% if eligible for the CGT discount.
I agree, this is my understanding as well. We bought the apartment in 2007 and lived there until end of 2009. It has been rented out from then till now and if I were to sell, the appreciation since I've moved out will only be taken into consideration when paying CGT.
You've just gone past the 6 year rule as well...
Post by: urbanista on December 02, 2016, 08:52:02 PM
3. I can consider selling the shares but 70% are doing good and the rest are not. So far, I've had a growth of 3.1% plus I collected couple of grand of dividends along the way. I don't hold any VAS or any other ETF's.
You absolutely should sell shares and put the money into your offset account. Then do mortgage redraw for the same amount and buy shares again (but different shares, VAS, for example). That way mortgage interest for the part that you redraw will be tax deductible. This strategy will give you $4,000 tax deductions ($1600 after tax) per year if your mortgage is at 4% and amount invested is $100K. That's what we did with our shares. Otherwise it is suboptimal to have mortgage on PPOR and shares sitting outside super.
Oh god I hope you didn't redraw, and thus have a mixed purpose loan. You really need to have a split loan in place.
Gets incredibly messy with a part PPOR loan part investment loan and having to apportion interest, repayments and redraws.
You can piss in a pot but see how far you get trying to un-mix it afterwards...
Of course I split the loan first. Sorry, I thought it was obvious :)
Post by: urbanista on December 02, 2016, 09:00:31 PM
Not yet Marty.....I am only gathering information at the moment and not making any move. Also I don't like the idea of selling the shares and cop the CGT and then redraw the same money from the offset to buy shares again. If I sell the shares and deposit the money in the offset account, what is the meaning of diversification when it comes to investment?
Additionally, the parcels (approx 45k) that I've bought in the last 12-14 months has been doing really well....have gone up by more than 10%.
CGT 100K * 10% / 2 = 5K taxable income to pay tax once.
Meanwhile, 4K deductions are lost every year.
Just saying.
Post by: cakie on December 03, 2016, 12:46:58 AM
Not yet Marty.....I am only gathering information at the moment and not making any move. Also I don't like the idea of selling the shares and cop the CGT and then redraw the same money from the offset to buy shares again. If I sell the shares and deposit the money in the offset account, what is the meaning of diversification when it comes to investment?Didn't you say they were mixed? Some went up and some went down? If you have some that are capital losses, this helps the case to sell some shares if the tax is reduced. Unless you have a lower income year coming up soon, I think the idea is worth considering.
Additionally, the parcels (approx 45k) that I've bought in the last 12-14 months has been doing really well....have gone up by more than 10%.
I still consider myself an investing beginner - for basic things like asset allocation the thing that helped me the most was reading the bogleheads wiki and coming up with an IPS.
Post by: deborah on December 03, 2016, 02:34:00 AM
Where did you get the 4k from?Not yet Marty.....I am only gathering information at the moment and not making any move. Also I don't like the idea of selling the shares and cop the CGT and then redraw the same money from the offset to buy shares again. If I sell the shares and deposit the money in the offset account, what is the meaning of diversification when it comes to investment?
Additionally, the parcels (approx 45k) that I've bought in the last 12-14 months has been doing really well....have gone up by more than 10%.
CGT 100K * 10% / 2 = 5K taxable income to pay tax once.
Meanwhile, 4K deductions are lost every year.
Just saying.
Post by: marty998 on December 03, 2016, 06:11:23 AM
3. I can consider selling the shares but 70% are doing good and the rest are not. So far, I've had a growth of 3.1% plus I collected couple of grand of dividends along the way. I don't hold any VAS or any other ETF's.
You absolutely should sell shares and put the money into your offset account. Then do mortgage redraw for the same amount and buy shares again (but different shares, VAS, for example). That way mortgage interest for the part that you redraw will be tax deductible. This strategy will give you $4,000 tax deductions ($1600 after tax) per year if your mortgage is at 4% and amount invested is $100K. That's what we did with our shares. Otherwise it is suboptimal to have mortgage on PPOR and shares sitting outside super.
Oh god I hope you didn't redraw, and thus have a mixed purpose loan. You really need to have a split loan in place.
Gets incredibly messy with a part PPOR loan part investment loan and having to apportion interest, repayments and redraws.
You can piss in a pot but see how far you get trying to un-mix it afterwards...
Of course I split the loan first. Sorry, I thought it was obvious :)
Not obvious when you said redraw. If you said pay down and take a new loan, that's a different story. I cringe every-time I hear people redrawing for a car or holiday... ruins everything down the track.
Where did you get the 4k from?Not yet Marty.....I am only gathering information at the moment and not making any move. Also I don't like the idea of selling the shares and cop the CGT and then redraw the same money from the offset to buy shares again. If I sell the shares and deposit the money in the offset account, what is the meaning of diversification when it comes to investment?
Additionally, the parcels (approx 45k) that I've bought in the last 12-14 months has been doing really well....have gone up by more than 10%.
CGT 100K * 10% / 2 = 5K taxable income to pay tax once.
Meanwhile, 4K deductions are lost every year.
Just saying.
100k borrowings x 4%. The idea is to replace PPOR debt with deductible debt. If you are going to hold $100k shares, you may as well use borrowed money against the house, rather than having a bigger PPOR loan.
Post by: goldenmoustache on December 04, 2016, 05:02:18 AM
I bought over a few months $146,000 of Vanguard Balanced Index Fund, equivalent to 106,195 units (blended price ($146,000/106,195) = $1.3748) .
I reinvested the various distributions ($11,506) which added 8,655 units to the fund (the blended price of the reinvestment ($11,506/8,655) = $1.3294) .
My blended price for total fund ($157,506/114,850) = $1.37
Current unit price is $1.3297, equal to a total value of (114,850 x $1.3297) = $152,716
Question 1: how do I count my current return on investment?
a) $152,716 / $146,000 = +4.6% (current value divided by what I actually put in excluding reinvestment) or
b) $152,716 / $157,506 = -3% (current value divided by what I actually put in + reinvestment)
Question 2: If I sell all my units (say to move to a 100% shares ETFs e.g. VGS), can I claim $157,506 - $152,716 = $4,790 as capital loss?
thanks
Post by: deborah on December 04, 2016, 10:10:44 AM
WHAT
0. Pay the minimum required on all debts.
1. Establish an emergency fund to your satisfaction. See https://www.bogleheads.org/wiki/Emergency_fund. This is most efficient if it is in your mortgage offset account.
2. Pay off any debts with interest rates above your mortgage rate.
3. Put money into your PPOR mortgage offset account.
4. If your taxable income is less than $51,021 (before salary sacrifice) consider contributing $1000 per year to superannuation to get the Government co-contribution.
5. Pay off any debts above the return you can get on your investments.
6. If you taxable income is more than $37,000 Salary Sacrifice no more than 25% of the remainder into Superannuation - depending on your ER age.
7. Invest any extra.
WHY
0. Don't get yourself into trouble.
1. Give yourself at least enough buffer to avoid worries about bouncing checks.
2.& 3. Because it's untaxed, the effective return on your mortgage offset account is likely to be the highest percent return you can get on your money
4. When the government is giving you money - take it.
5. It's better to pay of expensive debt than to invest.
6. Salary sacrifice is taxed at 15% as it goes into superannuation and people on low incomes have a lower tax rate. You will need other money to last you between when you retire and when you are eligible for superannuation. However superannuation tax rates are low.
7. Because earnings, even if taxed, are beneficial
Post by: deborah on December 04, 2016, 10:12:58 AM
Newbie question about managed index funds ROI and capital loss4.6% return, $4790 capital loss.
I bought over a few months $146,000 of Vanguard Balanced Index Fund, equivalent to 106,195 units (blended price ($146,000/106,195) = $1.3748) .
I reinvested the various distributions ($11,506) which added 8,655 units to the fund (the blended price of the reinvestment ($11,506/8,655) = $1.3294) .
My blended price for total fund ($157,506/114,850) = $1.37
Current unit price is $1.3297, equal to a total value of (114,850 x $1.3297) = $152,716
Question 1: how do I count my current return on investment?
a) $152,716 / $146,000 = +4.6% (current value divided by what I actually put in excluding reinvestment) or
b) $152,716 / $157,506 = -3% (current value divided by what I actually put in + reinvestment)
Question 2: If I sell all my units (say to move to a 100% shares ETFs e.g. VGS), can I claim $157,506 - $152,716 = $4,790 as capital loss?
thanks
Post by: marty998 on December 04, 2016, 02:05:51 PM
So your denominator is somewhere between $146k and $157,500, but we can't work this out without knowing when your reinvestments occurred.
For Q2, your capital loss will be reduced by any tax deferred income gained via those distributions. Vanguard will detail this to you in the annual tax statements and give you the CGT information if you dispose of your investment.
Post by: goldenmoustache on December 04, 2016, 02:37:18 PM
The industry works it out using daily compounded returns, which take into account when you have re-invested your distributions.
So your denominator is somewhere between $146k and $157,500, but we can't work this out without knowing when your reinvestments occurred.
For Q2, your capital loss will be reduced by any tax deferred income gained via those distributions. Vanguard will detail this to you in the annual tax statements and give you the CGT information if you dispose of your investment.
the reinvestments occurred automatically the first day of each new quarter (as I have the "reinvest" option for distribution) without going into daily details, does this simplify the calculation?
I still don't understand why my current gross return is not (current total value / cash I put in). Naively, the way I think of it is: I paid $X for something, that something is a "black box" that is now worth $Y , my return is $Y / $X.
Post by: englyn on December 04, 2016, 08:22:23 PM
DO NOT pay extra on your mortgage and then redraw from it for other investments ie IP deposit or shares. You would have a mixed purpose loan and a huge headache.
DO store extra cash in an offset account against your home mortgage, and later use that cash for investment purposes. This is different! Also valid: store extra cash in an offset against IP loan and later use that cash for personal purposes. In these cases it's not an extra loan, so doesn't have complications.
OR DO leave cash in offset against home PPOR mortgage and set up new loan against equity in PPOR for investment purposes for increased tax deductibility.
Post by: AnotherGoodGuy on December 04, 2016, 10:12:15 PM
Didn't you say they were mixed? Some went up and some went down? If you have some that are capital losses, this helps the case to sell some shares if the tax is reduced. Unless you have a lower income year coming up soon, I think the idea is worth considering.
I still consider myself an investing beginner - for basic things like asset allocation the thing that helped me the most was reading the bogleheads wiki and coming up with an IPS.
Thanks cakie for your reply. I did say I had mixed results and as I've mentioned before only the shares that I bought over the last 12 months are going good. Anyway, I plotted my portfolio using this fantastic site called sharesight.com.au and it gave me all the critical numbers I want. Total return so far is 4.95% and the capital gain is -0.55% with an income of 5.5%. Also I have collected 6.5% along the way as dividends. I will give a thought about selling them and moving the money into my offset account.
Also, I read this very nice blog by a young Canadian couple http://www.millennial-revolution.com/ ...... written in plain English for beginners like me.
Post by: happy on December 05, 2016, 03:12:51 AM
My 2c.
WHAT
0. Pay the minimum required on all debts. Agree
1. Establish an emergency fund to your satisfaction. See https://www.bogleheads.org/wiki/Emergency_fund. If you have a mortgage its most efficient to put it in a mortgage offset account OR use springy debt http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/ (http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/)
2. Pay off any debts with interest rates above your mortgage rate. Agree
3. Put money into your PPOR mortgage offset account. agree
4. If your taxable income is less than $51,021 (before salary sacrifice) consider contributing $1000 per year to superannuation to get the Government co-contribution. Agree
5. Pay off any debts above the return you can get on your investments. agree
6. If you taxable income is more than $37,000 Salary Sacrifice no more than 25% of the remainder into Superannuation - depending on your ER age. Disagree here, how much to put in super depends on your age, current super balance, estimated ER date, and income ( marginal tax rate). For a young person with an income in the highest marginal rate its still appropriate to sacrifice the full amount IMO. I think its too hard to specify - need to say something like optimise super salary sacrifice depending on your age, current super balance, estimated ER date, and income ( marginal tax rate)
7. Invest any extra into low cost index funds. Note for those wishing to go the IP route this is not correct, but then the whole list is not correct with regard to paying off debt in that case.
Post by: deborah on December 05, 2016, 03:35:38 AM
Thanks very much Happy! How about...My 2c.
WHAT
0. Pay the minimum required on all debts. Agree
1. Establish an emergency fund to your satisfaction. See https://www.bogleheads.org/wiki/Emergency_fund. If you have a mortgage its most efficient to put it in a mortgage offset account OR use springy debt http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/ (http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/)
2. Pay off any debts with interest rates above your mortgage rate. Agree
3. Put money into your PPOR mortgage offset account. agree
4. If your taxable income is less than $51,021 (before salary sacrifice) consider contributing $1000 per year to superannuation to get the Government co-contribution. Agree
5. Pay off any debts above the return you can get on your investments. agree
6. If you taxable income is more than $37,000 Salary Sacrifice no more than 25% of the remainder into Superannuation - depending on your ER age. Disagree here, how much to put in super depends on your age, current super balance, estimated ER date, and income ( marginal tax rate). For a young person with an income in the highest marginal rate its still appropriate to sacrifice the full amount IMO. I think its too hard to specify - need to say something like optimise super salary sacrifice depending on your age, current super balance, estimated ER date, and income ( marginal tax rate)
7. Invest any extra into low cost index funds. Note for those wishing to go the IP route this is not correct, but then the whole list is not correct with regard to paying off debt in that case.
6. If you taxable income is more than $37,000 optimise Salary Sacrifice into Superannuation - you need to work this out individually, because how much depends on at what age you will ER, how much is already inside/outside superannuation, and your marginal tax rate.
Post by: Anatidae V on December 05, 2016, 04:03:44 AM
Should we keep the cash as it is, since we *could* buy a house? How long is it reasonable to maintain a cash deposit before it becomes ridiculous and obvious one isn't going to purchase? Years? (I'm concerned I'm losing by being out of the market but then maybe we'll find the house we want late next year...)
These steps assume a mortgage, and don't mention HECS. Any thoughts on where HECS would fit in the "debt payoff", and if perpetual renters can just skip to Step 7? Where would one put "save home deposit" in this recommendation?
Thanks very much Happy! How about...My 2c.
WHAT
0. Pay the minimum required on all debts. Agree
1. Establish an emergency fund to your satisfaction. See https://www.bogleheads.org/wiki/Emergency_fund. If you have a mortgage its most efficient to put it in a mortgage offset account OR use springy debt http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/ (http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/)
2. Pay off any debts with interest rates above your mortgage rate. Agree
3. Put money into your PPOR mortgage offset account. agree
4. If your taxable income is less than $51,021 (before salary sacrifice) consider contributing $1000 per year to superannuation to get the Government co-contribution. Agree
5. Pay off any debts above the return you can get on your investments. agree
6. If you taxable income is more than $37,000 Salary Sacrifice no more than 25% of the remainder into Superannuation - depending on your ER age. Disagree here, how much to put in super depends on your age, current super balance, estimated ER date, and income ( marginal tax rate). For a young person with an income in the highest marginal rate its still appropriate to sacrifice the full amount IMO. I think its too hard to specify - need to say something like optimise super salary sacrifice depending on your age, current super balance, estimated ER date, and income ( marginal tax rate)
7. Invest any extra into low cost index funds. Note for those wishing to go the IP route this is not correct, but then the whole list is not correct with regard to paying off debt in that case.
6. If you taxable income is more than $37,000 optimise Salary Sacrifice into Superannuation - you need to work this out individually, because how much depends on at what age you will ER, how much is already inside/outside superannuation, and your marginal tax rate.
Post by: deborah on December 05, 2016, 04:59:49 AM
I have skimmed this thread, forgotten what I learnt, and tried to catch up again. We have a tiny amount in shares (VAS/VHY), most of our money in cash and are totally undecided if or when we should buy a house/PPOR. So we've tried putting off the decision again, since I've heard I'm emotionally unreliable at the moment, being pregnant ;-)HECS is a debt that comes in under point 0 - pay off what you have to, and (currently) doesn't come under any other point, because it is a lower interest than investments. I was not really assuming a mortgage, though it reads a bit like it does - in this case 2. and 3. are irrelevant.
Should we keep the cash as it is, since we *could* buy a house? How long is it reasonable to maintain a cash deposit before it becomes ridiculous and obvious one isn't going to purchase? Years? (I'm concerned I'm losing by being out of the market but then maybe we'll find the house we want late next year...)
These steps assume a mortgage, and don't mention HECS. Any thoughts on where HECS would fit in the "debt payoff", and if perpetual renters can just skip to Step 7? Where would one put "save home deposit" in this recommendation?Thanks very much Happy! How about...My 2c.
WHAT
0. Pay the minimum required on all debts. Agree
1. Establish an emergency fund to your satisfaction. See https://www.bogleheads.org/wiki/Emergency_fund. If you have a mortgage its most efficient to put it in a mortgage offset account OR use springy debt http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/ (http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/)
2. Pay off any debts with interest rates above your mortgage rate. Agree
3. Put money into your PPOR mortgage offset account. agree
4. If your taxable income is less than $51,021 (before salary sacrifice) consider contributing $1000 per year to superannuation to get the Government co-contribution. Agree
5. Pay off any debts above the return you can get on your investments. agree
6. If you taxable income is more than $37,000 Salary Sacrifice no more than 25% of the remainder into Superannuation - depending on your ER age. Disagree here, how much to put in super depends on your age, current super balance, estimated ER date, and income ( marginal tax rate). For a young person with an income in the highest marginal rate its still appropriate to sacrifice the full amount IMO. I think its too hard to specify - need to say something like optimise super salary sacrifice depending on your age, current super balance, estimated ER date, and income ( marginal tax rate)
7. Invest any extra into low cost index funds. Note for those wishing to go the IP route this is not correct, but then the whole list is not correct with regard to paying off debt in that case.
6. If you taxable income is more than $37,000 optimise Salary Sacrifice into Superannuation - you need to work this out individually, because how much depends on at what age you will ER, how much is already inside/outside superannuation, and your marginal tax rate.
Let's see where we are...
WHAT
0. Pay the minimum required on all debts.
1. Establish an emergency fund to your satisfaction. See https://www.bogleheads.org/wiki/Emergency_fund. Use your mortgage offset account OR use springy debt http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/ .
2. Pay off any debts with interest rates above your mortgage rate (if you have one)
3. Put money into your PPOR mortgage offset account (if you have one).
4. If your taxable income is less than $51,021 (before salary sacrifice) consider contributing $1000 per year to superannuation to get the Government co-contribution.
5. Pay off any debts above the return you can get on your investments.
6. If you taxable income is more than $37,000 optimise Salary Sacrifice into Superannuation - you need to work this out individually, because how much depends on at what age you will ER, how much is already inside/outside superannuation, and your marginal tax rate.
7. Invest any extra into low cost index funds.
WHY
0. Don't get yourself into trouble.
1. Give yourself at least enough buffer to avoid worries about bouncing checks.
2.& 3. Because it's untaxed, the effective return on a mortgage offset account is likely to be the highest percent return you can get on your money
4. When the government is giving you money - take it.
5. It's better to pay of expensive debt than to invest.
6. Salary sacrifice is taxed at 15% as it goes into superannuation and people on low incomes have a lower tax rate. You will need other money to last you between when you retire and when you are eligible for superannuation. However superannuation tax rates are low.
7. Because earnings, even if taxed, are beneficial
Post by: marty998 on December 05, 2016, 01:43:11 PM
The rest (shares, realestate, HECS, super) is all personal reference, except for salary sacrificing super above $80,000 income which IMO is well worth it for the 24% tax saving.
Just posting here to note the Banks have been busy raising the interest rates on their fixed rate loans, and investor loans are being hit the hardest.
Time to lock in was 3 months ago if you wanted to. Onwards and upwards from here.
Post by: yurgs on December 05, 2016, 07:50:41 PM
Few weeks ago we started our own SMSF with 310k and I am keen to invest a portion of the money in few ETFs.
I am leaning towards investing 50k in VTS and I would like to keep some in cash to spread the risk. I was thinking of investing a portion in VEU and VAP but I am not entirely convinced. Since I already have the individual parcels that are mostly made up of bluechip companies, I think I shouldn't invest in VAS. I would be interested in hearing other people’s ideas please.
In regards to your question how to invest the 310k. MMM wrote an article how to invest a lump sum a while ago:
http://www.mrmoneymustache.com/2014/08/20/how-to-invest-in-overvalued-market/
If you are not comfortable with that approach, you could invest 10% - 20% of your capital each month until you have invested all money. You should set yourself a reminder in the calendar to invest each month and stick to it.
Personally, I would invest in VGS. You are already heavily exposed to Australia with your shares and property. You need some diversification into global stocks.
Post by: givemesunshine on December 07, 2016, 10:01:46 PM
From Deborah's post;
WHAT
0. Pay the minimum required on all debts. DONE - no debts at all
1. Establish an emergency fund to your satisfaction. See https://www.bogleheads.org/wiki/Emergency_fund. This is most efficient if it is in your mortgage offset account. DONE - have EF in HISA (UBank)
2. Pay off any debts with interest rates above your mortgage rate. DONE - no debts at all
3. Put money into your PPOR mortgage offset account. N/A
4. If your taxable income is less than $51,021 (before salary sacrifice) consider contributing $1000 per year to superannuation to get the Government co-contribution. N/A
5. Pay off any debts above the return you can get on your investments. DONE - no debts at all
6. If you taxable income is more than $37,000 Salary Sacrifice no more than 25% of the remainder into Superannuation - depending on your ER age. I Salary Sacrifice the maximum concessional amount into Super (30K this year, 25K from 2017 onwards)
7. Invest any extra. This is where I'm up to!
I have $20K (over and above my EF) sitting in UBank earning 2.87% and can add $1000 per fortnight (while still having some fun/travel money and maintaining my EF).
I am tentatively considering either;
a) 20K straight into Vanguard LifeStrategy Balanced Fund and then $1000 every fortnight
b) 20K into ETFs (VAS and ??) and then buy in $6K bundles every quarter
I'm thinking that my investment timeframe is 7-10 (maybe even 15 years). I'm 40 early next year and would like to RE at 50-55. I like my job so it's not a massive hardship to work for the next 10-15 years.
Opinions - a versus b? Another approach? I'm still a learner so maybe I can start simple and possibly change tacks as I understand more!
Thanks for any input. Please feel free to reply as if I am an idiot - I am.
Post by: potm on December 10, 2016, 05:03:58 AM
You will still need your shares after you retire so your timeframe is a lot longer than that. Unless you have plans that require you to sell the shares, it seems to me your timeframe is long term indefinite.
In your position I would go the ETF route.
Post by: stashgrower on December 12, 2016, 05:05:50 AM
Anatidae V: There are some answers to your Q beginning on page 38(!) of this thread. Also there's some info later on another thread: forum.mrmoneymustache.com/investor-alley/australian-investor-where-do-i-start/
I agree it would be helpful to see where saving for a house deposit fits on the list.
Post by: happy on December 12, 2016, 04:03:55 PM
I agree it would be helpful to see where saving for a house deposit fits on the list.
If you have no debt, and some sort of e-fund, have maxed your super optimally to your satisfaction, then you are up to 7.
Now I see the list is aimed at the average Joe who comes scarred by consumerism.
If you are young and starting with a clean slate so to speak I still think the best way is to regard housing as an expense, that you need to save and invest for. If I had my time over I would go the Bigchrisb route for housing. Rent and sublet rooms so that my housing costs were minimal or even better didn't cost me anything, save and invest. Save and invest. Once your investments are large enough buy a house with no mortgage or minimal mortgage. It might take 10 years. How long you save for, how much house you buy, how little mortgage probably depends on where you live, and how much you earn and on your individual desires/preferences.
Post by: pancakes on December 12, 2016, 04:17:19 PM
Our situations are so similar Anatidae it is a bit eerie to read. We've held a (growing) cash deposit for 8 years now. It seems so silly when I think about it but every year is the year we just might buy a place. Next year with the baby might just be the push we need?
On the positive side my bank increased their savings interest rate back up to 3% this week...
I have skimmed this thread, forgotten what I learnt, and tried to catch up again. We have a tiny amount in shares (VAS/VHY), most of our money in cash and are totally undecided if or when we should buy a house/PPOR. So we've tried putting off the decision again, since I've heard I'm emotionally unreliable at the moment, being pregnant ;-)
Should we keep the cash as it is, since we *could* buy a house? How long is it reasonable to maintain a cash deposit before it becomes ridiculous and obvious one isn't going to purchase? Years? (I'm concerned I'm losing by being out of the market but then maybe we'll find the house we want late next year...)
These steps assume a mortgage, and don't mention HECS. Any thoughts on where HECS would fit in the "debt payoff", and if perpetual renters can just skip to Step 7? Where would one put "save home deposit" in this recommendation?
Post by: givemesunshine on December 12, 2016, 05:11:16 PM
Why do you say your timeframe is up to 15 years? Is that because that's when you plan to retire.
You will still need your shares after you retire so your timeframe is a lot longer than that. Unless you have plans that require you to sell the shares, it seems to me your timeframe is long term indefinite.
In your position I would go the ETF route.
Many thanks for the advice - and of course you are correct, it's an ongoing timeframe. I'm still looking at various sources for advice about the balance of EFTs.
Thanks again.
Post by: marty998 on December 12, 2016, 11:49:41 PM
Merry Christmas to all property investors I guess...
_______________
Anyone following the Bellamys saga? The executives might be in for some investigation as they were busy selling shares a couple of months ago when it was already known that market share was collapsing. Problem was, they forgot to inform the market about the decline share of baby formula sales.
Post by: nnls on December 13, 2016, 01:01:21 AM
Grr... the Bank is increasing my investor loan interest rates again out of cycle.
Merry Christmas to all property investors I guess...
_______________
Anyone following the Bellamys saga? The executives might be in for some investigation as they were busy selling shares a couple of months ago when it was already known that market share was collapsing. Problem was, they forgot to inform the market about the decline share of baby formula sales.
Are you considering locking in your rates to avoid future rises?
Post by: marty998 on December 13, 2016, 02:46:53 AM
Grr... the Bank is increasing my investor loan interest rates again out of cycle.
Merry Christmas to all property investors I guess...
_______________
Anyone following the Bellamys saga? The executives might be in for some investigation as they were busy selling shares a couple of months ago when it was already known that market share was collapsing. Problem was, they forgot to inform the market about the decline share of baby formula sales.
Are you considering locking in your rates to avoid future rises?
Locked in just under half of my net debt 2 years ago at 4.89%. That will run through to September 2019. Not the best decision in hindsight, but at the time it was equal to the variable rate and no one had ever seen interest rates with a 4 in front of them before.
I figure in a couple of years time I may want to start paying all debt down, so there is little point in fixing. Fixed rates started going up 3 months ago - missed the boat on that one anyway.
Post by: Anatidae V on December 13, 2016, 03:30:07 AM
Well if you're free on Thursday or Sunday (http://forum.mrmoneymustache.com/meetups-and-social-events/perth-meetup!-(australia)/1150/) we could catch up about this over a non-alcoholic drink... (or one-on-one in January if a crowd is too much :) )
Our situations are so similar Anatidae it is a bit eerie to read. We've held a (growing) cash deposit for 8 years now. It seems so silly when I think about it but every year is the year we just might buy a place. Next year with the baby might just be the push we need?
On the positive side my bank increased their savings interest rate back up to 3% this week...I have skimmed this thread, forgotten what I learnt, and tried to catch up again. We have a tiny amount in shares (VAS/VHY), most of our money in cash and are totally undecided if or when we should buy a house/PPOR. So we've tried putting off the decision again, since I've heard I'm emotionally unreliable at the moment, being pregnant ;-)
Should we keep the cash as it is, since we *could* buy a house? How long is it reasonable to maintain a cash deposit before it becomes ridiculous and obvious one isn't going to purchase? Years? (I'm concerned I'm losing by being out of the market but then maybe we'll find the house we want late next year...)
These steps assume a mortgage, and don't mention HECS. Any thoughts on where HECS would fit in the "debt payoff", and if perpetual renters can just skip to Step 7? Where would one put "save home deposit" in this recommendation?
Post by: deborah on December 13, 2016, 04:21:12 AM
AUSTRALIA
WHAT
0. Pay the minimum required on all debts.
1. Establish an emergency fund to your satisfaction. See https://www.bogleheads.org/wiki/Emergency_fund. Use your mortgage offset account OR use springy debt http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/ .
2. Pay off any debts with interest rates above your mortgage rate (if you have one)
3. Put money into your PPOR mortgage offset account (if you have one).
4. If your taxable income is less than $51,021 (before salary sacrifice) consider contributing $1000 per year to superannuation to get the Government co-contribution.
5. Pay off any debts above the return you can get on your investments.
6. If you taxable income is more than $37,000 optimise Salary Sacrifice into Superannuation - you need to work this out individually, because how much depends on at what age you will ER, how much is already inside/outside superannuation, and your marginal tax rate.
7. Invest any extra into low cost index funds (long term investments - 10 years) or high interest accounts (short term - 2 or 3 years).
WHY
0. Don't get yourself into trouble.
1. Give yourself at least enough buffer to avoid worries about paying bills.
2.& 3. Because it's untaxed, the effective return on a mortgage offset account is likely to be the highest percent return you can get on your money
4. When the government is giving you money - take it.
5. It's better to pay off expensive debt than to invest.
6. Salary sacrifice is taxed at 15% as it goes into superannuation and people on low incomes have a lower tax rate. You will need other money to last you between when you retire and when you are eligible for superannuation. However superannuation tax rates are low.
7. Because earnings, even if taxed, are beneficial. If you are saving for the short term (eg. a house deposit whether PPOR or IP), you want to be absolutely sure that you will get back what you saved, but longer term savings are better off in an index fund.
Note: This assumes that you are employed. If you are a business, make sure that you put the 9.5% superannuation guarantee for yourself because if the business fails, you will at least have that money in old age.
Post by: happy on December 13, 2016, 12:06:17 PM
Post by: deborah on December 13, 2016, 01:50:59 PM
So HECS might be included in no5., depending on one's return on investments?Yes. Obviously HECS is also included in 0 because you are paying the minimium back on ALL debts.
Post by: bigchrisb on December 13, 2016, 02:03:17 PM
Post by: deborah on December 13, 2016, 03:23:17 PM
I'd suggest adding a step 8. Once you have hit FI, if you get OMY syndrome, consider post tax contributions to super. Provides some insurance padding in a tax effective environment.I think this should be between step 6 and 7 because it is more tax effective. Would you agree?
Post by: GT on December 13, 2016, 03:56:14 PM
Post by: deborah on December 13, 2016, 04:18:29 PM
1. A trust can be a mechanism for a high earning individual to pay less tax - ERing mustachians probably won't be in this position long enough to justify the fees.
2. Trusts can distribute income from highly taxed individuals to low taxed individuals (who will need to pay tax on the earnings from the trust). ERing mustachians probably aren't in this position.
3. Superannuation is a better tool depending upon how long it is between ERing and your preservation age.
4. Investment bonds (held for 10 years) are a way to access excess money later (before your superannuation preservation age) and tax efficiently.
Post by: marty998 on December 14, 2016, 12:05:40 AM
The main point wouldn't be to fund your ER, but one benefit would be to assist in structuring assets to pass to the next generation.
Post by: deborah on December 14, 2016, 12:42:46 AM
Still useful for anyone with a business. And if you have a significant amount of assets.Definitely. That's why I said "in general". If I was structuring to pass to the next generation, I would use a Testamentary Trust. These are a way of not having a trust until after you die, so you can pass to the next generation, and they can be set up by a will, and are not a way of saving/investing.
The main point wouldn't be to fund your ER, but one benefit would be to assist in structuring assets to pass to the next generation.
Post by: MsRichLife on December 14, 2016, 07:16:19 PM
Still useful for anyone with a business. And if you have a significant amount of assets.Definitely. That's why I said "in general". If I was structuring to pass to the next generation, I would use a Testamentary Trust. These are a way of not having a trust until after you die, so you can pass to the next generation, and they can be set up by a will, and are not a way of saving/investing.
The main point wouldn't be to fund your ER, but one benefit would be to assist in structuring assets to pass to the next generation.
We are using our family trust as part of our estate planning. Assuming our son grows up to be financially responsible, I'd like to think that he'll start a more active role in the management of the trust funds. I'd like to hope that the family wealth continues to grow and is handed down through the generations. It's one reason I don't plan to sell assets to fund our lifestyle.
Post by: TimCinel on December 15, 2016, 11:26:29 PM
Event details: https://www.meetup.com/Sydney-Mustachians/events/236154554/?eventId=236154554
Post by: marty998 on December 16, 2016, 12:09:31 AM
Good luck, hope you get a turn out.
Post by: TimCinel on December 17, 2016, 05:38:27 PM
I posted some photos to the event page if anybody is curious to see what a group of Sydney Stache-wielders might look like.
Post by: Anatidae V on December 17, 2016, 05:47:00 PM
Turn out was better than expected - 9 adults, 3 kids.There's a Sydney meetup thread where it might be more appropriate :)
I posted some photos to the event page if anybody is curious to see what a group of Sydney Stache-wielders might look like.
Post by: hodor on December 18, 2016, 10:29:56 PM
At which point should Trusts be setup for tax advantages?
If you think you will be in a position that trusts will be of advantage to you it is best to go down the trust path ASAP and acquire the assets within said trust.
What are you hoping to achieve by using a trust?
Post by: bigchrisb on December 18, 2016, 10:51:57 PM
IMO, in general, trusts are not a reasonable thing for ERing mustachians because:
1. A trust can be a mechanism for a high earning individual to pay less tax - ERing mustachians probably won't be in this position long enough to justify the fees.
2. Trusts can distribute income from highly taxed individuals to low taxed individuals (who will need to pay tax on the earnings from the trust). ERing mustachians probably aren't in this position.
3. Superannuation is a better tool depending upon how long it is between ERing and your preservation age.
4. Investment bonds (held for 10 years) are a way to access excess money later (before your superannuation preservation age) and tax efficiently.
I disagree on this (and use a trust/company setup myself). If young and on a high income, trusts and companies can give a good option to build a stash outside of super where it is accessible much sooner. They are also effective to defer income to lower tax years (as franking credits will stay unused in the company). The payback for me was at about $250k in invested assets, with anything above that a significant bonus.
They also provide a lot more flexibility through life - either in terms of swapping between income earning partners, providing support to others in pre tax dollars, and for estate planning.
They also offer some quite useful asset protection benefits on the side, which hopefully none of us have to actually put to the test!
After doing some research on insurance bonds, I'm not a fan. The fees are high (comparable with the costs of running a trust if you have a few hundred k), and the taxation less favorable (no CGT discounts, 30% rather than 28.5%), and have less flexibility (minimum 10 year hold for tax treatment, and strict rules on how contributions work). If talking a few hundred k or more, I'd rather hold in the cheaper more flexible structure of a trust than an insurance bond.
Post by: marty998 on December 18, 2016, 11:39:00 PM
The intention is to avoid assets being in play when you are the subject of legal action but far too often it is a method to avoid the long list of creditors (and taxpayers) a disgraced businessman leaves behind when his empire collapses.
Exhibit A: Mr Edward Obeid?
Post by: deborah on December 18, 2016, 11:48:59 PM
Post by: marty998 on December 23, 2016, 10:33:35 PM
Just moved 70% of my super to Cash (remaining 30% in Australian Equities). All future contributions are going to Aus Equities, in theory it'll be averaging down.
Nothing has fundamentally changed in the Australian market in the last month, yet equities have been on a tear because of Trump. Gut feeling is that shit will hit the fan when he takes office and all the existing problems in our economy will still be here (he certainly won't be making Australia great etc).
We'll still have budget deficits, rising unemployment, rising underemployment, rising interest rates. My guess is inflation will tick up as well.
Rising interest rates (in a moderate fashion) will actually be a good thing for Banks and bank shares as pressure on net interest margins is released, but obviously a net negative for the rest of the market.
Bond markets are also acting a bit funny with yields rising - I've taken all my Super that was in Fixed Interest out of there for now.
Not an Oracle by any stretch but I do get the heeby jeebies whenever markets go up and P/E ratios expand with no real justification...
Post by: FFA on December 24, 2016, 01:52:22 AM
Post by: marty998 on December 27, 2016, 08:21:28 PM
CBA, TLS and WES report half year results in early Feb, that will set the tone for the rest of the year.
Take note of the A$.... hovering in the 71c range at the moment - exactly where the RBA wants it to be.
Companies can only use a fall in the rate once to shore up earnings reports, as it is unlikely to be repeated again in the following half and any underlying weakness will be exposed.
I'll be watching for any profit growth that is due solely to currency movements and not volume changes... it will be interesting to see if the miners are making the most of the favourable conditions.
Post by: goldenmoustache on December 27, 2016, 10:10:38 PM
Kind of a newbie question: is there a way of trading specific lots in Australia instead of 'first in, first out' ? In the USA, one can specify which lot will be sold in a specific trade, but I was not able to find this in my Westpac brokerage account. This is for tax purpose of course.
cheers
Post by: goldenmoustache on December 27, 2016, 10:25:39 PM
hi everyone, I hope many of you are enjoying the great weather across Australia and for those of you not FI yet (like myself) I hope you were able to take some time off around Xmas.
Kind of a newbie question: is there a way of trading specific lots in Australia instead of 'first in, first out' ? In the USA, one can specify which lot will be sold in a specific trade, but I was not able to find this in my Westpac brokerage account. This is for tax purpose of course.
cheers
Partially answering my own question.
The ATO website here (https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Shares,-units-and-similar-investments/Identifying-when-shares-or-units-were-acquired/) says:
A common question people ask when they dispose of only part of their investment is:
‘How do I identify the particular shares or units I have disposed of’.
If you have the relevant records (for example, share certificates), you may be able to identify which particular shares or units you have disposed of. In other cases, the Commissioner will accept your selection of the identity of shares disposed of.
Alternatively, you may wish to use a 'first in, first out' basis where you treat the first shares or units you bought as being the first you disposed of.
Does this: In other cases, the Commissioner will accept your selection of the identity of shares disposed of.
mean I can select the lot when I file my return i.e. I don't have to do it at the moment of the transaction?
Post by: deborah on December 27, 2016, 10:54:35 PM
Post by: marty998 on December 28, 2016, 12:06:40 AM
Just apportion your cost base on a per share basis.
E.g. you buy 500 @ $5.00 and 1000 @ $6.00
You then sell 750 @ $10.00
You can choose your taxable gain to be $(7,500 - 4,500) = $3,000 by using 750 shares out of the 1000 parcel, or you could take all 500 from the 1st parcel and 250 from the 2nd parcel and your gain is $(7,500 - (2,500 + 1,500) = $3,500
Or you can take 250 from the 1st parcel and 500 from the 2nd... etc
Just remember which ones you have "sold" as deborah said.
Post by: goldenmoustache on December 28, 2016, 12:15:00 AM
Not that hard actually, especially if you trade < 10x / year.
Brokerage platform allowing you to select specific lots when you sell them (hence automatically generate the appropriate capital gain/loss and tax statement) would be even easier.
Post by: goldenmoustache on December 29, 2016, 03:02:29 PM
in a world of crazy P/E ratios, 15.6 seems "almost" reasonable. I also like the 8.2% earning growth rate.
Not as a primary holding but as a way of tilting exposure a bit more towards asia without going full emerging market.
Keep loading on VTS is increasingly hard for me. I know, do not time market etc... but 24 P/E at same 8.2% earnings growth rate does not compute anymore.
Post by: FFA on December 29, 2016, 03:16:01 PM
Post by: MrThatsDifferent on January 01, 2017, 02:47:08 PM
Post by: FFA on January 01, 2017, 03:07:20 PM
I still don't understand the stock market anywhere close to many of you and I accept that that is ok. I have a simple plan now that I'm going to execute and trust in the system.
You don't need to know much about the stock market to do well. A simple plan is more than adequate. Executing over the long term is probably where a lot of people fail, need to stay the course.
Post by: MrThatsDifferent on January 01, 2017, 03:28:54 PM
Nice stuff MrThatsDifferent, good luck, I fully agree with this -I still don't understand the stock market anywhere close to many of you and I accept that that is ok. I have a simple plan now that I'm going to execute and trust in the system.
You don't need to know much about the stock market to do well. A simple plan is more than adequate. Executing over the long term is probably where a lot of people fail, need to stay the course.
Thanks FFA! I'm in it for the long haul and have contingencies in place. I also know my strengths and weaknesses and I've decided to stay within my comfort zones as much as I can for this journey into the unknown. Very exciting.
Post by: LittleAussieBattler on January 01, 2017, 11:42:18 PM
I've been a bit inactive of late (Since page 5-12 of this thread) as I moved to Singapore for work. It is a tough place to be an MMM and 50% saver, but we have endured for the past year and have found out all the cheap places to shop/eat/live.
I was doing my end of 2016 finances today, figured out it was my two year anniversary of my mortgage and with current money in the offset plus future income should be paid off in Jan 2019. I would have like to pay cash to be a true MMM, but Sydney prices even 25Km's from the CBD where I bought are still eye watering.
I'm now looking forward to diverting those extra funds back into VAS/VGS. I currently hold VTS/VEU like the rest of the long term MMM Australian community, but it seems that VGS is the way to go now.
Deborah - On the order of investment, I was wondering whether we should be explicit in paying back the mortgage before investing. The wording currently indicates you invest if any is left, but with mortgage rates at 4-4.5% with no tax perhaps slightly changed wording:
Current Wording:
3. Put money into your PPOR mortgage offset account (if you have one).
2.& 3. Because it's untaxed, the effective return on a mortgage offset account is likely to be the highest percent return you can get on your money
I kind of feel like the wording in step 7 gives you an option to not pay your mortgage back first. I know in the past I have invested while paying the mortgage. Which was not ideal at 5% and a 750K loan, but I wanted to have enough time for compounding. The reality is though anyone from Melbourne or Sydney who has the "Average" Australian loan of 460K @ 4.5% for those cities will be chewing on 379K interest. If they take their 1K a month they are using for investment they can save 190K of interest just by putting it into the PPOR offset.
7. Invest any extra into low cost index funds (long term investments - 10 years) or high interest accounts (short term - 2 or 3 years).
What are FFA's, bigchrisb and your thoughts on this?
Post by: marty998 on January 02, 2017, 03:02:44 AM
Goes ex tomorrow (3 Jan) with payment date Wednesday January 18.
Show me da money!
Post by: marty998 on January 02, 2017, 03:45:48 AM
Highlights the dangers of investing in a company run by a single personality.
Post by: FFA on January 02, 2017, 04:14:02 AM
Hi LittleAussieBattler, to keep things simple I generally agree, pay off all non-deductible debt first and then invest. However to be honest I would prefer people start investing in a diversified portfolio earlier, in parallel with paying off the home. Even if it's a small amount, to get started on the journey, while channeling most surplus funds into mortgage repayment. I discussed at some length on Rob_S 's journal. There is a value to the learning, and also diversification. Going fully sequentially means you have only investing in our home for X years and then only invest in VAS/VGS (or whatever you decide) for the remainder. So during that X years period you are very exposed if shares happen to perform well and, God forbid, if housing ever falls...
Post by: LittleAussieBattler on January 02, 2017, 06:36:02 AM
FFA - I tend to agree, one of the reasons I can pay the PPOR off is such short order is the fact I was in the market for 8 years beforehand. I also received RSU's (Restricted Stock Units) from two large US companies I worked for that have vested. Given I am in Singapore where:
A) My AUS income/Spouses income is only dividends this year.
B) No capital gains are incurred on selling the RSU's which have a combined return of 241% since gifted
C) I can sell the AUS shares outside of the ETF's with my spouses income at near 0 and not trigger much of a capital gain.
D) I can sell the RSU's with no capital gains tax at all and send it to AUS to pay off the mortgage
Now if this was the US and we have 3.5% loans fixed for 30 years and it was deductible I think we would be in a different scenario.
The other view I am interested in, is whether given your time over again would you invest in the Vanguard wholesale fund? The fact that Vanguard are offering access to the wholesale funds for 100K or more, the cost is very low, it has also reduced since 2014. Would you do the managed fund with Vanguard now? I ask because when the next bunch of RSU's magically fall from heaven, I'll be in that boat and trying to decide. I know MisterHorsey and Murdoch both switched in the past year. While my wife is financially smart I am not sure I want to give her the burden of managing my ETF hobby as well as a bunch of midcaps I have bought as well as my BKR-B holdings internationally.
Post by: FFA on January 02, 2017, 03:28:38 PM
I'd be tempted to go the wholesale fund route. The fees are basically same as ETF's. I think it's much more conducive to disciplined regular investing. The main concern I have, which I've posted about a lot upthread, is ASX300 sector concentration. For international shares I think the indices (eg. VGS) are perfectly fine. But locally I've added some MVW and others to get better diversification. Anyway that's just me, and it is a bit of a hobby/interest. I still feel the VAS/VGS option is a good default a would probably lean to the wholesale funds over the ETF's if I had >$100k.
Post by: mjr on January 02, 2017, 03:36:40 PM
long time MMM lurker. I have recently setup an SMSF and it has $1m in it now that I am about to invest.
I'm 51 and intend retiring early in a year or two, I have considerable funds outside of super that will get me to preservation age.
I'm planning on keeping it simple: 40% VAS, 40% VTS, 10% REIT and the remaining 10% in cash and term deposits. Not keen on a bond allocation at this time with interest rates probably on the way up.
Investing this kind of money with share markets at near record highs in a mature bull market makes me nervous, despite my knowledge about the pointlessness of trying to time the market. I don't intend ever selling these shares.
Anyone have any comments on the soundness, or otherwise, of this approach before I take the plunge ?
Thanks,
Michael
Brisbane.
Post by: FFA on January 02, 2017, 03:47:44 PM
My comments would be -
1. Consider VGS instead of VTS ? Unless you have a specific reason for the US only. VGS is also approx. 50% US.
2. 80% shares is relatively high so you need to be able to stay with that allocation through any correction/crashes.
3. I share your view on bonds, and for me I put REITs in the same bucket. They will also get hit as rates rise. I also feel there is enough property exposure embedded in VAS.
4. $1m is a big lump and I'd average it in over a year, e.g. perhaps $400k on day one and then $50k per month to be fully invested after 12 months.
5. Is there anything else in your SMSF ? If not, I'd re-consider if you want to keep it or switch to an industry fund which can easily handle such an asset allocation, probably with lower cost (even for the size of your assets) and less admin/hassle.
Post by: mjr on January 02, 2017, 04:04:31 PM
thanks for your reply and thoughts.
I did consider VGS, but my thoughts are that Europe is bound for further trouble over the next few years. Also, VTS's 0.05% MER is attractive.
I can deal with the 80%. I won't be selling during downturns and expect to be able to live purely off the dividends from 2025.
I also considered DCA with that sum, but it does feel somewhat like market timing. It's essentially betting that the markets will be going down.
There's nothing else in the SMSF. I have just set it up, specifically to lower the costs now that I have a large sum in there. I just whacked in my $540k NCC before the rules change. I'm not about to turn around now and put that money back into a managed fund, especially union-run industry fund. Charges with my SMSF with these funds will be about 0.2%.
Post by: FFA on January 02, 2017, 04:26:12 PM
Investing a lump sum comes up often. My view is DCA over 6-12 months is a better base case. The way I look at it, you would have a substantial exposure to the prices on that particular day. As we know, share prices in the short-term can be random. Planning to average over 6-12 months is for me a more logical starting point when the amount of money involved is significant compared to your overall net worth. This suggestion is not driven by the fact the US market is near all time highs, I have given others the same suggestion regardless of market level. To me it's not about trying to time the market, it's just about managing your exposure when you shift your asset allocation significantly. Even boglehead gurus like Rick Ferri have advised lump sums >20% of Net worth should be DCA'd. For small investments I fully agree, just put them in the market and don't worry too much about the price if you are a long term, buy and hold investor. Anyway it's your call, just to give you an alternative to consider...
Post by: Anatidae V on January 02, 2017, 06:33:53 PM
I want to add the international exposure to our portfolio at our next purchase, either VGS or VGAD. I don't understand the implications of the "hedged" nature of VGAD, but I understand it's a different way of dealing with the currency exchanges. Can someone explain it?
Post by: FFA on January 02, 2017, 07:02:01 PM
yes it's basically currency hedging. As per Vanguard VGAD : "The ETF is hedged to Australian dollars so the value of the Fund is relatively unaffected by currency fluctuations."
Usually investing in global shares, in addition to the underlying share price movements, you will get an additional effect if the AUD weakens (positive for global shares) or strengthens (negative for global shares) versus the underlying currency of the shares.
So in a currency hedged fund like VGAD they will trade AUD/USD derivatives (and others) to offset this effect, and give you a result more in line with the underlying share price movements, as if the AUD remained unchanged vs the other currencies.
There are different views but I think the majority suggest it's better long-term to be unhedged, provides more diversification and avoids the hedging costs. Some might try to switch depending on the prevailing exchange rate, but predicting currencies is not easy!!
Post by: marty998 on January 03, 2017, 12:12:54 AM
If the A$ goes from $0.70 to $0.50 you will miss out on this benefit.
Conversely, if the A$ heads back up towards parity, you will not suffer a currency loss.
Currency hedging is actually quite cheap these days... the going rate is between 2-3 basis points (0.02% to 0.03%) for the management fee, and a small (but variable) cost for the derivative contracts (usually rolling FX forwards).
There are few risks that can be completely eliminated in the world of investing. Currency risk is one of them. I think it is a small price to pay for piece of mind.
Post by: superannuationfreak on January 03, 2017, 01:03:16 AM
Yep... the hedged option will avoid impacts of the A$ moving around.
If the A$ goes from $0.70 to $0.50 you will miss out on this benefit.
Conversely, if the A$ heads back up towards parity, you will not suffer a currency loss.
Currency hedging is actually quite cheap these days... the going rate is between 2-3 basis points (0.02% to 0.03%) for the management fee, and a small (but variable) cost for the derivative contracts (usually rolling FX forwards).
There are few risks that can be completely eliminated in the world of investing. Currency risk is one of them. I think it is a small price to pay for piece of mind.
Historically, if you have around 50% or less of your equities in international, volatility of an Australian portfolio has actually been reduced by leaving equities unhedged (intuitively, in bad times for the share market the AUD has weakened). No guarantees, of course, that this will be true in the future.
A bigger issue, outside super in particular, is that hedging income is typically ordinary income. Psychologically, I find it hard losing money on international shares but then still having to pay taxes on the (lower) hedging income. Financially I'd rather hold any hedged international shares in super (most super funds will hedge at least some of your international shares).
Post by: LittleAussieBattler on January 03, 2017, 05:16:46 AM
Are you doing this inside super or outside? Also what is your investment horizon?
There are two stashes you are saving for in Australia with FIRE. Your pre-preservation age stash, and your post preservation age stash. Depending on how long you have until preservation age hedging against the currency might not be worth it. As superannuationfreak said you might consider doing it in super as this will be your income only phase and accumulation will stop and you will be more sensitive to currency. However it is likely your super has stronger home bias and it won't affect as much of your portfolio.
Post by: Anatidae V on January 03, 2017, 07:34:27 AM
Post by: FFA on January 03, 2017, 04:34:08 PM
p.s. welcome back & happy new year superannuationfreak!
Post by: iloveanimals on January 04, 2017, 03:34:50 PM
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/wholesale/portId=8121/?overview
And I want to work out the growth value of what that fund value might be over the next 10 years. I have used vanguard's performance data from 2006 to 2015 to get an idea.
See screen shot attached of my spreadsheet to get an idea of how I am doing my calculations.
Many thanks - feel free to ask me questions about what I have done.
Thanks!
Post by: englyn on January 04, 2017, 08:53:45 PM
If you take the 10 year average return (assuming reinvestment of dividends) for that fund it's 5.57%. If you want to work out what your $100k would be in 10 years at that average return = 100,000 x (1.0557)^10 = $171,951
Anything else is a bit too unpredictable, anyway.
Post by: givemesunshine on January 04, 2017, 09:34:09 PM
VAS 10K
VHY 5K
VGS 5K
Any comments or opinions on this split? Should I look at a different balance? Different EFTs?
I will be adding deposits every couple of months (probably about ~$4K) for the foreseeable future.
This is my pre-preservation age 'stache - I will likely be working for another 10-15 years to fund both my super and investments.
Would appreciate any help - I do not know anyone in real life who invests in anything other than property.
Thanks.
Post by: GT on January 04, 2017, 09:41:33 PM
Hoping someone with a maths mind can assist me. I have recently invested in the wholesale vanguard balanced fund:
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/wholesale/portId=8121/?overview
And I want to work out the growth value of what that fund value might be over the next 10 years. I have used vanguard's performance data from 2006 to 2015 to get an idea.
See screen shot attached of my spreadsheet to get an idea of how I am doing my calculations.
Many thanks - feel free to ask me questions about what I have done.
Thanks!
My maths says that an initial investment of $100K in 2006 in that fund would now be worth $181K at the end of 2015, minus taxes that were applicable along the way. So on average it was 8.1% growth/annum.
Post by: FFA on January 04, 2017, 09:51:57 PM
Hi all, after much (more) reading and time spent understanding how things work I have opened a CMC account and will deposit $20K tomorrow. I am currently thinking:-hi zinny1
VAS 10K
VHY 5K
VGS 5K
Any comments or opinions on this split? Should I look at a different balance? Different EFTs?
I will be adding deposits every couple of months (probably about ~$4K) for the foreseeable future.
This is my pre-preservation age 'stache - I will likely be working for another 10-15 years to fund both my super and investments.
Would appreciate any help - I do not know anyone in real life who invests in anything other than property.
Thanks.
first thing is oz/global split. I think 50/50 is a default. You have 75/25 which I'd consider okay but probably on the low end for international share exposure. It's ok if you want to tilt your investments towards home, and enjoy higher franked dividends which the Australian market offers.
second thing is the oz exposure. you have 50 VAS/25 VHY. I've posted too much through these pages about some concerns I have on the ASX300 being to concentrated. VHY is worse still. I'm happy with VAS as a default but I would complement it with something that gives you better diversification. MVW and EX20 ETF's are options I use for this. MVS is another focused more towards small co's. These will give you less yield than VHY but I believe you will have a better overall return AND lower risk. So you might consider substituting 25 VHY with 25 MVW or EX20.
Post by: Dropbear on January 04, 2017, 11:05:48 PM
...second thing is the oz exposure... I've posted too much through these pages about some concerns I have on the ASX300 being to concentrated. VHY is worse still. I'm happy with VAS as a default but I would complement it with something that gives you better diversification. MVW and EX20 ETF's are options I use for this. MVS is another focused more towards small co's. These will give you less yield than VHY but I believe you will have a better overall return AND lower risk. So you might consider substituting 25 VHY with 25 MVW or EX20.
I'm interested in this idea, FFA. May I ask why you bought MVW and EX20, when they both aim to improve diversification, albeit with slightly different means? Are these different approaches to diversification equally valid, even when they're with different companies and have different costs?
My initial thinking is that MVA's equal weighting of about 80 large companies (is this the ASX's largest 80 companies by market capitalisation?) looks more attractive than EX20, because the EX20 strategy sounds a little more arbitrary in weighting towards mid-tier companies simply because those companies are big without being in the top 20. But MVA costs more than EX20 or even VAS. Are there other important factors that need to be considered in this comparison?
Post by: givemesunshine on January 04, 2017, 11:16:53 PM
To clarify - you are suggesting 50% some combination of VAS & MVW or EX20 (even split? 25% each?) and 50% VGS?
I know ultimately it is my decision but I appreciate the pointers. Looking forward to your EBook!
Post by: iloveanimals on January 04, 2017, 11:32:23 PM
I'm not too sure what you have done, nor what you're trying to do, sorry.
If you take the 10 year average return (assuming reinvestment of dividends) for that fund it's 5.57%. If you want to work out what your $100k would be in 10 years at that average return = 100,000 x (1.0557)^10 = $171,951
Anything else is a bit too unpredictable, anyway.
Yes I was probably tying myself in knots now that I think about it. I guess I was trying to work out the logic of property returns vs shares, and in addition if I should take on more risk and rather than just the "balanced fund" approach. Thanks for responding.
Post by: iloveanimals on January 04, 2017, 11:37:36 PM
Hoping someone with a maths mind can assist me. I have recently invested in the wholesale vanguard balanced fund:
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/wholesale/portId=8121/?overview
And I want to work out the growth value of what that fund value might be over the next 10 years. I have used vanguard's performance data from 2006 to 2015 to get an idea.
See screen shot attached of my spreadsheet to get an idea of how I am doing my calculations.
Many thanks - feel free to ask me questions about what I have done.
Thanks!
My maths says that an initial investment of $100K in 2006 in that fund would now be worth $181K at the end of 2015, minus taxes that were applicable along the way. So on average it was 8.1% growth/annum.
Thanks for the response, it seems on the money - I did more digging and noted that the Vanguard Balanced Index Fund saw an approximate average return of 5.57% per year over the past 10 years, therefore if I invested $100,000 in 2006, I would have a balance of approximately $171,951 in 2016.
Post by: FFA on January 05, 2017, 12:00:38 AM
Thanks FFA for the answer - all makes sense.Sorry was not very clear, I would first decide how much global I wanted. Then look at the sub-allocation within Oz.
To clarify - you are suggesting 50% some combination of VAS & MVW or EX20 (even split? 25% each?) and 50% VGS?
I know ultimately it is my decision but I appreciate the pointers. Looking forward to your EBook!
Assuming you want to stick with 25% VGS, that would leave 75% Oz.
You could then split the Oz, yeah even splits, or still put the majority in VAS and just pick one of the diversifiers MVW or EX20.
Examples could be :
50% VAS, 25% MVW or EX20, 25% VGS
25% VAS, 25% MVW, 25% EX20, 25% VGS (slightly more admin with 4 holdings)
etc
Or, if you wanted to up the VGS to 50%, then you might do :
25% VAS, 25% MVW or EX20, 50% VGS
Hope that is clearer!
Post by: FFA on January 05, 2017, 12:07:35 AM
They're the main differences Dropbear, MVW is equal weights whereas EX20 is traditional market cap. MVW includes the larger companies, whereas EX20 is the 21st to 200th in the ASX. MVW does some periodic rebalancing to the equal weights, so will have greater embedded transaction costs (and potentially distributed capital gains), but the rebalancing also can add value according to their research. They are a bit different and it's unclear to me which is superior but I think both improve diversification and the return vs risk, so I blend a bit of both along with my VAS. I have more in MVW which I started this time last year but I'm adding to EX20 now, it's a recently launched ETF.
...second thing is the oz exposure... I've posted too much through these pages about some concerns I have on the ASX300 being to concentrated. VHY is worse still. I'm happy with VAS as a default but I would complement it with something that gives you better diversification. MVW and EX20 ETF's are options I use for this. MVS is another focused more towards small co's. These will give you less yield than VHY but I believe you will have a better overall return AND lower risk. So you might consider substituting 25 VHY with 25 MVW or EX20.
I'm interested in this idea, FFA. May I ask why you bought MVW and EX20, when they both aim to improve diversification, albeit with slightly different means? Are these different approaches to diversification equally valid, even when they're with different companies and have different costs?
My initial thinking is that MVA's equal weighting of about 80 large companies (is this the ASX's largest 80 companies by market capitalisation?) looks more attractive than EX20, because the EX20 strategy sounds a little more arbitrary in weighting towards mid-tier companies simply because those companies are big without being in the top 20. But MVA costs more than EX20 or even VAS. Are there other important factors that need to be considered in this comparison?
Just to clarify, I still hold the majority of my Australia shares in VAS, approx. 60%. I'm targeting approx. 15% MVW and 7.5% EX20/MVS. Balance in some LIC's and a handful of direct shares.
Post by: iloveanimals on January 05, 2017, 12:13:45 AM
Hoping someone with a maths mind can assist me. I have recently invested in the wholesale vanguard balanced fund:
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/wholesale/portId=8121/?overview
And I want to work out the growth value of what that fund value might be over the next 10 years. I have used vanguard's performance data from 2006 to 2015 to get an idea.
See screen shot attached of my spreadsheet to get an idea of how I am doing my calculations.
Many thanks - feel free to ask me questions about what I have done.
Thanks!
A bit weird but responding to my own post....but wanted to let those of you that might be interested in the answer directly from Vanguard :
"Please note that the following figures represent approximation only and do not consider any tax implications. In addition, the figures below assume that distributions were reinvested into the fund.
The Vanguard Balanced Index Fund saw an approximate average return of 5.57% per year over the past 10 years.
If you invested $100,000 in 2006, you would have a balance of approximately $171,951 in 2016".[/color]
SO that go me thinking - Vanguard above state that I would have reached $171,951 if I had reinvested the distributions over that period. I am concerned about this as my whole aim is to actually start to live off the distributions hopefully in about 3 years. I have $900k invested in the Balanced Fund and have worked out that based on past performance monthly returns can range anywhere from about $1500 - 3000 per month. If I don't reinvest the distributions then the value of my fund sounds like it will be fairly stagnant meaning it probably won't grow as much as I had hoped to secure my future in 10 years. Does any one have any experience or better knowledge than I in this regard? Many thanks.
Post by: givemesunshine on January 05, 2017, 12:22:49 AM
Thanks again - much appreciated.
Post by: MrThatsDifferent on January 05, 2017, 02:11:26 AM
The worst part is the constant second-guessing of your strategy.
Post by: FFA on January 05, 2017, 03:38:15 AM
MrThatDifferent, I think 50/50 VAS/VGS is a good, simple strategy that should stand the test of time. Adding in some MVW/EX20 diversifiers is an improvement, but not essential. If you're going to add something I certainly favour these over VHY, but that's just me. Others love the franked dividends and will lean towards VHY. Anyway no need to second guess, you can be confident in the strategy, just re-visit it every 3-5 years in case something fundamentally changed in the markets or some completely new products became available... Try to get into wholesale funds or ETF's as soon as you can because the retail fees are rather high
Post by: givemesunshine on January 05, 2017, 10:49:43 PM
Time to save, save, save for the next buy!
Thanks again all.
Post by: marty998 on January 05, 2017, 11:31:57 PM
Thanks for your help FFA - and to all the other contributors. Made my firstEFTETF purchase today and felt some nerves letting go of that $20K. I hope it's easier each time! I fully appreciate that over the long term the likelihood is that they will do way better than HIAs at 2.81% but it's still nerve wracking!
Time to save, save, save for the next buy!
Thanks again all.
Aww congratulations! Keep a look out for the share registry letters... you'll have to update your details - bank details, TFNs, emails etc...
Post by: qwerty8675309 on January 06, 2017, 05:29:14 AM
MrThatDifferent, I think 50/50 VAS/VGS is a good, simple strategy that should stand the test of time.
Yup, I second what FFA said about the 50/50 Aussie and international split. It's a good trade off between having franking credits and maintaining good exposure to international markets. Interestingly, I read an article about home bias the other day. Another reason they gave for having a 50/50 split is that it minimises 'regret' for having over-weighted international or Australian shares when one outperforms the other. It also helps to prevent 'fiddling' with allocations when you hear about worrying things in the media. They're some interesting psychological factors that I didn't really think about.
Here's a link to the article if anybody is interested (sorry if it has been linked before)
http://www.melbournecentre.com.au/mmfc/2009/Papers%20Submitted/Warren_Home%20Bias.pdf
Happy new year guys!
Post by: qwerty8675309 on January 06, 2017, 05:52:01 AM
SO that go me thinking - Vanguard above state that I would have reached $171,951 if I had reinvested the distributions over that period. I am concerned about this as my whole aim is to actually start to live off the distributions hopefully in about 3 years.
You need to think of it from a total return perspective when doing your calculations. Assuming that you spend the same amount each year, this may mean that the fund's distributions are greater or less than this spend. You would then reinvest part of these distributions or sell some of the units to make up for the difference.
Post by: starsky on January 06, 2017, 03:57:28 PM
I've been a lurker for quite a while and decided I should really do something about my finances in 2017. Would really appreciate advice on the below :)
I currently have about $100k saved up and would like to eventually buy a place of my own to live (moved back home with parents to save).
Last year I saved about $36k, and this year I plan to save a minimum of $40k.
I've been reading a lot about the oversupply and think that perhaps in 2018/2019 Sydney may feel the effects of the oversupply and unit prices will drop a bit and this is where I plan to make a purchase. However, this is still 2-3 years away.
My cash has been sitting in a savings account earning about 3% for a while now.
I've thought about the following options:
1. Put about $20-30k in ETFs, looking as VAS/VTS/VEU, leave the rest in savings account and wait till 2018/19 to buy PPOR
2. Buy an IP (looking at melb where the price point is lower and population steadily growing, looking for a neutrally gear property), keep saving for another 3 years, of which I will have approx $80-$120k for PPOR deposit (if the same rate of saving), parents have also offered to lend me $50k
I currently earn $110k pre tax (changed jobs recently so earning more).
Any advice is appreciated, perhaps I'm limiting myself to only those two options? I don't have any current debts besides HECs which which should be paid off in 2 years time.
Post by: iloveanimals on January 06, 2017, 08:22:56 PM
SO that go me thinking - Vanguard above state that I would have reached $171,951 if I had reinvested the distributions over that period. I am concerned about this as my whole aim is to actually start to live off the distributions hopefully in about 3 years.
You need to think of it from a total return perspective when doing your calculations. Assuming that you spend the same amount each year, this may mean that the fund's distributions are greater or less than this spend. You would then reinvest part of these distributions or sell some of the units to make up for the difference.
Thanks for your response. Yes exactly! That is my concern - I can see an ongoing shortfall if we tried to live off the fund distributions, and that will start to dwindle away the funds / units. So I am now thinking that we are better off splitting the money and buying a investment property and at least that will give us some sort ongoing "fixed" income that is more manageable / predicable. Any thoughts on that?
Post by: marty998 on January 06, 2017, 08:57:37 PM
I currently have about $100k saved up and would like to eventually buy a place of my own to live (moved back home with parents to save).
Nicely done, it's not easy to get that first 100k but you've climbed that mountain already.
Last year I saved about $36k, and this year I plan to save a minimum of $40k.
Get used to it. A mortgage + bills (strata, water, council, insurance, electricity/gas) will cost you this much till you pay off the loan.
I've been reading a lot about the oversupply and think that perhaps in 2018/2019 Sydney may feel the effects of the oversupply and unit prices will drop a bit and this is where I plan to make a purchase. However, this is still 2-3 years away.
No one can predict the future. If everyone believes prices will fall in 2018, why wouldn't buyers just put their hands in their pockets and run and hide now? Thus causing prices to fall in 2017? No one can predict the future.
If you find a place you like, buy it. If prices fall, figure out how you can buy some more (which you seem to be thinking of anyway)
My cash has been sitting in a savings account earning about 3% for a while now.
Correction, 1.8% after tax.
Post by: mjr on January 07, 2017, 01:38:15 PM
SO that go me thinking - Vanguard above state that I would have reached $171,951 if I had reinvested the distributions over that period. I am concerned about this as my whole aim is to actually start to live off the distributions hopefully in about 3 years.
You need to think of it from a total return perspective when doing your calculations. Assuming that you spend the same amount each year, this may mean that the fund's distributions are greater or less than this spend. You would then reinvest part of these distributions or sell some of the units to make up for the difference.
Thanks for your response. Yes exactly! That is my concern - I can see an ongoing shortfall if we tried to live off the fund distributions, and that will start to dwindle away the funds / units. So I am now thinking that we are better off splitting the money and buying a investment property and at least that will give us some sort ongoing "fixed" income that is more manageable / predicable. Any thoughts on that?
An investment property may give you more consistency in a revenue stream, but don't forget that investment properties can easily go through periods of not being let and there goes your predictability.
That doesn't fix your main concern. Unless you're of the view that an investment property returns significantly more than the fund (doubtful), you're still exposed to the risk of needing to draw down capital. An investment property is far, far harder to access the capital than selling a few units of the fund.
Post by: Dropbear on January 07, 2017, 04:24:55 PM
...MVW is equal weights whereas EX20 is traditional market cap. MVW includes the larger companies, whereas EX20 is the 21st to 200th in the ASX. MVW does some periodic rebalancing to the equal weights, so will have greater embedded transaction costs (and potentially distributed capital gains), but the rebalancing also can add value according to their research. They are a bit different and it's unclear to me which is superior but I think both improve diversification and the return vs risk, so I blend a bit of both along with my VAS. I have more in MVW which I started this time last year but I'm adding to EX20 now, it's a recently launched ETF.
Just to clarify, I still hold the majority of my Australia shares in VAS, approx. 60%. I'm targeting approx. 15% MVW and 7.5% EX20/MVS. Balance in some LIC's and a handful of direct shares.
Thanks for the info, FFA, that's really helpful! My thought in reading about these options was that a more ideal diversifier ETF might have an equal weighting of 21-200 companies - like a cross between MVW and EX20.
Post by: iloveanimals on January 08, 2017, 12:09:25 AM
Thanks qwerty! will do more maths :)SO that go me thinking - Vanguard above state that I would have reached $171,951 if I had reinvested the distributions over that period. I am concerned about this as my whole aim is to actually start to live off the distributions hopefully in about 3 years.
You need to think of it from a total return perspective when doing your calculations. Assuming that you spend the same amount each year, this may mean that the fund's distributions are greater or less than this spend. You would then reinvest part of these distributions or sell some of the units to make up for the difference.
Post by: iloveanimals on January 08, 2017, 12:13:13 AM
SO that go me thinking - Vanguard above state that I would have reached $171,951 if I had reinvested the distributions over that period. I am concerned about this as my whole aim is to actually start to live off the distributions hopefully in about 3 years.
You need to think of it from a total return perspective when doing your calculations. Assuming that you spend the same amount each year, this may mean that the fund's distributions are greater or less than this spend. You would then reinvest part of these distributions or sell some of the units to make up for the difference.
Thanks for your response. Yes exactly! That is my concern - I can see an ongoing shortfall if we tried to live off the fund distributions, and that will start to dwindle away the funds / units. So I am now thinking that we are better off splitting the money and buying a investment property and at least that will give us some sort ongoing "fixed" income that is more manageable / predicable. Any thoughts on that?
An investment property may give you more consistency in a revenue stream, but don't forget that investment properties can easily go through periods of not being let and there goes your predictability.
That doesn't fix your main concern. Unless you're of the view that an investment property returns significantly more than the fund (doubtful), you're still exposed to the risk of needing to draw down capital. An investment property is far, far harder to access the capital than selling a few units of the fund.
Thanks - Ok I get it. So what about changing over to a fund like VHY? or something similar? Meaning the expected cash distributions are much higher and also have reduced tax implications due to franked credits?
Post by: FFA on January 08, 2017, 03:25:54 AM
I think the EX20 is naturally much better balanced across sectors. There are a few LIC's based on the same thesis and you can research CIE and QVE also if you want even more background. The top20 is where the huge concentration issues are. It's probably a marginal call to equally weight in the EX20. For your background, traditional indices are market cap weighted and Bogle was strongly in favour of that to keep things simple and minimize transaction costs (although I doubt he ever looked closely at the Australian situation). Equal weights needs to be always rebalanced, which incurs greater brokerage and can realize capital gains, etc. So if EX20 were equally weighted I'd expect the MER to be higher again the MVW, and I'm not sure it would be worth the cost in that case....MVW is equal weights whereas EX20 is traditional market cap. MVW includes the larger companies, whereas EX20 is the 21st to 200th in the ASX. MVW does some periodic rebalancing to the equal weights, so will have greater embedded transaction costs (and potentially distributed capital gains), but the rebalancing also can add value according to their research. They are a bit different and it's unclear to me which is superior but I think both improve diversification and the return vs risk, so I blend a bit of both along with my VAS. I have more in MVW which I started this time last year but I'm adding to EX20 now, it's a recently launched ETF.
Just to clarify, I still hold the majority of my Australia shares in VAS, approx. 60%. I'm targeting approx. 15% MVW and 7.5% EX20/MVS. Balance in some LIC's and a handful of direct shares.
Thanks for the info, FFA, that's really helpful! My thought in reading about these options was that a more ideal diversifier ETF might have an equal weighting of 21-200 companies - like a cross between MVW and EX20.
So both are different approaches. MVW is more of an all-in-one solution as it gives you the large cap exposure too. EX20 needs to be blended with VAS or a traditional portfolio. EX20 is recently launched and still a small (but steadily growing fund). MVW has a bit more history and has already reached a decent size. Personally I like have a bit of both in my portfolio mix. But once again you can consider it an optional extra... If you want to keep things simple then stick to VAS.
Post by: marty998 on January 08, 2017, 03:50:53 AM
SO that go me thinking - Vanguard above state that I would have reached $171,951 if I had reinvested the distributions over that period. I am concerned about this as my whole aim is to actually start to live off the distributions hopefully in about 3 years.
You need to think of it from a total return perspective when doing your calculations. Assuming that you spend the same amount each year, this may mean that the fund's distributions are greater or less than this spend. You would then reinvest part of these distributions or sell some of the units to make up for the difference.
Thanks for your response. Yes exactly! That is my concern - I can see an ongoing shortfall if we tried to live off the fund distributions, and that will start to dwindle away the funds / units. So I am now thinking that we are better off splitting the money and buying a investment property and at least that will give us some sort ongoing "fixed" income that is more manageable / predicable. Any thoughts on that?
An investment property may give you more consistency in a revenue stream, but don't forget that investment properties can easily go through periods of not being let and there goes your predictability.
That doesn't fix your main concern. Unless you're of the view that an investment property returns significantly more than the fund (doubtful), you're still exposed to the risk of needing to draw down capital. An investment property is far, far harder to access the capital than selling a few units of the fund.
Thanks - Ok I get it. So what about changing over to a fund like VHY? or something similar? Meaning the expected cash distributions are much higher and also have reduced tax implications due to franked credits?
VHY has worse tax consequences. The fund rebalances every 6 months in December and June, triggering CGT on whatever they sell out out. Usually they will dump a stock entirely, rather than trim holdings, so you can have quite large capital gain distributions.
Trust me, I know this from experience when they rebalanced in June 2015 and sold down WPL, BHP and RIO and appeared to do something funny with WOW and WES.
It's fine f you are in the loweest tax bracket. Not so great if you are paying 39% or 49%
Post by: iloveanimals on January 08, 2017, 05:38:25 PM
SO that go me thinking - Vanguard above state that I would have reached $171,951 if I had reinvested the distributions over that period. I am concerned about this as my whole aim is to actually start to live off the distributions hopefully in about 3 years.
You need to think of it from a total return perspective when doing your calculations. Assuming that you spend the same amount each year, this may mean that the fund's distributions are greater or less than this spend. You would then reinvest part of these distributions or sell some of the units to make up for the difference.
Thanks for your response. Yes exactly! That is my concern - I can see an ongoing shortfall if we tried to live off the fund distributions, and that will start to dwindle away the funds / units. So I am now thinking that we are better off splitting the money and buying a investment property and at least that will give us some sort ongoing "fixed" income that is more manageable / predicable. Any thoughts on that?
An investment property may give you more consistency in a revenue stream, but don't forget that investment properties can easily go through periods of not being let and there goes your predictability.
That doesn't fix your main concern. Unless you're of the view that an investment property returns significantly more than the fund (doubtful), you're still exposed to the risk of needing to draw down capital. An investment property is far, far harder to access the capital than selling a few units of the fund.
Thanks - Ok I get it. So what about changing over to a fund like VHY? or something similar? Meaning the expected cash distributions are much higher and also have reduced tax implications due to franked credits?
VHY has worse tax consequences. The fund rebalances every 6 months in December and June, triggering CGT on whatever they sell out out. Usually they will dump a stock entirely, rather than trim holdings, so you can have quite large capital gain distributions.
Trust me, I know this from experience when they rebalanced in June 2015 and sold down WPL, BHP and RIO and appeared to do something funny with WOW and WES.
It's fine f you are in the loweest tax bracket. Not so great if you are paying 39% or 49%
So Marty is there a better choice for High Yield Returns with less CGT impacts?
Post by: marty998 on January 08, 2017, 11:49:39 PM
I used to be a chaser of high dividend stocks, but that led me to miss out on market darlings such as CSL. It also gave me a higher tax bill each year as I alluded to earlier.
I just buy VAS now and forget about it all to be honest. You can easily drive yourself crazy chasing the herd with whatever is flavour of the year.
Post by: starsky on January 09, 2017, 12:06:50 AM
I currently have about $100k saved up and would like to eventually buy a place of my own to live (moved back home with parents to save).
Nicely done, it's not easy to get that first 100k but you've climbed that mountain already.Last year I saved about $36k, and this year I plan to save a minimum of $40k.
Get used to it. A mortgage + bills (strata, water, council, insurance, electricity/gas) will cost you this much till you pay off the loan.I've been reading a lot about the oversupply and think that perhaps in 2018/2019 Sydney may feel the effects of the oversupply and unit prices will drop a bit and this is where I plan to make a purchase. However, this is still 2-3 years away.
No one can predict the future. If everyone believes prices will fall in 2018, why wouldn't buyers just put their hands in their pockets and run and hide now? Thus causing prices to fall in 2017? No one can predict the future.
If you find a place you like, buy it. If prices fall, figure out how you can buy some more (which you seem to be thinking of anyway)My cash has been sitting in a savings account earning about 3% for a while now.
Correction, 1.8% after tax.
thanks for your advice Marty:)
Post by: HappierAtHome on January 09, 2017, 12:21:43 AM
I am no longer a fan of high yield. As Marcus Padley like to remind his readers "the higher the yield, the closer the price is to zero".
I used to be a chaser of high dividend stocks, but that led me to miss out on market darlings such as CSL. It also gave me a higher tax bill each year as I alluded to earlier.
I just buy VAS now and forget about it all to be honest. You can easily drive yourself crazy chasing the herd with whatever is flavour of the year.
Soooo dumbing this down for someone like me who wants a "set and forget it" investment (likely to have periods of incapacity / disability in retirement; husband completely uninterested in the details of investing so anything I set up has to be super easy for him to both dump extra money into and receive regular dividends or other payouts): how does that transfer to the vanguard managed funds?
Does the High Growth Index Fund (https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/wholesale/portId=8134/?overview (https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/wholesale/portId=8134/?overview)), with its higher average quarterly payouts, represent a 'higher yield' option than the Balanced Index Fund (https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/wholesale/portId=8121/?overview (https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/wholesale/portId=8121/?overview)) or is "high growth" in the context of the managed funds NOT the same thing as high yield?
Post by: FFA on January 09, 2017, 12:41:14 AM
Post by: HappierAtHome on January 09, 2017, 12:44:05 AM
Hi HappierAtHome, yes high growth and high yield are different... The high yield Marty is talking about is a category of Australian share funds or ETF's that focus on shares paying high dividends. Whereas the managed funds you are looking at are diversified funds, so they invest across all sectors - shares, property, bonds, cash, etc. These are broadly split into growth sectors (e.g. shares) and income (also known as defensive) sectors (e.g. bonds, cash). So the high growth refers to a high portion of growth at 90%. Balanced is 50/50%. I think the growth fund is 70/30%. Your selection should be based on your risk tolerance and ability to stick to the selection during market crashes/corrections. Hope this helps clear it up for you?
That is exactly what I needed. Thank you.
Post by: marty998 on January 09, 2017, 01:58:29 AM
They both invest in a collection of indices (not just one). This is from the fine print on each of those links:
The High Growth one is:
40% S&P/ASX 300 Index,
31% MSCI World ex-Australia Index (with net dividendsreinvested) in Australian dollars,
5% S&P/ASX 300 A-REIT Index,
5% FTSE EPRA/NAREIT developed ex Australia rental index, Australian Dollar Hedged,
4.5% MSCI World ex-Australia Small Cap Index (with net dividends reinvested) in Australian dollars,
4.5% MSCI Emerging Markets Index (with net dividendsreinvested) in Australian dollars,
4% Bloomberg AusBond Composite 0+ Yr Index,
4% Bloomberg Barclays Global Treasury Index hedged into Australian dollars,
2% Bloomberg Barclays Global Aggregate Government-Related and Corporate Index hedged into Australian dollars.
The balanced one is
22% S&P/ASX 300 Index,
17% MSCI World ex-Australia Index (with net dividends reinvested) in Australian dollars,
3% S&P/ASX 300 A-REIT Index,
3% FTSE EPRA/NAREIT developed ex Australia rental index, Australian Dollar Hedged,
2.5% MSCI World ex-Australia Small Cap Index (with net dividends reinvested) in Australian dollars,
2.5% MSCI Emerging Markets Index (with net dividends reinvested) in Australian dollars,
20% Bloomberg AusBond Composite 0+ Yr Index,
19% Bloomberg Barclays Global Treasury Index hedged into Australian dollars,
11% Bloomberg Barclays Global Aggregate Government-Related and Corporate Index hedged into Australian dollars.
Lot more bonds in the second one. Likely to be a little less risky.
Vanguard will give you a consolidated tax statement for you to include in your tax return, so don't worry too much about the admin if you go down the managed fund route instead of the listed ETFs
Post by: misterhorsey on January 09, 2017, 04:03:52 PM
So Marty is there a better choice for High Yield Returns with less CGT impacts?
Yes, following on from Marty's comments, I wouldn't get too hung up on high yield if you are thinking long term.
Investments that churn out dividends may be tax effective due to the franking, but they throw cash at you regardless of your circumstances - thus triggering possible income tax in any given year.
At least if you have a stash of low or moderately yielding shares in a fund chugging away, the value of the investment will be growing, and if you do need to cash part out you can sell down a parcel and choose to do it when the timing suits you. Some of the record keeping is fiddly, but I'd rather have an excel spreadsheet headache than a larger tax bill headache.
I think someone in the thread above recommended putting higher yielding investments (i.e, Australia, as opposed to International) in Superannuation as the earnings aren't taxed.
I guess it's all about diversifying your investment across various sectors and investment vehicles - which you have largely done with your balanced fund.
Post by: steveo on January 09, 2017, 05:47:12 PM
I am no longer a fan of high yield. As Marcus Padley like to remind his readers "the higher the yield, the closer the price is to zero".
I used to be a chaser of high dividend stocks, but that led me to miss out on market darlings such as CSL. It also gave me a higher tax bill each year as I alluded to earlier.
I just buy VAS now and forget about it all to be honest. You can easily drive yourself crazy chasing the herd with whatever is flavour of the year.
I like getting dividend payments but I don't see any benefit to chasing dividends. VAS in my opinion is the best option for Australian shares. I think if you have that, own your own house, have some bonds or cash and VGS then you are good to go.
Post by: iloveanimals on January 09, 2017, 06:53:34 PM
I am no longer a fan of high yield. As Marcus Padley like to remind his readers "the higher the yield, the closer the price is to zero".
I used to be a chaser of high dividend stocks, but that led me to miss out on market darlings such as CSL. It also gave me a higher tax bill each year as I alluded to earlier.
I just buy VAS now and forget about it all to be honest. You can easily drive yourself crazy chasing the herd with whatever is flavour of the year.
Thanks Marty. Puts a number of things into perspective.
Post by: FFA on January 09, 2017, 07:04:36 PM
Post by: NotSure on January 09, 2017, 08:00:42 PM
Been reading this thread for a while, decided to finally post! :)
I wonder how much you keep in cash compared to investing (percentage wise)? I've started investing in late 2015, VAS and ANZ (VAS 20k and ANZ 15k), both did quite well to this date, but I also have ~600k in cash just sitting in banks earning next to nothing (our PPOR is paid off). We both are in late 40's.
I'm thinking buying more VAS and also VGS, but maybe Vanguard wholesale fund would be a better idea if I decided to invest ~400k?
Any input is appreciated.
Post by: FFA on January 09, 2017, 09:43:03 PM
Hi,I keep a relatively large emergency fund $100k which I assume roughly 3 years, and treat this outside the asset allocation. Then for the investment portfolio (excluding investment properties) I target 67% growth (nearly all shares) and 33% defensive (mostly cash but intend to add more bonds eventually). Yours seems very high cash%. But it's important to decide for yourself, in line with your own situation and risk tolerance. Shares, unlike cash, can do down and up. And although cash on the surface doesn't go down, beware it's loss of purchasing power, especially if inflation ever returns.
Been reading this thread for a while, decided to finally post! :)
I wonder how much you keep in cash compared to investing (percentage wise)? I've started investing in late 2015, VAS and ANZ (VAS 20k and ANZ 15k), both did quite well to this date, but I also have ~600k in cash just sitting in banks earning next to nothing (our PPOR is paid off). We both are in late 40's.
I'm thinking buying more VAS and also VGS, but maybe Vanguard wholesale fund would be a better idea if I decided to invest ~400k?
Any input is appreciated.
Post by: iloveanimals on January 09, 2017, 10:40:14 PM
I am no longer a fan of high yield. As Marcus Padley like to remind his readers "the higher the yield, the closer the price is to zero".
I used to be a chaser of high dividend stocks, but that led me to miss out on market darlings such as CSL. It also gave me a higher tax bill each year as I alluded to earlier.
I just buy VAS now and forget about it all to be honest. You can easily drive yourself crazy chasing the herd with whatever is flavour of the year.
I like getting dividend payments but I don't see any benefit to chasing dividends. VAS in my opinion is the best option for Australian shares. I think if you have that, own your own house, have some bonds or cash and VGS then you are good to go.
Well Steveo I have 900k in wholesale Vanguard Balanced Fund - and yes house is paid off. Was just hoping for slightly better reruns in order to ease up on working in the next few years....so thought I might shift some over to VHY or something similar for a "top" from time to time. Anyway as always on this forum - very good advise!
Post by: iloveanimals on January 09, 2017, 10:51:13 PM
So Marty is there a better choice for High Yield Returns with less CGT impacts?
Yes, following on from Marty's comments, I wouldn't get too hung up on high yield if you are thinking long term.
Investments that churn out dividends may be tax effective due to the franking, but they throw cash at you regardless of your circumstances - thus triggering possible income tax in any given year.
At least if you have a stash of low or moderately yielding shares in a fund chugging away, the value of the investment will be growing, and if you do need to cash part out you can sell down a parcel and choose to do it when the timing suits you. Some of the record keeping is fiddly, but I'd rather have an excel spreadsheet headache than a larger tax bill headache.
I think someone in the thread above recommended putting higher yielding investments (i.e, Australia, as opposed to International) in Superannuation as the earnings aren't taxed.
I guess it's all about diversifying your investment across various sectors and investment vehicles - which you have largely done with your balanced fund.
Thanks for your re-assuring words.
Post by: marty998 on January 09, 2017, 11:44:56 PM
Hi,
Been reading this thread for a while, decided to finally post! :)
I wonder how much you keep in cash compared to investing (percentage wise)? I've started investing in late 2015, VAS and ANZ (VAS 20k and ANZ 15k), both did quite well to this date, but I also have ~600k in cash just sitting in banks earning next to nothing (our PPOR is paid off). We both are in late 40's.
I'm thinking buying more VAS and also VGS, but maybe Vanguard wholesale fund would be a better idea if I decided to invest ~400k?
Any input is appreciated.
If you do not need the $600k now, given your ages I would be making a $540k non-concessional contribution to Super as soon as possible before the rules change later this year.
In 10 years time you would expect that $540k to have grown to well over $1m - then you can draw a tax free pension of $50-$60k per year pretty much for life from there, possibly more.
Post by: potm on January 10, 2017, 01:02:21 AM
Hi,
Been reading this thread for a while, decided to finally post! :)
I wonder how much you keep in cash compared to investing (percentage wise)? I've started investing in late 2015, VAS and ANZ (VAS 20k and ANZ 15k), both did quite well to this date, but I also have ~600k in cash just sitting in banks earning next to nothing (our PPOR is paid off). We both are in late 40's.
I'm thinking buying more VAS and also VGS, but maybe Vanguard wholesale fund would be a better idea if I decided to invest ~400k?
Any input is appreciated.
If you do not need the $600k now, given your ages I would be making a $540k non-concessional contribution to Super as soon as possible before the rules change later this year.
In 10 years time you would expect that $540k to have grown to well over $1m - then you can draw a tax free pension of $50-$60k per year pretty much for life from there, possibly more.
I would split that contribution between the couple to target an even split of super.
Post by: marty998 on January 10, 2017, 03:38:06 AM
Hi,
Been reading this thread for a while, decided to finally post! :)
I wonder how much you keep in cash compared to investing (percentage wise)? I've started investing in late 2015, VAS and ANZ (VAS 20k and ANZ 15k), both did quite well to this date, but I also have ~600k in cash just sitting in banks earning next to nothing (our PPOR is paid off). We both are in late 40's.
I'm thinking buying more VAS and also VGS, but maybe Vanguard wholesale fund would be a better idea if I decided to invest ~400k?
Any input is appreciated.
If you do not need the $600k now, given your ages I would be making a $540k non-concessional contribution to Super as soon as possible before the rules change later this year.
In 10 years time you would expect that $540k to have grown to well over $1m - then you can draw a tax free pension of $50-$60k per year pretty much for life from there, possibly more.
I would split that contribution between the couple to target an even split of super.
Depends on age gaps and who will retire first etc. If yours is mine and mine is yours then whoever retires first or hits 60 first is the best place to put it.
Post by: FFA on January 10, 2017, 04:14:51 AM
Anyway, I would bear in mind your asset allocation at the same time as moving large lumps of money around. I think a lot of people rushed money into Super in 2007 also ahead of Costello's rule changes and had to wait a long while for their balances to recover, even with those low taxes.
Post by: Rob_S on January 10, 2017, 04:23:56 AM
yes agreed, I've long been in the VAS over VHY camp. Glad to see it's spreading, however I'm not sure I will ever succeed in convincing Rob_S :)
I am a glutton for punishment, but so far VHY has been working as intended and while its not for everyone I still believe its the best way for us to go.
I get the argument against dividends, particularly when those shares/etfs are being held in the name of someone in a high marginal tax bracket, but I think it works in our case. My wife has been on a low income for the last few years paying 0% tax more often than not. She worked two nights a week in a market office after burning out at ANZ. Having our VHY shares in her name eliminates the 'tax problem' someone in a higher bracket would have and gives us the free kick from franking credits - seriously these are amazing when your on a low income! Now that she's quit work to look after our son the tax advantages shift even further in our favour.
As a side note owning dividend shares/ETF's in your super also tends to work out great as it will only attract 15% tax meaning you get a nice bump from franking credits.
Other attractive factors to Dividend investing is that the dividend stream has traditionally remained relatively stable despite GFCs and Dot Com bubbles. This mega thread goes through the stability of dividends early on from memory the LIC's dividend stream dropped about 20% during the depths of the GFC, much better than the 50% drops in share prices. Relying on dividends also means you don't need to worry about funding your expenses by selling shares in a down market. To be fair I have been watching the VHY payout over the years and while trending broadly up its fairly volatile, LICs have lower more consistent payouts.
I think OZ dividend shares/LICs/ETFs are well suited to the RE stage of FIRE where you no longer have the jobs income coming in. Its along similar lines to the old advice of using capital growth shares (BRK:B) while you are earning before selling and moving to income style dividend shares (TLS) once you retire. If you or your partner are on a low enough income that they count as retired why bother with the 'capital growth' shares step, just skip straight to the 'income' stage and save yourself some capital gains tax from selling up growth to buy income.
Also the Falcon was a big fan of VHY earlier in this thread and he is a smart guy. Come back the Falcon, I miss your posts!
Post by: marty998 on January 10, 2017, 04:30:11 AM
Do you really feel such a rush to get in before 30 June ? of course I'm sure there will be, and it might keep the ASX inflated through the first half too. Personally I'm in the position to throw cash in, but I don't feel the urgency. The door doesn't close after 30 June, you can still put in 30k (deductible) plus 100k (non-concessional) each year. Once your balance hits $1.6m there are no more non-concessional contributions, so it's a finite opportunity anyway. I can understand the rush if you're 55-60 and a fair way below the $1.6m. But those aged below 50 still have plenty of time to add to Super gradually via regular contributions.
Anyway, I would bear in mind your asset allocation at the same time as moving large lumps of money around. I think a lot of people rushed money into Super in 2007 also ahead of Costello's rule changes and had to wait a long while for their balances to recover, even with those low taxes.
Fair points.
You never know what other easter eggs will be dished out in the May budget though. This government has a habit of promising "no adverse changes" to everything and then coming up with exactly those adverse changes...
Post by: NotSure on January 10, 2017, 03:47:07 PM
I realise that currently I've only ~7% of my money invested (not counting Super) and this is very conservative indeed, also inflation eating away cash in bank.
I've a question about Super, currently I'm with BT, I wonder if there are better Super companies you could suggest? My wife is with Australian Super. In BT all money is in 'BT Super for Life - 1960's Lifestage Fund' and performance as of 30.09.2016 is:
1 year: 4.47%
3 years: 5.16%
5 years: 8.82%
Since inception: 2.60% <--- this is due to GFC I imagine.
Post by: MrThatsDifferent on January 10, 2017, 04:19:44 PM
Thanks for any suggestions, just when I thought I had it all figured out, I'm lost again.
Post by: GT on January 10, 2017, 04:24:58 PM
Since inception: 2.60% <--- this is due toFTFY.GFCfees I imagine.
Australian Super is looked at favourably within this thread. There's also industry supers like Host Plus which are lean on fees too. I think anything that'll let you access Vanguard funds via your Super would be a good call.
Post by: NotSure on January 10, 2017, 05:17:25 PM
Since inception: 2.60% <--- this is due toFTFY.GFCfees I imagine.
Australian Super is looked at favourably within this thread. There's also industry supers like Host Plus which are lean on fees too. I think anything that'll let you access Vanguard funds via your Super would be a good call.
Thank you, my wife is with AustralianSuper, seems to be good.
BT fees are:
Administration & Management fees: $5 per month + 0.45% p.a
Investment fee: 0.50% p.a
So $60 a year plus 0.95% of balance. This fund started in 2007, right before GFC hit, so numbers don't look nice, also 0.95% of course.
Post by: FFA on January 10, 2017, 07:49:54 PM
Hey Team Aussie--I thought my whole strategy was planned out but now, after reading the info about after-tax contributions in the super, I'm rethinking my strategy. I was going to buy VGS and VAS through the mutual fund so I can easily bpay my money until I get 100k in each and the. Shift to the lower cost mutual fund. I'm wondering though if I should be buying the shares through my super, setting up Australian Super as my super now, using the after-tax contributions. The downside I see is locking my money up in the super, although I will keep 100k in a HISA so we can draw on the first 2 years of RE. (I plan to FIRE in 5 years, barring major changes). I really don't understand the buying shares outside of super versus inside super, except there seems to be a big tax advantage to buying within super. My goal in 5 years is to have 500k invested in shares. Should I do 250k inside super invested and 250k outside super? Which, should I start to build first?General idea is Super is tax advantaged, so try to put more in there. But you need enough outside Super to live off between your FIRE date and Super preservation age. So work backwards based on that, how many years between FIRE and Super becomes available and allow some safety margin to avoid it running out. You can always top-up your Super with any surplus, but not the other way.
Thanks for any suggestions, just when I thought I had it all figured out, I'm lost again.
Post by: FFA on January 10, 2017, 07:53:52 PM
I like Sunsuper better for investment options. Hostplus is better for the diversified index fund if you're happy with a 75/25% allocation it is great value.
Post by: NotSure on January 10, 2017, 10:46:45 PM
Super : I use Sunsuper $1.5/wk plus 0.1%p.a. on the balance up to $800k, and my wife uses Hostplus which is $1.5/wk.
I like Sunsuper better for investment options. Hostplus is better for the diversified index fund if you're happy with a 75/25% allocation it is great value.
Thank you. Which investment option do you use with Suncorp as it attracts more fees as well?
Post by: FFA on January 10, 2017, 11:45:41 PM
That was Sunsuper not Suncorp. I have the Australia (index), International (index), International hedged (index), Emerging markets, Fixed interest, Cash. The investment fees tend to be good, same or slightly lower than ETF fees.Super : I use Sunsuper $1.5/wk plus 0.1%p.a. on the balance up to $800k, and my wife uses Hostplus which is $1.5/wk.
I like Sunsuper better for investment options. Hostplus is better for the diversified index fund if you're happy with a 75/25% allocation it is great value.
Thank you. Which investment option do you use with Suncorp as it attracts more fees as well?
Post by: marty998 on January 10, 2017, 11:54:41 PM
I really don't understand the buying shares outside of super versus inside super, except there seems to be a big tax advantage to buying within super.
That's exactly it. At the end of the day, 1 unit of VAS is the same inside of super as it is out. It's just that outside you get taxed at your marginal rate, and inside you get taxed at 15% (10% capital gains).
I am with Aus Super. Cheap fees, easy to use website, account balance keeps going up... you can login with an app on your phone and get a balance update and it will notify you when a new contribution has been paid in by your employer. The app doesn't yet allow you to choose insurance or change investment mix (have to go to the website for that) but I'd imagine soon enough that option will be there.
Got one a notification this morning that one went in :)
Post by: MrThatsDifferent on January 11, 2017, 03:11:46 AM
Post by: marty998 on January 11, 2017, 05:00:29 AM
Thanks Marty & FFA! What I'm thinking now is that I'll use the first 2.5 years to buy $250k outside of super and then the next 2.5 years to get $250k in super. I wanted to do what MMM does and have some dividends that provide income. I'll use cash to fund our first two years so that we can maximize the franking credits when I no longer have a salary income. With the investments outside of super and cash, I should be able to make it to the time I could access super and hopefully the super will grow from $500k when I FIRE to $1 mil by the time I hit preservation age. Ok, feel better now, the plan has improved, now I just need to hold on to the money! And yeah, I've just set up Australian Super and will roll all my other supers into that over the next 2 months.
I like this guy. Sees something that makes sense, formulates a plan and makes a decision.
Too easy.
Post by: MrThatsDifferent on January 11, 2017, 11:56:43 AM
Another question: if I buy shares in super, should I consider VTS and VEU since super will handle all the taxes and everything or is VAS and VGS enough? I guess I'm also asking should you own the same shares in super as outside of super or diversify?
Post by: GT on January 11, 2017, 03:08:26 PM
Another question: if I buy shares in super, should I consider VTS and VEU since super will handle all the taxes and everything or is VAS and VGS enough? I guess I'm also asking should you own the same shares in super as outside of super or diversify?
Most try and diversify, so that their Aussie shares with franked dividends are in their Super (VAS) as it's tax advantageous and their holdings outside Super are International Markets (VGS, VEU, VTS).
Post by: NotSure on January 11, 2017, 03:26:30 PM
Quote
That was Sunsuper not Suncorp. I have the Australia (index), International (index), International hedged (index), Emerging markets, Fixed interest, Cash. The investment fees tend to be good, same or slightly lower than ETF fees.
Thank you, no idea why I've typed Suncorp! :)
Question regarding putting after tax dollars into Super - if you never intend to sell shares, the only thing taxed will be dividends, doesn't matter if invested inside Super or outside. So pros for Super is 15% tax on dividends compared to say 37% when outside, but you can't touch the money until you've retired. So if you invest into high yield index or shares then 15% tax can save a lot, but if invested in growth with little or no dividends (maybe US index?) then not much difference?
Edit: GT answered my question before I've even posted it, so please ignore. :)
Post by: FFA on January 11, 2017, 06:08:23 PM
However from the FIRE perspective, most people might think the other way. As they need the passive income (outside Super) to stop working. And you get much more yield from Aus shares.
So it also depends how tight your FIRE time-line is, how much safety buffer you have, whether you want to live of dividends alone or are willing to sell shares too as needed.
I think the first key point is to view it as a whole : Manage your total asset allocation across both in a consistent fashion. After that, trying to optimize the tax efficiency is probably a secondary goal, which includes using Super where you can (i.e. don't need the money until 60+) and where to place your assets in or out of Super. I would also counsel to keep it simple. I allowed my affairs to get too complicated and now am spending some effort trying to fix that....
Post by: iloveanimals on January 11, 2017, 06:21:59 PM
Yeah from the tax perspective it's better to skew your Australian shares in Super and global shares outside Super. Because the Aus market yield is much higher.
However from the FIRE perspective, most people might think the other way. As they need the passive income (outside Super) to stop working. And you get much more yield from Aus shares.
So it also depends how tight your FIRE time-line is, how much safety buffer you have, whether you want to live of dividends alone or are willing to sell shares too as needed.
I think the first key point is to view it as a whole : Manage your total asset allocation across both in a consistent fashion. After that, trying to optimize the tax efficiency is probably a secondary goal, which includes using Super where you can (i.e. don't need the money until 60+) and where to place your assets in or out of Super. I would also counsel to keep it simple. I allowed my affairs to get too complicated and now am spending some effort trying to fix that....
Just picking up on your last point about keeping it simple. I so far have keep it very simple and placed our entire $900k into the Vanguard Balanced Fund, however recently asked this forum about the benefits of High Yielding return funds as I have come to the realisation that the Balanced Fund just isn't quite enough to cover the shortfall we were hoping to live off in about 3 years. This forum provided me lots of options which I then started to look into, and have created spreadsheets galore to spread money all over the place to make better returns. Anyway now I am of the thinking that we might be better off just keeping the Balanced Fund going for the next 2-3 years then move money over to the High Yield funds when we actually have decided to really work part-time - or not all. Just weighing up at the moment whether we could right now start benefiting from High Yield fund due to them being fully franked credits, or if it will actually be more detrimental and will have a higher tax bill. I earn about 80k p.a and my wife earns about the same. Any thoughts?
Post by: FFA on January 11, 2017, 06:45:59 PM
Just picking up on your last point about keeping it simple. I so far have keep it very simple and placed our entire $900k into the Vanguard Balanced Fund, however recently asked this forum about the benefits of High Yielding return funds as I have come to the realisation that the Balanced Fund just isn't quite enough to cover the shortfall we were hoping to live off in about 3 years. This forum provided me lots of options which I then started to look into, and have created spreadsheets galore to spread money all over the place to make better returns. Anyway now I am of the thinking that we might be better off just keeping the Balanced Fund going for the next 2-3 years then move money over to the High Yield funds when we actually have decided to really work part-time - or not all. Just weighing up at the moment whether we could right now start benefiting from High Yield fund due to them being fully franked credits, or if it will actually be more detrimental and will have a higher tax bill. I earn about 80k p.a and my wife earns about the same. Any thoughts?I think the Vanguard diversified funds, like the one you're in, are a great option for hands-off, set & forget. You just need to select the right option to suit your risk tolerance. I would caution against tinkering and switching, unless you've really thought it through and want to adjust your asset allocation for the medium to long term. As already stated, personally I'm not really a fan of the high yield funds I would just tilt my portfolio with a higher Australian weighting vs global, if you want more franked dividends (or saying it another way, just use VAS which already has a good franked yield).
If I were you I wouldn't change anything yet. Study what asset allocation you would like/need in 3 years time. If it's different from the Vanguard Balanced fund (i.e. because you need more yield), and if it's a substantial change, then it might be a good idea to gradually switch, e.g. over a year or two. This is to reduce the risk of making a substantial change in asset allocation on a single day.
Post by: misterhorsey on January 11, 2017, 08:06:23 PM
The high yield fund is aiming to maintain high dividend payments and so focuses it's investments on a relatively concentrated selection of high yielding Australian equities. As others have pointed out the Australian stockmarket is already high concentrated in Resources and the Financial Sector. What if there is a downturn in these areas?
Whereas the Balanced Fund is aiming to diversify your investment across a whole range of sectors. The yield may not be as high as the high yield fund, but it has spread the investment across fixed interest, shares (Aus and International), and property - so that if one sector has a downturn, the theory is other sectors will pick up the slack.
So have a look at the summaries of each fund that vanguard prepare to determine whether the investment suits your risk profile and outlook. I'm not saying the High Yield fund may not be suitable for you or others, in certain circumstances- but it's worth considering the underlying investments that make up the fund - and also appreciating that a investment structured as an ongoing cash cow has to make compromises somewhere else (in this case, diversification).
Post by: mjr on January 11, 2017, 11:45:42 PM
Do you really feel such a rush to get in before 30 June ? of course I'm sure there will be, and it might keep the ASX inflated through the first half too. Personally I'm in the position to throw cash in, but I don't feel the urgency. The door doesn't close after 30 June, you can still put in 30k (deductible) plus 100k (non-concessional) each year. Once your balance hits $1.6m there are no more non-concessional contributions, so it's a finite opportunity anyway. I can understand the rush if you're 55-60 and a fair way below the $1.6m. But those aged below 50 still have plenty of time to add to Super gradually via regular contributions.
Anyway, I would bear in mind your asset allocation at the same time as moving large lumps of money around. I think a lot of people rushed money into Super in 2007 also ahead of Costello's rule changes and had to wait a long while for their balances to recover, even with those low taxes.
Fair points.
You never know what other easter eggs will be dished out in the May budget though. This government has a habit of promising "no adverse changes" to everything and then coming up with exactly those adverse changes...
My view is the same as Marty's. I've just dropped $540k into my new SMSF and I deliberately did it before budget night. I've seen both sides of politics move the goal posts on budget night.
Post by: marty998 on January 12, 2017, 12:29:58 AM
Someone will have to update me with everything. Bloody hell, Abbott could be PM again by then with Peter Dutton as Treasurer.
The budget will be treated as an "on-water matter" and no one will know anything....
Stranger things have happened.
Post by: actionjackson on January 16, 2017, 02:25:35 PM
Currently;
Cash: 86k USD, 43k AUD
VAS ASX: 23k AUD
Super: 100k AUD
Net worth in AUD hovers around 350k depending on ex rate. Savings rate in 2016 was averaging 37%, then we downsized our apartment and in Q4 we saved 49%.
I bought into VAS at the start of the year around 4900 on the ASX. I'm planning to stay in the US for part of this year before returning to work in Aus again. Was a struggle, but I've opened a Vanguard investment account here in the US. I've been told I'll be able to keep it open even once I leave the country. This is going to make things complicated, but I think it will be worth it in the long term, to be able to have assets in USD and use the AUD/USD as a mechanism for hedging against big moves in the AUD. Also, we plan on coming back to US in 5-10Y time frame, so will be good to have some investments here. Need to learn more about this though, if anyone has any experience with running investments in US based account and AUS based account - would be keen to connect.
Thinking this year is to get 100k USD into long term investments - thinking Vanguard ETF here. Keep some USD cash and transfer it to AUD if AUD drops back down around 70c. AUD of 43k in Australia is in ING savings account - is emergency fund - will leave that. As we save more this year, will start pushing more into ASX under VAS and VGS international funds to get closer to yet to be determined allocation.
Just learning more about investing at the moment, need to develop better overall strategy this year, decide on ideal allocation and get cash from bank into that allocation by the end of the year.
Post by: goldenmoustache on January 16, 2017, 07:18:54 PM
Hi Guys, Aussie expat here, living in the states for past couple of years, about to head back to OZ this year. 32YO, married.
Currently;
Cash: 86k USD, 43k AUD
VAS ASX: 23k AUD
Super: 100k AUD
Net worth in AUD hovers around 350k depending on ex rate. Savings rate in 2016 was averaging 37%, then we downsized our apartment and in Q4 we saved 49%.
I bought into VAS at the start of the year around 4900 on the ASX. I'm planning to stay in the US for part of this year before returning to work in Aus again. Was a struggle, but I've opened a Vanguard investment account here in the US. I've been told I'll be able to keep it open even once I leave the country. This is going to make things complicated, but I think it will be worth it in the long term, to be able to have assets in USD and use the AUD/USD as a mechanism for hedging against big moves in the AUD. Also, we plan on coming back to US in 5-10Y time frame, so will be good to have some investments here. Need to learn more about this though, if anyone has any experience with running investments in US based account and AUS based account - would be keen to connect.
Thinking this year is to get 100k USD into long term investments - thinking Vanguard ETF here. Keep some USD cash and transfer it to AUD if AUD drops back down around 70c. AUD of 43k in Australia is in ING savings account - is emergency fund - will leave that. As we save more this year, will start pushing more into ASX under VAS and VGS international funds to get closer to yet to be determined allocation.
Just learning more about investing at the moment, need to develop better overall strategy this year, decide on ideal allocation and get cash from bank into that allocation by the end of the year.
A pain point of having a US based brokerage account is that you will have to file a tax return in the US (as resident or non resident depending on your situation) every year as the capital gains, dividends etc. will be reported to the IRS. You will not end up paying more due to tax treaty but it adds administrative burden, especially as tax years are not aligned.
Also, US has a requirement of disclosure of all worldwide accounts greater than a certain amount when you file taxes, again, no issues if all legit, just additional admin burden.
Post by: actionjackson on January 16, 2017, 07:55:51 PM
Post by: misterhorsey on January 16, 2017, 09:25:06 PM
https://www.vanguardinvestments.com.au/adviser/adv/investments/product.html#/fundDetail/etf/portId=0970/?performance
"The ETF is exposed to the fluctuating values of the US currency, as there will not be any hedging to the Australian dollar."
US domiciled, but Australian tax treatment? Best of both worlds in your situation? Although I don't know what issues or headaches might be triggered by this arrangement if returning back to the US.
Post by: misterhorsey on January 16, 2017, 09:31:06 PM
Post by: Dropbear on January 17, 2017, 02:24:39 AM
My situation:
- I currently have $10k invested in UBU - based primarily on the ethical screening, the slight benefit of no W8-BEN form, but the detraction of a higher cost relative to VTS.
- I'm also underweight in my Australian / international spread, and am planning to invest $5k amounts in international ETFs until I'm 50 / 50.
- The general idea with all these investments is that I buy-and-hold for 10 years to reach FI.
However, I've been challenged by the debates on this ethics thread:http://forum.mrmoneymustache.com/investor-alley/ethical-implications-of-index-fund-investing/ (http://forum.mrmoneymustache.com/investor-alley/ethical-implications-of-index-fund-investing/) The argument that I should not worry about broad ETF investment and instead focus on ethical consumption as well as things like volunteering is quite convincing.
I'm contemplating these alternatives:
A - Sell UBU (MER 0.20%), realise a small capital gain, and invest in VTS (MER 0.05%) instead, while also adding VEU for diversity? Or...
B - Continue to hold UBU without adding any more to it, and invest in VTS and VEU progressively?
Could anyone please help me with these questions?
1 - Given my timeframe, is the difference in fees substantial enough to justify selling UBU?
2 - What sort of split should I consider between VTS and VEU?
3 - Should I consider adding VGE? It looks a more risky proposition than VTS and VEU?
Many thanks!
Post by: marty998 on January 17, 2017, 02:48:34 AM
I am waiting patiently for the day my quarterly distribution is $10,750 instead of $1,075 :D
Post by: FFA on January 17, 2017, 05:04:21 AM
2&3) I prefer VGS instead of VTS/VEU. VGS like UBU is Australia domiciled. It's not just the W8 form, it minimises any US estate tax risk or other US regulatory risk, gives a DRP option. VGS covers global developed in a single fund, so you don't need to worry about VTS/VEU. Although you can throw in some VGE if you want emerging, e.g. VGS/VGE 90/10. If you go with VTS/VEU then 50/50 is a reasonable split based on rough market cap. VGS and VGE usually go together, or alternatively pairing is VTS/VEU (VEU includes emerging markets too).
1) If you're going to focus on the Vanguard funds I would sell the UBU and switch it over, since the capital gain is not huge. Save yourself the admin of the extra holding.
Post by: goldenmoustache on January 17, 2017, 06:38:19 PM
Yay, Vanguard dividends get paid tomorrow!
I am waiting patiently for the day my quarterly distribution is $10,750 instead of $1,075 :D
aren't we all?! :)
Post by: Anatidae V on January 17, 2017, 08:17:27 PM
Yup!Yay, Vanguard dividends get paid tomorrow!
I am waiting patiently for the day my quarterly distribution is $10,750 instead of $1,075 :D
aren't we all?! :)
I bought my first VGS yesterday. Woot international exposure! It's a big thrill to buy shares, and I'm completely unconcerned about blippy dips so far, but I'm not sure yet how we'd feel through a big dip. I'm glad I've picked the right investment for my risk tolerance so far. Shares are still a tiny allocation compared to cash for us, so I expect we may feel differently once our allocation starts to be clearly equal or more shares than cash (currently $120k cash, $20k shares).
Post by: Dropbear on January 18, 2017, 04:57:46 AM
Hi Dropbear,
2&3) I prefer VGS instead of VTS/VEU. VGS like UBU is Australia domiciled. It's not just the W8 form, it minimises any US estate tax risk or other US regulatory risk, gives a DRP option. VGS covers global developed in a single fund, so you don't need to worry about VTS/VEU. Although you can throw in some VGE if you want emerging, e.g. VGS/VGE 90/10. If you go with VTS/VEU then 50/50 is a reasonable split based on rough market cap. VGS and VGE usually go together, or alternatively pairing is VTS/VEU (VEU includes emerging markets too).
1) If you're going to focus on the Vanguard funds I would sell the UBU and switch it over, since the capital gain is not huge. Save yourself the admin of the extra holding.
I'm surprised I didn't see the "no DRP" on VTS and VEU - that, and the other reasons you've pointed out do tend to make VGS sound more attractive.
Although UBU and VGS are closely comparable in fees (0.20% and 0.18% respectively), does the overlap in US exposure with both these funds make it a flawed strategy if I were to consider keeping my existing UBU allocation in place while adding a higher proportion of new funds into VGS, relative to the alternative of offloading UBU for VGS?
Thanks for your comments, it's great to learn more about these things!
Post by: potm on January 19, 2017, 12:25:44 AM
Yup!Yay, Vanguard dividends get paid tomorrow!
I am waiting patiently for the day my quarterly distribution is $10,750 instead of $1,075 :D
aren't we all?! :)
I bought my first VGS yesterday. Woot international exposure! It's a big thrill to buy shares, and I'm completely unconcerned about blippy dips so far, but I'm not sure yet how we'd feel through a big dip. I'm glad I've picked the right investment for my risk tolerance so far. Shares are still a tiny allocation compared to cash for us, so I expect we may feel differently once our allocation starts to be clearly equal or more shares than cash (currently $120k cash, $20k shares).
Wait until you start thinking that the market going up while you hold cash as you losing money 😋
Post by: FFA on January 19, 2017, 01:18:39 AM
Hi Dropbear,
2&3) I prefer VGS instead of VTS/VEU. VGS like UBU is Australia domiciled. It's not just the W8 form, it minimises any US estate tax risk or other US regulatory risk, gives a DRP option. VGS covers global developed in a single fund, so you don't need to worry about VTS/VEU. Although you can throw in some VGE if you want emerging, e.g. VGS/VGE 90/10. If you go with VTS/VEU then 50/50 is a reasonable split based on rough market cap. VGS and VGE usually go together, or alternatively pairing is VTS/VEU (VEU includes emerging markets too).
1) If you're going to focus on the Vanguard funds I would sell the UBU and switch it over, since the capital gain is not huge. Save yourself the admin of the extra holding.
I'm surprised I didn't see the "no DRP" on VTS and VEU - that, and the other reasons you've pointed out do tend to make VGS sound more attractive.
Although UBU and VGS are closely comparable in fees (0.20% and 0.18% respectively), does the overlap in US exposure with both these funds make it a flawed strategy if I were to consider keeping my existing UBU allocation in place while adding a higher proportion of new funds into VGS, relative to the alternative of offloading UBU for VGS?
Thanks for your comments, it's great to learn more about these things!
It's ok to have overlap if you have a specific reason. i.e. VGS has approx. 50% US exposure but you want a bit more, so top it up with a US only fund such as UBU. However if it's just a legacy issue then I would avoid the overlap and keep your affairs as simple as possible.
Post by: superannuationfreak on January 19, 2017, 02:45:33 AM
Hi Dropbear,
2&3) I prefer VGS instead of VTS/VEU. VGS like UBU is Australia domiciled. It's not just the W8 form, it minimises any US estate tax risk or other US regulatory risk, gives a DRP option. VGS covers global developed in a single fund, so you don't need to worry about VTS/VEU. Although you can throw in some VGE if you want emerging, e.g. VGS/VGE 90/10. If you go with VTS/VEU then 50/50 is a reasonable split based on rough market cap. VGS and VGE usually go together, or alternatively pairing is VTS/VEU (VEU includes emerging markets too).
1) If you're going to focus on the Vanguard funds I would sell the UBU and switch it over, since the capital gain is not huge. Save yourself the admin of the extra holding.
I'm surprised I didn't see the "no DRP" on VTS and VEU - that, and the other reasons you've pointed out do tend to make VGS sound more attractive.
Although UBU and VGS are closely comparable in fees (0.20% and 0.18% respectively), does the overlap in US exposure with both these funds make it a flawed strategy if I were to consider keeping my existing UBU allocation in place while adding a higher proportion of new funds into VGS, relative to the alternative of offloading UBU for VGS?
Thanks for your comments, it's great to learn more about these things!
If you don't overweight the US as part of your asset allocation, and the capital gains are small, it's probably preferable to sell the UBU.
From a rational perspective it probably won't matter much either way: $10,000, even if it doubles, won't be much of your 'stache in 10 years. And the expense difference is also not material. Either way, you'll be fine as long as you keep 'staching away the savings.
From a behavioural perspective it's probably easier to sell it. It reduces the chance you'll second-guess yourself when one of UBU and VGS outperforms over any given time period.
Post by: Dropbear on January 19, 2017, 04:42:41 AM
In regards to allocations, how diversified should an Aussie mustachian's international proportion of a portfolio be? It seems that the size of the US economy ensures it's healthily weighted even in VGS! Based on the mustachian concepts I've read, it seems unwise for the DIY investor to include any specific regions, countries, or sectors , so are all-world funds (and possibly emerging markets too?) all there is when it comes to broad international market investment?
Post by: Anatidae V on January 19, 2017, 04:51:09 AM
I already started feeling this late last year when I hadn't saved my next purchase yet! I have a house deposit that I am doing my best not to whittle away...Yup!Yay, Vanguard dividends get paid tomorrow!
I am waiting patiently for the day my quarterly distribution is $10,750 instead of $1,075 :D
aren't we all?! :)
I bought my first VGS yesterday. Woot international exposure! It's a big thrill to buy shares, and I'm completely unconcerned about blippy dips so far, but I'm not sure yet how we'd feel through a big dip. I'm glad I've picked the right investment for my risk tolerance so far. Shares are still a tiny allocation compared to cash for us, so I expect we may feel differently once our allocation starts to be clearly equal or more shares than cash (currently $120k cash, $20k shares).
Wait until you start thinking that the market going up while you hold cash as you losing money 😋
Post by: cakie on January 20, 2017, 10:19:57 PM
Me: 26, SO: 34
He also has a low tax job (PBI with salary sacrifice), which we can live off, with mine to save.
Original plan was to put minimums into super, save up $400k outside super over next 5yrs, then downshift to part-time, itinerant work that covers basic expenses both here and overseas (we both have EU citizenship). We wouldn't touch the $400k and just let it passively accumulate for a decade until we settle down.
However, it has come to my attention that in 15yrs when we aim to hit full FI, SO will be 50yrs old. This means he will be 10-15yrs from preservation age (govt might up it to 65? worst case?). So we may as well try to have up to 40% in super. If I put extra in pre-tax contributions, we can do an annual spouse split up to 85% of contributions. Seeing as the max pre-tax is only $30k ($25k from next yr), this seems like a no brainer to max since I will now be firmly in the 37c bracket.
Seem correct? Not really familiar with super rules, so just want to bounce of everyone here and make sure I'm not completely off-base.
Current investments: $105k outside super, $11k my super, $58k SO super
Post by: marty998 on January 20, 2017, 11:28:09 PM
Yes - spousal split of 85% (you pay the 15% tax in your super fund. Your age differences make this strategy work well - he'll hit the preservation age 8 years before you, so it makes sense to maximise contributions to his fund. Once he starts drawing a pension, you can use those excess pension payments beyond your expense needs to top up your super.
Post by: cakie on January 21, 2017, 05:34:16 PM
Congrats cakie, nicely done.Thanks! I hadn't made the connection between the 15% contribution tax and the 85% max, that part makes sense now :)
Yes - spousal split of 85% (you pay the 15% tax in your super fund. Your age differences make this strategy work well - he'll hit the preservation age 8 years before you, so it makes sense to maximise contributions to his fund. Once he starts drawing a pension, you can use those excess pension payments beyond your expense needs to top up your super.
Post by: iloveanimals on January 23, 2017, 02:58:09 PM
My question is - should I leave the money in NAB Trade High Interest Account and do my trades via NAB or should I, once I have enough funds, move the money over to Commsec to undertake my transactions as the majority will be free for a while? My concern is that once I have traded via Commsec I guess I am stuck with them for life. Not sure if that is something to be concerned about?
Your experience or advise in this matter would be greatly appreciated. Thanks!
Post by: steveo on January 23, 2017, 03:21:02 PM
Post by: FFA on January 23, 2017, 03:24:58 PM
I use nabtrade myself.
You are not stuck forever, you can always change in future and shift your shares across using a broker to broker form.
Post by: iloveanimals on January 23, 2017, 04:05:19 PM
commsec are 19.95 if you open a CDIA account (free). Also I think unique feature of commsec is you don't need the funds in advance to trade. So you can leave the money in ubank or ING or somewhere paying more interest and then transfer it over after completing the trade (but needs to be there by settlement).
I use nabtrade myself.
You are not stuck forever, you can always change in future and shift your shares across using a broker to broker form.
Thanks FFA - can I ask why you choose NAB over Commsec? and what the cost is of a broker to broker form?
Post by: iloveanimals on January 23, 2017, 04:07:48 PM
iloveanimals - I think Commsec charge more. https://www.commsec.com.au/support/rates-and-fees.html
Thanks Steveo - I don't think I will trade anything higher than $10k lots...so here is a copy and paste of their costs - unless I am missing something?
$19.95 (Up to $10,000)
$29.95 (Between $10,000 and $25,000)
Post by: englyn on January 23, 2017, 09:07:35 PM
I store cash-waiting-for-share-purchase in ing high interest or mortgage offset, either are better than nabtrade's interest rate.
Post by: FFA on January 23, 2017, 09:58:58 PM
Post by: FFF on January 24, 2017, 02:32:39 AM
Like FFA I originally used NABtrade because of their intro offer of 20 free trades. Once that was used up I then did a broker to broker transfer (free to do, and as easy as filling in 1 simple form) to CMC which I now use. CMC only charge $11 a trade (or 0.1%, whichever is higher) so if you are only buying once every few months or so then that is probably your cheapest option. Drawbacks are that CMC cash account pays virtually no interest, and they don't offer access to international markets.
It's easy to do the broker to broker transfer (provided the details match) but just be aware that there is a bit more of an administrative burden for that financial year as you then have documentation for 2 HINs. In my opinion, this wasn't a problem and was worth the savings in brokerage, but for some it may be easier to keep it simple.
Post by: Jess of Arc on January 24, 2017, 07:52:20 AM
I've put our case study up on 'Ask a Moustachian', and someone suggested that we invest into shares rather than pay off our PPOR.
I'm looking into the math of that, and it could put us ahead.
What are people's suggestion for the best fund, and what kinds of things do we need to take into account with that?
We already have a couple of IPs, and a PPOR, so diversifying outside of real estate would be a good thing...
Post by: iloveanimals on January 24, 2017, 03:54:27 PM
Post by: steveo on January 25, 2017, 12:20:54 AM
Hi everyone,
I've put our case study up on 'Ask a Moustachian', and someone suggested that we invest into shares rather than pay off our PPOR.
I'm looking into the math of that, and it could put us ahead.
What are people's suggestion for the best fund, and what kinds of things do we need to take into account with that?
We already have a couple of IPs, and a PPOR, so diversifying outside of real estate would be a good thing...
I think you need to diversify but it's pretty hard to beat a return after tax of 5+% which is what you get if you pay off your mortgage on your PPOR. I can't understand how the math would put you ahead. Can you explain that to me.
Post by: marty998 on January 25, 2017, 01:24:29 AM
Hi everyone,
I've put our case study up on 'Ask a Moustachian', and someone suggested that we invest into shares rather than pay off our PPOR.
I'm looking into the math of that, and it could put us ahead.
What are people's suggestion for the best fund, and what kinds of things do we need to take into account with that?
We already have a couple of IPs, and a PPOR, so diversifying outside of real estate would be a good thing...
I think you need to diversify but it's pretty hard to beat a return after tax of 5+% which is what you get if you pay off your mortgage on your PPOR. I can't understand how the math would put you ahead. Can you explain that to me.
They are assuming the average return on stocks is higher than the current mortgage rate (4.xx%)
It doesn't take into account:
- the volatility of stocks
- SANF (sleep at night factor)
- the fact that tax is payable on dividends and distributions
- interest rates will rise soon enough, which increases the value of paying down the PPOR now.
Can you tell which side I'm on? :D :D :D
Having said that, a sensible compromise can be reached between paying down the house and building a share portfolio.
VAS is enough for me. I get the arguments about international and blah blah, but I'm happy enough to keep it simple and all in the one fund for now. If at some point I want more international I'll go through Super for it.
Post by: steveo on January 25, 2017, 02:25:04 AM
As for shares I use VAS, VGS and VAF (bonds) outside of super and just go with the standard high volatility fund in my super fund. Still I think just using VAS would probably be okay as well. I think I'd want something in bonds or cash though if I was close to retirement.
I think going beyond the simplest indexes isn't worth it but some people might have a different idea.
Post by: oysters on January 26, 2017, 05:41:00 AM
Post by: actionjackson on January 26, 2017, 09:17:24 AM
Post by: iloveanimals on January 26, 2017, 04:54:41 PM
I currently have 10k to purchase VHY shares. I have been waiting for them to reduce, but they are now on the increase due to trump stuff (I think). I did some reading and hear that Feb & March are the biggest payout for dividends, therefore I was thinking should I just bite the bullet and pay the extra in the hope to get the first lot of returns in Feb/ March? Thanks!
Post by: misterhorsey on January 26, 2017, 06:01:02 PM
If you have $900k invested, then $10k is 1.111% of that.
VHY is currently sitting at around $59, having achieved a recent 52 week high of $61.59.
The difference in buying $10k of VHY @ $59 and $61.59 is about 7 units (or $364). Which is the equivalent of 0.04% of the amount already invested ($900k).
If your investment horizon is 10-25 years+, then it's possibly not worth worrying too much about this 0.04% difference. Particularly if the name of the game is to allow it to grow via steady capital appreciation and reinvestment of dividends.
I think we all tend to worry a bit about maximising our investment. And also think that we can successfully time the market as well. I know I do. Which is one of the reasons why I've written this post to also convince myself just to buy some VGS without worrying too much about recent post Trump peaks.
Others may be able to express the maths a little more elegantly than I have.
(edited for spelling/typos)
Post by: Anatidae V on January 26, 2017, 07:22:13 PM
Post by: iloveanimals on January 26, 2017, 08:06:50 PM
I'm not going to suggest you buy now, or wait a while, but perhaps some context would be useful.
If you have $900k invested, then $10k is 1.111% of that.
VHY is currently sitting at around $59, having achieved a recent 52 week high of $61.59.
The difference in buying $10k of VHY @ $59 and $61.59 is about 7 units (or $364). Which is the equivalent of 0.04% of the amount already invested ($900k).
If you're investment horizon is 10-25 years+, then it's possibly not worth worrying too much about this 0.04% difference. Particularly is the name of the game is to allow it to grow via steady capital appreciation reinvestment of dividends.
I think we all tend to worry a bit about maximising our investment. And also think that we can successfully time the market as well. I know I do. Which is one of the reasons why I've written this post to also convince myself just to buy some VGS without worrying too much about recent post Trump peaks.
Others may be able to express the maths a little more elegantly than I have.
You make perfect sense, of course! But I just keep reading all this information about not to let money slip out of your hands. Which leads me to my other thing I have been also lamenting over and that is whether I should just go via the VHY wholesale fund (0.34% management fee) or via the EFT (trade costs & 0.24% management fee) route. I just spoke to Vanguard who told me that if I go down the EFT route that they do not manage the admin side of things. I know I will only do about 4 trades per year for maybe the next 2-3 years - so trade costs are low, but wondering if I would prefer the convenience of just having everything with Vanguard as I am not sure about what to expect through the group they outsource their admin too. Overall I think that EFT will be a slightly better performer. Aghhh so much to consider :)
Post by: misterhorsey on January 26, 2017, 08:51:04 PM
I know it was for someone else, but Misterhorsey that was just what I needed to read to calm me down. I can now stop feeling like I have to invest exactly right, and just get back to stashing. I am on the edge of my seat to finish saving for our next share purchase, but we'll get there when we get there. Thanks!
Hey glad you found it useful.
The hardest thing about investing and what causes many people to be unstuck is the emotional/irrational side of it.
I think from your post above you made your first purchase of some ETFs and it may be down a % or two since you bought. But overtime that decline will be overwhelmed by the long term gains (what does a purchase price of $60 v $58 matter when the current price is $200 in x years?). But also, declines can also be opportunities to be celebrated (if you have spare cash) as it's a good opportunity to buy more.
Post by: Anatidae V on January 26, 2017, 09:02:55 PM
Yup. I'm firmly in the "oh no, share price is down, I need to buy while it's on sale!" Just as emotional as the opposite (price is down = need to sell). Really I need to remind myself that over our investing timeline, it's barely a drop, and we've only just started.I know it was for someone else, but Misterhorsey that was just what I needed to read to calm me down. I can now stop feeling like I have to invest exactly right, and just get back to stashing. I am on the edge of my seat to finish saving for our next share purchase, but we'll get there when we get there. Thanks!
Hey glad you found it useful.
The hardest thing about investing and what causes many people to be unstuck is the emotional/irrational side of it.
I think from your post above you made your first purchase of some ETFs and it may be down a % or two since you bought. But overtime that decline will be overwhelmed by the long term gains (what does a purchase price of $60 v $58 matter when the current price is $200 in x years?). But also, declines can also be opportunities to be celebrated (if you have spare cash) as it's a good opportunity to buy more.
Post by: misterhorsey on January 26, 2017, 09:13:49 PM
Which leads me to my other thing I have been also lamenting over and that is whether I should just go via the VHY wholesale fund (0.34% management fee) or via the EFT (trade costs & 0.24% management fee) route.
Only you can make this decision as it's up to you how you prefer to manage your investments.
I went the ETF route for a few lump sums I wanted to invest early on. But for ongoing management I went down the wholesale fund route as it means that you can easily make contributions immediately after you get paid - and takes away the discretion of market timing.
I know the temptation of having money on the sidelines and giving you the discretion to choose when you invest it can result in analysis paralysis.
My view was that I would probably benefit more from the discipline of having my money invested, instead of waiting for big dips to buy. While you can make some great gains from buying in dips, you can also mistime them and miss out.
So ultimately, I thought I would be better served by paying the slightly higher management cost.
I'm actually quitting my job for an indefinite sabbatical and won't have any more salary coming in. Possibly forever if I go all out Early Retirement Extreme. So I will miss the discipline of getting money coming in, and then immediately transferring to vanguard. Actually, I think I will just miss money coming in!
(edited: more typos!)
Post by: limeandpepper on January 26, 2017, 09:18:04 PM
I'm actually quitting my job for an indefinite sabbatical and won't have any more salary coming in. Possibly forever if I go all out Early Retirement Extreme. So I will miss the discipline of getting money coming in, and then immediately transferring to vanguard. Actually, I think I will just miss money coming in!
Well that's exciting!! I would be interested in reading a journal if you start one! :)
Post by: iloveanimals on January 26, 2017, 09:24:25 PM
Which leads me to my other thing I have been also lamenting over and that is whether I should just go via the VHY wholesale fund (0.34% management fee) or via the EFT (trade costs & 0.24% management fee) route.
Only you can make this decision as it's up to how you prefer to manage your investments.
I went the ETF route for a few lump sums I wanted to invest early on. But for ongoing management I went down the wholesale fund route as it means that you can easily make contributions immediately after you get paid - and takes away the discretion of market timing.
I know the temptation of having money on the sidelines and giving you the discretion to choose when you invest it can result in analysis paralysis.
My view was that I would probably benefit more from the discipline of having my money invested, instead of waiting for big dips to buy. While you can make some great gains from buying in dips, you can also mistime them and miss out.
So ultimately, I thought I would be better served by paying the slightly higher management cost.
I'm actually quitting my job for an indefinite sabbatical and won't have any more salary coming in. Possibly forever if I go all out Early Retirement Extreme. So I will miss the discipline of getting money coming in, and then immediately transferring to vanguard. Actually, I think I will just miss money coming in!
Thanks yet again. I really needed another opinion on this. I think I have only come up with these few things: ETF - don't have any capital gain impact unless you trigger it - but in the managed fund this could occur without your control. The ETF would come out as a slightly better performer as I don't intend to make frequent trades and lower management fee. Finally the ETF is good if you really needed the $ quick you can get in in a day, where as the Managed Fund could take up to a week. So yes I am still undecided. LOL - I feel like I am losing my mind a bit!
Congratulations on quitting your job! Sounds like you have mixed emotions about it? Would love to know how you go with it all! Enjoy! Please keep us updated.
Post by: misterhorsey on January 26, 2017, 09:40:21 PM
ETF - don't have any capital gain impact unless you trigger it - but in the managed fund this could occur without your control. The ETF would come out as a slightly better performer as I don't intend to make frequent trades and lower management fee.
Yes, this is true. The CGT is a bit of a pain, and a bit of a drag, but it's not a deal breaker for me. Although I do have a few shares that are still underwater and that I have used to offset against gains.
Finally the ETF is good if you really needed the $ quick you can get in in a day, where as the Managed Fund could take up to a week. So yes I am still undecided. LOL - I feel like I am losing my mind a bit!
I think the advantages here are overstated. You can't get money out of a ETF in one day as settlement on trades is like any share - 3 days, or is it 2 now. Also, I've never taken money out of the fund, but I actually see the fact that you can't get money out over a few days as an advantage. Stops you from acting on impulse and cashing out your investments to plunge into that amazing Alpaca/Emu Oil Time Share investment that sounds too good to be true!
Congratulations on quitting your job! Sounds like you have mixed emotions about it? Would love to know how you go with it all! Enjoy! Please keep us updated.
Yes, thanks! Very excited actually to be quitting a frustrating and boring job. The mixed feelings are because I'm shocked to be voluntarily walking away from a decent salary. Before I discovered MMM I had assumed that one would need to achieve a passive income equivalent to your final salary to be 'comfortable', or some silly metric like that, but in the interests of bringing forward my FI i've dramatically cut my expenses down without really feeling like I'm missing out on anything. My passive income is still not as high as I would like, but my expenses are about 2/3 of my passive income so I'm using the maths to convince me to take a break for a little while.
Post by: misterhorsey on January 26, 2017, 09:43:44 PM
I'm actually quitting my job for an indefinite sabbatical and won't have any more salary coming in. Possibly forever if I go all out Early Retirement Extreme. So I will miss the discipline of getting money coming in, and then immediately transferring to vanguard. Actually, I think I will just miss money coming in!
Well that's exciting!! I would be interested in reading a journal if you start one! :)
Thanks limeandpepper - I did think about starting a journal asking the MMMhivemind for advice but I ended up making my decision before I had the energy to lay it all out on the forums. I might start up a random blog shortly and I'll share that with you and others that may be interested. I should perhaps call it MMMM just to steal traffic from clumsy typists.
I don't really think of this as a early retirement - but as I've resigned from work I've also resigned myself to the fact that I lack any motivation to find another job for the foreseeable future. I do want to remain busy and active and productive however. We'll see what the next year brings hey.
Post by: FFA on January 27, 2017, 01:45:00 AM
Post by: mjr on January 28, 2017, 06:29:31 PM
Thanks yet again. I really needed another opinion on this. I think I have only come up with these few things: ETF - don't have any capital gain impact unless you trigger it - but in the managed fund this could occur without your control. The ETF would come out as a slightly better performer as I don't intend to make frequent trades and lower management fee. Finally the ETF is good if you really needed the $ quick you can get in in a day, where as the Managed Fund could take up to a week. So yes I am still undecided. LOL - I feel like I am losing my mind a bit!
I don't think you're quite correct about ETFs and capital gains. Take VAS for an example, it is just an exchange-traded fraction of the overall Vanguard ASX 300 fund. If that fund makes a capital gain, then the ETF will also return capital gains as part of the distribution.
Of course, that particular fund rarely makes a capital gain, but the ETF is not immune from the possibility.
Unless you're comparing ETFs with more traditional actively-managed funds, which return capital gains far more frequently.
Post by: Adventures With Poopsie on January 28, 2017, 10:37:05 PM
Thread: http://forum.mrmoneymustache.com/investor-alley/australian-specific-investing-question/msg1404413/#msg1404413
Post by: iloveanimals on January 29, 2017, 02:55:59 PM
Thanks yet again. I really needed another opinion on this. I think I have only come up with these few things: ETF - don't have any capital gain impact unless you trigger it - but in the managed fund this could occur without your control. The ETF would come out as a slightly better performer as I don't intend to make frequent trades and lower management fee. Finally the ETF is good if you really needed the $ quick you can get in in a day, where as the Managed Fund could take up to a week. So yes I am still undecided. LOL - I feel like I am losing my mind a bit!
I don't think you're quite correct about ETFs and capital gains. Take VAS for an example, it is just an exchange-traded fraction of the overall Vanguard ASX 300 fund. If that fund makes a capital gain, then the ETF will also return capital gains as part of the distribution.
Of course, that particular fund rarely makes a capital gain, but the ETF is not immune from the possibility.
Unless you're comparing ETFs with more traditional actively-managed funds, which return capital gains far more frequently.
Thanks MJR - have you had any direct experience with Capital Gains being passed on via your ETF - or anyone else on this forum?
Post by: iloveanimals on January 29, 2017, 04:03:43 PM
Has anyone else felt confident to drop such insurances?
Post by: iloveanimals on January 29, 2017, 04:25:59 PM
Not sure if this is slightly off topic – but I was reviewing investments in my super fund and have thought about ditching my life, critical illness and salary continuance insurances. My reasons are that the fees are eating away at my small super amount ($150k) and I don’t have kids, mortgage or any debts. My wife will have access to our investments if a crisis should arise. I have decided to leave TPD at $345k coverage – because that can be costly.
Has anyone else felt confident to drop such insurances?
I ditched all the insurances (including TPD) in my super account once I became FI. Like you, no kids, mortgage or debt. Unlike you, single.
Thanks Ozbeach - firstly love the name you use! Makes me dream many a dream :) Ok - so one last question - you weren't worried about TPD - even though you could end up in a wheel chair for the rest of your life - or something as tragic as that were you would need full time care etc.
Post by: bigchrisb on January 29, 2017, 04:57:23 PM
However, once you are FI (if you REALLY are FI), then you should no longer be dependent upon your income, and no longer need to insure it. If you worry about not being insured on your income, then you probably aren't at your FI number yet.
I no longer hold any life/TPD/trauma insurance. My stash is self insurance on this now.
Post by: frugalsurfer on January 29, 2017, 05:07:44 PM
I'm late 20s now and have only worked full-time for three years. I have travelled extensively within 15+ countries over the past decade, so I feel I am in a relatively good position as I have always been super frugal and good at saving money.
I am now focussing on generating more money working from 'home' (the van) and while travelling and reducing my expenses further so I can buy into a community and retire/semi-retire and be completely self-employed by 40.
Post by: deborah on January 29, 2017, 05:26:15 PM
Post by: FFA on January 29, 2017, 06:24:00 PM
I changed my view on TPD and critical illness cover after I lodged a claim. For someone targeting FIRE, one of their biggest risks is losing their income during the accumulation stage. I think it makes sense to hold some form of insurance during this stage.I'm the same, FI and not holding any life/TPD/trauma insurance. Married with two young kids but believe the stash is adequate in case of one of these scenarios we don't like to think about. Probably more important for me, and something I still need to put a bit more effort into is estate planning.
However, once you are FI (if you REALLY are FI), then you should no longer be dependent upon your income, and no longer need to insure it. If you worry about not being insured on your income, then you probably aren't at your FI number yet.
I no longer hold any life/TPD/trauma insurance. My stash is self insurance on this now.
Post by: FFA on January 29, 2017, 06:28:13 PM
I don't recall from VAS in the past few years but definitely had some come through in IOZ and VGS.
Thanks yet again. I really needed another opinion on this. I think I have only come up with these few things: ETF - don't have any capital gain impact unless you trigger it - but in the managed fund this could occur without your control. The ETF would come out as a slightly better performer as I don't intend to make frequent trades and lower management fee. Finally the ETF is good if you really needed the $ quick you can get in in a day, where as the Managed Fund could take up to a week. So yes I am still undecided. LOL - I feel like I am losing my mind a bit!
I don't think you're quite correct about ETFs and capital gains. Take VAS for an example, it is just an exchange-traded fraction of the overall Vanguard ASX 300 fund. If that fund makes a capital gain, then the ETF will also return capital gains as part of the distribution.
Of course, that particular fund rarely makes a capital gain, but the ETF is not immune from the possibility.
Unless you're comparing ETFs with more traditional actively-managed funds, which return capital gains far more frequently.
Thanks MJR - have you had any direct experience with Capital Gains being passed on via your ETF - or anyone else on this forum?
VAS has been fortunate as it's continually expanding so they would be buying without need to sell. Other ETF's that are shrinking or more up and down might be more prone to capital gains. Smart beta funds that may not be market cap weighted will also be more prone to capital gains.
Post by: iloveanimals on January 29, 2017, 09:06:47 PM
I don't recall from VAS in the past few years but definitely had some come through in IOZ and VGS.
Thanks yet again. I really needed another opinion on this. I think I have only come up with these few things: ETF - don't have any capital gain impact unless you trigger it - but in the managed fund this could occur without your control. The ETF would come out as a slightly better performer as I don't intend to make frequent trades and lower management fee. Finally the ETF is good if you really needed the $ quick you can get in in a day, where as the Managed Fund could take up to a week. So yes I am still undecided. LOL - I feel like I am losing my mind a bit!
I don't think you're quite correct about ETFs and capital gains. Take VAS for an example, it is just an exchange-traded fraction of the overall Vanguard ASX 300 fund. If that fund makes a capital gain, then the ETF will also return capital gains as part of the distribution.
Of course, that particular fund rarely makes a capital gain, but the ETF is not immune from the possibility.
Unless you're comparing ETFs with more traditional actively-managed funds, which return capital gains far more frequently.
Thanks MJR - have you had any direct experience with Capital Gains being passed on via your ETF - or anyone else on this forum?
VAS has been fortunate as it's continually expanding so they would be buying without need to sell. Other ETF's that are shrinking or more up and down might be more prone to capital gains. Smart beta funds that may not be market cap weighted will also be more prone to capital gains.
Thanks for the replies. I spoke to Vanguard and they said that in the ETF they don't pass on any capital gains - only through the retail or wholesale funds. I also tried to dig more to find out what has been the previous performance of capital gains events in the VHY wholesale funds - to which they wouldn't provide me that detail. So back to working out pro's and cons for ETF vs Wholesale funds.
Post by: iloveanimals on January 29, 2017, 09:11:24 PM
I ditched the insurance as soon as I joined the super fund - for the same reasons - no kids, no mortgage... The TPD I thought about and eventually ditched as well, because, although I was still working, pretty much every way I could need it, was already covered. When I had an accident in Victoria, TAC should have covered just about everything (I fell in a crack because I had only been working as a contractor for 6 months, and thus didn't have 6 months of employment history in the type of job I had). However, I looked into the amount I would really need if I was disabled AFTER I became FIRE, and it can be an appalling amount (much more than a normal ER amount), so I looked into TPD at that stage, then procrastinated until I actually had enough to self insure. But for those who are FIREing on low amounts, and before you are FI, you probably need to do the sums.
Thanks Deborah and then many others you have provided a response regarding insurances. Final decision is to get rid of Life ( ironic name!) Insurance and reduce salary continuance. Once we are fully FIRED - then we will probably drop everything ...except TPD can't seem to get over not needing that one. Thanks again :)
Post by: mjr on January 30, 2017, 02:00:06 AM
Thanks for the replies. I spoke to Vanguard and they said that in the ETF they don't pass on any capital gains - only through the retail or wholesale funds. I also tried to dig more to find out what has been the previous performance of capital gains events in the VHY wholesale funds - to which they wouldn't provide me that detail. So back to working out pro's and cons for ETF vs Wholesale funds.
I'm happy to be wrong (I'm wrong often), but did they say how this happens ? I'm pretty sure they use the same underlying fund, so if the fund pays capital gains how do they pass those gains on to ETF holders ?
My VAS annual tax statement includes lines for capital gains ($0).
Post by: marty998 on January 30, 2017, 02:38:33 AM
VAS wouldn't trigger too many capital gains. The only time it would sell holdings would be when there is a takeover (and no scrip for scrip rollover option available - e.g. when a foreign company acquires an Australian one) or when a company gets booted out of the S&P ASX 300 index (in which case there is likely to be a capital loss, not a gain).
There have not been too many large takeovers occur in the market lately. Perhaps M&A activity will pick up again soon.
VHY on the other had rebalances every 6 months, so there will potentially be large capital gains and losses triggered every year.
Post by: iloveanimals on January 30, 2017, 06:52:53 PM
Thanks for the replies. I spoke to Vanguard and they said that in the ETF they don't pass on any capital gains - only through the retail or wholesale funds. I also tried to dig more to find out what has been the previous performance of capital gains events in the VHY wholesale funds - to which they wouldn't provide me that detail. So back to working out pro's and cons for ETF vs Wholesale funds.
I'm happy to be wrong (I'm wrong often), but did they say how this happens ? I'm pretty sure they use the same underlying fund, so if the fund pays capital gains how do they pass those gains on to ETF holders ?
My VAS annual tax statement includes lines for capital gains ($0).
I got in touch with Vanguard and this is their response:
Capital gains simply refer to the gain in an asset's price.
If you bought a house for $1 million and sold it for $1.5 million, that would result in a $500,000 capital gain.
Similarly, if you purchased a Vanguard ETF for $50 and later sold it when the price rose to $60, this will result in a capital gain of $10.
In effect, the capital gain is only realised once the asset is sold.
The same principle also relates to Vanguard Managed Funds. The managed funds are composed of units, the price of which is subject to fluctuations in the same way an ETF's price or house prices fluctuate from time to time.
So now I am really confused, because their explanation is what I thought in the first place, however I have read many people here say that they had to deal with the Capital Gains that get passed onto them at the end of FY...but I am sure they haven't sold their shares. Anyone out there that can set things straight?
Post by: FFA on January 30, 2017, 07:34:34 PM
1. As described below when you sell the units. These are direct CG's
2. When the fund itself sells units and has a CGT event, it needs to pass on all tax to the unitholders as the fund itself does not pay tax. Therefore you can incur "distributed" CG's from the fund. As explained it is unlikely to be significant in the case of VAS, but certainly not impossible.
Post by: iloveanimals on January 30, 2017, 10:15:55 PM
there are two levels of CG.
1. As described below when you sell the units. These are direct CG's
2. When the fund itself sells units and has a CGT event, it needs to pass on all tax to the unitholders as the fund itself does not pay tax. Therefore you can incur "distributed" CG's from the fund. As explained it is unlikely to be significant in the case of VAS, but certainly not impossible.
Thanks FFA. I put your info to Vanguard who responded with:
You are right. It is possible for a managed fund to distribute capital gains to unit holders following a significant change in the volume of money in that fund. This can occur due to a number of reasons, but also includes large volume transactions.
This effect is not seen in our ETF products as the market makers are able to absorb such fluctuations in the spread they charge on the ETF products.
Over the past 10 years, a sizeable capital gain payout has only been seen on two occasions (30 June 2007 and 30 June 2015).
So ETF's avoid a CGT event unless you sell. So I think may have made up my mind for me to go with ETF to control the potential tax issues.
Although now I am debating whether I buy VAS or VHY, given that many of the performers that Pay dividends in the VHY are already represented in VAS. I have concerns around if Australian Companies start collapsing under the pressure to pay dividends in the future then the VHY shares may not be worth much at all. It's more of a risk I guess. But we don have most of $ in the Vanguard Balanced Fund which might absorb the downtime's of VHY.
Post by: englyn on January 30, 2017, 10:23:19 PM
Post by: marty998 on January 31, 2017, 12:12:57 AM
Post by: steveo on January 31, 2017, 12:20:13 AM
One of my concerns with VAS is that, unlike the US VSTAX, it's not very diversified, as the top of the ASX is very concentrated (the top 5-10 companies have a huge chunk of the market capitalisation), plus it's only following the top 200 (or was it 300). VHY is worse for this.
Is there a better option ? I don't think that there is. I'd like to know if there is a better option.
Post by: FFA on January 31, 2017, 12:27:51 AM
I have written at length about concentration in the ASX200/300. I adjusted my portfolio to blend in some other ETF's such as MVW, EX20, MVS. I also tinker with some LIC's and direct shares. But still the majority of my funds are in the traditional vanguard ETF's (VAS, VGS, VTS/VEU --> gradually shifting to VGS). I think MVW is probably the best direct alternative (still includes the large caps). EX20 and MVS are not substitutions but complementary, i.e. blend them in to improve diversification.
Post by: MrThatsDifferent on January 31, 2017, 01:16:57 PM
My question: does this strategy make sense or should I do a 50/50 split each year for the next 2 years?
Post by: misterhorsey on January 31, 2017, 02:53:53 PM
Ok, I've registered for Vanguard's retail funds and will have about $20k to start investing next week. My plan is to focus on the VAS version first, get that to $100k first (yr 1) and then focus on the VGS version second (yr 2) and get that to $100k. It should take me a year to fill up each.
My question: does this strategy make sense or should I do a 50/50 split each year for the next 2 years?
So you're not talking about the ETFs, but the retail managed funds?
i.e.
ASX300-https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/retail/portId=8129/?overview
International (ex Aus) https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/retail/portId=8145/?overview
Some things to consider if you haven't already.
Given you are going the fund route, buying both at the same time doesn't incur any additional transactions costs like brokerage, and it has the advantage of diversifying your investment across Australia and the World. What if you your plough all your savings into Australia over the next year and International goes gangbusters?
Then again, as you can see, the fees for each decrease progressively at $50k invested, and then again at $100k. So if you have two funds sitting at about $60k each, you're paying marginally more fees than if you had them in one fund sitting at $120k. I emphasise 'marginally' more. But every little bit counts of course.
Over the long term, my gut feeling would be to start the two funds as the return from diversifying across Australia and international is probably going to be better than the savings from marginally lower fees over a small proportion of your overall.
But this then begs the question, why not go straight into one of Diversified funds?
The fees for the 'VAS' and 'VGS' equivalent funds are quite a bit higher than the ETFs. And the only real benefit of investing in these via the separate funds vs the ETFs is the lack of brokerage costs (which you pay for anyway via the fund fees) when buying small regular amounts.
But if you are happy with the fund route, and attracted by the fact that you make regular small investments, then the Diversified fund gives you automatic rebalancing and a blend of asset classes other than Australia and International shares (like property) to smooth over both bad times and good times. If you're going to pay those fees you may as well get something in return.
Post by: englyn on January 31, 2017, 06:19:22 PM
One of my concerns with VAS is that, unlike the US VSTAX, it's not very diversified, as the top of the ASX is very concentrated (the top 5-10 companies have a huge chunk of the market capitalisation), plus it's only following the top 200 (or was it 300). VHY is worse for this.
Is there a better option ? I don't think that there is. I'd like to know if there is a better option.
I haven't found one. Could balance things out a bit by buying a small caps etf, but that has its own shortcomings. I don't have to make it worse, though.
Post by: englyn on January 31, 2017, 06:20:49 PM
Such as "The index that tracks Small Caps - the S&P/ASX Small Ordinaries, was beaten by the S&P/ASX 200 Index by a whopping 38% in the past 10 years." http://www.betterwealth.com.au/blog/the-case-against-investing-in-small-caps/
buying a small caps etf, but that has its own shortcomings
Post by: MrThatsDifferent on January 31, 2017, 06:58:21 PM
Ok, I've registered for Vanguard's retail funds and will have about $20k to start investing next week. My plan is to focus on the VAS version first, get that to $100k first (yr 1) and then focus on the VGS version second (yr 2) and get that to $100k. It should take me a year to fill up each.
My question: does this strategy make sense or should I do a 50/50 split each year for the next 2 years?
So you're not talking about the ETFs, but the retail managed funds?
i.e.
ASX300-https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/retail/portId=8129/?overview
International (ex Aus) https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/retail/portId=8145/?overview
Some things to consider if you haven't already.
Given you are going the fund route, buying both at the same time doesn't incur any additional transactions costs like brokerage, and it has the advantage of diversifying your investment across Australia and the World. What if you your plough all your savings into Australia over the next year and International goes gangbusters?
Then again, as you can see, the fees for each decrease progressively at $50k invested, and then again at $100k. So if you have two funds sitting at about $60k each, you're paying marginally more fees than if you had them in one fund sitting at $120k. I emphasise 'marginally' more. But every little bit counts of course.
Over the long term, my gut feeling would be to start the two funds as the return from diversifying across Australia and international is probably going to be better than the savings from marginally lower fees over a small proportion of your overall.
But this then begs the question, why not go straight into one of Diversified funds?
The fees for the 'VAS' and 'VGS' equivalent funds are quite a bit higher than the ETFs. And the only real benefit of investing in these via the separate funds vs the ETFs is the lack of brokerage costs (which you pay for anyway via the fund fees) when buying small regular amounts.
But if you are happy with the fund route, and attracted by the fact that you make regular small investments, then the Diversified fund gives you automatic rebalancing and a blend of asset classes other than Australia and International shares (like property) to smooth over both bad times and good times. If you're going to pay those fees you may as well get something in return.
Thanks Mr H! You are correct, those are the funds I mean. Yes, I'm not going the ETF route because I'm intimidated by the brokerage part and feel like it's all too much. I need this to be as simple as possible for me to make it work. I think I get what you mean about the diversified ones, those are the balanced, growth, etc Lifestrategy options? That makes sense and would be simple. I haven't targeted those Because no one mentions them really. I've read every page of this topic and most advocate the VAS & VGS versions (granted, most advocate the ETF not retail). I don't know if I should get balanced, growth or high growth? I'm happy to do the 50/50 split, that makes sense, I will just have to pay slightly higher fees longer. I'll look at the returns of the Lifestrategy ones to see if they will grow as well as the VAS & VGS versions.
Post by: iloveanimals on January 31, 2017, 07:15:43 PM
Capital Gains : VGS certainly distributed CG in Jul'16. The div was $1.49 per unit, much more than the usual per quarter. And two thirds of it was capital gains (held for more than 12 months). I haven't had any from VAS but I'm a bit surprised Vanguard are giving such a definitive answer it could possibly happen as was the case in VGS.
I have written at length about concentration in the ASX200/300. I adjusted my portfolio to blend in some other ETF's such as MVW, EX20, MVS. I also tinker with some LIC's and direct shares. But still the majority of my funds are in the traditional vanguard ETF's (VAS, VGS, VTS/VEU --> gradually shifting to VGS). I think MVW is probably the best direct alternative (still includes the large caps). EX20 and MVS are not substitutions but complementary, i.e. blend them in to improve diversification.
Thanks FFA. I have challenged Vanguard based on the information you have provided me, so lets see how they respond. Stay Tuned. In regards to concentration of ASX200/300 the reason why I am ok with taking on VHY or VAS is because I have the majority of our funds in Vanguard Balanced Fund so thought taking risks like VHY might be ok. On another note, I have been wondering about the tax deductions that can be made for ETF's, as I have been told that the management fee is in the share purchase therefore fee's don't seem like they would be a tax deduction, unlike the Balanced Fund which clearly spells out the fee's paid - which I am guessing are tax decductable as they have been clearly stated. Sorry for not knowing, but I have yet to do tax for this as I only started investing back in October. Cheers.
Post by: misterhorsey on January 31, 2017, 09:13:45 PM
Thanks Mr H! You are correct, those are the funds I mean. Yes, I'm not going the ETF route because I'm intimidated by the brokerage part and feel like it's all too much. I need this to be as simple as possible for me to make it work. I think I get what you mean about the diversified ones, those are the balanced, growth, etc Lifestrategy options? That makes sense and would be simple. I haven't targeted those Because no one mentions them really. I've read every page of this topic and most advocate the VAS & VGS versions (granted, most advocate the ETF not retail). I don't know if I should get balanced, growth or high growth? I'm happy to do the 50/50 split, that makes sense, I will just have to pay slightly higher fees longer. I'll look at the returns of the Lifestrategy ones to see if they will grow as well as the VAS & VGS versions.
Yes I can relate with having an aversion of the overheads of the ETFs.
But another key factor is the behavioural aspects of buying ETFs.
My own experience is that when saving up to buy ETFs I become price fixated. I want to wait for when the ETF dips. And so I end up stashing cash away, and a) i miss out on gains, or b) i buy and then I regret when it goes even lower!
One recent example is the recent Trump rally. I sat on the sidelines waiting for it to eventually pull back - and it has, a little. By around -4%. However, if I had just put the money into the managed fund as it came to hand, I'd be up around 9% or so - after averaging.
The other aspect is rebalancing. If you start off with a 50/50 allocation between Australia/International, how confident are you that you'll have the discipline to maintain that allocation over the long term.
In my view, getting the fund versions of VAS and VGS is the worst of both worlds - mainly due to the higher fees. If you do want to manage it yourself you're better off going the ETF route, buying in large chunks, doing the management yourself and paying the low fees. If you are going to pay the higher fund fees, then let Vanguard do the rebalancing and asset allocation for you.
Not many people talk about the Lifestrategy funds because there's not much to talk about. You bpay your money in as you get it, you get quarterly dividend statements and annual tax statements- not much to do, not much to control.
Many people on this forum like a little more control - like to design their own allocations and portfolios - are forever tweaking and optimising their portfolios. So this provokes far more discussions about ETFs as they are a great vehicle for these kinds of investors. And it creates options and choices - and the decision to make the right choice can become overwhelming.
Their returns may be better, or on par, or slightly worse - no-one can really tell. One thing is certain however - there is a time cost involved in managing certain types of portfolios - which is fine if you enjoy it.
I used to buy shares directly but I'm glad I don't do it any more. There is a cost to investing in the funds, but one needs to value one's time as well (otherwise I wouldn't be able to write long winded forum posts!)
Post by: misterhorsey on January 31, 2017, 09:31:35 PM
In regards to concentration of ASX200/300 the reason why I am ok with taking on VHY or VAS is because I have the majority of our funds in Vanguard Balanced Fund so thought taking risks like VHY might be ok.
Hey animallover. I think you mentioned wayback that you were interested in VHY to increase your income component of your investment.
However, buying more VAS and VHY when you already have the balanced fund sounds a bit like unnecessary duplication.
My suggestion would be to zoom out and have a look at your overall asset allocation and make sure you understand how future and ongoing purchases would affect that. My memory is that you were very property heavy in the past, and still may be. Adding a little bit of ETF may have a negligible effect on your overall investment portfolio and income streams, but at the expense of slightly fiddlier reporting. Into the future it may increasing your investment concentration further on Australian equities (exchanging one overallocation, property, into another, australian equities).
Post by: MrThatsDifferent on January 31, 2017, 11:08:55 PM
Post by: mjr on February 01, 2017, 02:40:15 AM
Capital Gains : VGS certainly distributed CG in Jul'16. The div was $1.49 per unit, much more than the usual per quarter. And two thirds of it was capital gains (held for more than 12 months). I haven't had any from VAS but I'm a bit surprised Vanguard are giving such a definitive answer it could possibly happen as was the case in VGS.
I have written at length about concentration in the ASX200/300. I adjusted my portfolio to blend in some other ETF's such as MVW, EX20, MVS. I also tinker with some LIC's and direct shares. But still the majority of my funds are in the traditional vanguard ETF's (VAS, VGS, VTS/VEU --> gradually shifting to VGS). I think MVW is probably the best direct alternative (still includes the large caps). EX20 and MVS are not substitutions but complementary, i.e. blend them in to improve diversification.
Thanks FFA. I have challenged Vanguard based on the information you have provided me, so lets see how they respond. Stay Tuned. In regards to concentration of ASX200/300 the reason why I am ok with taking on VHY or VAS is because I have the majority of our funds in Vanguard Balanced Fund so thought taking risks like VHY might be ok. On another note, I have been wondering about the tax deductions that can be made for ETF's, as I have been told that the management fee is in the share purchase therefore fee's don't seem like they would be a tax deduction, unlike the Balanced Fund which clearly spells out the fee's paid - which I am guessing are tax decductable as they have been clearly stated. Sorry for not knowing, but I have yet to do tax for this as I only started investing back in October. Cheers.
This forum knows more than Vanguard customer support. As has been said, it is entirely possible for any fund to deliver a capital gain as part of a distribution, but some are very rare and unlikely.
Post by: marty998 on February 01, 2017, 03:03:38 AM
Even still, it was pie in the sky and has taken longer than expected to get going. Shareholders got diluted heavily after a few cap raisings but it's all starting to come good this year. Quarterly report has just been released and shows their copper mine up and producing, US$23 million revenue for the December quarter and more importantly, generating free cash flow of US$5m as well.
Market cap of around $220m, on its way to producing around 18,000 tonnes of copper annually (US$5,850 per tonne), and this is before their much bigger "stage 2" mine goes ahead.
Haven't yet made a mint on it, round about $10k play money invested (125,000 shares @9c). It's nice to watch and has helped me understand a lot about how a mining company goes from exploration to production. I'm hoping that the knowledge gained over the last 5 years will help me research some more "potentials".
The quarterly report has a lot of info about grades and assaying techniques (determining how much copper is recoverable from a given amount of rock), and how to optimise the excavation of a mine site and optimising a refining plant throughput.
Well worth a read if you are interested to learn, even if you may not be keen to invest.
Post by: misterhorsey on February 01, 2017, 03:30:23 AM
I did it! Finally rolled the dice after 3 months of reading, stressing and strategising. I went with the Lifestrategy High Growth Fund and will power that to $100k and then evaluate my next step. I think the KISS method will be the best for me. Thanks for everyone's help and support!
Well done! You also inadvertently make another good point. Better to focus energies on saving money, stashing your investments away and living life, rather than over analysing invest options too much. Once you've set it up, go go go! What's the point of working and saving hard to retire early if so much mental energy while working is spent figuring out how to retire early?
Post by: oysters on February 01, 2017, 05:54:33 AM
I did it! Finally rolled the dice after 3 months of reading, stressing and strategising. I went with the Lifestrategy High Growth Fund and will power that to $100k and then evaluate my next step. I think the KISS method will be the best for me. Thanks for everyone's help and support!
Well done! You also inadvertently make another good point. Better to focus energies on saving money, stashing your investments away and living life, rather than over analysing invest options too much. Once you've set it up, go go go! What's the point of working and saving hard to retire early if so much mental energy while working is spent figuring out how to retire early?
I agree. Its wise to carefully optimise your effort to your strengths and what will provide benefit for effort. For most people, hyperanalysing and managing portfolios takes much time and stress. Lets say doing so gets you an extra 1% of returns over a very simple two or three allocation portfolio (probably about as good as it could get from the extra effort, realistically it might be more like 0.5%, unless your surname is Buffett). But doing so is so stressful overall that you end up saving only half or three-quarters what you would because you make other poorer decisions due to stress. You'll be much worse off overall.
Post by: steveo on February 01, 2017, 01:17:02 PM
Ok, I've registered for Vanguard's retail funds and will have about $20k to start investing next week. My plan is to focus on the VAS version first, get that to $100k first (yr 1) and then focus on the VGS version second (yr 2) and get that to $100k. It should take me a year to fill up each.
My question: does this strategy make sense or should I do a 50/50 split each year for the next 2 years?
So you're not talking about the ETFs, but the retail managed funds?
i.e.
ASX300-https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/retail/portId=8129/?overview
International (ex Aus) https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/retail/portId=8145/?overview
Some things to consider if you haven't already.
Given you are going the fund route, buying both at the same time doesn't incur any additional transactions costs like brokerage, and it has the advantage of diversifying your investment across Australia and the World. What if you your plough all your savings into Australia over the next year and International goes gangbusters?
Then again, as you can see, the fees for each decrease progressively at $50k invested, and then again at $100k. So if you have two funds sitting at about $60k each, you're paying marginally more fees than if you had them in one fund sitting at $120k. I emphasise 'marginally' more. But every little bit counts of course.
Over the long term, my gut feeling would be to start the two funds as the return from diversifying across Australia and international is probably going to be better than the savings from marginally lower fees over a small proportion of your overall.
But this then begs the question, why not go straight into one of Diversified funds?
The fees for the 'VAS' and 'VGS' equivalent funds are quite a bit higher than the ETFs. And the only real benefit of investing in these via the separate funds vs the ETFs is the lack of brokerage costs (which you pay for anyway via the fund fees) when buying small regular amounts.
But if you are happy with the fund route, and attracted by the fact that you make regular small investments, then the Diversified fund gives you automatic rebalancing and a blend of asset classes other than Australia and International shares (like property) to smooth over both bad times and good times. If you're going to pay those fees you may as well get something in return.
Thanks Mr H! You are correct, those are the funds I mean. Yes, I'm not going the ETF route because I'm intimidated by the brokerage part and feel like it's all too much. I need this to be as simple as possible for me to make it work. I think I get what you mean about the diversified ones, those are the balanced, growth, etc Lifestrategy options? That makes sense and would be simple. I haven't targeted those Because no one mentions them really. I've read every page of this topic and most advocate the VAS & VGS versions (granted, most advocate the ETF not retail). I don't know if I should get balanced, growth or high growth? I'm happy to do the 50/50 split, that makes sense, I will just have to pay slightly higher fees longer. I'll look at the returns of the Lifestrategy ones to see if they will grow as well as the VAS & VGS versions.
I think it you are going the managed fund route I would use one of the all in one funds. Just chuck it in there and do absolutely nothing else. I am trying to get my parents to put some of their money in there.
Post by: steveo on February 01, 2017, 01:20:29 PM
I did it! Finally rolled the dice after 3 months of reading, stressing and strategising. I went with the Lifestrategy High Growth Fund and will power that to $100k and then evaluate my next step. I think the KISS method will be the best for me. Thanks for everyone's help and support!
This is good news. I like this option a lot. I use the ETF's mainly due to the lower fees but if you want simplicity this is a great option. If I'm honest I probably also like a little but of DIY'ing when it comes to the ETF.
I reckon you will do well out of this though.
Post by: MrThatsDifferent on February 01, 2017, 02:57:22 PM
Post by: iloveanimals on February 01, 2017, 03:05:04 PM
In regards to concentration of ASX200/300 the reason why I am ok with taking on VHY or VAS is because I have the majority of our funds in Vanguard Balanced Fund so thought taking risks like VHY might be ok.
Hey animallover. I think you mentioned wayback that you were interested in VHY to increase your income component of your investment.
However, buying more VAS and VHY when you already have the balanced fund sounds a bit like unnecessary duplication.
My suggestion would be to zoom out and have a look at your overall asset allocation and make sure you understand how future and ongoing purchases would affect that. My memory is that you were very property heavy in the past, and still may be. Adding a little bit of ETF may have a negligible effect on your overall investment portfolio and income streams, but at the expense of slightly fiddlier reporting. Into the future it may increasing your investment concentration further on Australian equities (exchanging one overallocation, property, into another, australian equities).
Thanks MisterHorsey. In regards to property, we have our PPOR paid off and a small investment property also paid off. I did consider just to continue to build on the already established Balanced Fund rather than VHY, but our plan is to go into part-time work in 3 years, then aim after 5 years of part-time work to FIRE. So based on my maths it seems like VHY risks might be worth it for the potential returns and tax benefits. Ok so given you are far more experienced then myself, what would you do?
Also I wanted to know about what tax deductions can be made for ETF’s? As my understanding is that the management fee is built into the share price, therefore I am unsure if I would be able to claim that management fee, like I could in the Wholesale Funds. Thank you
Post by: iloveanimals on February 01, 2017, 03:07:29 PM
Capital Gains : VGS certainly distributed CG in Jul'16. The div was $1.49 per unit, much more than the usual per quarter. And two thirds of it was capital gains (held for more than 12 months). I haven't had any from VAS but I'm a bit surprised Vanguard are giving such a definitive answer it could possibly happen as was the case in VGS.
I have written at length about concentration in the ASX200/300. I adjusted my portfolio to blend in some other ETF's such as MVW, EX20, MVS. I also tinker with some LIC's and direct shares. But still the majority of my funds are in the traditional vanguard ETF's (VAS, VGS, VTS/VEU --> gradually shifting to VGS). I think MVW is probably the best direct alternative (still includes the large caps). EX20 and MVS are not substitutions but complementary, i.e. blend them in to improve diversification.
Thanks FFA. I have challenged Vanguard based on the information you have provided me, so lets see how they respond. Stay Tuned. In regards to concentration of ASX200/300 the reason why I am ok with taking on VHY or VAS is because I have the majority of our funds in Vanguard Balanced Fund so thought taking risks like VHY might be ok. On another note, I have been wondering about the tax deductions that can be made for ETF's, as I have been told that the management fee is in the share purchase therefore fee's don't seem like they would be a tax deduction, unlike the Balanced Fund which clearly spells out the fee's paid - which I am guessing are tax decductable as they have been clearly stated. Sorry for not knowing, but I have yet to do tax for this as I only started investing back in October. Cheers.
This forum knows more than Vanguard customer support. As has been said, it is entirely possible for any fund to deliver a capital gain as part of a distribution, but some are very rare and unlikely.
Sure looks like it! That's why I come here for expert advise! Thanks to you and everyone else! I hope when I have more experience under my belt I will be able to return that favour :)
Post by: misterhorsey on February 01, 2017, 04:05:36 PM
In regards to concentration of ASX200/300 the reason why I am ok with taking on VHY or VAS is because I have the majority of our funds in Vanguard Balanced Fund so thought taking risks like VHY might be ok.
Hey animallover. I think you mentioned wayback that you were interested in VHY to increase your income component of your investment.
However, buying more VAS and VHY when you already have the balanced fund sounds a bit like unnecessary duplication.
My suggestion would be to zoom out and have a look at your overall asset allocation and make sure you understand how future and ongoing purchases would affect that. My memory is that you were very property heavy in the past, and still may be. Adding a little bit of ETF may have a negligible effect on your overall investment portfolio and income streams, but at the expense of slightly fiddlier reporting. Into the future it may increasing your investment concentration further on Australian equities (exchanging one overallocation, property, into another, australian equities).
Thanks MisterHorsey. In regards to property, we have our PPOR paid off and a small investment property also paid off. I did consider just to continue to build on the already established Balanced Fund rather than VHY, but our plan is to go into part-time work in 3 years, then aim after 5 years of part-time work to FIRE. So based on my maths it seems like VHY risks might be worth it for the potential returns and tax benefits. Ok so given you are far more experienced then myself, what would you do?
Also I wanted to know about what tax deductions can be made for ETF’s? As my understanding is that the management fee is built into the share price, therefore I am unsure if I would be able to claim that management fee, like I could in the Wholesale Funds. Thank you
I'm reluctant to give anything other than general thoughts without fully understanding the makeup of your portfolio. And even then, if I did know the composition, I can't account for your own risk profile/tolerance, as well as your expectations and consumption patterns in early retirement. I think you mentioned a while ago that your annual expenses were something like $70k per annum and this was non-negotiable. My current annual expenses are around $15k-$20k at the moment (and that includes rent)- so you can see how others may baulk at what I think might be achievable.
In any event, why not try the following exercise:
1) Draw up an ideal asset allocation plan that would give you peace of mind, a diversified allocation, a reasonable level of risk, and acceptable income (i.e. 35% residential property/35% Australian shares/30% international shares, i dunno, I'm just proposing this as an example. You may want to stick with a higher % of residential property as it's done so well for you. It's anchoring, and there is risk in maintaining this position of course.)
2)Analyse your current holdings to see what you hold presently (it sounds like you are very overweight Australian residential property - if your entire portfolio was in a fund it would have been constantly rebalancing over the years, selling a few bricks at a time and buying up US equities when they were cheap. Alas, property has done amazingly well for you but it's not so liquid).
3) Develop a longer term strategy to transition closer to your ideal asset allocation, minimising transaction cost and CGT events. We all have legacy investments we made earlier on before realising FI was a reality. It can take a little while to unwind these positions. Sometimes it's transactional costs - other times it's psychologial barriers. When it's both you've hit the jackpot - analysis paralysis all round!
I could be mistaken, but I think the focus on income growth via high yielding stocks is possibly leading you astray. I think someone else mentioned earlier that you should think about your investments in terms of their overall growth - both income via dividends and capital appreciation. High yielding stocks today are not necessarily high yielding stocks tomorrow. You are likely to pay tax on the dividends (albeit, less if fully franked) so it's not a freebie. Plus everyone points out how incredibly concentrated VHY is. So what to do? Well, if you run low on income via dividends, slice up part of your pie and sell it - ideally in a low income/tax year to minimise CGT. After all, that's what it's there for isn't it?
And is there any fundamental difference between receiving dividends and not reinvesting them, or reinvesting your dividends but every now and then selling off part of your fund? (Other than administrative logistics).
So I think the gist of my approach would be to take a high level strategic approach first - and develop a comprehensive plan. You're fortunate in that you have a lot of savings/investments to play with. But you shouldn't feel like you should be in rush to make any decisions about this. Everything you are currently proposing is tweaking around the edges compared to the mammoth task you've already undertaken of saving so much, so consistently and for so long.
These are just my thoughts and I'm always happy if anyone can pick holes in my advice. I'm learning a lot from this forum too!
Post by: misterhorsey on February 01, 2017, 04:13:37 PM
Also I wanted to know about what tax deductions can be made for ETF’s? As my understanding is that the management fee is built into the share price, therefore I am unsure if I would be able to claim that management fee, like I could in the Wholesale Funds. Thank you
Others will know more on this than me, but I don't think fees on wholesale or retail funds are tax deductable. But you aren't missing out. They are already accounted for within the fund.
https://www.vanguardinvestments.com.au/retail/ret/invest-with-us/faqs-tax-capital-gains.jsp
"Why is my management fee rebate assessable?
When a fund calculates the amount of income distribution, it takes into account a tax deduction for management costs charged to the fund at the rate which is detailed in the Product Disclosure Statement (PDS), which is reflected as a lower taxable distribution payment. When you receive a management fee rebate, the amount is assessed to tax in order to offset the larger tax deduction claimed by the fund. The effect of these transactions is that the net tax deduction (deduction in the fund less your assessable rebate) is equal to the net management fee charged to you."
Note: I don't really understand the above paragraph either.
If it's any comfort, it would be a record keeping nightmare to calculate fees subject to the tax deduction if you were buying or selling units throughout the year.
Also, just so you know, brokerage paid on ETFs forms part of the cost base of the ETF when you calculate CGT.
Interest on any loans taken out to buy managed funds is tax deductible.
Post by: iloveanimals on February 01, 2017, 05:33:21 PM
In regards to concentration of ASX200/300 the reason why I am ok with taking on VHY or VAS is because I have the majority of our funds in Vanguard Balanced Fund so thought taking risks like VHY might be ok.
I'm reluctant to give anything other than general thoughts without fully understanding the makeup of your portfolio. And even then, if I did know the composition, I can't account for your own risk profile/tolerance, as well as your expectations and consumption patterns in early retirement. I think you mentioned a while ago that your annual expenses were something like $70k per annum and this was non-negotiable. My current annual expenses are around $15k-$20k at the moment (and that includes rent)- so you can see how others may baulk at what I think might be achievable.
In any event, why not try the following exercise:
1) Draw up an ideal asset allocation plan that would give you peace of mind, a diversified allocation, a reasonable level of risk, and acceptable income (i.e. 35% residential property/35% Australian shares/30% international shares, i dunno, I'm just proposing this as an example. You may want to stick with a higher % of residential property as it's done so well for you. It's anchoring, and there is risk in maintaining this position of course.)
2)Analyse your current holdings to see what you hold presently (it sounds like you are very overweight Australian residential property - if your entire portfolio was in a fund it would have been constantly rebalancing over the years, selling a few bricks at a time and buying up US equities when they were cheap. Alas, property has done amazingly well for you but it's not so liquid).
3) Develop a longer term strategy to transition closer to your ideal asset allocation, minimising transaction cost and CGT events. We all have legacy investments we made earlier on before realising FI was a reality. It can take a little while to unwind these positions. Sometimes it's transactional costs - other times it's psychologial barriers. When it's both you've hit the jackpot - analysis paralysis all round!
I could be mistaken, but I think the focus on income growth via high yielding stocks is possibly leading you astray. I think someone else mentioned earlier that you should think about your investments in terms of their overall growth - both income via dividends and capital appreciation. High yielding stocks today are not necessarily high yielding stocks tomorrow. You are likely to pay tax on the dividends (albeit, less if fully franked) so it's not a freebie. Plus everyone points out how incredibly concentrated VHY is. So what to do? Well, if you run low on income via dividends, slice up part of your pie and sell it - ideally in a low income/tax year to minimise CGT. After all, that's what it's there for isn't it?
And is there any fundamental difference between receiving dividends and not reinvesting them, or reinvesting your dividends but every now and then selling off part of your fund? (Other than administrative logistics).
So I think the gist of my approach would be to take a high level strategic approach first - and develop a comprehensive plan. You're fortunate in that you have a lot of savings/investments to play with. But you shouldn't feel like you should be in rush to make any decisions about this. Everything you are currently proposing is tweaking around the edges compared to the mammoth task you've already undertaken of saving so much, so consistently and for so long.
These are just my thoughts and I'm always happy if anyone can pick holes in my advice. I'm learning a lot from this forum too!
MisterHorsey – you are very genorous in your feedback. I greatly appreciate it, and hope by responding that I am not going to annoy you.
I thought I would first say that we have realised that the $70k per year required was mainly around renovations that are requied around our home…and yes they are needed so we have decided to save the cash for that and get that out of the way. If we do this, then the annual expenses for safety is about $40k p.a.
To your points:
1) Diversification: Ok, thought I had this one sorted by Investing into the Vanguard Balanced Fund and retaining property. It also provides the level of risk we are happy to take on.
2) Australian Property: Reluctant to change our PPOR or release the Rental property, as it is key to our FIRE Plan.
3) Long Term Strategy : I have created a lifetime strategy that takes us out to just over 100 years of age. It takes into account, at different times, Cash Savings, VHY returns (obviously still debating this one), rental return, Balanced Fund returns and eventually Super.
Finally – back to High Yields. Ok here is my logic – so it would be good to know if it sounds crazy! Given the VHY do rebalance very regularly to ensure that there should always should be concentration on High Yield companies, shouldn’t it always be the case? Meaning that it’s not like I would be investing directly into CBA – but rather would rely on VHY to do the hard work to rebalance and have companies that only return High Yields. Yes I understand that there might be CGT ramifications, and actually that is a massive negative, hence why haven’t committed to it yet. In relation to the concentration of VHY, again I go to my earlier comment that is their job to rebalance so that concentration may change to other sectors, if say the finance sector falls over and cannot pay out dividends then the rebalance will occur.. I guess for me the question is, will there ever come a time that businesses no longer pay good dividends and then this might be the crumbling factor for VHY and others?? I guess the other reason I am very interested in pursuing VHY like products because there have been many a “financial guru’s” who really sell it as a good common sense approach because of the franked credits.
So as I see it at the moment I have 2 options – 1) Keep building the upon the already existing Vanguard Balanced Fund and OR 2) Start VHY and grow that. Of course I know being with Vanguard itself can be seen as limited, however I am thinking about risk – of which they are renowned for very low risk.
Thanks for the advise to take the time to slow down and think about all of this. You are very right. Sometimes I just want to get things over and done with as I feel like I am not moving forward, however I understand that taking the time to consider everything is very important. Thanks again!!!
Post by: iloveanimals on February 01, 2017, 05:35:34 PM
Also I wanted to know about what tax deductions can be made for ETF’s? As my understanding is that the management fee is built into the share price, therefore I am unsure if I would be able to claim that management fee, like I could in the Wholesale Funds. Thank you
Others will know more on this than me, but I don't think fees on wholesale or retail funds are tax deductable. But you aren't missing out. They are already accounted for within the fund.
https://www.vanguardinvestments.com.au/retail/ret/invest-with-us/faqs-tax-capital-gains.jsp
"Why is my management fee rebate assessable?
When a fund calculates the amount of income distribution, it takes into account a tax deduction for management costs charged to the fund at the rate which is detailed in the Product Disclosure Statement (PDS), which is reflected as a lower taxable distribution payment. When you receive a management fee rebate, the amount is assessed to tax in order to offset the larger tax deduction claimed by the fund. The effect of these transactions is that the net tax deduction (deduction in the fund less your assessable rebate) is equal to the net management fee charged to you."
Note: I don't really understand the above paragraph either.
If it's any comfort, it would be a record keeping nightmare to calculate fees subject to the tax deduction if you were buying or selling units throughout the year.
Also, just so you know, brokerage paid on ETFs forms part of the cost base of the ETF when you calculate CGT.
Interest on any loans taken out to buy managed funds is tax deductible.
LOL - glad you don't understand that paragraph either! Apart from that I think I get it now! Thanks.
Post by: iloveanimals on February 01, 2017, 07:05:40 PM
Dividends that include listed investment company capital gain amounts:
If a listed investment company (LIC) pays a dividend to you that includes a LIC capital gain amount, you may be
entitled to an income tax deduction.
You can claim a deduction if:
- you are an individual
- you were an Australian resident when a LIC paid you a dividend
- the dividend was paid to you after 1 July 2001, and
- the dividend included a LIC capital gain amount and the capital gain resulted from a CGT event happening to a
CGT asset owned by the LIC for at least twelve months.
The amount of the deduction is 50% of the LIC capital gain amount. The LIC capital gain amount will be shown separately on your dividend statement.
Capital gains on your tax return.
EXAMPLE : Completion of tax return
Ben, an Australian resident, was a shareholder in XYZ Ltd, a listed investment company. For the 2015–16 income year, Ben received a fully franked dividend
from XYZ Ltd of $70,000 including a LIC capital gain amount of $50,000. Ben includes on his tax return the
following amounts:
Franked dividend $ 70,000
Franking credit $ 30,000
Assessable income $100,000
Deduction for LIC capital gain $(25,000)
Net assessable income $75,000
So if I have read this correctly - looks like LIC's have better advantages when dealing with CGT events??
Post by: bigchrisb on February 01, 2017, 07:46:26 PM
So if I have read this correctly - looks like LIC's have better advantages when dealing with CGT events??
Not really. It puts LICs on the same footing as a trust (which the ETFs are) in terms of distributing capital gains. If a trust streams a capital gain to you, it hits your tax return as a capital gain, with all the usual capital gains rules (50% discount for more than 12 months etc). If a LIC does it, it is dividend income, with a tax offset attached, getting you to the same 50% tax position.
For example say you had a $1 capital gain per unit, and your all inclusive (medicare etc) tax rate was 39%.
$1 capital gain in a trust (managed fund or ETF) would show on your tax return as $1 of capital gain. You would discount this to 50%, and pay $0.195 in tax, keeping $0.805
$1 capital gain in a LIC (assuming they distribute it) would show as $1 profit in the company. The company pays 30% company tax. The company declared a dividend of 70c with 30c in franking credits. You would show in your tax return 70c of dividend, 30c of franking credit and 50c of discount. You would be taxed 19% on 50c, so the same $0.195 keeping $0.805.
There are a couple of subtleties that may work for or against you.
1. With a streamed capital gain, you can offset this against carried forward capital losses. Not so when streamed from the LIC.
2. The trust must stream all income in a given period. For the company its discretionary. This means that a LIC may keep some of the gains to compound at the company tax rate, which will probably be higher than your tax rate if you account for the LIC gain discount.
3. The ATO gets a free loan of your franking credits in the LIC case, until you lodge your return.
Post by: nofriends on February 01, 2017, 09:34:06 PM
I've just finished reading the entire thread from the beginning, it took me a few days but was totally worth it! Big thank you to all the contributors for sharing their questions and knowledge. I've made some notes as i was going along and it would probably take me some time before i come back with questions (and i have a few).
What i am now convinced of doing is to revise my plan, asset allocations and try to simplify. Up until couple of years ago my strategy was simple - pay off debts, dump the rest in ubank. But then we started the journey of investing and although i quite enjoyed it despite the setbacks, when i try and take an objective view, i realise that the position is rather far from the norm: totally underweight international and overweight in one single particular risky asset class. So it was time to take a step back and that's when i stumbled upon this thread! Look forward to adjusting to the no-frills index approach)
Post by: misterhorsey on February 01, 2017, 10:38:40 PM
MisterHorsey – you are very genorous in your feedback. I greatly appreciate it, and hope by responding that I am not going to annoy you.
No way! We're all here to exchange info and learn. I struggle with keeping my response succinct and to the point, but I must say it's fun to share the insights I've gathered over my time investing - but it's also useful to advise others as it helps crystalise knowledge that you've gathered into a coherent strategy.
Without sharing this knowledge with others it just kind of sits in the brain in some unstructured soupy mess.
I thought I would first say that we have realised that the $70k per year required was mainly around renovations that are requied around our home…and yes they are needed so we have decided to save the cash for that and get that out of the way. If we do this, then the annual expenses for safety is about $40k p.a.
As to your own expense requirements, I really only brought it up because no-one else can really stand in your shoes and understand why maintaining that particular level via a dividend stream is important to you. It wasn't to query whether it was too high - rather, I was pointing out the limitations of my own knowledge and advice.
Of course, different story if you felt it was too high and needed help to reduce it. Plenty of people happy to give you that kind of advice!
Post by: marty998 on February 01, 2017, 11:15:32 PM
Fund has $1000 of capital at start of FY16 (1 July 2015).
Fund has investment earnings of $50 for FY16 and deducts a $10 management fee on 31 December 2015. Your investment balance is $1,040 at the end of the financial year. Out of the $10 management fee, the manager rebates you $5 cash on 31 January 2016 (because they are nice or your planner cut a deal or whatever).
Fund declares a distribution of $40 (being the profit of the trust) on 30 June 2016 (unit price goes "ex-distribution" at same time) and pays you on 31 July 2016.
On your 2016 tax return, you need to declare $40 of distribution income and $5 of other income.
You don't get a deduction for the $10 management fee, otherwise you would need to declare $50 of distribution income (it's all netted).
Post by: stashgrower on February 02, 2017, 07:03:27 AM
I have some side income that didn't receive super. In lieu of that, I'm considering investing 10% gross for The Future. I'm a low-income earner saving up for a house deposit. Where would you recommend I put this money?
Options:
* Super
Pros: I am likely to be eligible for the government contribution this year?? I don't have to do the admin.
Cons: I can't touch it for decades and that lack of control does my head in even if it's a good idea ;) Management fees are higher than for ex-super ETFs.
* Ex-super e.g. index ETF
Pros: Grow my small investment portfolio. Likely to be no/low tax this year.
Cons: Probably taxed higher in future.
* House deposit
Pros: Keep chipping away at it.
Cons: It may be a few years away.
* Mehh just spend it!
Pros: I can think of many things to spend it on :D
Cons: It goes against my MMM tendencies. It defeats my original purpose of seeing it as "future income".
If it doesn't overcomplicate the discussion, I'd also like to ask for help with
Scenario #2: Same question for self-employment income, mid-level tax bracket.
Post by: stashgrower on February 02, 2017, 07:10:21 AM
In response to a Q on previous page: I declined the income and TPD insurances. It was killing my tiny super balance at the time. I'm also sceptical of how hard it would be to extract payments for certain events (sick in practice but not sick enough on paper?). No kids or I would choose differently.
Post by: FFA on February 02, 2017, 01:40:11 PM
Scenario 2 : Salary sacrifice or deductible super contributions for self employed are very attractive if you're on mid-high level tax bracket, so that would come into the mix here also.
Post by: deborah on February 02, 2017, 04:03:13 PM
Post by: iloveanimals on February 02, 2017, 06:54:41 PM
So if I have read this correctly - looks like LIC's have better advantages when dealing with CGT events??
Not really. It puts LICs on the same footing as a trust (which the ETFs are) in terms of distributing capital gains. If a trust streams a capital gain to you, it hits your tax return as a capital gain, with all the usual capital gains rules (50% discount for more than 12 months etc). If a LIC does it, it is dividend income, with a tax offset attached, getting you to the same 50% tax position.
For example say you had a $1 capital gain per unit, and your all inclusive (medicare etc) tax rate was 39%.
$1 capital gain in a trust (managed fund or ETF) would show on your tax return as $1 of capital gain. You would discount this to 50%, and pay $0.195 in tax, keeping $0.805
$1 capital gain in a LIC (assuming they distribute it) would show as $1 profit in the company. The company pays 30% company tax. The company declared a dividend of 70c with 30c in franking credits. You would show in your tax return 70c of dividend, 30c of franking credit and 50c of discount. You would be taxed 19% on 50c, so the same $0.195 keeping $0.805.
There are a couple of subtleties that may work for or against you.
1. With a streamed capital gain, you can offset this against carried forward capital losses. Not so when streamed from the LIC.
2. The trust must stream all income in a given period. For the company its discretionary. This means that a LIC may keep some of the gains to compound at the company tax rate, which will probably be higher than your tax rate if you account for the LIC gain discount.
3. The ATO gets a free loan of your franking credits in the LIC case, until you lodge your return.
Gee - sure glad I come here for advise! Thanks I didn't know any of this.
Post by: iloveanimals on February 02, 2017, 06:55:54 PM
Regarding the tax deduction for management fees bit. Lets look at an example.
Fund has $1000 of capital at start of FY16 (1 July 2015).
Fund has investment earnings of $50 for FY16 and deducts a $10 management fee on 31 December 2015. Your investment balance is $1,040 at the end of the financial year. Out of the $10 management fee, the manager rebates you $5 cash on 31 January 2016 (because they are nice or your planner cut a deal or whatever).
Fund declares a distribution of $40 (being the profit of the trust) on 30 June 2016 (unit price goes "ex-distribution" at same time) and pays you on 31 July 2016.
On your 2016 tax return, you need to declare $40 of distribution income and $5 of other income.
You don't get a deduction for the $10 management fee, otherwise you would need to declare $50 of distribution income (it's all netted).
Again learning in leaps and bounds on this forum! Thank you!
Post by: iloveanimals on February 02, 2017, 08:27:27 PM
..back to High Yields. Ok here is my logic – so it would be good to know if it sounds crazy! Given the VHY do a re-balance very regularly to ensure that there should always should be concentration on High Yield companies, shouldn’t it always be the case? Meaning that it’s not like I would be investing directly into CBA – but rather would I rely on VHY to do the hard work to re-balance and have companies that only return High Yields. Yes I understand that there might be CGT ramifications, and actually that is a massive negative, hence why haven’t committed to it yet. In relation to the concentration of VHY, again I go to my earlier comment that is their job to re balance so that concentration may change to other sectors, if say the finance sector falls over and cannot pay out dividends then the re balance will occur.. I guess for me the question is, will there ever come a time that businesses no longer pay good dividends and then this might be the crumbling factor for VHY and others?? I guess the other reason I am very interested in pursuing VHY like products because there have been many a “financial guru’s” who really sell it as a good common sense approach because of the franked credits.
Post by: stashgrower on February 03, 2017, 01:20:13 AM
FFA - what is your reasoning for not putting money into super in Scenario #1? I'm trying to understand how to think about this :)
In case it helps anyone else (I sure wish I knew about it earlier), in addition to Deborah's link for LISC there's also the co-contributions scheme:
https://www.ato.gov.au/individuals/super/in-detail/growing/super-co-contribution/
Post by: Rob_S on February 03, 2017, 04:41:36 AM
So I posted this before and wanted to know what people think of what I have thoughts about VHY...
..back to High Yields. Ok here is my logic – so it would be good to know if it sounds crazy! Given the VHY do a re-balance very regularly to ensure that there should always should be concentration on High Yield companies, shouldn’t it always be the case? Meaning that it’s not like I would be investing directly into CBA – but rather would I rely on VHY to do the hard work to re-balance and have companies that only return High Yields. Yes I understand that there might be CGT ramifications, and actually that is a massive negative, hence why haven’t committed to it yet. In relation to the concentration of VHY, again I go to my earlier comment that is their job to re balance so that concentration may change to other sectors, if say the finance sector falls over and cannot pay out dividends then the re balance will occur.. I guess for me the question is, will there ever come a time that businesses no longer pay good dividends and then this might be the crumbling factor for VHY and others?? I guess the other reason I am very interested in pursuing VHY like products because there have been many a “financial guru’s” who really sell it as a good common sense approach because of the franked credits.
Anecdotal I know but from 2 years of investing in VHY I haven't seen any negative CGT ramifications. Keep in mind our shares are held in my wifes name and she is on a low income which neutralises the CGT impacts if any.
Your finance sector example you mention happened recently in VHY. It once had large holdings in Woodside Petroleum, BHP and RIO. All this was rebalanced out of the fund and replaced with more traditional dividend payers like WOW when commodities and oil tanked a year or so ago. I believe it had an impact in the dividend payout last year which was low based on historic payments. Stupid BHP ... grumble... On the flip side there were a couple of years where commodities were paying out and as a result VHY was everyones darling with much better returns than VAS for a time. You take the good with the bad and expect some volatility. Its an example of rebalancing working in the funds favour. Rebalancing is a feature not a bug.
To me VHY is a volatile dividend/income play. It also seemed to me to be the fastest way to secure a replacement income particularly in our circumstances. If you want slow and steady income look into LICs like MLT, AFI or ARG.
Will businesses in Aus stop paying dividends? I doubt it. A very large part of the Aus market - Superfunds, SMSF and pensioners - love dividends and in particular the franking credits that go with them. The Govt would need to make paying dividends less favourable tax wise to change our love affair with divis and by doing so I think they would step on too many toes. 4 - 6% divvies payers are here to stay.
Post by: marty998 on February 03, 2017, 05:33:11 AM
It has missed a 1 year 100% gain in one of the largest companies in the country.
I fear this is the most spectacular problem with VHY. It will always rebalance out of stocks after shit has hit the fan, and then always miss the rebounds by being too late to rebalance into "in favour" stocks.
Post by: Rob_S on February 03, 2017, 06:19:22 AM
For what its worth VHY has a slight lead over VAS over five years despite the rebalance out of commodities at the bottom of the cycle. VHY 11.85% v VAS 11.48%.
Even so I look at it as a beefed up LIC. Due to my wifes low income I prefer the focus on dividends over capital gains. It's not the right choice for everyone.
Post by: FFA on February 03, 2017, 02:19:46 PM
FFA - what is your reasoning for not putting money into super in Scenario #1? I'm trying to understand how to think about this :)
Hi stashgrower, I think I was reacting to your own comment : "Cons: I can't touch it for decades and that lack of control does my head in even if it's a good idea ;) Management fees are higher than for ex-super ETFs. "
Generally Super is the best vehicle for long-term investing due to the tax treatment, but only if you can handle the money being locked away. Your comment gave me the impression that was not the case...
Post by: steveo on February 03, 2017, 05:06:34 PM
Yes... VHY sold BHP and RIO at the bottom of the cycle. BHP was $14 this time last year. It's now $28.
It has missed a 1 year 100% gain in one of the largest companies in the country.
I fear this is the most spectacular problem with VHY. It will always rebalance out of stocks after shit has hit the fan, and then always miss the rebounds by being too late to rebalance into "in favour" stocks.
I don't like VHY and this is one of the reasons why. The buying and selling criteria in my opinion is not what I am personally after. I also think that VAS pays out good dividends anyway. I also prefer to have some money in international markets. I think the Aussie market is reasonably small and I figure it's not worth trying to pick a specific smaller index.
Rob makes an interesting point though in that VHY has beaten VAS over a reasonable timeframe.
Post by: FFA on February 03, 2017, 05:17:19 PM
One thing to keep in mind when comparing alternatives is both return and risk. I could've made 100% in the past 5 years investing in exotic ornaments, it doesn't mean that's a better investment than VAS and VHY, as I might have been taking huge risks and could easily have lost 100% too. The point I've been making on VHY is the worse diversification than VAS, which itself is not very well diversified compared to global indices, but that is just the nature of the Oz market. Anyway, the point is personally I'd want to see a higher return from VHY to justify the greater risk of having an even more concentrated portfolio.
I agree with the other point too about index re-balancing. They have probably adjusted the rules a little so that retrospectively VHY would work better in another resources crash. The problem is the next market dislocation will probably be a different one altogether. Therefore my view as already expressed upthread, is generally skeptical of "smart beta" ETF's. If you want active management I think it might be better to choose an active manager if you can find one that warrants their fee and has a reasonable chance to outperform the index long-term. If you want passive management then default to a low cost traditional ETF. That said, I have added MVW, EX20 and MVS with the specific reason of improving diversification (versus VAS only).
Post by: steveo on February 03, 2017, 05:22:25 PM
Post by: marty998 on February 03, 2017, 05:52:25 PM
Even so I look at it as a beefed up LIC. Due to my wifes low income I prefer the focus on dividends over capital gains. It's not the right choice for everyone.
Hmm... Capital gains or dividends wouldn't matter so much for a low income earner. Both tax free regardless up to $18,200, and up to $37,000, the tax on >12 month gains is only 9.5% + Medicare.
Post by: misterhorsey on February 03, 2017, 06:03:05 PM
You can't really evaluate a product or strategy without also taking into account your own specific circumstances, which change over time.
i.e. everyone's banging on about fully franked dividends. But are they higher income earners, retirees, margin lenders etc etc? What works for them may also work for you - and they are happy to recommend it. But while it may be an optimal strategy for them, it may not necessarily be for you.
Post by: nofriends on February 03, 2017, 08:43:12 PM
It is a niche play and IMHO can only make sense as a satellite holding and if you want to tilt your portfolio towards high dividend paying blue chips - but then again why would you do it when ASX already has a huge natural tilt to those stocks?
Post by: iloveanimals on February 03, 2017, 09:40:49 PM
I would be very interested to know given we have a Vanguard Balanced Fund if we should just keep growing that and forget about VHY or VAS. The only reason I started looking into VAS or VHY was really because of larger returns as the Balanced fund is a little low on returns for what we hope to achieve in the next 2-3 years.
I was also doing some research into VTS (US MARKET) and thought maybe that might be a good long term strategy for returns, but I don't think it would have any tax benefits like franking credits of VAS/VHY and I am not even sure if CGT works the same way for those shares?? However I just looked up the share price and its sitting at $158 a pop! Has anyone bought any?
Thanks all!
Post by: iloveanimals on February 03, 2017, 10:16:10 PM
Post by: kivex on February 03, 2017, 11:20:51 PM
Annual Spend Question. I have read many a time here that people have budgets of anywhere from 20 - 40k per year and some live in Sydney and have kids. I have to ask - how do you do it? ... I must be missing something! What is it? Thanks. :)
My first post :)
So we thought we were pretty good at having an idea at what we were spending. We figured that looking at the CC statement each month was enough to know. It wasn't until we used something to truly track expenses that showed we were way off.
Personally, we use PocketSmith - https://www.pocketsmith.com - and think it does a wonderful job. I imported the last few years of income / expenses and then categorised them. That took me some time, however the benefit is that we were truly able to see what we were spending on - and some of it was quite a shock. We then created a realistic budget (also in PocketSmith) based on the past few years of expenditure and stick to that.
For us, some months cost more than others because there might be car rego / insurance / whatever due at that time of year, however since it is factored into an annual budget - and marked on the budget calendar - the general expense is known beforehand, so no more surprises.
Post by: steveo on February 04, 2017, 12:00:12 AM
Annual Spend Question. I have read many a time here that people have budgets of anywhere from 20 - 40k per year and some live in Sydney and have kids. I have to ask - how do you do it? Any chance you can give me a high level break down? I am trying to work out where we are going wrong in that each month on average we are spending at about 3.5 -5k. This is with us shopping at Aldi, mostly, making our own work lunches, don't buy coffee's, only use our car on the weekends, rarely go out to dinner and only buy clothes when required. We don't eat anything but plants - so no prawns or steaks for us. Our spend is that before we even get out of bed every month its just over $1000 on general "operating costs" like insurances, public transport, water, electricity, gas, etc. We are really good at checking that we are not over paying for the essentials like insurances (which are : car, pet, house, health, and Crisis). And we don't have kids! So just a bit puzzled as to how on earth people with kids get buy with say 3k per month living in Sydney. I must be missing something! What is it? Thanks. :)
I find this interesting. We spend exactly like yourself but we spend about 40k per year and we have 3 kids. Sometimes we buy some meat based food but we try to eat mostly plant food. I'm ignornign the junk food that we eat. I'm not including rent in my annual expenses though as we own our house.
The problem that I have with giving a breakdown is that I don't track my expenses. I just track how much we save and how much we earn.
Post by: nofriends on February 04, 2017, 12:13:00 AM
I would be very interested to know given we have a Vanguard Balanced Fund if we should just keep growing that and forget about VHY or VAS. The only reason I started looking into VAS or VHY was really because of larger returns as the Balanced fund is a little low on returns for what we hope to achieve in the next 2-3 years.As long as you realise that it tilts your asset allocation more towards growth, and to less defensive assets. I'd say don't rush, think it over, then decide and write down your AA that you're comfortable with and that you will stick to long term. After all there must have been a reason you went with Balanced fund which from memory is 50/50 ration between growth(equities) and defensive(bonds)?
Post by: iloveanimals on February 04, 2017, 12:33:52 AM
I find this interesting. We spend exactly like yourself but we spend about 40k per year and we have 3 kids.
The problem that I have with giving a breakdown is that I don't track my expenses. I just track how much we save and how much we earn.
Wow! With 3 kids!! Seriously amazing - I wish you could give us that breakdown as I can't imagine how you do it. I track everything so I can tell you exactly where everything is going because I think it is the only way to look at it all and say - ok that isn't required, and make the cuts. Keep up the amazing savings buddy! Thanks for your feedback to my question.
Post by: iloveanimals on February 04, 2017, 12:36:47 AM
Annual Spend Question. I have read many a time here that people have budgets of anywhere from 20 - 40k per year and some live in Sydney and have kids. I have to ask - how do you do it? ... I must be missing something! What is it? Thanks. :)
My first post :)
So we thought we were pretty good at having an idea at what we were spending. We figured that looking at the CC statement each month was enough to know. It wasn't until we used something to truly track expenses that showed we were way off.
Personally, we use PocketSmith - https://www.pocketsmith.com - and think it does a wonderful job. I imported the last few years of income / expenses and then categorised them. That took me some time, however the benefit is that we were truly able to see what we were spending on - and some of it was quite a shock. We then created a realistic budget (also in PocketSmith) based on the past few years of expenditure and stick to that.
For us, some months cost more than others because there might be car rego / insurance / whatever due at that time of year, however since it is factored into an annual budget - and marked on the budget calendar - the general expense is known beforehand, so no more surprises.
Congratulations on your first post!! Thanks for the tip about pocket smith - I am a bit old fashioned and manage everything excel spread sheets. I will take a look at it. Cheers
Post by: iloveanimals on February 04, 2017, 12:42:39 AM
I would be very interested to know given we have a Vanguard Balanced Fund if we should just keep growing that and forget about VHY or VAS. The only reason I started looking into VAS or VHY was really because of larger returns as the Balanced fund is a little low on returns for what we hope to achieve in the next 2-3 years.As long as you realise that it tilts your asset allocation more towards growth, and to less defensive assets. I'd say don't rush, think it over, then decide and write down your AA that you're comfortable with and that you will stick to long term. After all there must have been a reason you went with Balanced fund which from memory is 50/50 ration between growth(equities) and defensive(bonds)?
Yes it is 50/50. I think we have realised that we may have been a little too conservative. Now that the majority of our funds are in the low risk balanced fund, we now think we can take on some risk in the hope we can make higher returns. Thanks for your reply. We will be thinking about it. Currently leaning towards VAS.
Post by: Ozstache on February 04, 2017, 12:49:45 AM
Annual Spend Question. I have read many a time here that people have budgets of anywhere from 20 - 40k per year and some live in Sydney and have kids. I have to ask - how do you do it? Any chance you can give me a high level break down?We track our spending and come within +/-5% of what we budget. Just the two of us now, own home (4 bedder), 2 dogs, two newish cars, Canberra area. Here's our 2017 top level budget to give you an idea of how much we spend in each category:
(http://i744.photobucket.com/albums/xx82/kawabungaoz/Untitled_zpskf5jaeew.png) (http://s744.photobucket.com/user/kawabungaoz/media/Untitled_zpskf5jaeew.png.html)
As you can see, we make a clear distinction between essential living and discretionary expenses, including splitting the two cars we have between these groups as only one car is considered essential. As such, we consider our essential living expenses to be just under $20K for a year.
To clarify some of the large discretionary items: holidays includes a one week OS trip plus multiple local trips, major purchase includes replacement lounge room furniture after my youngest son moved out plus a new big screen TV just because, and spending covers eating out once a week plus discretionary stuff we individually occasionally buy.
While $20K represents our bare bones living budget, about another $15K of the discretionary budget puts us into the comfortable zone and, in our view, the remainder puts us squarely into spendypants territory.
Post by: Rob_S on February 04, 2017, 12:58:05 AM
Annual Spend Question. I have read many a time here that people have budgets of anywhere from 20 - 40k per year and some live in Sydney and have kids. I have to ask - how do you do it? Any chance you can give me a high level break down? I am trying to work out where we are going wrong in that each month on average we are spending at about 3.5 -5k. This is with us shopping at Aldi, mostly, making our own work lunches, don't buy coffee's, only use our car on the weekends, rarely go out to dinner and only buy clothes when required. We don't eat anything but plants - so no prawns or steaks for us. Our spend is that before we even get out of bed every month its just over $1000 on general "operating costs" like insurances, public transport, water, electricity, gas, etc. We are really good at checking that we are not over paying for the essentials like insurances (which are : car, pet, house, health, and Crisis). And we don't have kids! So just a bit puzzled as to how on earth people with kids get buy with say 3k per month living in Sydney. I must be missing something! What is it? Thanks. :)
Check this thread: http://forum.mrmoneymustache.com/ask-a-mustachian/whats-your-(australian)-financial-year-spending/ (ftp://forum.mrmoneymustache.com/ask-a-mustachian/whats-your-(australian)-financial-year-spending/)
Post by: iloveanimals on February 04, 2017, 01:54:47 AM
Annual Spend Question. I have read many a time here that people have budgets of anywhere from 20 - 40k per year and some live in Sydney and have kids. I have to ask - how do you do it? Any chance you can give me a high level break down? I am trying to work out where we are going wrong in that each month on average we are spending at about 3.5 -5k. This is with us shopping at Aldi, mostly, making our own work lunches, don't buy coffee's, only use our car on the weekends, rarely go out to dinner and only buy clothes when required. We don't eat anything but plants - so no prawns or steaks for us. Our spend is that before we even get out of bed every month its just over $1000 on general "operating costs" like insurances, public transport, water, electricity, gas, etc. We are really good at checking that we are not over paying for the essentials like insurances (which are : car, pet, house, health, and Crisis). And we don't have kids! So just a bit puzzled as to how on earth people with kids get buy with say 3k per month living in Sydney. I must be missing something! What is it? Thanks. :)
Check this thread: http://forum.mrmoneymustache.com/ask-a-mustachian/whats-your-(australian)-financial-year-spending/ (ftp://forum.mrmoneymustache.com/ask-a-mustachian/whats-your-(australian)-financial-year-spending/)
Awsome Link! Just what I was after - don't feel so bad now - however your spend is very low!!! Great work man.
Post by: iloveanimals on February 04, 2017, 01:57:38 AM
Annual Spend Question. I have read many a time here that people have budgets of anywhere from 20 - 40k per year and some live in Sydney and have kids. I have to ask - how do you do it? Any chance you can give me a high level break down?We track our spending and come within +/-5% of what we budget. Just the two of us now, own home (4 bedder), 2 dogs, two newish cars, Canberra area. Here's our 2017 top level budget to give you an idea of how much we spend in each category:
(http://i744.photobucket.com/albums/xx82/kawabungaoz/Untitled_zpskf5jaeew.png) (http://s744.photobucket.com/user/kawabungaoz/media/Untitled_zpskf5jaeew.png.html)
As you can see, we make a clear distinction between essential living and discretionary expenses, including splitting the two cars we have between these groups as only one car is considered essential. As such, we consider our essential living expenses to be just under $20K for a year.
To clarify some of the large discretionary items: holidays includes a one week OS trip plus multiple local trips, major purchase includes replacement lounge room furniture after my youngest son moved out plus a new big screen TV just because, and spending covers eating out once a week plus discretionary stuff we individually occasionally buy.
While $20K represents our bare bones living budget, about another $15K of the discretionary budget puts us into the comfortable zone and, in our view, the remainder puts us squarely into spendypants territory.
Thanks so much for that level of detail and explanation. I think the way you have broken out the discretionary section is very smart. Thanks again this is something that I can really measure ourselves against. Cheers.
Post by: iloveanimals on February 04, 2017, 05:48:13 PM
Wife: Wants to invest up to 200k approx into Wholesale VAS Fund (over a 3 year period) & also wants to put about 20k into VTS. Her reasoning: Better level of franking credits through VAS and hopefully higher returns and growth over the very long term for VTS & VAS.
Me: Just want to keep building our Vanguard Balanced Wholesale Fund as I think there is quite a bit of cross over with VAS/VTS already our Balanced Fund.
A quick overview for those who don't know our situation:
Wanting to start working part-time in 2-3 years, then FIRE a few years after that. We own our PPOR and have already invested $900k into the Vanguard Wholesale Balanced Fund which our aim is to keep revisiting dividends for the next 7-10 years. Hence why we are discussing what will cover us for part time work stage until we can draw on dividends from the Balanced Fund.
Any takers to advise? Thanks.
Post by: misterhorsey on February 04, 2017, 06:43:11 PM
I've tried attaching a pdf of the spreadsheet. As well as the excel sheet. Disclaimer. I'm no excel whiz so it might be a rather idiosyncratic use of formulas.
But, based on the following assumptions:
- balanced wholesale fund allocations is according to the target allocations here: https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/wholesale/portId=8121/?overview
- The additional $200k to VAS and $20k to VTS is added to the existing $900k balanced fund in one go.
- for simplicity, I've treated VTS as 'international', even though the Vanguard fund is not just US.
Then,
- Your fund holdings become Wholesale Balanced Fund + VAS + VTS
- Australian shares go from 22% to 35.56% of all funds.
- International/US goes from 17% down to 15.45% of all funds.
- Overall 50/50 Growth/Risk goes to 59.64/40.18%
In conclusion, your vanguard holdings will:
- have increased exposure to growth assets
- increased exposure to international assets, but as a proportion of the overall fund, it will have a reduced exposure!
It's worth modelling this stuff otherwise you end up tossing up ideas around without really realising their effect.
I think you mentioned that you thought you may have been a little conservative in your choice of fund. I'm not sure that this is really the case as I also seem to recall you were pretty risk averse at the time. And capital preservation was a concern too. However, this could be a way of tweaking to give your funds a greater growth allocation.
My suggestions would be to:
- ramp up the international allocation, if you dare.
- go VGS instead of VTS. It's unhedged, is denominated in Australian dollars and allows for dividend reinvestment.
But there are many other complicating factors I won't go into. Super, CGT, dividends etc etc. But at least this gives you a foundation of data to look at and play around with.
DISCLAIMER: I don't actually endorse what you are proposing as a strategy btw. I just thought Id crunch some numbers, and if you heart is set on it i thought I'd set out some alternative things to think about.
Edit: Typos, sigh.
Post by: steveo on February 04, 2017, 06:49:07 PM
Your wife appears to want a 100% stock portfolio ? Is that correct ? Or does she want the balanced fund plus the other funds ?
If she wants a 100% stock portfolio I think it's not really a good idea. I accept it can work out really well over the longer term but it's more risky and to me it doesn't make a lot of sense. I think it's better to have some diversification. Even if she does want a 100% stock portfolio I think the split is important. So I would work out how much in Aussie and how much in International. I would do this anyway if you are going to do it yourself.
If you are going with the balanced fund plus the other funds I don't like it all. Let the balanced fund handle all of that without you worrying about it at all. The balanced fund is great beacuse all you do is save money. That is it. It's simple and easy to maintain.
If you choose to DIY then I would work out how much bonds/cash you want as a percentage and then how much between international and domestic. So just say you choose 80/20 stocks/bonds and 50% international/domestic then you just invest so that the end outcome works out like that. I do this myself with a different asset allocation but I use ETF's. I like the ETF's because we invest regularly and they have low fees.
In stating all of that I think whatever option you take it's going to work out because you are using low cost index options. I just don't think an all over the place approach makes a lot of sense.
Post by: cakie on February 04, 2017, 07:41:45 PM
+1 doing our 2017 budget atm, and this is very helpful. Cheers!Annual Spend Question. I have read many a time here that people have budgets of anywhere from 20 - 40k per year and some live in Sydney and have kids. I have to ask - how do you do it? Any chance you can give me a high level break down?We track our spending and come within +/-5% of what we budget. Just the two of us now, own home (4 bedder), 2 dogs, two newish cars, Canberra area. Here's our 2017 top level budget to give you an idea of how much we spend in each category:
(http://i744.photobucket.com/albums/xx82/kawabungaoz/Untitled_zpskf5jaeew.png) (http://s744.photobucket.com/user/kawabungaoz/media/Untitled_zpskf5jaeew.png.html)
As you can see, we make a clear distinction between essential living and discretionary expenses, including splitting the two cars we have between these groups as only one car is considered essential. As such, we consider our essential living expenses to be just under $20K for a year.
To clarify some of the large discretionary items: holidays includes a one week OS trip plus multiple local trips, major purchase includes replacement lounge room furniture after my youngest son moved out plus a new big screen TV just because, and spending covers eating out once a week plus discretionary stuff we individually occasionally buy.
While $20K represents our bare bones living budget, about another $15K of the discretionary budget puts us into the comfortable zone and, in our view, the remainder puts us squarely into spendypants territory.
Thanks so much for that level of detail and explanation. I think the way you have broken out the discretionary section is very smart. Thanks again this is something that I can really measure ourselves against. Cheers.
Post by: marty998 on February 04, 2017, 08:40:15 PM
For those interested, and those who have direct share holdings, here are the results release dates (per running tally on ABC News (http://www.abc.net.au/news/2017-02-03/corporate-reporting-season-earnings-results/8238342)):
7/2: SCA Property, Transurban
8/2: BWA Trust, Carsales.com, CIMIC, Rio Tinto
9/2: AGL, AMP, Suncorp
13/2: Amcor, Ansell, Aurizon, Bendigo & Adelaide Bank, JB HiFI, Newcrest, Perseus Mining
14/2: Challenger, Cochlear, GPT, Invocare, Orora, Paladin
15/2: CBA, Computershare, CSL, Dexus, Inghams, Mt Gibson Iron, Sims, Sonic, Vicinity, Westfarmers
16/2: Evolution, Goodman, Mirvac, Origin, South32, Star Entertainment, Sydney Airport, Tatts Group, Telstra, Treasury Wine
17/2: ASX, Bellamy's, DUET, Link Administration, Mantra, Medibank, Northern Star, Primary Health, Santos, Virgin, Whitehaven Coal
20/2: Beach Energy, Bluescope, Brambles, Charter Hall Retail, GWA, NIB, Worley Parsons,
21/2: BHP, Caltex, Flexigroup, Healthscope, Independence Group, Monadelphous, Oil Search, Scentre, Seek, Specialty
22/2: APA, Atlas, CocaCola Amatil, Fairfax, Fletcher Building, Fortescue, IAG, IOOF, McMillan Shakespeare, Qube, Stockland, Vocus, Woodside
23/2: Adelaide Brighton, Alumina, Ardent Leisure, Crown, Iuka, Investa, MYOB, Oceana Gold, Oz Minerals, Perpetual, Qantas, Ramsay Healthcare, Reece, Sandfire, Village Roadshow, Westfield Corp
24/2: Billabong, Charter Hall Group, Orocobre, Super Retail,
27/2: Boart Longyear, LendLease, QBEm Spark,
28/2: AWE, Harvey Norman, Spotless Group
Post by: nofriends on February 04, 2017, 09:26:24 PM
06/2: NAB
17/2: ANZ
21/2: Westpac
those are only 3rd quarter trading updates, but still quite significant given their weight
Post by: marty998 on February 05, 2017, 05:09:58 AM
surprised ABC left out those three:
06/2: NAB
17/2: ANZ
21/2: Westpac
those are only 3rd quarter trading updates, but still quite significant given their weight
1st quarter actually - their year end date is September 30. It's interesting though, based on the 2016 results, CBA makes as much profit in 6 months as NAB does in almost a year. And with ANZ hiving off all of its International arms and potentially all of its Wealth Management divisions too, we may soon be calling it a big 2 system, instead of a big 4.
Macquarie Bank's year end is 31 March, so they will have a Q3 trading update shortly as well.
Line to look at (as if it wasn't already important) is the earnings per share figure. All the banks struggled last year under the weight of the 2015 capital raisings to grow EPS, indeed most went backwards. Some more bad figures could define where the market will head for the next 6-12 months.
Post by: Jimmy9 on February 05, 2017, 04:51:30 PM
Just finished reading this thread, has been an eye opener and a wealth of knowledge...Much appreciated :)
I have started my own thread in the case studies forum if any seasoned pros care to impart some nuggets of wisdom into my financial plan (didn't want to butt in on this thread).
Keep up the good work...
Post by: Louis XIV on February 05, 2017, 05:37:31 PM
I've been reading through this thread and I think I've formulated my plan but I'm hoping some strangers on the internet will hold my hand & tell me its okay (or terrible...)
I'm hoping to invest around $12,000 this year in $4,000 (roughly quarterly) chunks with a proposed allocation of:
45% VAS
45% VGS
10% VGE
I will probably purchase it as:
Q1: VAS ($4k)
Q2: VGS ($4k)
Q3: VAS ($1.4k), VGS, ($1.4k) VGE ($1.2k)
Q4: ??? whatever is needed to get it back to 45%/45%/10%
So I guess my questions are:
1. Is my allocation bad, if so what would you change and why?
2. When I execute say the Q3 trade with commsec, do I get charged $30 or is it $30 for VAS buy, $30 for VGS buy, $30 for VGE buy?
3. As I understand it because these are all Aus domiciled, tax shouldn't be too complicated, Vanguard will send me a detail sheet and I just have to plug the numbers in from it? Is this assumption correct?
Post by: stashgrower on February 05, 2017, 06:02:09 PM
Ozstache - I really like your breakdown, very clear. Thanks, I'm inspired to rearrange my categories into those overall buckets.
FFA - Thanks for your reasoning. Haha, I'm not attached to my pros/cons list. They are the thoughts rattling in my head. I'm happy to be shown with logic if I should think it through differently! I admire the knowledge and experience on this forum, and the objective viewpoints!
VAS/VHY etc. Thanks, folks, I'm still reading and learning.
Post by: FFA on February 05, 2017, 08:26:18 PM
Hi Everyone,2. Brokerage is per trade so you will pay 3x in Q3.
I've been reading through this thread and I think I've formulated my plan but I'm hoping some strangers on the internet will hold my hand & tell me its okay (or terrible...)
I'm hoping to invest around $12,000 this year in $4,000 (roughly quarterly) chunks with a proposed allocation of:
45% VAS
45% VGS
10% VGE
I will probably purchase it as:
Q1: VAS ($4k)
Q2: VGS ($4k)
Q3: VAS ($1.4k), VGS, ($1.4k) VGE ($1.2k)
Q4: ??? whatever is needed to get it back to 45%/45%/10%
So I guess my questions are:
1. Is my allocation bad, if so what would you change and why?
2. When I execute say the Q3 trade with commsec, do I get charged $30 or is it $30 for VAS buy, $30 for VGS buy, $30 for VGE buy?
3. As I understand it because these are all Aus domiciled, tax shouldn't be too complicated, Vanguard will send me a detail sheet and I just have to plug the numbers in from it? Is this assumption correct?
1. Due to 2, I'd reconsider simplifying to 50/50 VAS/VGS. If you really want some emerging market exposure, maybe check your Super if you have an option there, it will be much easier than mucking around here with the 10% weighting and incurring the extra brokerage fees. I started investing in VGE with a small weighting myself but am now doing this very thing to just hold it in Super.
3. Yes you will get a tax statement from vanguard, and it should pre-fill but you might just need to verify it. They are Aus domicile so no W8-BN form required.
Post by: potm on February 05, 2017, 09:40:40 PM
I'd agree with FFA that it's not worth adding VGE for the numbers you mentioned. Any additional benefit (if any at all) will be eating up by the extra brokerage.
Post by: marty998 on February 05, 2017, 11:54:10 PM
Admittedly there was not a lot of detail in the release, other than income up 1% and expenses up a whopping 5%. Bad debts provisions were down, when limited the fall in earnings to just 1%.
Low growth environment... credit growth is stalling, which might end up being a good thing for the economy as everyone deleverages.
Post by: iloveanimals on February 06, 2017, 12:27:47 PM
MisterHorsey, I am blown away with the amount of effort you have gone to answer my question! Thanks. The breakdown was very helpful. I have a few of questions:
- International/US goes from 17% down to 15.45% of all funds..
My suggestions would be to:
- ramp up the international allocation, if you dare.
- go VGS instead of VTS. It's unhedged, is denominated in Australian dollars and allows for dividend reinvestment.
DISCLAIMER: I don't actually endorse what you are proposing as a strategy btw. I just thought Id crunch some numbers, and if you heart is set on it i thought I'd set out some alternative things to think about.
- I am confused as to why our international exposure would be lower in if put more money into VTS or VGS?
- You say ramp up international funds "if you dare" - why do you say that, since so many here always suggest more international exposure?
- Your Disclaimer suggests that if you were in our shoes you would be doing something very different, and I am curious to know if you would share that with me - don't worry I won't hold you to anything!
Again thanks very much!!!!!
Post by: iloveanimals on February 06, 2017, 12:34:36 PM
My opinion is to stick with the balanced fund. If you really want to have more risk exposure than you should use a higher growth fund.
Your wife appears to want a 100% stock portfolio ? Is that correct ? Or does she want the balanced fund plus the other funds ?
If she wants a 100% stock portfolio I think it's not really a good idea. I accept it can work out really well over the longer term but it's more risky and to me it doesn't make a lot of sense. I think it's better to have some diversification. Even if she does want a 100% stock portfolio I think the split is important. So I would work out how much in Aussie and how much in International. I would do this anyway if you are going to do it yourself.
If you are going with the balanced fund plus the other funds I don't like it all. Let the balanced fund handle all of that without you worrying about it at all. The balanced fund is great beacuse all you do is save money. That is it. It's simple and easy to maintain.
If you choose to DIY then I would work out how much bonds/cash you want as a percentage and then how much between international and domestic. So just say you choose 80/20 stocks/bonds and 50% international/domestic then you just invest so that the end outcome works out like that. I do this myself with a different asset allocation but I use ETF's. I like the ETF's because we invest regularly and they have low fees.
In stating all of that I think whatever option you take it's going to work out because you are using low cost index options. I just don't think an all over the place approach makes a lot of sense.
Thanks Steveo. My wife wants to keep the Balanced Fund as is and then add VTS/VGS + VAS. So think that is probably where we will land unless we come up with something more amazing. Cheers!
Post by: marty998 on February 06, 2017, 01:08:42 PM
MisterHorsey, I am blown away with the amount of effort you have gone to answer my question! Thanks. The breakdown was very helpful. I have a few of questions:
- International/US goes from 17% down to 15.45% of all funds..
My suggestions would be to:
- ramp up the international allocation, if you dare.
- go VGS instead of VTS. It's unhedged, is denominated in Australian dollars and allows for dividend reinvestment.
DISCLAIMER: I don't actually endorse what you are proposing as a strategy btw. I just thought Id crunch some numbers, and if you heart is set on it i thought I'd set out some alternative things to think about.
- I am confused as to why our international exposure would be lower in if put more money into VTS or VGS?
- You say ramp up international funds "if you dare" - why do you say that, since so many here always suggest more international exposure?
- Your Disclaimer suggests that if you were in our shoes you would be doing something very different, and I am curious to know if you would share that with me - don't worry I won't hold you to anything!
Again thanks very much!!!!!
It goes up in absolute dollars, but down as a % of your total investments. This is based on your nominated $20k extra to VTS (international), but 10x as much - $200k - extra to VAS (Australia).
Post by: steveo on February 06, 2017, 02:09:53 PM
My opinion is to stick with the balanced fund. If you really want to have more risk exposure than you should use a higher growth fund.
Your wife appears to want a 100% stock portfolio ? Is that correct ? Or does she want the balanced fund plus the other funds ?
If she wants a 100% stock portfolio I think it's not really a good idea. I accept it can work out really well over the longer term but it's more risky and to me it doesn't make a lot of sense. I think it's better to have some diversification. Even if she does want a 100% stock portfolio I think the split is important. So I would work out how much in Aussie and how much in International. I would do this anyway if you are going to do it yourself.
If you are going with the balanced fund plus the other funds I don't like it all. Let the balanced fund handle all of that without you worrying about it at all. The balanced fund is great beacuse all you do is save money. That is it. It's simple and easy to maintain.
If you choose to DIY then I would work out how much bonds/cash you want as a percentage and then how much between international and domestic. So just say you choose 80/20 stocks/bonds and 50% international/domestic then you just invest so that the end outcome works out like that. I do this myself with a different asset allocation but I use ETF's. I like the ETF's because we invest regularly and they have low fees.
In stating all of that I think whatever option you take it's going to work out because you are using low cost index options. I just don't think an all over the place approach makes a lot of sense.
Thanks Steveo. My wife wants to keep the Balanced Fund as is and then add VTS/VGS + VAS. So think that is probably where we will land unless we come up with something more amazing. Cheers!
I think that this is pretty stupid from a portfolio perspective but like I said previously you are using low cost index funds. I think that means that you are going to be completely okay. Just enjoy your life.
Post by: Louis XIV on February 06, 2017, 04:08:01 PM
Post by: misterhorsey on February 06, 2017, 05:11:38 PM
It's no biggie. I enjoy putting basic spreadsheets together. You can't predict the future. Predictions and projections about ongoing performance are of limited use. But using a spreadsheet can set up a framework to allow you to understand a range of possible performances, so you can have an understanding of the upside/downside you may experience.MisterHorsey, I am blown away with the amount of effort you have gone to answer my question! Thanks. The breakdown was very helpful. I have a few of questions:
- International/US goes from 17% down to 15.45% of all funds..
My suggestions would be to:
- ramp up the international allocation, if you dare.
- go VGS instead of VTS. It's unhedged, is denominated in Australian dollars and allows for dividend reinvestment.
DISCLAIMER: I don't actually endorse what you are proposing as a strategy btw. I just thought Id crunch some numbers, and if you heart is set on it i thought I'd set out some alternative things to think about.
Plus, I am a big cycling fan and I did it while watching the Jayco SunTour on telly. Cycling can be a very tedious sport to watch (zzz zzz zzz).
- I am confused as to why our international exposure would be lower in if put more money into VTS or VGS?As Marty pointed out above, your overall allocation to International is decreased even though you are putting more money in. If you play with the spreadsheet you can increase the amount you've allocated to international and increase the % allocation. I.e. instead of putting another 200k/20k into Aus/International, put in 100k/120k Aus/International and see what happens.
- You say ramp up international funds "if you dare" - why do you say that, since so many here always suggest more international exposure?Everyone understands that Australia is 2% of the world economy, and that having 100% of your investments in Australia is not diversifying, and so an extensive overseas allocation makes investing sense. But still, almost everyone has a sizable home bias in their investments. In some ways it makes sense as it's the economy you work, spend and live in. But it doesn't make investing sense if you value diversification.
Plus currency fluctuations give me, and many others, the heebeejeebies. The theory is that currency fluctuations smooth out over time. As far as I can see, if the $AUD goes down in value against the $USD and your investments decline in value, it's compensated by the greater value of the dividends you receive from those investments.
I'm happy drip feeding investments into unhedged international funds as it all smooths out. However, putting lump sums into overseas investments I find particularly psychologically challenging. As I mentioned previously, I am addicted to price watching. Just got to focus on the long term I guess.
- Your Disclaimer suggests that if you were in our shoes you would be doing something very different, and I am curious to know if you would share that with me - don't worry I won't hold you to anything!Actually, it's not that I'd be doing something different. And I really can't imagine what it would be like to be in your shoes. What may feel comfortable to me may not make sense to your and your partner. So I don't really have an alternative strategy.
Rather, I'm just not convinced that the purchases you are contemplating really fits into any overall strategy that is designed to achieve your longterm objectives, while minimising admin and management overhead. It just looks a little fussy, designed to address an objective about yield, but adds on a bit more management without really achieving all that much other than an adjustment to asset allocation (which in practice does the opposite of what you want, ie. by decreasing overall international exposure). Bear in mind it's easier to critique your strategy as you are open about sharing it.
So my suggestion is to take a step back. Identify what you want to do. What asset allocation you want to achieve. And then try build a strategy to get you there.
Post by: NotSure on February 06, 2017, 07:17:28 PM
https://moneycenter.yodlee.com/
It's free to use, just link your Australian banks, shares etc.
Post by: stashgrower on February 07, 2017, 08:09:08 AM
Post by: iloveanimals on February 07, 2017, 05:33:54 PM
So my suggestion is to take a step back. Identify what you want to do. What asset allocation you want to achieve. And then try build a strategy to get you there.
Thanks very much. We are now doing this and taking our time to do more reading etc. Again amazed at how generous you have been with your time and sharing your wisdom. P.S. be careful cycling...my wife had a fairly bad accident this time last year. Great sport - but so dangerous. Hope that Australia get's much better at providing cycle paths that are safe. Cheers!
Post by: iloveanimals on February 07, 2017, 05:35:10 PM
MisterHorsey, I am blown away with the amount of effort you have gone to answer my question! Thanks. The breakdown was very helpful. I have a few of questions:
- International/US goes from 17% down to 15.45% of all funds..
My suggestions would be to:
- ramp up the international allocation, if you dare.
- go VGS instead of VTS. It's unhedged, is denominated in Australian dollars and allows for dividend reinvestment.
DISCLAIMER: I don't actually endorse what you are proposing as a strategy btw. I just thought Id crunch some numbers, and if you heart is set on it i thought I'd set out some alternative things to think about.
- I am confused as to why our international exposure would be lower in if put more money into VTS or VGS?
- You say ramp up international funds "if you dare" - why do you say that, since so many here always suggest more international exposure?
- Your Disclaimer suggests that if you were in our shoes you would be doing something very different, and I am curious to know if you would share that with me - don't worry I won't hold you to anything!
Again thanks very much!!!!!
It goes up in absolute dollars, but down as a % of your total investments. This is based on your nominated $20k extra to VTS (international), but 10x as much - $200k - extra to VAS (Australia).
Thanks Marty. I now get it!!
Post by: iloveanimals on February 07, 2017, 05:38:02 PM
I think that this is pretty stupid from a portfolio perspective but like I said previously you are using low cost index funds. I think that means that you are going to be completely okay. Just enjoy your life.Thanks Steveo for your no nonsense response. Love the "just enjoy your life" part!
Post by: nofriends on February 08, 2017, 01:50:13 AM
this article came out just in time for you:
https://www.vanguardinvestments.com.au/retail/ret/articles/insights/research-commentary/portfolio-construction/planning-a-holiday.jsp
Quote:
Investors may set unrealistic desired returns based on a variety of influences including their own investment experiences (good and bad), historic returns over various periods, lists of the latest highest-performing managed funds, media reports and investment advertising.
Unsurprisingly, [...] an investor's desired return is often much higher than their required return. In turn, this can lead to investor taking excessive risks in the pursuit of achieving those higher, unrealistic returns.
Post by: misterhorsey on February 08, 2017, 04:08:06 AM
Thanks very much. We are now doing this and taking our time to do more reading etc. Again amazed at how generous you have been with your time and sharing your wisdom. P.S. be careful cycling...my wife had a fairly bad accident this time last year. Great sport - but so dangerous. Hope that Australia get's much better at providing cycle paths that are safe. Cheers!
Good to hear. I'd recommend Bernstein's 4 Pillars as a great comprehensive overview. From memory it gives a good grounding in index investing, but then it get's a bit detailed and prescriptive about designing a portfolio. https://www.goodreads.com/book/show/79351.The_Four_Pillars_of_Investing
And looking for articles or interviews with John Bogle are great.
Just remember that you're in the unique position of coming to this forum and asking for advice after having done the hard yards of saving a big stash.
Sorry to hear about your wife's accident. I agree that there are risks with cycling, but i'm fortunate to live in inner melb where there are extensive trails, and I think the health benefits outweigh the dangers. One guy I know has actually written about it!
http://www.mrmoneymustache.com/2013/06/13/bicycling-the-safest-form-of-transportation/
Post by: iloveanimals on February 09, 2017, 08:34:02 PM
I have a question that I hope doesn't sound too stupid. It relates to return on investments in funds for the units/shares you hold over a long period of time. I had made the assumption that these units overtime "mature" (especially for defensive assets like Fixed Interest and Bonds) - meaning because you have held them for a period of time, in the background some sort of mathematical equation takes place to provide a better return for those unit holders.
I know there is the Growth return which is capital growth and I know there are distributions - the dividend income, however I also thought there was some level of "maturity" occurring in the background. So to paint a clearer picture - I would have thought that if I own 100 units and have held them for 1 year and then someone else buys the same amount - 100 units - but has only held them for 1 week - it seems as though we would both receive the exact amount of distribution regardless of time held for those units. I know in theory they may have bought the units for a higher price (but the reverse could be true). If this is the case, then I am thinking investors may wait to put there money in very close to distribution payment dates. I get the feeling that many of you could be rolling your eyes about now! :) Thanks!
Post by: deborah on February 09, 2017, 09:21:55 PM
Other investments work differently, and can have some maturity.
Post by: iloveanimals on February 09, 2017, 10:01:41 PM
What sorts of "units" are you talking about? If you own shares, on the date of the dividend you get your 6 monthly payment (dividend) - whether you have owned them for 2 days or for the whole six months since the last payment. In theory, the market anticipates the dividend, and if you bought the shares 2 days before the dividend, you have to pay more than if you bought them 2 days after the dividend date (in theory, the price would be x - dividend amount, if x was the price 4 days ago).
Other investments work differently, and can have some maturity.
Thanks Deborah - my investment is in the Vanguard Wholesale Balanced Fund, so I purchased units. The reason why I am asking this forum is because Vanguard customer service are giving me conflicting information. Cheers.
Post by: deborah on February 09, 2017, 11:17:45 PM
Post by: iloveanimals on February 09, 2017, 11:40:08 PM
Sorry, I didn't explain myself well. I meant that if your fund was just in equities, there wouldn't be any maturity because of the way the underlying investments perform.Ok - its half equities the rest cash/bonds...so this is where I thought the "maturity" would come into play - but Vanguard saying no, just growth of unit value of the fund, which is the part I don't get. Cheers
Post by: deborah on February 09, 2017, 11:54:26 PM
Post by: sirdeets on February 09, 2017, 11:56:51 PM
I read a good book last month - David Dreman - "Contrarian Investment Strategies".
This book + some double checking of some of the commentary (about low PE investing outperforms) has lead me to sell out of my remaining Index funds (held >12months) and go purely into individual companies.
I've invested in about 20 companies, US and Aus, and have used a mixture of Dreman and also Ben Graham / Warren Buffet style approaches. I had a pretty big chunk to do this with as sold an apartment, and the 20 trades were all free using Nab.
Roughly my approach has been grabbing out of favour stocks with low PE compared to their industry that is unjustified, with good balance sheets (current assets compared to current liabilities), not paying a premium on book value compared to industry, some EPS growth, no -EPS in recent history, no risk of obsoleteness due to the internet, with extra points for media hysteria on the company. I'm aiming to rebalance yearly unless things get way out of wack on the info that lead to the initial purchase.
I've been doing this for years but my approach had been 80% index, 20% stock picking. Now I'm 100% individual companies. I just hit the 12 month mark of last's years purchases are have now rebalanced, they were PRY, CSR, ORG which had phenomenal returns. My purchases over the last few months have been, AUS: AYS, BKW, CLX, CWN, MXI, SDI, TPM, UOS, VOC, VRT, AGI, FXL. USA: IBM, AAPL. I've bought in "chips" of either 10k, or "half chips" 5k. As an e.g. Apple was a chip, MXI was a half chip. If I'm convinced, I'll buy a chip, if I think it's risky, I'll do a half chip. Anyway, this is probably going to be a yearly post, people may be interested in how I'm going as an experiment.
Any feedback welcome. Also, does anything know any smart tools on tracking performance? I'm talking auto comparison to an index, working out various ratios etc. I've got spreadsheets for taxation purposes, but calcs on performance are very manual and time consuming.
Post by: iloveanimals on February 09, 2017, 11:57:06 PM
Neither cash nor bonds have maturity in the way you are talking about - both respond to the market.Ok - thanks for clearing that up. So Vanguard are right - just distributions and growth of unit value. Cheers.
Post by: potm on February 10, 2017, 01:29:28 AM
Warning: Stock picking post.
I read a good book last month - David Dreman - "Contrarian Investment Strategies".
This book + some double checking of some of the commentary (about low PE investing outperforms) has lead me to sell out of my remaining Index funds (held >12months) and go purely into individual companies.
I've invested in about 20 companies, US and Aus, and have used a mixture of Dreman and also Ben Graham / Warren Buffet style approaches. I had a pretty big chunk to do this with as sold an apartment, and the 20 trades were all free using Nab.
Roughly my approach has been grabbing out of favour stocks with low PE compared to their industry that is unjustified, with good balance sheets (current assets compared to current liabilities), not paying a premium on book value compared to industry, some EPS growth, no -EPS in recent history, no risk of obsoleteness due to the internet, with extra points for media hysteria on the company. I'm aiming to rebalance yearly unless things get way out of wack on the info that lead to the initial purchase.
I've been doing this for years but my approach had been 80% index, 20% stock picking. Now I'm 100% individual companies. I just hit the 12 month mark of last's years purchases are have now rebalanced, they were PRY, CSR, ORG which had phenomenal returns. My purchases over the last few months have been, AUS: AYS, BKW, CLX, CWN, MXI, SDI, TPM, UOS, VOC, VRT, AGI, FXL. USA: IBM, AAPL. I've bought in "chips" of either 10k, or "half chips" 5k. As an e.g. Apple was a chip, MXI was a half chip. If I'm convinced, I'll buy a chip, if I think it's risky, I'll do a half chip. Anyway, this is probably going to be a yearly post, people may be interested in how I'm going as an experiment.
Any feedback welcome. Also, does anything know any smart tools on tracking performance? I'm talking auto comparison to an index, working out various ratios etc. I've got spreadsheets for taxation purposes, but calcs on performance are very manual and time consuming.
My only comment to you is that to be careful of using benchmarks to rate companies. Each company has to be judged on it's own merits. Numbers can be very malleable and there can be all sorts of reasons why something is the way it is. You are probably pretty switched on and aware of this.
I prefer to invest in a much smaller number of stocks that I can understand and monitor closely. Less diversification but my 20th best idea for a stock is not going to be any where near as good as my 1st (assuming I have some ability to pick a good stock).
Post by: misterhorsey on February 10, 2017, 04:44:22 AM
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/wholesale/portId=8122/?overview
Not quite an 'ethical fund'. But no smokes and no nukes! And no 'controversial weapons'?
I wonder how they delineate the razor thin line between 'controversial weapons' and 'non controversial weapons'?
Kinda weird.
Post by: FFA on February 10, 2017, 04:59:54 AM
Also, does anything know any smart tools on tracking performance? I'm talking auto comparison to an index, working out various ratios etc. I've got spreadsheets for taxation purposes, but calcs on performance are very manual and time consuming.Hi sirdeets, I use the investsmart free tool. It does the dividends and gives you a total return. You might just need to enter a VAS purchase at the same time to create the comparison against index.
Sharesight is a better version I believe but the free tool is limited to 1 portfolio and 10 holdings, so may not fit your needs. And the minimum subscription at $25/month for me is not worth it I'm happy enough with investsmart's free version...
I also keep a spreadsheet but good to have this as a cross check and an easier way to get the total return.
Post by: sirdeets on February 10, 2017, 07:03:59 AM
Post by: marty998 on February 11, 2017, 03:50:01 AM
Not sure if this has been posted before, but Vanguard have launched an 'Anti-Dr Strangelove' index!
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/wholesale/portId=8122/?overview
Not quite an 'ethical fund'. But no smokes and no nukes! And no 'controversial weapons'?
I wonder how they delineate the razor thin line between 'controversial weapons' and 'non controversial weapons'?
Kinda weird.
Do you remember a company called "Metal Storm"?
That was a controversial weapon. It's usually clear cut.
Sorry, I didn't explain myself well. I meant that if your fund was just in equities, there wouldn't be any maturity because of the way the underlying investments perform.Ok - its half equities the rest cash/bonds...so this is where I thought the "maturity" would come into play - but Vanguard saying no, just growth of unit value of the fund, which is the part I don't get. Cheers
lets talk through something odd that can happen when material new subscriptions and redemptions are made to a fund.
For vanguard funds (and any other ETF) the value of the units include the accrued income. Say for example a vanguard fund holds a bond or a stock worth $1,000, and the fund is made up of 1,000 units so the unit price is $1 on 1 January 2017, and you own all of it.
Lets say the stock or bond the fund is holding pays a coupon or dividend of $50 on February 15, and assume no other value changes.
The value of your units is now $1.05 each ($1,050). If someone else wants to buy into the fund they need to subscribe for units at $1.05 each. Lets say they subscribe for 1000 units too.
The fund now has $2,100 of value in it. Lets assume no other transactions until the end of the quarter.
The fund has income of $50 earned on Feb 15. It therefore pays a distribution of $0.025 per unit to each investor on 31 March. So you only get income of $25, but the value of your fund is $1,025.
Now here's the thing. There are some fund managers that will adjust for this by paying out $100 and then fix it up on the investors' annual tax statement (deem that you have the $50 as income and the other guy gets $50 of capital returns). It's administratively simple for the bean counters to do for a fund with few investors. It's not really possible for a fund with half a million investors going in and out at various times with hundred of stocks in the portfolio.
Post by: FFA on February 11, 2017, 09:55:54 PM
- if there was no second investor, it would have been $50 income.
- with the second investor, it was $25 income and $25 capital gain. (and the second investor received $25 income and $25 capital loss).
so ultimately in both cases the bond coupon goes to the investor who "earned" it, and the second investor who come in afterwards does not benefit, if you consider the overall picture of income plus capital. I acknowledge this still has implications for people especially depending on their tax situation.... managed funds aren't perfect, but I think the benefits outweigh downsides!
Post by: LonerMatt on February 12, 2017, 01:50:21 AM
A few recent things have spurred me back to MMM and ER in general, but instead of typing all that out I'm seeking some criticism. In short: I used to have a small idea what I was doing investing, but things have changed and I've been ignoring things, my priorities have changed so I'm seeking to come to grips with all that's different in the world. I'm here to ask your help: do you think the asset allocation below meets my goals? and do you think that there's anything I should read, consider or learn more about?
Basically:
- Over the next 2-3 years (before I'm 30, so 2 years and 8 months) I want to go from ~55k net worth to 100k invested and 10k in an emergency fund
- I am aiming for modest returns 1-3% over inflation
- Short term: modest growth while I goof around and try my hand at a few different ways to earn $ (3-5 years)
- Long term: be able to pay a large chunk of change towards a property (5-10 years)
- I am risk adverse, prefer money to stagnate rather than lose it (in the long term, short term doesn't bother me)
- Set and forget, I can't be fucked tracking things daily and honestly had to look up nabtrade to work out what my NW was
So here's what I'm thinking:
50k stocks: I've read VAS and VGS are the simplest way to go, I'd want to weigh this towards VGS as the cash and bonds are Australian, so this is my only globalised asset
30k bonds: whatever is going, probably 5-10 year bonds
20k cash: just because I want to take time off, while I'm hoping I can earn as I learn and do what I want the liquidity is important
A friend (limeandpepper) has got me thinking that there maybe I should put more in stocks, but having moved to England where (even though I got a job) I had to wait 2 months for a paycheck I really like the safety of cash.
Your thoughts would be appreciated, I hope everyone is well :)
Post by: limeandpepper on February 12, 2017, 05:15:42 AM
A friend (limeandpepper) has got me thinking that there maybe I should put more in stocks, but having moved to England where (even though I got a job) I had to wait 2 months for a paycheck I really like the safety of cash.
Oh HAI! ;)
I was initially surprised about your generous allocation to bonds, because the common (albeit perhaps not necessarily always accurate) idea is that when you're younger you allocate more in shares and less in bonds... but then considering the generous yield of bonds in Australia, I'm thinking you could be on to something! I'm also keen to hear the thoughts of others here in regards to all this. :D
Post by: deborah on February 12, 2017, 12:41:10 PM
Post by: marty998 on February 12, 2017, 01:32:19 PM
GENEROUS YIELD IN BONDS IN AUSTRALIA - you must be kidding. They were good until about 20 years ago, then they weren't as good as the interest rates you get from high interest accounts.
I think she means in comparison to global bonds yields.... we are still quite high.
Post by: mjr on February 12, 2017, 01:35:36 PM
Post by: misterhorsey on February 12, 2017, 09:00:50 PM
Basically:
- Over the next 2-3 years (before I'm 30, so 2 years and 8 months) I want to go from ~55k net worth to 100k invested and 10k in an emergency fund
- I am aiming for modest returns 1-3% over inflation
- Short term: modest growth while I goof around and try my hand at a few different ways to earn $ (3-5 years)
- Long term: be able to pay a large chunk of change towards a property (5-10 years)
- I am risk adverse, prefer money to stagnate rather than lose it (in the long term, short term doesn't bother me)
- Set and forget, I can't be fucked tracking things daily and honestly had to look up nabtrade to work out what my NW was
A few conflicting things here. Self identified as 'risk adverse'. But:
- happy to have money stagnate over the long term than 'lose it'.
- 'short term doesn't bother me' - which I'm taking to read you're comfortable with a bit of volatility.
Reason why I think it's conflicting is that money stagnating over a long time is actually losing value over the long term due to inflation (which is admittedly a bit low at the moment). The thing that got me into investing originally was not necessarily chasing amazing returns, although that was part of it. It was recognising that cash, although secure and a handy buffer, is a poorly performing asset class over the long term. So in short, buying into stocks helped me mitigate the risk of the value of cash eroding over time.
If you are comfortable with short term volatility, then long term investments shouldn't phase you.
The only catch with this is when you want to buy a property. If this is a certainty in 5 years, then I think a portfolio shouldn't have too much weighting towards stocks. What if in Year 4 everything dives by #% percent. It would be annoying. If buying a house in 10 years is a certainty, then I think you can afford a bit more volatility over the time frame and could have a greater weighting towards stocks.
But the thing is, nothing is ever really certainly about the way you plan your life and what actually pans out.
I've personally gone around 95% stocks. Accepting volatility in exchange for maximum flexibility, but also resigned to not buying property in the short to medium term.
Post by: misterhorsey on February 12, 2017, 09:01:29 PM
Hey everyone, it's the dude who started this thread, then fell in love with a girl off tinder, moved to the UK for two years, moved back to Australia and now lives in Canberra.
Oh and thanks for starting the thread!
Post by: LonerMatt on February 13, 2017, 02:24:04 AM
GENEROUS YIELD IN BONDS IN AUSTRALIA - you must be kidding. They were good until about 20 years ago, then they weren't as good as the interest rates you get from high interest accounts.
A bond I own yields 5.75%, my high interest account yields 3.5%. Granted if rates increase then that won't be as good a deal any more, but it's not bad. Unless there's something I'm missing, which there often is.
Basically:
- Over the next 2-3 years (before I'm 30, so 2 years and 8 months) I want to go from ~55k net worth to 100k invested and 10k in an emergency fund
- I am aiming for modest returns 1-3% over inflation
- Short term: modest growth while I goof around and try my hand at a few different ways to earn $ (3-5 years)
- Long term: be able to pay a large chunk of change towards a property (5-10 years)
- I am risk adverse, prefer money to stagnate rather than lose it (in the long term, short term doesn't bother me)
- Set and forget, I can't be fucked tracking things daily and honestly had to look up nabtrade to work out what my NW was
A few conflicting things here. Self identified as 'risk adverse'. But:
- happy to have money stagnate over the long term than 'lose it'.
- 'short term doesn't bother me' - which I'm taking to read you're comfortable with a bit of volatility.
Reason why I think it's conflicting is that money stagnating over a long time is actually losing value over the long term due to inflation (which is admittedly a bit low at the moment). The thing that got me into investing originally was not necessarily chasing amazing returns, although that was part of it. It was recognising that cash, although secure and a handy buffer, is a poorly performing asset class over the long term. So in short, buying into stocks helped me mitigate the risk of the value of cash eroding over time.
If you are comfortable with short term volatility, then long term investments shouldn't phase you.
The only catch with this is when you want to buy a property. If this is a certainty in 5 years, then I think a portfolio shouldn't have too much weighting towards stocks. What if in Year 4 everything dives by #% percent. It would be annoying. If buying a house in 10 years is a certainty, then I think you can afford a bit more volatility over the time frame and could have a greater weighting towards stocks.
But the thing is, nothing is ever really certainly about the way you plan your life and what actually pans out.
I've personally gone around 95% stocks. Accepting volatility in exchange for maximum flexibility, but also resigned to not buying property in the short to medium term.
Alright thanks for the in-depth response, got a few things to explain:
1. Stagnation is a missed opportunity, but it's not a risky one. I am happy with cash in the bank knowing that it might not be earning as much as stocks, or anything else, because it's still fundamentally cash. $10k is still 10K and it's still worth a lot (even if exactly what it buys changes slightly), baring massive changes what 10k can buy me today and next year is pretty similar, so I'm venturing nothing but an opportunity to risk the money. Which in my way of seeing the world, is less risky.
2. If I invested 10k and the price halved I wouldn't be happy. If I invested 10k and I got 5% return instead of 10% return because of a more conservative portfolio I'd be happy.
3. You're right about buying a house and when. Let's just say that <5 years would be very surprising, but between 5-10 years would be more expected.
4. I think the general advice seems to be add more stocks, which I'm listening to for sure.
Post by: FFA on February 13, 2017, 03:14:52 AM
A bond I own yields 5.75%, my high interest account yields 3.5%. Granted if rates increase then that won't be as good a deal any more, but it's not bad. Unless there's something I'm missing, which there often is.Hi LonerMatt, which HISA is that one, or did you mean 3.05%? The best I can find these days is 3.00-3.05%
For the bond yielding 5.75% you may need to check if that's nominal yield or the current yield. Nominal yield means the bond interest divided by the face value, which could be a lot less than the current value (and therefore current yield might be much less). The other thing is the credit risk. If it's a government bond or corporate, and if corporate what is the risk of default. You can always find better interest rates but usually they come with more risk attached. Sometimes that can be worth taking too. But generally the cash/ fixed interest serves a defensive function in the portfolio, i.e. better to take risk with your shares.
Post by: misterhorsey on February 13, 2017, 04:53:47 AM
Alright thanks for the in-depth response, got a few things to explain:
1. Stagnation is a missed opportunity, but it's not a risky one. I am happy with cash in the bank knowing that it might not be earning as much as stocks, or anything else, because it's still fundamentally cash. $10k is still 10K and it's still worth a lot (even if exactly what it buys changes slightly), baring massive changes what 10k can buy me today and next year is pretty similar, so I'm venturing nothing but an opportunity to risk the money. Which in my way of seeing the world, is less risky.
Yes, definitely, cash from one year to the next is pretty safe (banks can fail too, but hopefully unlikely).
However, once you factor in time, and the missed opportunity from many years of compounding returns offered by growth assets, then the difference in returns between asset classes increases.
Not sure if you've seen this graph but it's worth a look.
https://static.vgcontent.info/crp/intl/auw/docs/resources/index_chart.pdf?utm_source=IndexChart&utm_medium=LandingPage&utm_campaign=Ret2016&utm_content=Ret
Of course, if you are wanting to buy a house in 5-10 years, one key thing you may not have is time to smooth out the dips.
But you sound like you know what your doing and if having 50/50 defensive/growth is what helps you sleep at night, then you should do it. Preferably with scheduled rebalancing.
2. If I invested 10k and the price halved I wouldn't be happy. If I invested 10k and I got 5% return instead of 10% return because of a more conservative portfolio I'd be happy.
A broad based 50% decline is pretty rare, and dollar cost averaging would allow you to even profit from such an event, assuming you have additional funds at hand and ample time to recover.
But one thing to consider is the way the amount of time you are invested, and compounding returns over that period, can affect the way you think of your investments. Over time, the longer you are invested and the more time you've had for compounding to work, the more sanguine you become about falls in your portfolio value. At least that's my relatively limited experience i.e. What's to worry about a 5% decline in a day, if you're up over 50% from when you bought in?
Growth in your portfolio also reaches a point where the (paper) losses that you suffer in a day exceed how much you could have saved in a year. And then the real big falls, the ones that we all dread, the 50% decline like the GFC, are of course the ones that in hindsight turn out be once in a generation buying opportunities.
This somewhat laid back approach to volatility is predicated on having time to let your investments do their work. If you have a specific timeframe where you want to shift your investments into a property, and that was non-negotiable, I'd be inclined to keep more of it as cash too.
Post by: LonerMatt on February 13, 2017, 12:28:43 PM
A bond I own yields 5.75%, my high interest account yields 3.5%. Granted if rates increase then that won't be as good a deal any more, but it's not bad. Unless there's something I'm missing, which there often is.Hi LonerMatt, which HISA is that one, or did you mean 3.05%? The best I can find these days is 3.00-3.05%
For the bond yielding 5.75% you may need to check if that's nominal yield or the current yield. Nominal yield means the bond interest divided by the face value, which could be a lot less than the current value (and therefore current yield might be much less). The other thing is the credit risk. If it's a government bond or corporate, and if corporate what is the risk of default. You can always find better interest rates but usually they come with more risk attached. Sometimes that can be worth taking too. But generally the cash/ fixed interest serves a defensive function in the portfolio, i.e. better to take risk with your shares.
You're right it's about 3%, I was making a guess and I should have been more clear with that, thank you.
I'm assuming, now, that it's nominal yield. This is exactly the information I came here to find :)
Alright thanks for the in-depth response, got a few things to explain:
1. Stagnation is a missed opportunity, but it's not a risky one. I am happy with cash in the bank knowing that it might not be earning as much as stocks, or anything else, because it's still fundamentally cash. $10k is still 10K and it's still worth a lot (even if exactly what it buys changes slightly), baring massive changes what 10k can buy me today and next year is pretty similar, so I'm venturing nothing but an opportunity to risk the money. Which in my way of seeing the world, is less risky.
Yes, definitely, cash from one year to the next is pretty safe (banks can fail too, but hopefully unlikely).
However, once you factor in time, and the missed opportunity from many years of compounding returns offered by growth assets, then the difference in returns between asset classes increases.
Not sure if you've seen this graph but it's worth a look.
https://static.vgcontent.info/crp/intl/auw/docs/resources/index_chart.pdf?utm_source=IndexChart&utm_medium=LandingPage&utm_campaign=Ret2016&utm_content=Ret
Of course, if you are wanting to buy a house in 5-10 years, one key thing you may not have is time to smooth out the dips.
But you sound like you know what your doing and if having 50/50 defensive/growth is what helps you sleep at night, then you should do it. Preferably with scheduled rebalancing.
2. If I invested 10k and the price halved I wouldn't be happy. If I invested 10k and I got 5% return instead of 10% return because of a more conservative portfolio I'd be happy.
A broad based 50% decline is pretty rare, and dollar cost averaging would allow you to even profit from such an event, assuming you have additional funds at hand and ample time to recover.
But one thing to consider is the way the amount of time you are invested, and compounding returns over that period, can affect the way you think of your investments. Over time, the longer you are invested and the more time you've had for compounding to work, the more sanguine you become about falls in your portfolio value. At least that's my relatively limited experience i.e. What's to worry about a 5% decline in a day, if you're up over 50% from when you bought in?
Growth in your portfolio also reaches a point where the (paper) losses that you suffer in a day exceed how much you could have saved in a year. And then the real big falls, the ones that we all dread, the 50% decline like the GFC, are of course the ones that in hindsight turn out be once in a generation buying opportunities.
This somewhat laid back approach to volatility is predicated on having time to let your investments do their work. If you have a specific timeframe where you want to shift your investments into a property, and that was non-negotiable, I'd be inclined to keep more of it as cash too.
Yes, I guess that is hard - knowing what time frame there is and what to do within that.
BUt this is all great food for though - I don't have a specific response, but I do think I need to spend a bit more time considering the time frame I'm working with, and then how that relates to asset volatility. At the moment I'm thinking maybe 65% stocks, 25% bonds 10% cash but we'll see, maybe the cash side is un-needed.
Post by: FFA on February 13, 2017, 02:41:51 PM
http://australiangovernmentbonds.gov.au/etbs/coupon-interest-rate-and-yield/
http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND
check out these. The second one shows nominal (or coupon) versus current yields. e.g. GSBI21 due 15 May 2021 has a coupon yield of 5.75% but the current yield is 2.057% as of now.... (the bond price now 116.4 is much higher than it's face value of 100.0)
Post by: JourneyAnt on February 13, 2017, 04:46:39 PM
Interest rates are on the way up, so bonds will be on the way down. 10 years as bond duration sounds too long to me under such conditions. 5 years max.
If you routinely purchase and keep your asset allocation, yields will be going up though?
* Using say VAF or a VGB Bond Index
Post by: mjr on February 13, 2017, 07:53:18 PM
Post by: iloveanimals on February 13, 2017, 07:56:34 PM
Sorry, I didn't explain myself well. I meant that if your fund was just in equities, there wouldn't be any maturity because of the way the underlying investments perform.Ok - its half equities the rest cash/bonds...so this is where I thought the "maturity" would come into play - but Vanguard saying no, just growth of unit value of the fund, which is the part I don't get. Cheers
lets talk through something odd that can happen when material new subscriptions and redemptions are made to a fund.
For vanguard funds (and any other ETF) the value of the units include the accrued income. Say for example a vanguard fund holds a bond or a stock worth $1,000, and the fund is made up of 1,000 units so the unit price is $1 on 1 January 2017, and you own all of it.
Lets say the stock or bond the fund is holding pays a coupon or dividend of $50 on February 15, and assume no other value changes.
The value of your units is now $1.05 each ($1,050). If someone else wants to buy into the fund they need to subscribe for units at $1.05 each. Lets say they subscribe for 1000 units too.
The fund now has $2,100 of value in it. Lets assume no other transactions until the end of the quarter.
The fund has income of $50 earned on Feb 15. It therefore pays a distribution of $0.025 per unit to each investor on 31 March. So you only get income of $25, but the value of your fund is $1,025.
Now here's the thing. There are some fund managers that will adjust for this by paying out $100 and then fix it up on the investors' annual tax statement (deem that you have the $50 as income and the other guy gets $50 of capital returns). It's administratively simple for the bean counters to do for a fund with few investors. It's not really possible for a fund with half a million investors going in and out at various times with hundred of stocks in the portfolio.
Thanks that makes so much sense!
Post by: iloveanimals on February 13, 2017, 07:57:59 PM
@iloveanimals
this article came out just in time for you:
https://www.vanguardinvestments.com.au/retail/ret/articles/insights/research-commentary/portfolio-construction/planning-a-holiday.jsp
Quote:
Investors may set unrealistic desired returns based on a variety of influences including their own investment experiences (good and bad), historic returns over various periods, lists of the latest highest-performing managed funds, media reports and investment advertising.
Unsurprisingly, [...] an investor's desired return is often much higher than their required return. In turn, this can lead to investor taking excessive risks in the pursuit of achieving those higher, unrealistic returns.
Thanks No friends - this was a very good read!
Post by: LonerMatt on February 14, 2017, 02:17:42 AM
You can get term deposits now for 3% and the odds are that rates will go up from here, albeit slowly. I wouldn't go anyway near a bond with 2% yield at this stage of the cycle.
Easy - I'll use TDs instead. Pretty easy to find 3%ers
Now the harder question, my investments currently are not in the funds I want (though not by any means bad funds or inappropriate ones). Sell and swap, or just keep and not bother?
Post by: JourneyAnt on February 14, 2017, 03:33:03 AM
If you had a choice of Exchange Traded Funds or Listed Investment Companies for long term investing, which would you rather and why?
Post by: deborah on February 14, 2017, 03:41:16 AM
I wouldn't sell anything that you had for less than a year, because CGT halves as soon as you've had something for a year and a day. Are you still in a low earning year - when you will earn less than is needed for a superannuation $500 from the government if you put $1000 into super? If so, I would make sure you did that this financial year. If you're going to buy a house in a few years, you could sell them at that stage to fund your deposit - it's an ideal time to change things around, by selling the things you don't want.You can get term deposits now for 3% and the odds are that rates will go up from here, albeit slowly. I wouldn't go anyway near a bond with 2% yield at this stage of the cycle.
Easy - I'll use TDs instead. Pretty easy to find 3%ers
Now the harder question, my investments currently are not in the funds I want (though not by any means bad funds or inappropriate ones). Sell and swap, or just keep and not bother?
Post by: misterhorsey on February 14, 2017, 06:34:41 PM
1) CGT events if you sell (as Deborah mentioned)
2) Cost of ongoing fees if you stay
3) Market timing - either by selling out of one fund, or even just by staying.
If the funds aren't too bad, or inappropriate, and fees are okay, I'd be inclined to stay with the funds and build the overall portfolio around them. You may not have your desired asset allocation but it's probably close enough. Then wait for a low income year to sell. Or offset any gains from any accrued capital losses you have from previous dumb investments.
I envy those who had the knowledge and foresight and werewithal to go straight into index funds from the get go (although I dont think they were quite as accessible when I started earning and saving).
Post by: LonerMatt on February 14, 2017, 09:21:24 PM
Thanks for the advice, will hold and chill.
Post by: marty998 on February 15, 2017, 12:54:46 AM
$4.9 billion for the six months with a $1.99 dividend. Happy days.
Post by: kivex on February 15, 2017, 05:07:42 PM
I'm currently thinking:
- 40% Australian shares (index)
- 20% International shares - hedged (index)
- 20% International shares - unhedged (index)
- 20% Australian property (index)
Property seems to do ok, however that is based on future returns from past performance and all that. Perhaps I should drop property and have a 50/50, or perhaps a 40/60, or a 60/40 Aus/Intl mix.
It would be great to get some thoughts.
Thanks
Post by: misterhorsey on February 15, 2017, 06:32:33 PM
Have you got a strategy in mind for rebalancing? Is it as simple as choosing an arbitrary date once a year and adjusting your allocation?
It's a pretty basic question I realise - but sometimes these practical issues are hard to get the head around, and ultimately inform the wider strategic objectives.
Post by: iloveanimals on February 15, 2017, 06:39:17 PM
Post by: misterhorsey on February 15, 2017, 06:59:07 PM
I just called Sunsuper and it's simply a matter of logging in and changing your % allocations. Some issues spring to mind:
- ensuring the discipline to rebalance once a year, or more. Or on the flipside, stopping yourself from rebalancing everytime the market suffers some fall, rise, indigestion or Trump signs an Executive Disorder.
- cost of buy/sell spread (probably negligible, if you only do it once a year)
However, apparently the pre-set options effectively rebalance daily based on unit prices (though your gains or losses aren't crystalised as all your dealing with is the unit price.)
Post by: kivex on February 15, 2017, 07:03:08 PM
SunSuper have a Balanced Index fund at about 0.17% and they automatically rebalance. I guess that is always an option.
For my particular selection of index funds I could always rebalance every 12-18 months. Can easily be done on their website.
Post by: deborah on February 15, 2017, 07:17:06 PM
Post by: steveo on February 15, 2017, 07:23:05 PM
If you own your property I wouldn't allocate a cent to property. You could add some bonds if you want too. I suppose that is your choice.
Post by: kivex on February 15, 2017, 07:48:04 PM
kivex - I think your allocation is fine but I would personally do a 50/50 split within your growth assets between Australian and International or even higher within your International exposure. I also wouldn't hedge it.
If you own your property I wouldn't allocate a cent to property. You could add some bonds if you want too. I suppose that is your choice.
Thanks steveo. What are your reasons for not hedging? I'm new to this so still learning. Also could you explain your reasons about property allocation (or lack of).
Post by: deborah on February 15, 2017, 08:07:37 PM
Post by: steveo on February 15, 2017, 08:10:51 PM
kivex - I think your allocation is fine but I would personally do a 50/50 split within your growth assets between Australian and International or even higher within your International exposure. I also wouldn't hedge it.
If you own your property I wouldn't allocate a cent to property. You could add some bonds if you want too. I suppose that is your choice.
Thanks steveo. What are your reasons for not hedging? I'm new to this so still learning. Also could you explain your reasons about property allocation (or lack of).
My opinion for not hedging is that the currency fluctuations over time should even themselves out. You are though probably taking a hit in fees in relation to the hedging. If you own your own property in Australia you more than likely have a massive allocation to property. I don't believe in adding more property to your portfolio because you have enough exposure.
Post by: oysters on February 15, 2017, 08:18:14 PM
kivex - I think your allocation is fine but I would personally do a 50/50 split within your growth assets between Australian and International or even higher within your International exposure. I also wouldn't hedge it.
If you own your property I wouldn't allocate a cent to property. You could add some bonds if you want too. I suppose that is your choice.
Thanks steveo. What are your reasons for not hedging? I'm new to this so still learning. Also could you explain your reasons about property allocation (or lack of).
My opinion for not hedging is that the currency fluctuations over time should even themselves out. You are though probably taking a hit in fees in relation to the hedging. If you own your own property in Australia you more than likely have a massive allocation to property. I don't believe in adding more property to your portfolio because you have enough exposure.
I am of this mind as well with the property to some extent. I think investing in individual properties is probably not ideal in Australia (outside of your PPOR), because of diversification (like owning individual shares). As well as your own property, many people end up inheriting property, or parts of property from parents, etc. Or move in a few years (that you can't predict now) and you might end up with another one. REITs are a bit different of course as they are by their nature diversified as an Index. But again, with relatively high investment into your PPOR, it doesn't make that much sense to have a lot invested in them. Few percent or so is probably good.
Everyone has their own take, of course
Post by: kivex on February 15, 2017, 08:29:18 PM
My opinion for not hedging is that the currency fluctuations over time should even themselves out. You are though probably taking a hit in fees in relation to the hedging. If you own your own property in Australia you more than likely have a massive allocation to property. I don't believe in adding more property to your portfolio because you have enough exposure.
Thanks for the explanation. SunSuper use Vanguard for 100% of their International Index fund and the costs are the same for both hedged and unhedged at 0.09% so no difference either way. Would it then make sense to have both hedged/unhedged to cover both scenarios of the AUD rising or falling?
The property index has fees of 0.11% and contains Scentre, Westfield, Goodman, Stockland, Mirvac etc. Would that change your perspective of investing in property outside of your PPOR?
Post by: deborah on February 15, 2017, 08:50:16 PM
Post by: iloveanimals on February 15, 2017, 09:14:12 PM
Post by: kivex on February 15, 2017, 09:18:33 PM
The point is that it's YOU who has to be comfortable with your investments - not any of us. Like Steveo, I feel that my house is enough property investment. But BigChrisB, Marty998... all seem to be comfortable with a lot more property. People who don't want more property aren't likely to have looked into the detail, so aren't likely to give you reasonable guidance. That said, those things are certainly a different form of property investment, and so give you diversity in that sector - whether it is good or bad diversity I don't know.
Thanks Deborah, yes a lightbulb moment for me as everyone has their own biases. I guess what I was trying to ask all along, though I might not have expressed it well, was that if my proposed AA looked reasonable or completely insane ;)
I have seen other super funds charge more for hedged vs unhedged funds due to additional overheads in the hedging, however since SunSuper charge the same for both hedged and unhedged, it would be great to have some feedback on whether it makes sense to have both hedged and unhedged funds.
Post by: FFA on February 15, 2017, 09:28:59 PM
Australia (index), international (index) hedged and unhedged, emerging markets, Australia FI, cash
I generally lean against hedging, but still keep a small percentage. Some suggest hedging will increase your volatility as there is a natural hedge between the FX and relative performance of global shares. Not sure about this, but it definitely incurs some transactional costs.
I'm not keen on property, and I have investment properties outside of super. The ASX already has a reasonable exposure to it so I don't add extra, so that might be something for you to consider depending on your situation and view.....
Post by: kivex on February 15, 2017, 10:10:30 PM
Post by: steveo on February 15, 2017, 11:07:57 PM
The point is that it's YOU who has to be comfortable with your investments - not any of us. Like Steveo, I feel that my house is enough property investment. But BigChrisB, Marty998... all seem to be comfortable with a lot more property. People who don't want more property aren't likely to have looked into the detail, so aren't likely to give you reasonable guidance. That said, those things are certainly a different form of property investment, and so give you diversity in that sector - whether it is good or bad diversity I don't know.
When I provide some advice I always feel like stressing it's my opinion and you need to come up with an AA that works for you. No one can predict the future.
Post by: cakie on February 16, 2017, 12:08:31 AM
I also wasn't sure about hedging - I'm usually a fan of unhedged but the same fee makes hedging look appealing. In the end I stuck with unhedged.
Your AA looks perfectly sane to me!
Post by: marty998 on February 16, 2017, 12:24:22 AM
Telstra shares got hammered today following their profit announcement. All those SMSF's buying in for their expected 15.5c dividend have just seen 30c of capital wiped away in a day.
Anything is better than AMP
AMP has to be the biggest rubbish stock ever to list on the ASX. I wish the VAS fund would buy the ASX 300 index and specifically exclude AMP. I can't believe they are still standing.
The point is that it's YOU who has to be comfortable with your investments - not any of us. Like Steveo, I feel that my house is enough property investment. But BigChrisB, Marty998... all seem to be comfortable with a lot more property. People who don't want more property aren't likely to have looked into the detail, so aren't likely to give you reasonable guidance. That said, those things are certainly a different form of property investment, and so give you diversity in that sector - whether it is good or bad diversity I don't know.
Thanks Deborah, yes a lightbulb moment for me as everyone has their own biases. I guess what I was trying to ask all along, though I might not have expressed it well, was that if my proposed AA looked reasonable or completely insane ;)
I have seen other super funds charge more for hedged vs unhedged funds due to additional overheads in the hedging, however since SunSuper charge the same for both hedged and unhedged, it would be great to have some feedback on whether it makes sense to have both hedged and unhedged funds.
I have enough residential property, but not enough commercial property. I am a bit gun shy about commercial because a lot of them are debt funded by instruments known as "Commercial Mortgage Backed Securities" (CMBS). These went to shit so badly during 2009/2010 that even good solid REITs fell over.
Basically find it hard to trust any manager with significant exposure to that type of financing. When the markets seize up there's nowhere to hide.
Post by: FFA on February 17, 2017, 03:50:45 AM
Kivex, we are the same! I'm also with amp - employer discounts made it cheap, but switching jobs right now. I'm moving to sunsuper, sticking to a basic allocation of 40% International, 40% Australian shares and 20% FI (Aussie i think?).hi cakie, with that kind of AA you might also consider Hostplus indexed balanced option. It is 37.5% international, 37.5% Australia shares, 15% FI, 10% cash and the MER is 0.02% by far the lowest I have seen. If you like this AA and want to set and forget, then it is a great option I suggest. The admin fees are also lower. Maybe one for you also kivex if you reconsider the 20% property.
I also wasn't sure about hedging - I'm usually a fan of unhedged but the same fee makes hedging look appealing. In the end I stuck with unhedged.
Your AA looks perfectly sane to me!
My wife is in the hostplus and I am in sunsuper. I use sunsuper to have a bit more flexibility. When I re-balance my AA it is on the overall portfolio (inside and outside super), so sunsuper has better options for that, i.e. the international (index) and emerging markets options.
Post by: cakie on February 17, 2017, 04:47:42 AM
Thanks for the suggestion FFA. I hadn't looked at any balanced options as I didn't realise any of them would be 70%+ stocks. That may be perfect for my SO's fund! I would prefer us to be with different funds anyway just in case... He's still with a (heavily discounted) for-profit.Kivex, we are the same! I'm also with amp - employer discounts made it cheap, but switching jobs right now. I'm moving to sunsuper, sticking to a basic allocation of 40% International, 40% Australian shares and 20% FI (Aussie i think?).hi cakie, with that kind of AA you might also consider Hostplus indexed balanced option. It is 37.5% international, 37.5% Australia shares, 15% FI, 10% cash and the MER is 0.02% by far the lowest I have seen. If you like this AA and want to set and forget, then it is a great option I suggest. The admin fees are also lower. Maybe one for you also kivex if you reconsider the 20% property.
I also wasn't sure about hedging - I'm usually a fan of unhedged but the same fee makes hedging look appealing. In the end I stuck with unhedged.
Your AA looks perfectly sane to me!
My wife is in the hostplus and I am in sunsuper. I use sunsuper to have a bit more flexibility. When I re-balance my AA it is on the overall portfolio (inside and outside super), so sunsuper has better options for that, i.e. the international (index) and emerging markets options.
Post by: FFA on February 17, 2017, 01:59:21 PM
Post by: sirdeets on February 18, 2017, 02:13:21 AM
Post by: limeandpepper on February 18, 2017, 07:24:34 AM
ok with some basic research it has come down to Sun Super and Australian Super. Any advise from this forum about for or against? Cheers
I am with Australian Super and I am satisfied with it. I went with one of their pre-mixed investment options, Sustainable Balanced: https://www.australiansuper.com/SustainableBalanced
According to my needs/preferences, I also reduced or eliminated some of the insurance (life, disability, income protection) to lower the fees.
Post by: nofriends on February 18, 2017, 03:04:46 PM
I am with Australian Super and I am satisfied with it. I went with one of their pre-mixed investment options, Sustainable Balanced: https://www.australiansuper.com/SustainableBalanced
According to my needs/preferences, I also reduced or eliminated some of the insurance (life, disability, income protection) to lower the fees.
Same here, with AustralianSuper, high growth option (~75% equities). Their fees are higher, but when i compared performance it was superior to hostplus and sunsuper, so decided to stay put and re-evaluate every 6-12 months.
Post by: mjr on February 18, 2017, 05:04:55 PM
Post by: GT on February 18, 2017, 11:29:49 PM
I set up an SMSF last year and continue to get real satisfaction that I have no financial leeches hanging off my portfolio. 0.1% + the vanguard ETF admin fees
No additional costs for managing the fund on an annual basis for tax purposes?
Post by: mjr on February 18, 2017, 11:42:51 PM
I set up an SMSF last year and continue to get real satisfaction that I have no financial leeches hanging off my portfolio. 0.1% + the vanguard ETF admin fees
No additional costs for managing the fund on an annual basis for tax purposes?
Tax return + audit is the 0.1 %
Post by: GT on February 19, 2017, 02:53:40 AM
I set up an SMSF last year and continue to get real satisfaction that I have no financial leeches hanging off my portfolio. 0.1% + the vanguard ETF admin fees
No additional costs for managing the fund on an annual basis for tax purposes?
Tax return + audit is the 0.1 %
Ahh OK, so that 0.1% would drop over time.
Post by: iloveanimals on February 19, 2017, 01:08:52 PM
Thanks LimePepper and No Friends for providing your experiences with Australian Super. I just opened our accounts with them. CheersI am with Australian Super and I am satisfied with it. I went with one of their pre-mixed investment options, Sustainable Balanced: https://www.australiansuper.com/SustainableBalanced
According to my needs/preferences, I also reduced or eliminated some of the insurance (life, disability, income protection) to lower the fees.
Same here, with AustralianSuper, high growth option (~75% equities). Their fees are higher, but when i compared performance it was superior to hostplus and sunsuper, so decided to stay put and re-evaluate every 6-12 months.
Post by: MrThatsDifferent on February 20, 2017, 12:40:43 AM
Post by: MajorTom on February 20, 2017, 02:01:47 AM
(They currently only seem to be listed in the institutional investor part of their website, but I read an article which indicated that they would be available to individual/SMSF investors too)
Vanguard Global Minimum Volatility Fund
https://www.vanguardinvestments.com.au/institutional/inst/investments/product.html#/fundDetail/wholesale/portId=8154/?overview
(0.17% buy/sell spread)
(Hedged into Australian dollar)
Vanguard Global Quantitive Equity Fund
https://www.vanguardinvestments.com.au/institutional/inst/investments/product.html#/fundDetail/wholesale/portId=8156/?overview
(0.11% buy/sell spread)
(Ex-Australia)
Vanguard Global Value Equity Fund
https://www.vanguardinvestments.com.au/institutional/inst/investments/product.html#/fundDetail/wholesale/portId=8157/?overview
(0.15% buy/sell spread)
(All world, including Australia)
Post by: emdeex on February 21, 2017, 01:14:35 AM
About a year ago, I started to look seriously at what was going on with my Super , and although I'm wiser, I certainly don't feel I fully understand all the ins and outs.
I opened an ING Living Super account, attracted by the low-fees, and more switched-on UI/data available. I've been putting 100% of my new allocations into the High Growth option while I tried to work out what all the options meant, so far that's all worked out fine.
From my analysis, of downloading the historical unit prices back to the ING funds inception in 2012, and charting it against various exchange traded funds in Oz and the US, I came up with this chart (hopefully you can open).
https://docs.google.com/spreadsheets/d/1C2xxoEEXrMtE_rq34TDoE9kfdgJc30VDHO88Dg81tr0/pubchart?oid=1357093838&format=interactive
(https://docs.google.com/spreadsheets/d/1C2xxoEEXrMtE_rq34TDoE9kfdgJc30VDHO88Dg81tr0/pubchart?oid=1357093838&format=interactive)
Which appears to show a very strong correlation between the US-traded Vanguard 500 (VOO) fund, and the ING Living Super High Growth option.
Am I right to think that investing in the ING High Growth option, is functionally equivalent to investing in the VOO?
If I'm getting the VOO performance... is the ING Super fee structure a good deal for this? Management fee is 0.25%, and Admin fee is 0.5% (capped at $1k per annum). No entry, switching or exit fees.
Post by: misterhorsey on February 21, 2017, 03:50:06 PM
http://www.macrobusiness.com.au/2017/02/fundies-have-a-shocker/
It's kind of a weird article. Frank and honest account of data - followed by ignoring the data!
Post by: Ozlady on February 22, 2017, 05:46:41 PM
I combined all my supers into Australian Super last month. I really like the app and easily watching the money grow.
Me too! Happy with the returns on Balanced choice so far:)
Post by: marty998 on February 23, 2017, 12:33:48 AM
NAB Chairman and former Treasury head Ken Henry has delivered a spray to the current political class.
He laments the inability for anything more than infantile insults to be hurled from one side to the other. Honestly it's about time someone yells over the top of Turnbull and Shorten and Abbott etc, for far too long this country has been led by imbeciles because no one has been willing to do anything about it.
Hopefully the business community will act constructively to back up the words now.
http://www.abc.net.au/news/2017-02-23/former-treasury-head-ken-henry-attacks-political-system/8296692?section=business
Post by: kivex on February 23, 2017, 01:50:17 AM
Tax wise, would it make much of a difference to create a family trust and transfer our Vanguard fund to the trust? We have two children (7/10) so would that mean the trust could pay them up to a tax free threshold?
Post by: Rob_S on February 23, 2017, 02:03:16 AM
My wife and I recently opened an account (joint names) with the Vanguard wholesale funds. Our tax brackets are 32.5c for my wife and 45c (47?) for me.
Tax wise, would it make much of a difference to create a family trust and transfer our Vanguard fund to the trust? We have two children (7/10) so would that mean the trust could pay them up to a tax free threshold?
Not worth it on the family trust unless one of you plans to give up working or dramatically scale back and end up in lower marginal tax bracket. Might be worth it if one of you works in a field where you are likely to be sued from an asset protection point of view.
I might be wrong but I am fairly sure you could only stream about $600 from the trust to your kids tax free. The ATO take a very dim view of investents for kids and tax the hell out of them. So again not really worth streaming income from a family trust to kids unless they are much older - 16 or more likely 18 when they are taxed as adults and get that tax free threshold.
Post by: marty998 on February 23, 2017, 02:35:35 AM
My wife and I recently opened an account (joint names) with the Vanguard wholesale funds. Our tax brackets are 32.5c for my wife and 45c (47?) for me.
Tax wise, would it make much of a difference to create a family trust and transfer our Vanguard fund to the trust? We have two children (7/10) so would that mean the trust could pay them up to a tax free threshold?
49...
45% marginal tax rate + 2% medicare + 2% debt levy (+ Medicare surcharge if applicable)
Post by: bigchrisb on February 23, 2017, 02:48:41 PM
My wife and I recently opened an account (joint names) with the Vanguard wholesale funds. Our tax brackets are 32.5c for my wife and 45c (47?) for me.
Tax wise, would it make much of a difference to create a family trust and transfer our Vanguard fund to the trust? We have two children (7/10) so would that mean the trust could pay them up to a tax free threshold?
Do you need the income from investment now? If not, I'd invest through a trust, stream what you can to the kids (not much at their ages but will increase as they get older / support them through uni), and stream the balance to a company beneficiary. Better to be compounding at 27.5% than 49% / 34.5%, and have the flexibility to change how you distribute income later without CGT.
This is the approach I've taken, and its been beneficial for me. I'd say the main criteria are:
- Having a reasonable nut to invest, so there are some tax savings to offset the running costs. Maybe $250k was the break-even point for me.
- Being on a high personal tax rate
- Not needing the money now, and having a reasonable duration to gain from the tax spread
- A bonus if you expect to have differing income patterns. For example, last few years I was the high income earner compared to my wife. We are heading overseas for her work soon, and this will invert. With a trust, we can choose the lower tax beneficiary. With investing in individual names, changing it would be a CGT event.
Post by: oysters on February 23, 2017, 09:33:23 PM
My wife and I recently opened an account (joint names) with the Vanguard wholesale funds. Our tax brackets are 32.5c for my wife and 45c (47?) for me.
Tax wise, would it make much of a difference to create a family trust and transfer our Vanguard fund to the trust? We have two children (7/10) so would that mean the trust could pay them up to a tax free threshold?
49...
45% marginal tax rate + 2% medicare + 2% debt levy (+ Medicare surcharge if applicable)
Hey Marty. I've never thought about the medicare additions, etc. (Have thought about my HECS-HELP debt repayments).
If one does something like Salary Sacrafice into super, thus reducing taxable income, does that also reduce the income on which the 2% medicare charge is calculated?
Post by: potm on February 23, 2017, 09:41:23 PM
It won't reduce your hec repayments though.
Post by: marty998 on February 24, 2017, 03:47:03 AM
Yes, salary sacrificing to super will reduce the medicare levy as well.
It won't reduce your hec repayments though.
Correct... there's a few things that are added back to your income for the purpose of calculating HECS and entitlements to other social security measures such as FTB. Net investment losses (negative gearing) being a prime example.
Post by: Notch on February 24, 2017, 01:52:38 PM
Post by: kivex on February 24, 2017, 04:26:50 PM
My wife and I recently opened an account (joint names) with the Vanguard wholesale funds. Our tax brackets are 32.5c for my wife and 45c (47?) for me.
Tax wise, would it make much of a difference to create a family trust and transfer our Vanguard fund to the trust? We have two children (7/10) so would that mean the trust could pay them up to a tax free threshold?
Do you need the income from investment now? If not, I'd invest through a trust, stream what you can to the kids (not much at their ages but will increase as they get older / support them through uni), and stream the balance to a company beneficiary. Better to be compounding at 27.5% than 49% / 34.5%, and have the flexibility to change how you distribute income later without CGT.
This is the approach I've taken, and its been beneficial for me. I'd say the main criteria are:
- Having a reasonable nut to invest, so there are some tax savings to offset the running costs. Maybe $250k was the break-even point for me.
- Being on a high personal tax rate
- Not needing the money now, and having a reasonable duration to gain from the tax spread
- A bonus if you expect to have differing income patterns. For example, last few years I was the high income earner compared to my wife. We are heading overseas for her work soon, and this will invert. With a trust, we can choose the lower tax beneficiary. With investing in individual names, changing it would be a CGT event.
Thanks Chris, lots of great info for consideration.
One question regarding the company beneficiary - how do you get the $$ out of the company later?
Post by: marty998 on February 24, 2017, 06:15:44 PM
Post by: marty998 on February 24, 2017, 11:00:51 PM
As well, some of their larger holdings - BOQ, TOX and ANN are down quite a bit this month too so I would not expect Feb's NTA to be too good either.
There's one company in their list of investments that I missed out on (Pact Group Holdings Ltd). Debating a year ago whether to buy some of it at ~$4.50. It nearly hit $7 earlier this month :O
Anyway, I can't see that the premium to NTA is justified, given the 1yr underperformance of around 5%.
Post by: FFA on February 26, 2017, 09:47:23 PM
Post by: FFA on February 26, 2017, 09:49:48 PM
The other option to keep things simple and minimise tax is to keep your high-yielding Australian shares in your super accounts, and keep the relatively low-yielding international stocks in your names.
I'm moving in this direction now (post FIRE)..... of course the trade off for most FIRE focused people is the need to have passive income outside Super to pull the trigger, and that usually means people go the other way and hold the high yield Aus shares ex Super. It is worse for tax but might make your FIRE date much earlier than if you hold mainly international shares ex Super.... Life is full of trade-offs!
Post by: potm on February 27, 2017, 12:00:01 AM
The other option to keep things simple and minimise tax is to keep your high-yielding Australian shares in your super accounts, and keep the relatively low-yielding international stocks in your names.
I'm moving in this direction now (post FIRE)..... of course the trade off for most FIRE focused people is the need to have passive income outside Super to pull the trigger, and that usually means people go the other way and hold the high yield Aus shares ex Super. It is worse for tax but might make your FIRE date much earlier than if you hold mainly international shares ex Super.... Life is full of trade-offs!
In theory it shouldn't make a difference whether stocks pay a dividend or not.
Our American friends would all require to sell down their stocks unless they have a very low withdrawal rate.
It's a lot easier to live off the dividends though.
Post by: itchyfeet on February 28, 2017, 08:41:57 PM
I am feeling a sense of altitude sickness at these dizzy heights.
I have been heavily leveraged on Sydney real estate for a long time. The market growth over the past 15-20 years had been a key driver of my current net worth. I am now feeling it is time to take profits and bale.
How are others feeling?
Mind you, in practice, I can't really sell without incurring a huge tax bill which could be avoided if I wait a 2 more years (expat ATM, will use 6 year rule to avoid cap gains tax). So, for me I will almost certainly continue this crazy ride with my fingers crossed.
Just for the sake of discussion, if I sold now from abroad I would incur cap gains tax of around $150,000 on a sale price of around $2.1-$2.2 million.
Post by: misterhorsey on February 28, 2017, 09:49:27 PM
Mind you, in practice, I can't really sell without incurring a huge tax bill which could be avoided if I wait a 2 more years (expat ATM, will use 6 year rule to avoid cap gains tax). So, for me I will almost certainly continue this crazy ride with my fingers crossed.
Hey Itchyfeet. Perhaps i'm missing something, but how does waiting a further 2 years allow you to avoid CGT?
My understanding of the 6 year rule is that it's a maximum period you are allowed to treat a property as your main (CGT free) residence, despite not living in it.
https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Treating-a-dwelling-as-your-main-residence-after-you-move-out/
Post by: itchyfeet on February 28, 2017, 11:26:58 PM
Post by: itchyfeet on February 28, 2017, 11:45:14 PM
Post by: deborah on March 01, 2017, 12:06:51 AM
Post by: marty998 on March 01, 2017, 12:29:45 AM
You could also be in a position to add to the cost base a lot of otherwise non-deductible costs.
Post by: potm on March 01, 2017, 02:22:07 AM
Post by: misterhorsey on March 01, 2017, 04:27:31 AM
As the link says, you must have acquired it as a PPOR and then rented it out. The underlying policy intent is so as not to disadvantage people who buy a PPOR, qualify for CGT exemption, but then have to relocate for work.
I've used the exemption myself (sold a former PPOR, which was rented out, within 6 years of renting it out). It's the weirdest thing. If you qualify for the exemption, then there is no CGT event as such that is triggered. Therefore you don't actually tell the ATO anything. The wonders of self assessment.
Post by: itchyfeet on March 01, 2017, 08:19:22 AM
Yes it was our PPOR for 5 years before we moved OS. We have not claimed any other PPOR whilst overseas.
It has been rented out for 3 years thus far.
So now I have a real question on my hands, and not a hypothetical one.
Is it now time for me to take my profits and exit the Sydney property market? Hmmm..... amd then where (and what) to invest in instead? .....
Definitely makes FIRE a lot more real when you are really making a conscious decision that you don't intend returning to working in Sydney again ever... (yes we could rent but selling up is a clear action of intent).
Post by: steveo on March 01, 2017, 12:42:08 PM
If it makes sense to sell then sell. The thing with property in Sydney is that the yield is so low that cashing in is going to be a good option when you want to start withdrawing some of that money.
Post by: marty998 on March 01, 2017, 01:27:03 PM
Group of us at work are all in agreement that this town is fracked when it comes to first home buyers - they just can't get a foot in anywhere. Even 60km away from the CBD in the far north west properties are pushing $1m. We all work in Financial Services, one of the highest paid industries in the land, and the ones without a house can't buy one.
Cycles come and go, this feels like 2002 all over again. Remember from 2003-2009 Sydney house prices went nowhere and in many places declined.
I'm still inclined not to sell, as long long term (20+ years) prices will still go up in line with fundamentals (wages, CPI, population, whatever). After that we may have some demographic issues if the immigrant tap is turned off. Japan situation is an event that could easily happen. Who knows really, can't predict the future.
Could always sell and reinvest in Perth or Darwin, prices came off 5% over there, after falling last year as well.
Post by: deborah on March 01, 2017, 02:05:41 PM
Post by: misterhorsey on March 01, 2017, 02:25:43 PM
I think property valuations in Syd/Melb seem pretty stretched at the moment. Certainly by comparison with international benchmarks, as well as regional Austrlaia. Although unlike tulipmania and the dot com craziness, your classic textbook bubbles, there are certain types of properties (inner city detached houses) that they are simply not creating anymore - so in some sense high valuations are justified due to demand and very limited supply.
If you sell, will you be buying another property eventually? Somewhere else in Australia? Is the the CGT exemption for your PPOR something that you will want to take advantage of again?
Maybe do a pros and cons analysis of better places to put your capital? For example, taking diversified index funds as a possibility, see if it brings about a better outcome for your circumstances. By 'better' I mean potentially better performing, more liquid/flexible, more tax effective or any combination of the three.
Zooming out again, I think if you bought property before this latest upswing in prices, and you're happy to quit while you're ahead and cash in your chips, and then say park it in an index fund which on average would delivered average annualised returns of 7%, and that sets you up, then why not? Or split the proceeds and buy a smaller cheaper house somewhere and part the rest in an index and live off that? You've got options.
Post by: itchyfeet on March 01, 2017, 07:20:44 PM
My thoughts:
1. Marty, I certainly won't be buying in Perth. Perth prices were very inflated due to the once only impact of the mining boom. Prices are now correcting. Perth have a supply issue too - as in too much supply. Finally, like everywhere in Australia the property prices will suffer badly if interest rates rise even 1%. I don't see any value in aperth property.
2. I would be ok with the idea that holding on long term should see the peaks and troughs average out to provide a more normal growth linked to inflation, population, productivity, wages etc. However, I honestly believe that we are at the very peak of a cycle/ bubble with minimal upward potential. It might be more than 10 years before there is any further growth. Surely my funds will be better placed elsewhere.
3. Deborah, I don't own 100% of the property. I have a mortgage so am leveraged, which is making me even more anxious as I am even more exposed to any downward price movement (of course I also benefited from the growth as well). I have a FIRE number that I will achieve in 2019, assuming no further growth in the value of my Sydney property. But, yes we do have a lot of equity tied up and it's part of what we will be living off post FIRE.
So, my DW and I discussed...... she has an emotional attachment to the house and would like to live there again, in the heart of Sydney, for a few more years after we return to Australia before we head somewhere cheaper. The discussion is not over. I hope we are not missing a big opportunity.
Post by: Fresh Bread on March 01, 2017, 07:50:41 PM
We get less than 3% on the current estimated value of the apartment from the rent after usual expenses but not including refurbs. But it's been fine having the money there rather than in a fund as the capital value has increased 7% a year over the 8 years we've had it (although not evenly of course!). It was somewhere we bought to live but then kept when we moved on, so we know it's a desirable location and we hoped it would be a pretty good bet as an investment e.g. no new apartment blocks could go up nearby under current zoning. I'm imagining your home is somewhere desirable too?
We are just starting the process of putting it up for sale so we can retire. The actual timing comes down to personal reasons, the fact that the current value is more than we'd ever ever pay for an apartment and I've got the jitters, and because we know if we keep it another year or so we'll be up for those carpets & blinds plus many other things.
So short version - if you want more investment income or need some capital - sell; if you don't, I would personally hang on to the investment if it's in a 'good' area.
Post by: deborah on March 01, 2017, 07:58:15 PM
Post by: itchyfeet on March 01, 2017, 08:29:15 PM
Actually, over the past few years we have been thinking of where we might live in FIRE. About 3-4 years ago we bought an investment property in Brisbane (pure investment, not future home) just to take a stake in the market as we thought Brisbane might be somewhere we might like to live and property was about 1/3 of the price of where we were living in Sydney. It's now 1/4 the price due to the explosion of Sydney prices.
We have also been considering living outside a capital city om the coast in NSW or QLD, but DW says she wants to keep working part time, and there would be more opportunities in a city. Also, cities offer a lot in terms of entertainment, airports etc which we would value. I don't think we are quite ready to any new property purchase right now. But for sure, we are both 100% sold on the fact that our long term future will not be in Sydney.
It doesn't make any economic sense to live in a $2m house, except when you are working in the Sydney CBD and getting paid Sydney wages and can really make the most of the great lifestyle that living only 10 mins from the city gives you. Once time is plentiful and Commuting is not a concern, living close to the CBD has less value. (When we bought our house it wasn't a $2m house. I would never spend that much on a home, especially after my MMM indoctrination).
Post by: itchyfeet on March 01, 2017, 08:51:20 PM
Itchyfeet, my opinion is that property in the blue chip and inner areas of Sydney is going to give you similar returns to the markets when you combine rental returns with capital growth over the long term. If you were in a bit of an outlying area of Sydney or had apartments in a location when lots were being built then it's different. But like someone above said, the cash flow/ rental returns are appalling, so when it actually comes to retirement and you need income not capital growth it makes sense to sell up then and put it in an index fund. That's what we've decided to do with our apartment investment.
.....
So short version - if you want more investment income or need some capital - sell; if you don't, I would personally hang on to the investment if it's in a 'good' area.
Our place is in a highly desirable location. It certainly has the benefit of being in a place where far more people would want to live than could ever realistically afford. How many houses allow you to watch the fireworks on the Sydney Harbour bridge from your bedroom window, and commute to your CBD office in around 10 minutes from your front door?
That said, I still think that returns for the next year will be negligible. A rent return of less than 3% including refurbs, and at best CPI capital growth, is hardly exciting. Especially when I think even growth at CPI is optimistic. I say this with your reasoning "I would never pay that much!". Maybe I am starting to think more mustachinan than the average home buyer. I don't know.
Post by: bigchrisb on March 02, 2017, 02:53:39 PM
http://www.afr.com/news/economy/oecd-rings-alarm-on-housing-rout-20170302-guowau (http://www.afr.com/news/economy/oecd-rings-alarm-on-housing-rout-20170302-guowau) (apologies for posting links from a subscription webpage).
Post by: Ozstache on March 02, 2017, 04:07:33 PM
http://www.afr.com/news/economy/oecd-rings-alarm-on-housing-rout-20170302-guowau (http://www.afr.com/news/economy/oecd-rings-alarm-on-housing-rout-20170302-guowau) (apologies for posting links from a subscription webpage).
Ever since I started using a VPN, the AFR website seems to consider me a subscriber even though I am not, so I can see articles like this. For those that can't here's another link to a similar story: http://www.canberratimes.com.au/business/the-economy/oecd-warns-of-rout-in-house-prices-if-investors-head-for-the-doors-20170302-gup0yw.html (http://www.canberratimes.com.au/business/the-economy/oecd-warns-of-rout-in-house-prices-if-investors-head-for-the-doors-20170302-gup0yw.html)
I watch Austraila's continued love affair with property with great bemusement. Yields are absolute rubbish now in Sydney, so people had better hope that capital gains continue at their historic rate to make up for it, even though CGT discourages any profit taking. With already eye-wateringly high prices, an economy that blows with resource prices driven by others, and interest rates nudging slowly higher in defiance of the official cash rate, what could possibly go wrong?
Post by: bigchrisb on March 04, 2017, 04:07:08 AM
Post by: itchyfeet on March 04, 2017, 05:55:01 AM
For another bit of "evidence" about bubbles, went to an auction down the street for a place somewhat comparable (but probably marginally higher price point) than the place I bought 2.5 years ago. It sold for 75% more than I paid for mine a couple of years ago. Totally ridiculous!
But what to do about it?
The most logical answer is to sell. Unfortunately, it seems DW and I have decided to do the illogical and sit on the over priced asset.
I am personally really uncomfortable with this, as a 20% drop in the next few years would mean I have to work probably 2 more years..... of course we could sell the house now, amd invest in stocks which could also drop by 20% tomorrow..... lol... amd quicker than the housing market would most likely drop.
with this line of thinking I am bound to be a victim of OMY syndrome.
Post by: itchyfeet on March 04, 2017, 09:37:16 AM
Clearance rate dropped below 80% too, so it seems that at least some buyers went to auctions today with some common sense.
Post by: marty998 on March 04, 2017, 03:02:41 PM
Well the median auction sale price in Sydney today was 20% less than last weekend. Maybe last week was just an abnormality.
Clearance rate dropped below 80% too, so it seems that at least some buyers went to auctions today with some common sense.
I think the week before was an over the top median.
Also the rain would have dampened spirits a bit :)
Post by: Fresh Bread on March 04, 2017, 05:48:07 PM
We have a retail Vanguard account with approx $10k across Aus and international index funds that we opened a while ago but never really added to. Pretty sure the fees are high - 0.75%. We could put the apartment sale proceeds into a wholesale index fund with 0.15% fees, but when I had a look on Vanguard it said min investment $500k. I would struggle to get DH to put $500k in one go into one non-bricks and mortar investment (I'm scared too) but something like $100k a month until retirement day (soon) across two or three funds could be achievable. I think that directs us towards ETFs?
I'm starting from scratch learning about these, I hadn't heard of them before this forum (!) so I'll go back up this thread and read earlier discussions, but at the moment I'm hearing in my head the advice "don't invest in something that you don't understand." I will educate myself as much as possible, but at the moment ETFs are feeling a lot more black box than an index fund and I'm not feeling all that comfortable :(
Post by: Luckyvik on March 04, 2017, 06:40:55 PM
Sent from my iPhone using Tapatalk
Post by: potm on March 04, 2017, 07:18:48 PM
I have asked for an appraisal for our IP and should have an initial number Monday. A similar place a couple of streets away sold pre-auction on Friday for huge $$$, so if I can get a 'disappointed buyer' to snap ours up then I'll have a lump sum to put in a fund. DH won't sell unless we get the same price as that apartment, so it's not definite at all, but crossing fingers.
We have a retail Vanguard account with approx $10k across Aus and international index funds that we opened a while ago but never really added to. Pretty sure the fees are high - 0.75%. We could put the apartment sale proceeds into a wholesale index fund with 0.15% fees, but when I had a look on Vanguard it said min investment $500k. I would struggle to get DH to put $500k in one go into one non-bricks and mortar investment (I'm scared too) but something like $100k a month until retirement day (soon) across two or three funds could be achievable. I think that directs us towards ETFs?
I'm starting from scratch learning about these, I hadn't heard of them before this forum (!) so I'll go back up this thread and read earlier discussions, but at the moment I'm hearing in my head the advice "don't invest in something that you don't understand." I will educate myself as much as possible, but at the moment ETFs are feeling a lot more black box than an index fund and I'm not feeling all that comfortable :(
Give Vanguard a call, they will accept 100k min into the wholesale funds. At least they did in the past even though the website has always shown 500k.
Post by: steveo on March 04, 2017, 07:27:35 PM
Post by: Fresh Bread on March 04, 2017, 08:57:06 PM
I have asked for an appraisal for our IP and should have an initial number Monday. A similar place a couple of streets away sold pre-auction on Friday for huge $$$, so if I can get a 'disappointed buyer' to snap ours up then I'll have a lump sum to put in a fund. DH won't sell unless we get the same price as that apartment, so it's not definite at all, but crossing fingers.
We have a retail Vanguard account with approx $10k across Aus and international index funds that we opened a while ago but never really added to. Pretty sure the fees are high - 0.75%. We could put the apartment sale proceeds into a wholesale index fund with 0.15% fees, but when I had a look on Vanguard it said min investment $500k. I would struggle to get DH to put $500k in one go into one non-bricks and mortar investment (I'm scared too) but something like $100k a month until retirement day (soon) across two or three funds could be achievable. I think that directs us towards ETFs?
I'm starting from scratch learning about these, I hadn't heard of them before this forum (!) so I'll go back up this thread and read earlier discussions, but at the moment I'm hearing in my head the advice "don't invest in something that you don't understand." I will educate myself as much as possible, but at the moment ETFs are feeling a lot more black box than an index fund and I'm not feeling all that comfortable :(
Give Vanguard a call, they will accept 100k min into the wholesale funds. At least they did in the past even though the website has always shown 500k.
Ok, great, will try that.
Just spoke to DH and he's keen to split the pot between 2 x peer-to-peer (we have a Ratesetter account so need to research another), a Vanguard index fund, another index fund (TBC following research, have no idea yet) and a new (est. 2014) sustainable managed fund he's been following with interest. The bulk would be in Vanguard so wholesale might still be possible. We'll still have rental income from our PPOR, our Super of course and a year's expenses in a term deposit so I think we will be pretty well diversified should any economic shit hit the fan!
Are there any FIRE Australian's reading this thread who might share their allocation? Especially if they pulled the plug many years from being able to tap super?
Post by: deborah on March 04, 2017, 09:10:54 PM
Post by: Fresh Bread on March 04, 2017, 10:15:12 PM
Not sure that any FIRE Aussies meet the criteria.
Do you think there aren't any Aussies that are FIRE before, say, 50, or just on this thread? I'll make another thread to find out! I think Mrs Rich Life is RE. Plus isn't there a young guy going extreme? Hmm.
Post by: marty998 on March 04, 2017, 10:51:51 PM
Not sure that any FIRE Aussies meet the criteria.
Do you think there aren't any Aussies that are FIRE before, say, 50, or just on this thread? I'll make another thread to find out! I think Mrs Rich Life is RE. Plus isn't there a young guy going extreme? Hmm.
BigChrisB is the only one I'm aware of.
I don't think Jupiter is still around. Something about his situation didn't add up to me anyway...
My brother is trying to sell his house in an expensive area but I think got basically no offers for his place. I don't really like his house but maybe there is some semblance of normalcy coming into the market.
Thread on PropertyChat forum discussing this very point. Lots of auctions on Saturday passed in with no bids but were not reported by the agents. It looks really bad for an agent when this happens, and also is damaging to the eventual price that a property might sell for.
Have to keep up those clearance rates to show there is still puff in the market but honestly I agree, people have finally run out of money.
Post by: Fresh Bread on March 04, 2017, 10:59:20 PM
I started this thread:
http://forum.mrmoneymustache.com/post-fire/looking-for-aussie-fire-ees/
Post by: deborah on March 04, 2017, 11:13:38 PM
Post by: itchyfeet on March 05, 2017, 01:43:54 AM
I will be 47 and DW 41
We will have quite a lot outside super. Probably more than normal due to being able to accumulate funds tax free outside super - PPOR in Sydney + savings on tax free income earned in Middle East.
At FIRE our NW will be split something like:
Super Accum 17% (accessible from 60)
Super Def Benefit pension 8% (accessible from 55)
Investment Property (Bris) 0-20%
Stocks (primarily indexed funds) 30-50%
PPOR 25%
We haven't decided what to do with our Brisbane investment property yet. Might keep it leveraged. Not sure.
DW wants to work part time Post Fire. This might give us an opportunity to put some more in super, depending on what she earns. At a minimum there will be the SGL.
I don't plan on working. We shall see.
Post by: FFA on March 05, 2017, 02:52:06 AM
Post by: bigchrisb on March 05, 2017, 02:45:13 PM
Criteria include not being able to tap into super. BigChrisB is not FIRE yet. The others I can think of were able to tap into super equivalents of various types. There is only one I can think of who may fit the criteria. I retired several years before I received super, but used my savings until then, so I probably don't count either.
I'm FI, but not RE (yet). I'll add to the other thread.
Post by: Fresh Bread on March 05, 2017, 07:40:34 PM
We were FI early/mid 30's, FIRE 37... But it never really went to "plan" I was immediately part-time consulting, which has now morphed into part-time work.... AA is on the inactive blog somewhere!
I looked at your blog! It had a 65/35 split between stocks, ETFs and cash/term deposits.
Yes, I had a FU moment and left my job a while back. We weren't FIRE but our basic needs were covered and I was going to stay home for a bit. Ended up setting up a business and working 40 hr weeks or more & we can never take holidays. Lesson learned for actual FIRE - try not to earn money.
Post by: Fresh Bread on March 05, 2017, 07:41:29 PM
Criteria include not being able to tap into super. BigChrisB is not FIRE yet. The others I can think of were able to tap into super equivalents of various types. There is only one I can think of who may fit the criteria. I retired several years before I received super, but used my savings until then, so I probably don't count either.
I'm FI, but not RE (yet). I'll add to the other thread.
Thanks!
Post by: FFA on March 06, 2017, 03:11:30 AM
Yeah I'm still sticking to 2/3 growth and 1/3 defensive. But that's the allocation for my non-property portfolio (which is roughly half the net worth excluding PPOR). I still have three investment properties too, which I gradually want to get rid of. Unfortunately they are not on the east coast!We were FI early/mid 30's, FIRE 37... But it never really went to "plan" I was immediately part-time consulting, which has now morphed into part-time work.... AA is on the inactive blog somewhere!
I looked at your blog! It had a 65/35 split between stocks, ETFs and cash/term deposits.
Yes, I had a FU moment and left my job a while back. We weren't FIRE but our basic needs were covered and I was going to stay home for a bit. Ended up setting up a business and working 40 hr weeks or more & we can never take holidays. Lesson learned for actual FIRE - try not to earn money.
Post by: oysters on March 06, 2017, 05:41:35 PM
Yeah I'm still sticking to 2/3 growth and 1/3 defensive. But that's the allocation for my non-property portfolio (which is roughly half the net worth excluding PPOR). I still have three investment properties too, which I gradually want to get rid of. Unfortunately they are not on the east coast!We were FI early/mid 30's, FIRE 37... But it never really went to "plan" I was immediately part-time consulting, which has now morphed into part-time work.... AA is on the inactive blog somewhere!
I looked at your blog! It had a 65/35 split between stocks, ETFs and cash/term deposits.
Yes, I had a FU moment and left my job a while back. We weren't FIRE but our basic needs were covered and I was going to stay home for a bit. Ended up setting up a business and working 40 hr weeks or more & we can never take holidays. Lesson learned for actual FIRE - try not to earn money.
Don't we all wish we outright owned an inner Sydney one bedroom shoebox...we'd all be FIREd ;-)
Post by: oysters on March 06, 2017, 08:41:26 PM
"with net dividends reinvested"...does that mean that there are no Australian tax implications of the dividends, Ie, it won't increase my Aus taxable income? Sorry, this is probably answered up-thread.
Post by: deborah on March 06, 2017, 08:48:29 PM
I don't have any right now, but with VGS...Your taxable income will increase.
"with net dividends reinvested"...does that mean that there are no Australian tax implications of the dividends, Ie, it won't increase my Aus taxable income? Sorry, this is probably answered up-thread.
Post by: Notch on March 07, 2017, 02:35:32 AM
I don't have any right now, but with VGS...
"with net dividends reinvested"...does that mean that there are no Australian tax implications of the dividends, Ie, it won't increase my Aus taxable income? Sorry, this is probably answered up-thread.
VGS pays dividends every quarter, that you will need to pay tax on. The "with net dividends reinvested" refers to the benchmark index Vanguard is trying to match in performance.
"Vanguard MSCI Index International Shares ETF seeks to track the return of the MSCI World ex-Australia (with net dividends reinvested), in Australian dollars Index, before taking into account fees, expenses and tax."
Post by: misterhorsey on March 08, 2017, 10:13:03 PM
Anyhoo, someone way back asked what the difference was between ETFs and LICs?
LICs are generally an active managed fund overseen by a fund manager. Which may be internal or outsourced. One key issue is that the active management of LIC's can make them subject to governance risk. Fist fights and powerplays between the investment managers, unhappy shareholders, fighting for control over funds under management.
By comparison, you'd think the remit of an index is pretty straightforward (i.e. Replicate the index. ) and the relatively low fees they charge wouldn't make active management sustainable.
So this is what's happening at CTN at the moment.
http://www.smh.com.au/business/banking-and-finance/extraordinary-battle-under-way-at-contango-microcap-20170302-gup7ot.html
The price is depressed at the moment due to underperformance, but no doubt also due to the current uncertainty. It may resolve itself eventually but I'm wishing I'd just shoved the whole thing into a index.
Hunter Hall is another weird one.
http://www.afr.com/business/banking-and-finance/financial-services/hunter-hall-lic-saga-a-lesson-for-listed-invested-companies-everywhere-20170308-gutnrj
Post by: marty998 on March 09, 2017, 12:02:55 AM
I wrote a post earlier in the thread about exceptional low volatility in the ASX the past couple of months. Since then, the markets have been even less volatile.
Should we just close the ASX and all come back in August for the next reporting season?
Post by: misterhorsey on March 09, 2017, 01:38:55 PM
Post by: fucash on March 09, 2017, 10:36:30 PM
I completed my first purchase of an ETF today in VGS. I'll also be picking up another packet ($5k) of VAS come next week.
Looking at the short term SP, I only wish I completed this trade at the start of the year! VGS has had a nice run in 2017.
My background has been in gambling (see also: trying to pick stock myself :p ) and with some ridiculous luck, I've managed to come out quite profitable -- overall, double digit returns (including the losses I incurred). However, stock picking is stressful, risky and tends to mess with your personal confidence gauge on both sides of the scale.
While, I'll continue to allocate a very small portion of portfolio to some more speculative stock (maybe medicinal marijuana), my strategy will be focussing on ETF's for now. The next few months will see me most likely selling off my profitable stocks and re-investing back into VGS or VAS.
----
Current Assets
Cash: ~37% - 1 year of gross income. I'll be topping this up with around 30% of my 35% savings rate.
Shares: ~50% - As above, looking to consolidate into ETF's with 1 or 2 hand-picked stocks. Re-investment will be the remaining 70% of my 35% savings rate.
Bitcoin [BTC]: ~13% - Majority of this is profit, I did NOT invest 13% of my wealth in this.
Non-Current Assets
Super: ~35k - So far, I haven't mad any contributions to this. I'll be potentially swapping to AusSuper after reading this thread.
Liabilites
HECS:~25k - Debating on whether or not to pay outright, it doesn't seem like I get too much benefit from doing so.
----
Future?
To have 'fucash'. The ability to say 'f u' means not being a slave to a job, person, bank, or whatever *strictly due to money*.
I'm interested/work in Tech, and have been riding the BTC wave for a while now (since 2012). Ultimately, this is something I'll be keeping a close eye on as well as other cryptocurrencies.
Some fin-tech stuff in Aus interested me originally, but after much due dilligence, don't seem worth it. These were things such as AcornsAU [as opposed to buying ETFs] and Spaceship [marketed as a 'tech' Superannuation company].
Currently, property is not something I've explored as an <30 single person in Melbourne.
Today, I saved myself nearly $2k. I discontinued my $115/month Private Healthcover after much research (~$1.4k/year). I've also downgraded my phone plan to by $40 to $40/month ($480).
I can only hope that my choices are somewhat rational and that they pay off (literally) in the future.
Post by: marty998 on March 10, 2017, 01:54:14 AM
Post by: andystkilda on March 10, 2017, 02:29:43 AM
Are there any FIRE Australian's reading this thread who might share their allocation? Especially if they pulled the plug many years from being able to tap super?
We FIRE'd last August at 28/29 with 2 toddlers. I have super in my net worth calculations but in terms of access or an income source, I view it as pretty much non-existant given how far away the preservation age is (and almost certainly will be further raised).
All our assets are in high-yielding, fully-furnished 2-bedroom apartments (St Kilda, VIC) and most of the rest is in RateSetter right now mostly based of their ease-of-use.
Post by: fucash on March 10, 2017, 10:33:47 PM
Hopefully you won't get hit with the medicare levy surcharge for dropping private health cover. $1400 a year is quite high for a single. You should be able to get basic hospital and extras for less than $1000.
I think I can get the basic hospital and extras for ~$900 with Bupa. I'll look into it.
Post by: itchyfeet on March 11, 2017, 08:12:40 AM
So looking at this weeks results, a strong 83% clearance and $1.267 median.
http://www.auhouseprices.com/auction/results/NSW/2017-03-11/
Stronger and higher than last week, but when I look back 12 months to the same weekend last year the median auction price was $1.230m.
http://www.homesearchsolutions.com.au/wp-content/uploads/2016/02/Auction-Results-Saturday-12th-March.pdf
So from an unreliably small sample size, price growth over 12 months is a modest 3%.
This is fine by me at this point. Perfect even. Just keep ticking upwards.
If I add my 2.5% net rental return to 3% capital gains, I am perfectly happy with 5.5% total.
$115K in gains. less the $25K or so interest and maybe $15K tax after some depn deductions and it'll be another $75K in the bank and shifted to non residential property investments.
Here's hoping for 3% capital gain over the next year. A white knuckle ride!
Post by: AussieLad on March 13, 2017, 04:43:27 PM
Have been reading the forums and other ER websites for the last 2-3 months and learning as much as possible.
Most of my family/friends are all in the "save $$, buy a house" mindset - so a lot of these ideas are newish to me.
Have a couple of questions, that I'm hoping the more experienced folk might be able to shed some light on.
Have approximately $50k sitting in a savings account I'm looking at investing instead....
1) Does seem like a common consensus is that a 50-50 split between VAS and VGS is deemed a good starting point.
What is the reasoning behind such a large percentage in Aussie shares? I'm assuming there must be some benefits (tax/franking etc) for buying local?
2) Once the decision to purchase the ETF is made, how exactly does one go about it?
From what I gather, you need to sign up to an online broker. Is there a preference as to which ones people here use?
Again, this would be new to me, though I'm sure it can't be that hard to work out hehe :P
Post by: mjr on March 13, 2017, 09:40:20 PM
1) Does seem like a common consensus is that a 50-50 split between VAS and VGS is deemed a good starting point.
What is the reasoning behind such a large percentage in Aussie shares? I'm assuming there must be some benefits (tax/franking etc) for buying local?
2) Once the decision to purchase the ETF is made, how exactly does one go about it?
From what I gather, you need to sign up to an online broker. Is there a preference as to which ones people here use?
Again, this would be new to me, though I'm sure it can't be that hard to work out hehe :P
A high percentage of Australian shares for Australian residents is often justified by no currency risk and the benefits received via franking credits.
Yes, common wisdom these days seems to be to purchase VGS for international exposure. That said, I stick with VTS instead because of its 0.05% MER and I don't think much of the Japanese and European markets these days and I'm looking forward to seeing how the US is going to go business-wise under Trump.
Yes, to purchase ETFs you need a broker. Your main bank will have one. Fees (especially brokerage) are what you want to look at. I use Westpac which has a $19.95/0.11% minimum and that means my trades are normally around $20,000 minimum in order to keep brokerage low. If your trades are going to be less than that amount, you'll want to look for a broker with smaller fees for the amount you expect to trade.
Post by: marty998 on March 14, 2017, 01:30:37 AM
Ok, I know this is not a property forum..... but my biggest amd riskiest investment is my Sydney house.... and I need to sell soonish..... well next 3 years anyways.... so I am reflecting on it.... you are free to ignore me if you are sick of Sydney realestate fixations :-p
So looking at this weeks results, a strong 83% clearance and $1.267 median.
http://www.auhouseprices.com/auction/results/NSW/2017-03-11/
Stronger and higher than last week, but when I look back 12 months to the same weekend last year the median auction price was $1.230m.
http://www.homesearchsolutions.com.au/wp-content/uploads/2016/02/Auction-Results-Saturday-12th-March.pdf
So from an unreliably small sample size, price growth over 12 months is a modest 3%.
This is fine by me at this point. Perfect even. Just keep ticking upwards.
If I add my 2.5% net rental return to 3% capital gains, I am perfectly happy with 5.5% total.
$115K in gains. less the $25K or so interest and maybe $15K tax after some depn deductions and it'll be another $75K in the bank and shifted to non residential property investments.
Here's hoping for 3% capital gain over the next year. A white knuckle ride!
Ignore auction clearance rates and ignore medians... Auctions tend to happen in the more desirable areas (East, North) and agents have a habit of simply not reporting auctions that are passed in. So you get the double benefit of higher value properties going to auction, and not hearing any bad news, both influencing the figures.
I don't for a second believe the auction clearance figures, but generally the marked is pushing far above what one could consider normal.
Post by: marty998 on March 14, 2017, 01:34:08 AM
For over 10 years I've been paying (and then claiming on tax) that $10 fee per trade. Will be a substantial benefit going forward...
Post by: Notch on March 14, 2017, 05:16:02 AM
Commsec quietly removed the $10 margin loan transaction fee last August. Had no idea till I saw it earlier this month.
For over 10 years I've been paying (and then claiming on tax) that $10 fee per trade. Will be a substantial benefit going forward...
Ahhh awesome! I was wondering why they didn't charge it the other day.
Post by: Luckyvik on March 14, 2017, 06:02:36 AM
Ok, I know this is not a property forum..... but my biggest amd riskiest investment is my Sydney house.... and I need to sell soonish..... well next 3 years anyways.... so I am reflecting on it.... you are free to ignore me if you are sick of Sydney realestate fixations :-p
So looking at this weeks results, a strong 83% clearance and $1.267 median.
Stronger and higher than last week, but when I look back 12 months to the same weekend last year the median auction price was $1.230m.
http://www.homesearchsolutions.com.au/wp-content/uploads/2016/02/Auction-Results-Saturday-12th-March.pdf
So from an unreliably small sample size, price growth over 12 months is a modest 3%.
This is fine by me at this point. Perfect even. Just keep ticking upwards.
If I add my 2.5% net rental return to 3% capital gains, I am perfectly happy with 5.5% total.
$115K in gains. less the $25K or so interest and maybe $15K tax after some depn deductions and it'll be another $75K in the bank and shifted to non residential property investments.
Here's hoping for 3% capital gain over the next year. A white knuckle ride!
Ignore auction clearance rates and ignore medians... Auctions tend to happen in the more desirable areas (East, North) and agents have a habit of simply not reporting auctions that are passed in. So you get the double benefit of higher value properties going to auction, and not hearing any bad news, both influencing the figures.
I don't for a second believe the auction clearance figures, but generally the marked is pushing far above what one could consider normal.
I went to 3 auctions last weekend in the inner west, one was passed in (had no bidders at all) and the other 2 sold, yet only one was reported on the auction results from last weekend, so I can see that auction results cannot be relied upon.
Sent from my iPhone using Tapatalk
Post by: cakie on March 14, 2017, 01:15:11 PM
Hi guys/gals,CMC is pretty popular for its $11 fee. I use westpac for the convenience (my bank), and buy in $5k minimums. Often your bank will do a deal for 1st month, eg. With westpac i got 1st month free brokerage, so i bought into all the ETFs i wanted in small amounts ($1-2k) to get started.
Have been reading the forums and other ER websites for the last 2-3 months and learning as much as possible.
Most of my family/friends are all in the "save $$, buy a house" mindset - so a lot of these ideas are newish to me.
Have a couple of questions, that I'm hoping the more experienced folk might be able to shed some light on.
Have approximately $50k sitting in a savings account I'm looking at investing instead....
1) Does seem like a common consensus is that a 50-50 split between VAS and VGS is deemed a good starting point.
What is the reasoning behind such a large percentage in Aussie shares? I'm assuming there must be some benefits (tax/franking etc) for buying local?
2) Once the decision to purchase the ETF is made, how exactly does one go about it?
From what I gather, you need to sign up to an online broker. Is there a preference as to which ones people here use?
Again, this would be new to me, though I'm sure it can't be that hard to work out hehe
Post by: potm on March 15, 2017, 05:57:18 AM
Commsec quietly removed the $10 margin loan transaction fee last August. Had no idea till I saw it earlier this month.
For over 10 years I've been paying (and then claiming on tax) that $10 fee per trade. Will be a substantial benefit going forward...
They are also the only ones I know of who charged this ridiculous fee. Must finally be losing market share.
Post by: alexrahr on March 15, 2017, 09:57:38 AM
I noticed there is vanguard.com.au - is this a different thing?
Post by: misterhorsey on March 15, 2017, 02:45:42 PM
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=0970/?overview
Note, that fund is domiciled in the US. So any dividends will come to you in US dollars. Which can be a bit of an admin issue.
But there are other options you may wish to consider as well. Like the International (ex Aus) ETF:
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=8212/?overview
Or the retail managed funds:
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/productType=retail
Post by: dystopic on March 15, 2017, 11:52:58 PM
Being able to contribute easily is probably the main advantage of managed fund over ETF but the minimum additional investment for WS is $5,000 according to PDS. I called Vanguard and they were pretty grey about it (probably not wanting to encourage it). Thanks!
Post by: rocking the suburbs on March 16, 2017, 06:01:51 AM
Just do it! It's been ridiculously easy. I initially set up my account with a total buy in of 100k split between the Oz & International funds.
Post by: misterhorsey on March 16, 2017, 04:27:01 PM
Post by: bigchrisb on March 16, 2017, 05:13:24 PM
I'm finding as I've moved closer to FIRE, I'm getting excited about rates going up, where as a few years ago (and with higher debt levels) I was excited by rates going down. I see it as exciting for three reasons:
a) We seem to be in a bit of an asset bubble (certainly a resi and commercial property bubble, AU equities less so), and I'd like to see these asset prices come back to earth, as I'm reluctant to purchase at these levels
b) Rising rates are generally correlated with economic expansion
c) I've shied away from fixed income for a long time, as I've seen the yields as below inflation in post-tax terms. I've also not felt the need for them the early/mid accumulation phases. However, if rates rose substantively, I'd look at shifting asset allocation a little to include some fixed income.
For me, this is a total turnaround in attitude from 3 years ago. What's the general feeling towards rising rates for the AU moustachians? A good thing? A bad thing? Indifferent?
Post by: nofriends on March 16, 2017, 08:09:07 PM
I'm unlucky enough to be shareholder in Contango Microcap, a small LIC targeting small cap companies. When I pushed a lot of my money into indexes I thought I'd put a small amount into an active investment manager just for larfs, and I thought one area where it might be interesting would be the small cap space.
...
So this is what's happening at CTN at the moment.
http://www.smh.com.au/business/banking-and-finance/extraordinary-battle-under-way-at-contango-microcap-20170302-gup7ot.html
The price is depressed at the moment due to underperformance, but no doubt also due to the current uncertainty. It may resolve itself eventually but I'm wishing I'd just shoved the whole thing into a index.
I'm with you in the CTN boat.
Have been trying to follow the recent rout and evaluate the way to vote at the EGM. Made my mind up recently - will support the current board and vote against all resolutions. I understand this EGM and vote results will be quite important for the future of the company and the direction it takes going forward.
Post by: happy on March 16, 2017, 11:08:06 PM
Another interest rate rise for debt holders from NAB yesterday, increasing rates for both investors and PPOR lending. How do people on here feel about interest rates?
I'm finding as I've moved closer to FIRE, I'm getting excited about rates going up, where as a few years ago (and with higher debt levels) I was excited by rates going down. I see it as exciting for three reasons:
a) We seem to be in a bit of an asset bubble (certainly a resi and commercial property bubble, AU equities less so), and I'd like to see these asset prices come back to earth, as I'm reluctant to purchase at these levels
b) Rising rates are generally correlated with economic expansion
c) I've shied away from fixed income for a long time, as I've seen the yields as below inflation in post-tax terms. I've also not felt the need for them the early/mid accumulation phases. However, if rates rose substantively, I'd look at shifting asset allocation a little to include some fixed income.
For me, this is a total turnaround in attitude from 3 years ago. What's the general feeling towards rising rates for the AU moustachians? A good thing? A bad thing? Indifferent?
Agree. Its a good thing. Good thing for savers. Probably even a good thing for struggling first home buyers, if only they realise it: by slowing house prices down.
Post by: hodor on March 16, 2017, 11:12:17 PM
Another interest rate rise for debt holders from NAB yesterday, increasing rates for both investors and PPOR lending. How do people on here feel about interest rates?
...
For me, this is a total turnaround in attitude from 3 years ago. What's the general feeling towards rising rates for the AU moustachians? A good thing? A bad thing? Indifferent?
Rates are low enough, as someone with leveraged property ~40% fixed, I would be happy to see them raise 25-50 points a year for 2-4 years to get back to more reasonable levels. Hopefully this would slow the property market without too much panic and pain.
Still on the whole I am fairly indifferent to rates, not something I can control.
Post by: steveo on March 17, 2017, 12:25:53 AM
Another interest rate rise for debt holders from NAB yesterday, increasing rates for both investors and PPOR lending. How do people on here feel about interest rates?
I'm finding as I've moved closer to FIRE, I'm getting excited about rates going up, where as a few years ago (and with higher debt levels) I was excited by rates going down. I see it as exciting for three reasons:
a) We seem to be in a bit of an asset bubble (certainly a resi and commercial property bubble, AU equities less so), and I'd like to see these asset prices come back to earth, as I'm reluctant to purchase at these levels
b) Rising rates are generally correlated with economic expansion
c) I've shied away from fixed income for a long time, as I've seen the yields as below inflation in post-tax terms. I've also not felt the need for them the early/mid accumulation phases. However, if rates rose substantively, I'd look at shifting asset allocation a little to include some fixed income.
For me, this is a total turnaround in attitude from 3 years ago. What's the general feeling towards rising rates for the AU moustachians? A good thing? A bad thing? Indifferent?
I think rates have been too low for a long time but it's pretty hard to have high rates when the rest of the world has low rates. It just pushes our currency up. I'm basically indifferent to it though.
Post by: nofriends on March 17, 2017, 12:52:16 AM
http://www.abc.net.au/news/2017-03-17/westpac-raises-home-loan-interest-rates/8364196
Post by: marty998 on March 17, 2017, 02:27:44 AM
I'm half fixed (at 4.89%) so I won't wear any pain for a while. But I think it's about time to start deleveraging anyway. If the federal budget pump primes the housing market for one last gasp growth spurt then I'll seriously consider selling, even if I still have 2 years to go on my fixed rate and need to break it. If the market stalls now then I'm still happy to hold through the cycle.
Rates need to rise. It creates distortions and misallocations of capital when they are held too low for too long. You don't really want too many marginal projects in an economy... just leads to a crash & hard landing.
Post by: mjr on March 17, 2017, 04:08:52 AM
Of course, it could be worse. 5 years older and I might have retired 5 years ago, only to be sweating over the drop from 7% to 2%.
Rates are too, too low, the world over. I'm thrilled to see them finally head back up.
Post by: deborah on March 17, 2017, 04:11:19 AM
Post by: potm on March 17, 2017, 04:52:03 AM
It was only 5 years ago we had term deposit rates of 7%. Those were the days, 7% return with practically zero risk. I could retire tomorrow if rates were like that.
Of course, it could be worse. 5 years older and I might have retired 5 years ago, only to be sweating over the drop from 7% to 2%.
Rates are too, too low, the world over. I'm thrilled to see them finally head back up.
As Deborah mentioned higher interest rates are usually accompanied by higher inflation so you aren't getting a real 7% return.
Falling interest rates is the best thing that can happen to you once you have finished accumulating growth assets. If all your money is in cash...well then that's not too good for you.
The returns achieved over the last 30 years or so have been aided by the significant falls in interest rates. We won't have this over the next 30 years and there may be a drag from significantly rising interest rates (although governments and central banks have shown their willingness to do whatever it takes to not let us enter a great depression, so I don't expect significant raises without significant improvements in the economy). We will need population growth, greater participation in the global economy by people in developing countries, productivity improvements and technological advances to drive the indexes upwards from here.
The rise of such vast populations such as China and India have already benefited share market indexes and there is still a lot of people left to rise out of poverty to earn and spend money. Lots of discussions of technologies that could greatly change how we live and work in our lives, 3d printing, AI, driverless cars. It could be something nobody has even thought of yet that will change our lives in the next 30 years as much as the internet has changed the last 30. Along with all the potential for the world, there will be countless worries and risks for us to get through as well.
Although baby boomers had it a lot easier with education, getting a good job, buying a house, falling interest rates throughout their main investment years I'd much rather stick to my generation. Exciting times we live in :)
Post by: mjr on March 17, 2017, 04:46:59 PM
As Deborah mentioned higher interest rates are usually accompanied by higher inflation so you aren't getting a real 7% return.
I didn't make any claims as to getting a real return of 7% at that time.
That said, here's the annual inflation rates for the last 5 years:
| 2012 | 1.7% |
| 2013 | 2.5% |
| 2014 | 2.5% |
| 2015 | 1.5% |
| 2016 | 1.3% |
which wiggle around 1.9% while nominal rates dropped around 5%.
As for "Falling interest rates is the best thing that can happen to you once you have finished accumulating growth assets", that makes no sense to me. Falling interest rates are symptomatic of a sluggish economy.
Post by: marty998 on March 17, 2017, 05:46:18 PM
As for "Falling interest rates is the best thing that can happen to you once you have finished accumulating growth assets", that makes no sense to me. Falling interest rates are symptomatic of a sluggish economy.
All assets are priced as the present value of expected future cash flows. Future cashflows are discounted by the market's expected rate of return, which is a function of the risk free interest rate + a risk margin.
All else being equal, decreasing the risk free interest rate will increase the value of all assets.
Post by: mjr on March 17, 2017, 06:32:46 PM
All assets are priced as the present value of expected future cash flows. Future cashflows are discounted by the market's expected rate of return, which is a function of the risk free interest rate + a risk margin.
This is quite true. However, outside of market theory, the future cash flows driving the stock price are driven by the well-being of the economy and falling interest rates are a symptom of a declining economy.
Countries all around the world are trying to get their economies restarted and they want to see interest rates and inflation rising again. Rates, both real and nominal, are too low.
Post by: potm on March 17, 2017, 10:53:46 PM
Post by: Ozstache on March 18, 2017, 04:41:42 AM
And look how growth assets have performed in the last 5 years with sluggish economies and falling interest rates. If you retired 5 years ago with growth assets, you'd be laughing, not worried that you could only get 2% on your cash.I'd also be worried that such unusually high growth for such weak conditions may also be fleeting.
Post by: settlement on March 18, 2017, 05:58:54 AM
Post by: mjr on March 18, 2017, 02:47:46 PM
And look how growth assets have performed in the last 5 years with sluggish economies and falling interest rates. If you retired 5 years ago with growth assets, you'd be laughing, not worried that you could only get 2% on your cash.I'd also be worried that such unusually high growth for such weak conditions may also be fleeting.
Exactly. Asset bubble. Not only not sustainable, but prone to popping.
Post by: mjr on March 18, 2017, 02:49:32 PM
How are ETFs taxed in australia? Just as capital gains when selling? How are dividends treated - are they taxable also?
Yes, capital gains/losses apply when selling. Dividends are taxed as income.
Post by: marty998 on March 18, 2017, 03:04:17 PM
How are ETFs taxed in australia? Just as capital gains when selling? How are dividends treated - are they taxable also?
Yes, capital gains/losses apply when selling. Dividends are taxed as income.
The dividends are actually trust distributions - you'll get a tax statement each year detailing components:
- NPP income (non-primary producer / interest income)
- Franked dividends
- Unfranked dividends
- Franking credtis
- Capital gains
- Tax deferred income
- Foreign income
- Foreign tax credits
Post by: Gockie on March 20, 2017, 06:15:55 AM
I just wanted to say that Peter Thornhill author of "Motivated money" will be talking about share investing for long term gains and he'll come up to speak in Brisbane on 8th April as some of you may have seen on facebook. He is worth shelling the $410 for a full day event (includes food) to go and see and this is a one time event only. Miss it and you might have to come to Sydney to listen to him talk.
I am a property investor from 2005 with a few properties (love that Sydney boom!) but Peter has opened my eyes to shares.
If you can make it, trust me, you'll find it $410 very well spent.
Yes, I make some money out of this but that's not my motivation. I can just as easily lose money on doing this and also not have to go through any hassle! (I already have a day job, 2 airbnb lets, manage a volleyball competition and I'm job hunting because my current work contract finishes in 6 weeks!) But I wanted friends up further north to have the opportunity to listen to him.
Here's the link to his website:
http://www.motivatedmoney.com.au
Here's the link to the event:
https://www.eventbrite.com.au/e/investing-for-long-term-gain-presented-by-peter-thornhill-tickets-32809643527
Any questions you can email me. And he will have an event in May in Sydney (check his website) and he may have an event on in Melbourne if there's the interest.
Anyway, my email is: Linda.property.au@gmail.com if you want to contact me.
Post by: deborah on March 20, 2017, 09:57:32 AM
The training is now online - see http://www.asx.com.au/education/online-courses.htm
They also have webinars and other interesting sessions - http://www.asx.com.au/education/seminars-webinars.htm - these can include CEOs from companies listed on the ASX talking about their business, and various other interesting people.
I have found that ASX education is usually very good (although everyone they get is an expert, the occasional person was not all that good at speaking), and free.
Post by: kiwiozearlyretirement on March 21, 2017, 07:34:29 AM
Post by: mjr on March 21, 2017, 02:35:13 PM
Post by: deborah on March 21, 2017, 02:59:23 PM
If you are not employed, you can make personal concessional contributions up to the cap, but you can't contribute more than you earn.+1, and you definitely don't need an ABN (I know this is tautology, as mjr said "personal").
Post by: Ozstache on March 21, 2017, 07:38:24 PM
If you are not employed, you can make personal concessional contributions up to the cap, but you can't contribute more than you earn.
And even if you are casually employed, as long as the income from that employment is less than 10% of your total taxable income for the year, you can also make personal concessional contributions up to the cap.
Post by: FFF on March 21, 2017, 07:45:44 PM
Anyone know about concessional super contributions if you don't have a job. For example once you FIRE and are no longer earning a wage can you contribute the passive income you do make (rent, dividends etc) to your super concessionally. Or do you have to be 'self employed with an ABN?
What deborah and mjr have said is correct, but don't forget that as of July 1 2017 any Australian will be able to make tax-deductible super contributions.
My question would be, why would you want to do this? Concessional super contributions are taxed at 15%, so you'd need to be passively earning over $18200 to make this worthwhile. Even then earning up to $37200 will only 'save' you 6% in tax (21%-15%) and then the money is locked up in super until preservation age. Maybe I've misunderstood the intentions, but I can only see this being beneficial if you are earning well in excess of $37200.
Post by: steveo on March 21, 2017, 09:01:10 PM
Anyone know about concessional super contributions if you don't have a job. For example once you FIRE and are no longer earning a wage can you contribute the passive income you do make (rent, dividends etc) to your super concessionally. Or do you have to be 'self employed with an ABN?
What deborah and mjr have said is correct, but don't forget that as of July 1 2017 any Australian will be able to make tax-deductible super contributions.
My question would be, why would you want to do this? Concessional super contributions are taxed at 15%, so you'd need to be passively earning over $18200 to make this worthwhile. Even then earning up to $37200 will only 'save' you 6% in tax (21%-15%) and then the money is locked up in super until preservation age. Maybe I've misunderstood the intentions, but I can only see this being beneficial if you are earning well in excess of $37200.
Good points. Personally I don't add anything extra to Super because I will need that money earlier. I already have enough in Super to be financially fine from 60 onwards. It's getting to 60 which is the issue.
Post by: deborah on March 21, 2017, 10:21:19 PM
If you are retired and are nearing your preservation age, you may want to add everything you don't need to superannuation. Simplistically, in the year before you reach preservation age, you may want to put everything except a year's worth of expenses into super, if it's two years away, keep out only two years' expenses... Since the concessional amount you can put in (after 1st July) is being lowered to $25,000, you may want to add to your super each year so you can put in as much as possible, as early as possible, and still leave yourself with enough to live on until you reach preservation age.
With each change to legislation, there are fewer years between preservation age and 65, when you cannot add to your super at all unless you are working. This reduced window of opportunity to transfer savings to super means that people probably need to start thinking about using concessional contributions well before preservation age.
That will leave you with less to add as a non-concessional contribution if you want to keep as much as possible in the tax advantaged environment of super. Given that the maximum amount of non-concessional contributions is also being reduced by successive governments, contributions throughout early retirement may be the only way in future to add to your super.
The earlier you have your money in super, the less likely you are to be badly affected by changes of legislation, as they tend not to be retrospective (ha ha).
Finally, when people retire, they tend to be more likely to move or downsize (both of which are generally CGT free) or to trigger other CGT events, so putting in concessional contributions in years when you do have CGT events may significantly lower your tax bill, even if you don't have a job.
As you must take out equal percentages of concessional and non-concessional super, adding NON-concessional contributions to super can reduce the tax your estate pays when you die, because it dilutes the relative percentages of each, and nothing else can. So it is worth while working out what form of contribution is best for you whenever you are adding to your super.
Post by: Little Bird on March 22, 2017, 12:05:06 AM
After a rude wake-up call I'm now looking to properly get my finances in order and I figured I'd start at #1 on the list!
I'm looking to close my Commbank account and bring about AUD$13,000 from overseas. I'm figuring a high-saver but it seems most want a regular deposit, which won't happen as I'm not working in Australia.
I've looked at finder and it lists a bunch. There's more bank there now than when I was last home and I guess I've really only ever experienced the big ones.
So just after some guidance on which ones might be better or ones to steer clear of.
Cheers!
Post by: Luckyvik on March 22, 2017, 03:26:23 AM
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Post by: oysters on March 22, 2017, 05:58:03 PM
Post by: oysters on March 22, 2017, 07:50:05 PM
I'm with UniSuper and really happy with them.
I just did my first ever rebalancing. I get one rebalancing per financial year for free. Extra rebalancings cost $13.50.
I can alter my contributions strategy at any time for free....so I could go to the effort of calculating optimum distribution strategy regularly in an attempt to rebalance my portfolio more often with no fees (just as you should outside Super, to avoid sell/buy rebalance events). I now have almost $21k in Super (years of being a student or postgrad or lowly paid Ecologist, having casual jobs with multiple super accounts, etc, leaves my Super not that great at 32 years old). I've spread my asset allocation across ten different holdings, some of which are diversified in themselves between asset classes. At this current $ level I'm not sure its really worth the effort of doing this. I would have to, from what I can tell, adjust this after every pay fortnight at this stage otherwise I would quickly get unbalanced in the opposite direction. In a couple of years when my Super is larger I think this effort will be more worth it.
My thoughts for now, until my super gets larger in a couple of years, is to do a rebalance at the start of each FY, and then pay the $13.50 for one on Jan 1st. Perhaps in between that at the three month mark, and nine month mark, I could do the distribution calculations and changes for a fortnight to get it back closer, and then change back to the default in the following fortnight. I might also be able to do that at Jan 1st to rebalance successfully, rather than pay the $13.50.
Anyone have other ideas?
Anyone recommend a distribution rebalancing calculator when you have 10 assets to rebalance?
Post by: deborah on March 22, 2017, 08:37:33 PM
Quote
we conclude that for most broadly diversified stock and bond fund portfolios (assuming reasonable expectations regarding return patterns, average returns, and risk), annual or semiannual monitoring, with rebalancing at 5% thresholds, is likely to produce a reasonable balance between risk control and cost minimization for most investors. Annual rebalancing is likely to be preferred when taxes or substantial time/costs are involved.The dates you have chosen are just before you get your quarterly dividend from Vanguard, so you could alter your contributions strategy at that point, and get the dividends to do the rebalancing for you, without paying a cent.
Post by: GT on March 22, 2017, 08:40:04 PM
Post by: cakie on March 22, 2017, 08:40:12 PM
Why do you have 10 different types in your allocation? Seems overkill on a small balance when there are single diversified options available that rebalance for you. What are the 10?
Post by: oysters on March 22, 2017, 08:47:52 PM
http://optimalrebalancing.tk/?i=1
Works well.
I created a spreadsheet in excel to help be do the calcs (If I could be bothered I could incorporate their calcs into one sheet, might take a while, though it would save me maybe 60 seconds each time).
Basically I log into Unisuper (easy), input the current 10 asset $ values into my excel sheet. Copy and paste a box of info into optimal rebalancer. Then input the $ back into the spreadsheet to get the new distribution % for the next fortnight.
Then click on the change button in unisuper. Input the new %s. Confirm it.
In all should take me less than five minutes!
For the next fortnight I can just log into unisuper and change it back. Or I can rebalance again using the above method.
Post by: deborah on March 22, 2017, 10:52:49 PM
Post by: misterhorsey on March 22, 2017, 11:54:25 PM
If so, that second fee won't be charged to you so you won't be out of pocket - but it may be taken out of your funds to cover brokerage/admin.
Post by: kiwiozearlyretirement on March 23, 2017, 10:18:15 AM
Anyone know about concessional super contributions if you don't have a job. For example once you FIRE and are no longer earning a wage can you contribute the passive income you do make (rent, dividends etc) to your super concessionally. Or do you have to be 'self employed with an ABN?
What deborah and mjr have said is correct, but don't forget that as of July 1 2017 any Australian will be able to make tax-deductible super contributions.
My question would be, why would you want to do this? Concessional super contributions are taxed at 15%, so you'd need to be passively earning over $18200 to make this worthwhile. Even then earning up to $37200 will only 'save' you 6% in tax (21%-15%) and then the money is locked up in super until preservation age. Maybe I've misunderstood the intentions, but I can only see this being beneficial if you are earning well in excess of $37200.
I am looking at this as partner is close to preservation age and the tax treatment for retirees is just so generous. He has not got long to get it in there and his balance is relatively small. Currently passive income is just over $30000 so the thought was to contribute what was left over about the 18200 threshold. I'm not sure I understand about any australian able to contribute after June 30. Can they not do that now?
Post by: kiwiozearlyretirement on March 23, 2017, 10:22:58 AM
There are a number of reasons to put concessional contributions in if you don't have a job.
If you are retired and are nearing your preservation age, you may want to add everything you don't need to superannuation. Simplistically, in the year before you reach preservation age, you may want to put everything except a year's worth of expenses into super, if it's two years away, keep out only two years' expenses... Since the concessional amount you can put in (after 1st July) is being lowered to $25,000, you may want to add to your super each year so you can put in as much as possible, as early as possible, and still leave yourself with enough to live on until you reach preservation age.
With each change to legislation, there are fewer years between preservation age and 65, when you cannot add to your super at all unless you are working. This reduced window of opportunity to transfer savings to super means that people probably need to start thinking about using concessional contributions well before preservation age.
That will leave you with less to add as a non-concessional contribution if you want to keep as much as possible in the tax advantaged environment of super. Given that the maximum amount of non-concessional contributions is also being reduced by successive governments, contributions throughout early retirement may be the only way in future to add to your super.
The earlier you have your money in super, the less likely you are to be badly affected by changes of legislation, as they tend not to be retrospective (ha ha).
Finally, when people retire, they tend to be more likely to move or downsize (both of which are generally CGT free) or to trigger other CGT events, so putting in concessional contributions in years when you do have CGT events may significantly lower your tax bill, even if you don't have a job.
As you must take out equal percentages of concessional and non-concessional super, adding NON-concessional contributions to super can reduce the amount your estate pays when you die, because it dilutes the relative percentages of each, and nothing else can. So it is worth while working out what form of contribution is best for you whenever you are adding to your super.
Thanks Deborah I found this helpful. I'm not sure how to contribute concessionally as I have always had an employer do it for me. How would we do it with dividends or interest?
Post by: kiwiozearlyretirement on March 23, 2017, 10:52:44 AM
I had a go working out what the actual benefit might be of the paltry passive income partner earns.
Earn $30000
Scenario A = Contribute $10000 to super concessionally
Pay 15% tax leaves 8500 in super $8500
Taxable income $20000
Pay tax $342 (0.19x1800) - $342 19658
Total money at year end $28158
Scenario B = No super contribution
Earn 30000
Pay tax (0.19 x 11800) $2242
Total at year end $27758
This seems to put $400 in our pocket – I know it is not much but I would still pick up a dollar in the street if I found it.
Have I got this concept correct?
Post by: deborah on March 23, 2017, 12:55:15 PM
Post by: marty998 on March 23, 2017, 02:47:13 PM
Seem to recall the Liberals wanting to get rid of it. This measure provided for rebating the 15% tax on employer super contributions for low income earners because tax in super was worse than their personal tax rates - so it would be better to receive wages instead of super.
Post by: deborah on March 23, 2017, 05:04:14 PM
I'm not sure I understand about any australian able to contribute after June 30. Can they not do that now?The self employed can, but concessional contributions for the employed are via the employer, so if your employer doesn't have salary sacrifice you more or less can't (you can with termination pay).
Post by: mjr on March 23, 2017, 05:49:08 PM
I'm not sure I understand about any australian able to contribute after June 30. Can they not do that now?The self employed can, but concessional contributions for the employed are via the employer, so if your employer doesn't have salary sacrifice you more or less can't (you can with termination pay).
The rule about income received from employment needing to be less than 10% of the year's total income to be able to make personal contributions ends 30 June 2017.
From 1 July 2017, the 10% rule no longer applies. Hence "any Australian (under 65) can contribute", subject of course to the $25,000 cap which will apply then.
Post by: FFF on March 23, 2017, 07:50:51 PM
Ok if you are contributing to a super fund you have to submit a form before the end of the tax year 'notice of intent to vary or claim a deduction for personal super contributions'. Apparently super funds have their own form for this.
I had a go working out what the actual benefit might be of the paltry passive income partner earns.
Earn $30000
Scenario A = Contribute $10000 to super concessionally
Pay 15% tax leaves 8500 in super $8500
Taxable income $20000
Pay tax $342 (0.19x1800) - $342 19658
Total money at year end $28158
Scenario B = No super contribution
Earn 30000
Pay tax (0.19 x 11800) $2242
Total at year end $27758
This seems to put $400 in our pocket – I know it is not much but I would still pick up a dollar in the street if I found it.
Have I got this concept correct?
Your calculations are correct, however don't forget the 2% medicare levy on top of the 19% income tax rate. Therefore you are effectively saving 6% on the $10000 you contribute to super, which puts $600 in your pocket.
Don't forget also to consider the low income tax offset in your calculations. The LITO effectively increases the tax-free threshold to $20543.
Also you mentioned that "submit a form before the end of the tax year 'notice of intent to vary or claim a deduction for personal super contributions'" My understanding was that you have to submit this form - and get a response back from the super fund - before you file your tax return. I've done this for the last few years (I'm self-employed) and typically wait until near the deadline for tax return submission. It's only when you submit the 'notice of intent' to your super fund that they deduct the appropriate amount needed to pay for tax.
Post by: FFF on March 23, 2017, 07:57:52 PM
https://www.ato.gov.au/Individuals/Medicare-levy/Medicare-levy-reduction-for-low-income-earners/
Post by: oysters on March 23, 2017, 10:59:32 PM
Why would anyone want to rebalance every two weeks?
I definitely don't want to rebalance every two weeks! This would be a correction I would do every 3 or 6 months in order to rebalance, for free, through my inputs.
It costs nothing to rebalance this way, its just changing how my distributions buy new assetts. The super fund charges nothing for me to do it (its just electronic on their part), I'm not selling anything, so there are no transactional costs to the fund either apart from buying more (which they will be doing anyway).
Post by: Luckyvik on March 24, 2017, 07:30:25 AM
Sorry kiwioz, forget the bit above about medicare levy to be included. I've just seen that the medicare levy is not payable for low income earners below $21335, therefore not relevant. Still, as you say, $400 in your pocket is not bad!Also you have to work out if you are better off contributing concessionally ie claiming a tax deduction or non-concessionally.
https://www.ato.gov.au/Individuals/Medicare-levy/Medicare-levy-reduction-for-low-income-earners/
Non-concessionally if you contribute $100 you pay no tax in super (although presumably this is earned money you have already paid taxes on) if you contribute $100 and then put in the div290-170 to 'claim a deduction' then your $100 are taxed at 15% in super. Also if you claim a deduction then the contribution go into your taxable component of super which means that this portion is taxed when you die if not being paid to a dependant. So there are a number of factors to consider.
If you are considering contributing to your spouses acc there is an increase to the tax offset available from 1 July.
I suggest you have a read of the tax changes on the ato website:
https://www.ato.gov.au/individuals/super/super-changes/
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Post by: Luckyvik on March 24, 2017, 02:22:13 PM
Has the tax rebate in super been abolished yet (was it this year or next year?)They're changing it from LISC low income super contribution to LISTO Low income super tax offset on 1 July, its effectively the same thing, the govt will contribute to a low income earners super acc so that they are not taxed more in super than outside it.
Seem to recall the Liberals wanting to get rid of it. This measure provided for rebating the 15% tax on employer super contributions for low income earners because tax in super was worse than their personal tax rates - so it would be better to receive wages instead of super.
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Post by: cakie on March 24, 2017, 07:19:10 PM
I learnt about this stuff last month, earlier in this thread. Other thing to consider if you are earning a bit yourself, you can contribute extra to your own super, then after the EOFY transfer any/all contributions you made that year to your partner's super account (minus the 15% tax). Useful if you are the higher earner, but they are closer to preservation age...Anyone know about concessional super contributions if you don't have a job. For example once you FIRE and are no longer earning a wage can you contribute the passive income you do make (rent, dividends etc) to your super concessionally. Or do you have to be 'self employed with an ABN?
What deborah and mjr have said is correct, but don't forget that as of July 1 2017 any Australian will be able to make tax-deductible super contributions.
My question would be, why would you want to do this? Concessional super contributions are taxed at 15%, so you'd need to be passively earning over $18200 to make this worthwhile. Even then earning up to $37200 will only 'save' you 6% in tax (21%-15%) and then the money is locked up in super until preservation age. Maybe I've misunderstood the intentions, but I can only see this being beneficial if you are earning well in excess of $37200.
I am looking at this as partner is close to preservation age and the tax treatment for retirees is just so generous. He has not got long to get it in there and his balance is relatively small. Currently passive income is just over $30000 so the thought was to contribute what was left over about the 18200 threshold. I'm not sure I understand about any australian able to contribute after June 30. Can they not do that now?
Post by: NotSure on March 26, 2017, 11:30:58 PM
For example I was paying ~$240 per year for $200k death insurance with BT, but with Sunsuper it's $440 for $153k (death and TPD combined). My wife is with Australian Super and it's also ~$240 per tear.
I wonder why SunSuper is so expensive?
Post by: Luckyvik on March 26, 2017, 11:42:26 PM
Joined Sunsuper to move my super from BT, but noticed that insurance is almost double the price and there is no way to opt out of TPD insurance?
For example I was paying ~$240 per year for $200k death insurance with BT, but with Sunsuper it's $440 for $153k (death and TPD combined). My wife is with Australian Super and it's also ~$240 per tear.
I wonder why SunSuper is so expensive?
It could be that your cover with BT started as a corporate plan and you joined Sunsuper as a personal member ie not through an employer? Corporate plans often have cheaper insurance as they get a cheaper deal for insuring a group of members. Call Sunsuper and ask about whether you can cancel TPD and keep death only if that's the cover your after.
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Post by: marty998 on March 27, 2017, 12:43:35 AM
Have net worth over $900k and no descendants... not like the relatives will need another several hundred thousand on top of that.
Income protection seems to just have too many exclusions to make it worthwhile bothering.
Kept a nominal amount of TPD but will probably cancel that too if the stache gets large enough.
Post by: potm on March 27, 2017, 12:54:56 AM
Also have 100k of death which doesn't cost much.
Probably don't need so much insurance any more but I don't want to tempt fate by lowering them. Would just be my luck that something happens after I lower or cancel them. I'm more worried about my life aspect than the money!
Post by: FFA on March 27, 2017, 01:25:15 AM
Post by: cakie on March 27, 2017, 03:52:26 PM
Post by: settlement on March 27, 2017, 06:22:59 PM
How are ETFs taxed in australia? Just as capital gains when selling? How are dividends treated - are they taxable also?
Yes, capital gains/losses apply when selling. Dividends are taxed as income.
I see. What is the capital gains rate? Can losses on one stock index be offset against gains from another? In an accumulating UCITS ETF are dividends taxed? Is there a dividend withholding tax?
Post by: Ozstache on March 27, 2017, 10:09:18 PM
I have sunsuper with no insurance, so you should be able to opt out, well, I certainly have opted out of both.
Ditto. Call Sunsuper up if you can't find a way to cancel them online.
Post by: Wadiman on March 28, 2017, 09:17:21 PM
Anyone running both? Realise that running two super accounts is not great from a fees point of view but I am frustrated that some of the investment options I want to pursue and hold in a tax-advantaged framework are not possible through retail funds (i'm with ING direct). Specifically I want to hold direct corporate bonds and possibly capital notes and unlisted property trust units.
ESuper have a SMSF establishment special at present for $800 for two years (plus ATO fee).
Thoughts?
Post by: FFF on March 28, 2017, 09:25:22 PM
I'm not running both so can't help you on your question.
However, I see that your retail fund is ING Direct. What are your views on their recent announcement regarding their fees as of July 2017?
I personally see it as a dramatic increase, and I will be jumping ship to somewhere else at FY end (probably HostPlus - SMSF has an allure but I don't think my balance ~$80k is high enough to justify at the moment). It will be a pain and a cost having to liquidate what I have with ING already but it won't take long to recoup those fees back with the lower running costs elsewhere.
Post by: deborah on March 28, 2017, 09:33:07 PM
Got out of the fund as soon as I retired. The fund had a lot of options that would have been difficult to have in the SMSF, so I used it to give me some diversity.
It could be a good way of getting the insurance (through the fund).
Post by: NotSure on March 29, 2017, 12:13:30 AM
I've another question regarding asset allocation. One of the reasons for moving to Sunsuper was that I can use low cost index funds, currently they have:
- Australian Shares - Index 0.08% p.a.
- International Shares - Index (Hedged) 0.09% p.a.
- International Shares - Index (Unhedged) 0.09% p.a.
- Australian Property - Index 0.11% p.a.
- Fixed Interest - Index 0.12% p.a.
There is no more index options at the moment, Emerging Markets is not index option and is base 0.54% p.a. + 0.04% performance. Also no index fund for international property.
I'm 48 years old and was thinking something like:
Australian shares - 35%
International unhedged - 40%
Australian Property - 10%
Fixed interest - 10%
Cash - 5%
I guess this would be similar to growth or high growth in managed options. Also, I read somewhere that it's better to allocate more in your local share market e.g. where you live?
Any tips/advice is welcome. :) If you're doing something similar would be nice if you could share your allocation and reason behind it.
Post by: Dropbear on March 29, 2017, 12:21:04 AM
I'm looking first at SunSuper and Australian Super based on the discussions on this thread, but find it tricky to make a clear comparison between them...
Post by: marty998 on March 29, 2017, 12:53:01 AM
How are ETFs taxed in australia? Just as capital gains when selling? How are dividends treated - are they taxable also?
Yes, capital gains/losses apply when selling. Dividends are taxed as income.
I see. What is the capital gains rate? Can losses on one stock index be offset against gains from another? In an accumulating UCITS ETF are dividends taxed? Is there a dividend withholding tax?
Capital gains are taxed at your marginal tax rate. You take your gain and add it to all your other income.
The exception being capital gains on assets you hold longer than a year - in this case you only have to add half the gain to your other income.
Capital losses can generally be used to offset capital gains, except losses generated from collectibles/antiques and artwork, which can only be used to offset gains on the same/similar.
UCITS are are European regulatory creation.... you may need European tax advice for that, not Australian. Your ETF administrator will be able to assist you with forms to ill out to minimise withholding tax.
Post by: marty998 on March 29, 2017, 01:05:57 AM
I've recently purchased a small stake in Amaysim (AYS). Pulled the trigger slightly early on the day of the half year results announcement at $1.83, watched it fall to $1.73 and last traded today at $1.91. These guys do discount mobile phone plans (they also own Vaya now).
Business is scalable and the potential market is opening up now to include NBN plans. What really makes me happy is today I was sent a job ad for 2 Accounting and Financial Reporting positions they are hiring for (always a good sign when a business is expanding its accounting function!) as well as several new executive and manager positions covering marketing, customer acquisition, digital strategy and distribution. All up 9 positions being advertised just in the last 3 weeks.
The Company's balance sheet is a pile of crap with current liabilities well in excess of current assets. However cash is being generated at a fast rate of knots so I'm not too concerned about this (the accountant in me is screaming NO NO NO!)
They are not in any danger of insolvency as the debts are payable to Optus at contractually defined times, which are well covered by expected cash generation from the subscriber base.
Potential for earning stop materially increase is large, coming off a small base currently.
Watching in earnest for any news and updates, should be a good one to hold for the next couple of years.
Post by: Wadiman on March 29, 2017, 02:56:11 AM
@Wadiman,
I'm not running both so can't help you on your question.
However, I see that your retail fund is ING Direct. What are your views on their recent announcement regarding their fees as of July 2017?
I personally see it as a dramatic increase, and I will be jumping ship to somewhere else at FY end (probably HostPlus - SMSF has an allure but I don't think my balance ~$80k is high enough to justify at the moment). It will be a pain and a cost having to liquidate what I have with ING already but it won't take long to recoup those fees back with the lower running costs elsewhere.
FFF - I haven't worked out the potential fee increases yet but will remain with them due to the CGT issue that would be triggered if I had to sell for a rollover - I've held some equities for a while and 10% CGT on 75% of the portfolio (proportion held in equities) would be nasty.
Post by: Wadiman on March 29, 2017, 02:58:49 AM
There was a time when I had both - work wouldn't salary sacrifice into an SMSF, so I needed to have an account with a fund. In fact after telling me that I could do it to any fund, and going through the paperwork, they then said the fund I had selected wasn't on their list either, so I finally got out of them a fund I could use (AND I had to have signed advice from a financial adviser that they had given me advice to salary sacrifice into super - there were plenty of people salary sacrificing car leases which I'm SURE no one advised them to do). It was all very annoying!
Got out of the fund as soon as I retired. The fund had a lot of options that would have been difficult to have in the SMSF, so I used it to give me some diversity.
It could be a good way of getting the insurance (through the fund).
Deborah - yes - i plan to stay with the retail fund for the insurance benefits (and also to avoid CGT on sales). Thank goodness that with super choices in place there's not any issues with changing funds now!
Post by: misterhorsey on March 29, 2017, 04:17:35 AM
How are ETFs taxed in australia? Just as capital gains when selling? How are dividends treated - are they taxable also?
Yes, capital gains/losses apply when selling. Dividends are taxed as income.
I see. What is the capital gains rate? Can losses on one stock index be offset against gains from another? In an accumulating UCITS ETF are dividends taxed? Is there a dividend withholding tax?
Capital gains are taxed at your marginal tax rate. You take your gain and add it to all your other income.
The exception being capital gains on assets you hold longer than a year - in this case you only have to add half the gain to your other income.
Capital losses can generally be used to offset capital gains, except losses generated from collectibles/antiques and artwork, which can only be used to offset gains on the same/similar.
Note, also - something I learnt the hard way. You must apply capital gains against losses before the 50% discount. Doh!
Post by: marty998 on March 29, 2017, 04:33:50 AM
Note, also - something I learnt the hard way. You must apply capital gains against losses before the 50% discount. Doh!
Yes that too... catches out a lot of people who are not tax accountants or who don't get advice first before doing things they shouldn't :)
Post by: kjulez_83 on March 30, 2017, 03:03:09 AM
What's everyone currently investing in?
Hey everyone. I have about $30K more in cash than I would like at the moment but everything seems at the top of the 52 week range so I want to invest but keep hesitating as everything seems so expensive.
I have money invested in AFI, ARG, WAX, VGAD. I don't want to add more to AFI & ARG. Curious to know what others have bought lately in the way of ETF/ LICs? Thanks in advance :)
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Post by: alexrahr on March 30, 2017, 04:14:32 AM
Join an online broker and buy the following ETF (Exchange Traded Fund):
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=0970/?overview
Note, that fund is domiciled in the US. So any dividends will come to you in US dollars. Which can be a bit of an admin issue.
But there are other options you may wish to consider as well. Like the International (ex Aus) ETF:
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=8212/?overview
Or the retail managed funds:
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/productType=retail
Cool. What are the pros and cons of each (i.e why would you consider International (ex Aus) ETF or retail managed funds over using an online broker?
Also any recommendations on an online broker? I am signed up with Commsec - but assuming we need a specialised broker for this?
Thanks!
Post by: Anatidae V on March 30, 2017, 04:18:53 AM
I can purchase these shares through Commsec, no need for a specialised broker :)Join an online broker and buy the following ETF (Exchange Traded Fund):
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=0970/?overview
Note, that fund is domiciled in the US. So any dividends will come to you in US dollars. Which can be a bit of an admin issue.
But there are other options you may wish to consider as well. Like the International (ex Aus) ETF:
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=8212/?overview
Or the retail managed funds:
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/productType=retail
Cool. What are the pros and cons of each (i.e why would you consider International (ex Aus) ETF or retail managed funds over using an online broker?
Also any recommendations on an online broker? I am signed up with Commsec - but assuming we need a specialised broker for this?
Thanks!
Post by: nnls on March 30, 2017, 04:34:09 AM
https://forum.mrmoneymustache.com/ask-a-mustachian/extra-into-super-pay-of-mortgage-or-investments-outside-of-super/ (https://forum.mrmoneymustache.com/ask-a-mustachian/extra-into-super-pay-of-mortgage-or-investments-outside-of-super/)
Post by: switch42 on April 01, 2017, 07:09:25 PM
What are the pros and cons of each (i.e why would you consider International (ex Aus) ETF or retail managed funds
Hello all :).
I'm also interested in opinions on this - I'm shifting my super from ING direct shares (300% fee increase!) to a SMSF with esuperfund. So, I now have a choice of an etf portfolio or a wholesale managed fund.
I'm considering either
35% VAS
35% VGS
5% VGE
5% VAP
20% term deposits
or
90% Vanguard high growth fund VAN0111AU
10% term deposits
My super goes in quarterly so there will only be 4 trades per year and I'll use them to rebalance. DRP for etfs.
Is there any advantage in the wholesale fund that justifies the extra expense?
Post by: Wadiman on April 01, 2017, 08:07:41 PM
Not sure about the benefits of the wholesale fund but agree with your call to exit ING - I am doing the same and have set up a SMSF with Esuperfund. Even though there will be some CGT to pay i'll be better off within a year.
Post by: switch42 on April 02, 2017, 01:30:45 AM
Post by: dbm on April 03, 2017, 09:44:04 PM
I'm in the same boat an have been looking at esuperfund as well. Have you actually gone through the process or still at the early stages? If you have, how was the process, did you pay more for a corporate trustee or did you find someone else to be a trustee, do they seem like a reputable upstanding business?
I've an added option of a super fund through work, but will need to compare the staff pricing to esuperfund.
Disappointed with ING, but probably understand it wasn't profitable. I had been a great salesman for their super product, in the end about 5 people actually listened and opened accounts with them. Have been in their product since 2012...
Cheers
Dbm
Post by: mjr on April 03, 2017, 10:33:22 PM
Disappointed with ING, but probably understand it wasn't profitable.
They're a global, experienced bank. They knew exactly what they were doing.
Now, after going through the hassle of getting my mother's pension in there last year, I have to go through the hassle of getting it out and into an SMSF that I'll have to manage. Thanks for nothing, ING.
I've no experience with eSuperfund, but I'm happy to plug Green Frog Super, whom I used for my own SMSF last year.
Post by: switch42 on April 04, 2017, 01:35:11 AM
Hi Switch42,
I'm in the same boat an have been looking at esuperfund as well. Have you actually gone through the process or still at the early stages? If you have, how was the process, did you pay more for a corporate trustee or did you find someone else to be a trustee, do they seem like a reputable upstanding business?
I submitted the application last week, keen to get the free setup and first year fees before end March. It seems they offer that regularly though.
Went with corporate trustee as most of the things I read said it was better long term. My partner may come across sometime in the future, depends how much money I lose :), but it's just me for now so it was my only choice anyway.
They provided all the paperwork for signing via pdf in an email, and posted them to me as well, within 3 days in regional Vic. I signed, scanned and uploaded them Friday, it was all fairly painless. There is a lot of info on each step on their website, worth reading even if you don't go with them.
It'll be a few weeks apparently until I'm up and running so a bit early to say too much, but all good so far.
I agree with mjr that ING knew what they were doing. I hope they get dragged over the coals by whoever does that as they deserve a kick up the backside.
Post by: FFA on April 04, 2017, 04:42:39 AM
Post by: misterhorsey on April 04, 2017, 06:43:46 AM
Join an online broker and buy the following ETF (Exchange Traded Fund):
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=0970/?overview
Note, that fund is domiciled in the US. So any dividends will come to you in US dollars. Which can be a bit of an admin issue.
But there are other options you may wish to consider as well. Like the International (ex Aus) ETF:
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=8212/?overview
Or the retail managed funds:
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/productType=retail
Cool. What are the pros and cons of each (i.e why would you consider International (ex Aus) ETF or retail managed funds over using an online broker?
Also any recommendations on an online broker? I am signed up with Commsec - but assuming we need a specialised broker for this?
Thanks!
Just realised I never responded to this.
ETFs are managed funds/index funds that are bought and sold as if they are shares on the stock exchange (hence the name, Exchange Traded Funds). You need a broker to buy and sell these, as with any other shares. Comsec will do it for you - although there are cheaper.
Take a deep dive into the vanguard website. It's full of reasonably good info.
On the other hand a Retailed Managed Fund is managed directly by Vanguard. You don't go through a broker. You bpay to vanguard.
There are a whole range of reasons why one is preferable to the other - but the reasons aren't necessarily objective - they depend on the individual circumstances of each investor.
I'm thinking of trying to write a FAQ on these kinds of fundamental concepts - but it may take me a while. In the meantime, if anyone has any suggestions do chime in.
Post by: Dropbear on April 04, 2017, 07:53:00 AM
I'm about to ask to have some extra super put away before the end of the financial year, and I wondered if I should be asking my employer if they might kindly share some of their windfall by making some extra contributions to my fund if I do too? Thanks in advance!
Post by: mjr on April 04, 2017, 01:35:27 PM
just to remind people many industry funds offer very low fees with index options (e.g. Australian Super, Hostplus, Sunsuper, ...). Also several allow you to invest directly in shares from the ASX200/300, if you desire. Depending on how complicated your Super portfolio is, it's an option to consider instead of setting up a SMSF.
Industry funds are run by unions. I am not interested in bringing politics into this thread, but this fact is enough to keep me away from industry funds on principle.
Post by: mjr on April 04, 2017, 01:43:04 PM
I read on SuperGuide that companies receive a tax deduction for the money they send to super on their employee's behalf. So it would be logical to suppose that having more employees salary sacrificing more of their incomes would increase the company's super component in their total payroll, and subsequently increase the company's deduction, but is that actually the case? If it is, do many companies offer financial incentives to encourage their employees to salary sacrifice?
Companies don't receive any more of a tax deduction for pre-tax super contributions than they do for normal salary payments.
Post by: cakie on April 04, 2017, 06:32:10 PM
I conflate industry funds with vanguard and credit unions - a coop structure where fees just cover expenses, nice and cheap as there is no motive for them to make extra money off you.just to remind people many industry funds offer very low fees with index options (e.g. Australian Super, Hostplus, Sunsuper, ...). Also several allow you to invest directly in shares from the ASX200/300, if you desire. Depending on how complicated your Super portfolio is, it's an option to consider instead of setting up a SMSF.
Industry funds are run by unions. I am not interested in bringing politics into this thread, but this fact is enough to keep me away from industry funds on principle.
Are you ideologically opposed to all unions (regardless of how they are run)? Would you consider an industry fund if you liked the union that started it? What is your opinion on vanguard and credit unions?
Please don't take this as an attack on your views. They're not rhetorical questions, I'm actually curious! I always find it interesting to meet people with different outlooks on the world.
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Post by: bigchrisb on April 04, 2017, 07:41:06 PM
Hence I started a self managed fund. I no longer pay for a huge staff bill (do the numbers on funds under management per staff member), a huge marketing bill, or grandiose financial services wages. I also have full control and transparency on my fund, where they are invested, how I manage my tax, and how I treat my super assets vs my non super assets. For my fund balance, its also cheaper to self manage, and I can manage asset allocation to optimise post tax performance. I also don't get exposed to capital gains from others pooled investments.
I'm not an advocate of retail funds either, but after doing my own due diligence I'm of the view that industry funds are ripping off their members (as is most of the financial services industry). Crap like drawing from members accounts a percentage of funds under management to cover the fund if the fund committed fraud really got under my skin.
My own view - use the lowest cost fund you can until you get your assets up to a level where self management is viable. As soon as it is, cut off the gravy train.
Post by: mjr on April 04, 2017, 09:51:01 PM
I conflate industry funds with vanguard and credit unions - a coop structure where fees just cover expenses, nice and cheap as there is no motive for them to make extra money off you.
Are you ideologically opposed to all unions (regardless of how they are run)? Would you consider an industry fund if you liked the union that started it? What is your opinion on vanguard and credit unions?
Please don't take this as an attack on your views. They're not rhetorical questions, I'm actually curious! I always find it interesting to meet people with different outlooks on the world.
No worries, I don't perceive your question as an attack.
I'm reticent to answer in detail, because I don't think my answers belong in an Australian Investing thread. For disclosure, I do have an ideological issue with unions in general.
Mostly though, I have an issue with industry funds being run by under-qualified trustees who are there by virtue of their union ties, where they get pay and perks for years in a closed-shop. Also, many workers are given no choice of funds under enterprise agreements and by virtue of default funds in awards.
I have no issues with Vanguard and credit unions. Indeed, I have over half of my wealth now in Vanguard.
I did have my money where my mouth was, I paid significant charges to a retail fund for many years until I got up the courage to start an SMSF. Are big fat-cat corporate funds any better than union funds ? Many will argue they are worse - certainly most are more expensive and I was happy to get out of my retail fund because they were ripping me off with 2.2% MER. But at least they have to fight for customers, staff and executives in the open market and that's important to me.
Post by: dbm on April 04, 2017, 10:04:58 PM
They're a global, experienced bank. They knew exactly what they were doing.
Now, after going through the hassle of getting my mother's pension in there last year, I have to go through the hassle of getting it out and into an SMSF that I'll have to manage. Thanks for nothing, ING.
I've no experience with eSuperfund, but I'm happy to plug Green Frog Super, whom I used for my own SMSF last year.
That makes me laugh, I recently finished working for a global bank, a US one not a euro one, and trust me you would surprised what their decision process actually involved.
But thanks will check out Green Frog.
Cheers
Dbm
Post by: cakie on April 04, 2017, 10:09:56 PM
Thanks for your replies mjr and chris, interesting perspectives from both of youI conflate industry funds with vanguard and credit unions - a coop structure where fees just cover expenses, nice and cheap as there is no motive for them to make extra money off you.
Are you ideologically opposed to all unions (regardless of how they are run)? Would you consider an industry fund if you liked the union that started it? What is your opinion on vanguard and credit unions?
Please don't take this as an attack on your views. They're not rhetorical questions, I'm actually curious! I always find it interesting to meet people with different outlooks on the world.
No worries, I don't perceive your question as an attack.
I'm reticent to answer in detail, because I don't think my answers belong in an Australian Investing thread. For disclosure, I do have an ideological issue with unions in general.
Mostly though, I have an issue with industry funds being run by under-qualified trustees who are there by virtue of their union ties, where they get pay and perks for years in a closed-shop. Also, many workers are given no choice of funds under enterprise agreements and by virtue of default funds in awards.
I have no issues with Vanguard and credit unions. Indeed, I have over half of my wealth now in Vanguard.
I did have my money where my mouth was, I paid significant charges to a retail fund for many years until I got up the courage to start an SMSF. Are big fat-cat corporates funds any better than union funds ? Many will argue they are worse - certainly most are more expensive and I was happy to get out of my retail fund because they were ripping me off with 2.2% MER. But at least they have to fight for customers, staff and executives in the open market and that's important to me.
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Post by: AussieCat on April 04, 2017, 10:40:28 PM
Been a reader for a while, had a stint chatting a while back. Back again! I need to head back and read through this thread, but thought I'd say g'day and adk some opening questions first.
We are both 41. Early next year we are selling some property at which point our net worth should look like this:
Home $450,000 (Melb outer suburbs)
Hostplus Super indexed balanced $360,000 (been salary sacrificing, but also bumped up by the above sale of land that was an active asset - rolling part of the gain in = no CGT on the sale)
Cash $430,000
Shares $10,000
Mortgage $290,000
Net inc house: $960,000
Happy to consider paying out mortgage, then redrawing some to end up with some tax deductible debt.
There is a chance the land is worth up to a third more than what we are using here - its very difficult to judge given the limited sales in the area. I'll stick with a price/acre we are confident with.
We also have a family trust with several hundred thousand in carried forward losses (income, not capital). We want to utilise these losses if we can, but also minimise franking credits 'lost'. We are both back to being employees - for the moment - but there's a chance I might go back to consulting and be able to utilise the losses that way.
Both hubby and I will be working part time, 32.5% marginal tax rates. Will continue sal sac to super, but due to a potential change at husbands work, being able to salary sacrifice mortgage repayments is a possibility in the near future too.
Would love some thoughts on allocations etc, as well as some feedback on franking on various ETF's.
I'm thinking of:
- paying down entirely and then redrawing $200k on mortgage to invest, bringing us to $340,000 cash
- splitting this $340,000 between $30,000 cash and $310,000 either VAS and VGS, or VAS and VEU/VTS. I'm unsure about allocations.
- I can invest up $110,000 of this via our trust. This is why I was thinking VEU/VTS over VGS - if there isn't as much in the way of franking, we wont be paying tax on this income, and wont be losing the benefit of franking credits (but I'm not sure if I have it right that there are no franking credits on these two)
- leaving Hostplus as is
Feel free to shred any or all of this, here to learn!
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Post by: GT on April 04, 2017, 10:53:56 PM
Post by: NotSure on April 04, 2017, 11:44:08 PM
I've asked in previous page about asset allocation strategies in my Super, but didn't get responses, so try again :) Is there perhaps some guidelines of how much to invest in each category for example Australian shares, International shares, property etc.?
I'm after some guidance how to better spread my money in Sunsuper with index options.
Post by: potm on April 05, 2017, 12:05:34 AM
I have had positive experiences with Esuperfund with zero setup fees and no fees for the first 2 years. Still there was company fees and ato levy to be paid.
Esuperfund make it as easy as possible for you but there is a lot of paperwork to fill out and a lot of obligations and rules to understand. I would recommend against it for the vast majority of people.
Post by: FFA on April 05, 2017, 01:12:29 AM
I wouldn't recommend setting up a smsf just to buy index ETFs. You can get very cheap index options from host plus, aus super and sunsuper. Some are much cheaper than an ETF. The extra admin, audit, asic company, ato levy and brokerage fees will be much higher than the admin fees from the above mentioned industry funds.yep that was exactly what I was trying to convey earlier. I appreciate there might be ideological or other trust issues with industry funds. I am quite comfortable myself but everyone should do their own research and act in line with their own values/beliefs. As well as your own situation and investment approach, i.e. if you are more actively in/out and optimizing a portfolio between a SMSF vs family trust etc. Or more simple buy and hold investing with regular contributions.
I have had positive experiences with Esuperfund with zero setup fees and no fees for the first 2 years. Still there was company fees and ato levy to be paid.
Esuperfund make it as easy as possible for you but there is a lot of paperwork to fill out and a lot of obligations and rules to understand. I would recommend against it for the vast majority of people.
Post by: switch42 on April 05, 2017, 01:47:49 AM
I wouldn't recommend setting up a smsf just to buy index ETFs. You can get very cheap index options from host plus, aus super and sunsuper. Some are much cheaper than an ETF. The extra admin, audit, asic company, ato levy and brokerage fees will be much higher than the admin fees from the above mentioned industry funds.
ING's recent fee increase has taught me that we aren't in control of the fees with super funds, they can do what they want.
eSuperfund are in an open market for audit/admin services on my smsf so if they increase their fees too much I can look elsewhere without copping CGT again. To leave those super funds (assuming etf/share investments) I'd get another CGT hit. Once bitten, twice shy.
I also dislike the lack of transparency in some of those funds, Hostplus especially. I apparently have trust issues with unions.
Post by: englyn on April 05, 2017, 02:12:52 AM
Post by: marty998 on April 05, 2017, 02:23:56 AM
I read on SuperGuide that companies receive a tax deduction for the money they send to super on their employee's behalf. So it would be logical to suppose that having more employees salary sacrificing more of their incomes would increase the company's super component in their total payroll, and subsequently increase the company's deduction, but is that actually the case? If it is, do many companies offer financial incentives to encourage their employees to salary sacrifice?
Companies don't receive any more of a tax deduction for pre-tax super contributions than they do for normal salary payments.
Hi - yes mjr is right - super counts as a deduction in the same way as salary and wages.
However I should point out here that employees who salary sacrifice will reduce a Company's payroll tax bill, as that tax is levied on wages (not total employment costs).
Post by: marty998 on April 05, 2017, 02:26:01 AM
Word is Bendigo Bank are now refusing to refinance investment properties from other banks.
Blunt way of trying to stay under the 10% Investment loan limit and the 30% Interest only limit.
When every bank implements this the only thing left to do is increase prices (rates). Which is already happening :(
Post by: mjr on April 05, 2017, 04:46:09 AM
However I should point out here that employees who salary sacrifice will reduce a Company's payroll tax bill, as that tax is levied on wages (not total employment costs).
I haven't checked all states. but this link for Qld indicates that payroll tax is payable on super contributions.
https://www.business.qld.gov.au/running-business/employing/payroll-tax/taxable-wages/superannuation
Post by: stashgrower on April 05, 2017, 05:34:06 AM
While researching all these super options, I read on SuperGuide that companies receive a tax deduction for the money they send to super on their employee's behalf. So it would be logical to suppose that having more employees salary sacrificing more of their incomes would increase the company's super component in their total payroll, and subsequently increase the company's deduction, but is that actually the case? If it is, do many companies offer financial incentives to encourage their employees to salary sacrifice?
I have worked for a company that *charged* a small percentage to sal sac. Strikes me as unfair.
Post by: Wadiman on April 05, 2017, 05:49:22 AM
Like Switch42, I have also found the process of setting up a SMSF with them very straightforward to date.
I was thinking about doing it anyway as I want to invest in peer2peer lending with Ratesetter, hold some capital notes, perhaps direct bonds and also unlisted property funds in super for tax reasons - this is not possible in retail funds AFAIK.
The company setup fee is a one-off so should be ahead after about a year and like BigChris - I am keen to have full transparency and understand everything that is going on.
A question - any thoughts on whether a total portfolio subscription service (eg Sharesight premium) would be tax deductible if you have a SMSF?
Post by: potm on April 05, 2017, 06:22:19 AM
ATO levy $259
Esuperfund fee which includes te audit $799
ASIC company fee $47
The current offer from esuperfund is the first year is free, it use to be 2 years free. In the first year you will also incur company set up cost and a double ATO levy fee though.
Say you were to buy ETFs in a simple 3 ETF portfolio once per quarter. That is another $240 of brokerage incurred. Make sure you do the sums before deciding that an smsf is right for you.
Post by: FFA on April 05, 2017, 06:37:19 AM
I wouldn't recommend setting up a smsf just to buy index ETFs. You can get very cheap index options from host plus, aus super and sunsuper. Some are much cheaper than an ETF. The extra admin, audit, asic company, ato levy and brokerage fees will be much higher than the admin fees from the above mentioned industry funds.
ING's recent fee increase has taught me that we aren't in control of the fees with super funds, they can do what they want.
eSuperfund are in an open market for audit/admin services on my smsf so if they increase their fees too much I can look elsewhere without copping CGT again. To leave those super funds (assuming etf/share investments) I'd get another CGT hit. Once bitten, twice shy.
I also dislike the lack of transparency in some of those funds, Hostplus especially. I apparently have trust issues with unions.
Do you cop CGT when you transfer/roll Super from one fund to another? I've done it once or twice over the years and if I recall correctly the withdrawn balance (based on exit unit prices the day you leave) is sent across to the new fund without any tax withdrawn/withheld.
Post by: Dropbear on April 05, 2017, 06:42:08 AM
I haven't checked all states. but this link for Qld indicates that payroll tax is payable on super contributions.
https://www.business.qld.gov.au/running-business/employing/payroll-tax/taxable-wages/superannuation
Looking into it further, the NSW situation for me appears to be the same as in QLD: http://www.osr.nsw.gov.au/taxes/payroll/wages/superannuation (http://www.osr.nsw.gov.au/taxes/payroll/wages/superannuation)
Thanks mjr and marty for your comments and showing me where to look for the answers. It was worth a try! And to stashgrower, yes, being charged to salary sacrifice sounds terrible!
Post by: FFA on April 05, 2017, 06:48:48 AM
Here is a full list of yearly costs for an SMSF with Esuperfund and a corporate trustee, being one of the cheapest providers.
ATO levy $259
Esuperfund fee which includes te audit $799
ASIC company fee $47
The current offer from esuperfund is the first year is free, it use to be 2 years free. In the first year you will also incur company set up cost and a double ATO levy fee though.
Say you were to buy ETFs in a simple 3 ETF portfolio once per quarter. That is another $240 of brokerage incurred. Make sure you do the sums before deciding that an smsf is right for you.
Compared to say hostplus at $78 p.a. admin
plus lower internal management fees in the fund itself (e.g. 0.02% MER indexed balanced)
less time/hassle of SMSF compliance
Sunsuper is a bit higher on admin as they also have 0.1% of funds on top of the $78. But that 0.1% caps out at $800 presumably to slightly undercut what one could achieve with eSuperfund.
Any concerns about fund performance, you can always monitor returns versus the index for tracking error.
Post by: marty998 on April 05, 2017, 03:11:54 PM
I haven't checked all states. but this link for Qld indicates that payroll tax is payable on super contributions.
https://www.business.qld.gov.au/running-business/employing/payroll-tax/taxable-wages/superannuation
Looking into it further, the NSW situation for me appears to be the same as in QLD: http://www.osr.nsw.gov.au/taxes/payroll/wages/superannuation (http://www.osr.nsw.gov.au/taxes/payroll/wages/superannuation)
Thanks mjr and marty for your comments and showing me where to look for the answers. It was worth a try! And to stashgrower, yes, being charged to salary sacrifice sounds terrible!
Oops, sorry mate. Maybe I was thinking of other forms of salary sacrifice...
Brain fart.
Post by: Fresh Bread on April 05, 2017, 04:07:08 PM
Post by: switch42 on April 05, 2017, 04:31:55 PM
Do you cop CGT when you transfer/roll Super from one fund to another? I've done it once or twice over the years and if I recall correctly the withdrawn balance (based on exit unit prices the day you leave) is sent across to the new fund without any tax withdrawn/withheld.
No CGT when transferring out of managed funds - when I left AMP there was no tax payable.
However selling etfs will incur CGT. Since my ING super is mostly in etfs (only for 12 months) and I made a gain I'll pay CGT.
My concern is getting involved with another super fund like hostplus, and in 5 years time they decide to hike the fees. My gain will be much greater so CGT will effectively lock me in until preservation age. Alternatively I go with a managed fund and donate a portion of the returns to a fund manager.
esuperfund is moderately expensive now, but when the balance hits $1.7M (as projected within 10 years for me and my partner combined) the fees will be 0.1%, or 0.05% each. I have complete transparency, my trust actually owns the assets, and I have freedom to invest wherever I want without a super fund skimming off the returns. For me I believe it's worth it.
Post by: AussieCat on April 05, 2017, 05:15:28 PM
Actually, for some employers salary sacrificing does reduce their wages/super deductions as they aren't obliged to pay SGC on the original wage, they can pay it on net of the salary sacrificed amount.I read on SuperGuide that companies receive a tax deduction for the money they send to super on their employee's behalf. So it would be logical to suppose that having more employees salary sacrificing more of their incomes would increase the company's super component in their total payroll, and subsequently increase the company's deduction, but is that actually the case? If it is, do many companies offer financial incentives to encourage their employees to salary sacrifice?
Companies don't receive any more of a tax deduction for pre-tax super contributions than they do for normal salary payments.
Hi - yes mjr is right - super counts as a deduction in the same way as salary and wages.
However I should point out here that employees who salary sacrifice will reduce a Company's payroll tax bill, as that tax is levied on wages (not total employment costs).
Thus:
- $100,000 salary, no sacrifice, employer is up for $109,500 in wages/super
- $100,000 salary, sacrifice $20k to super, employer is up for $107,600 (SGC is only on $80k)
Need to take above into account when sacrificing, as its still a loop hole employers can use. Your 'package' can end up less, reducing some of the benefit of sacrificing.
Husband and I are lucky enough that our employers (one govt, one private) pay SGC on the pre sacrifice amount.
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Post by: AussieCat on April 05, 2017, 05:26:31 PM
Aussiecat & Notsure, I don't think there are any guidelines about allocations. Different people make different choices for different reasons, and there's a little about personal choices elsewhere in the 60(!) pages of this thread, but I think that's about all you're going to get.Thank you
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Post by: bigchrisb on April 05, 2017, 05:57:38 PM
This does not sit well with me, as one of the major advantages of super investing is being able to avoid transaction costs over multiple decades. From what I could extract from my past fund (and it was incomplete), the drag from this was about 20 basis points. If self managing (or if operating a segregated account) you can manage what and when you reallise as capital gain, and actively manage the taxes.
The opacity of this from the industry funds is one of the reasons I left. If they can't give a straight answer on how much embedded tax I'm paying, how can I trust their union rep boards not to hide other more sinister things?
Post by: bigchrisb on April 05, 2017, 06:59:23 PM
The compound crediting rates were 12.79% for the income stream and 11.43% for the accumulation account. This means that the aggregate tax rate of the accumulation account was 1.35% of the account, or in percentage of returns terms, 10.6% tax on returns. If no capital gains tax was incorporates into the crediting rates, and all this was attributable to tax on earnings, this is equivalent to the returns being 9% income and 3.8% growth. 9% income over 9 months (12% annualized) is simply not plausible.
Its hard to replicate the same asset mix as that portfolio due to the direct property and infrastructure holdings, but if we assumed a yield equivalent to the ASX (15.9% total return over this time, of which 12% was capital gain), then you are paying CGT on close to the whole price return, or a tax drag of something like 1%.
I get very frustrated that things like this get buried in the crediting rates, and are not disclosed adequately in the PDS. It means people do a comparison on only part of the story.
Post by: deborah on April 05, 2017, 07:33:30 PM
esuperfund is moderately expensive now, but when the balance hits $1.7M (as projected within 10 years for me and my partner combined) the fees will be 0.1%, or 0.05% each. I have complete transparency, my trust actually owns the assets, and I have freedom to invest wherever I want without a super fund skimming off the returns. For me I believe it's worth it.Just remember the $1.6mill cap per person.
Post by: bigchrisb on April 05, 2017, 07:41:39 PM
Here is a full list of yearly costs for an SMSF with Esuperfund and a corporate trustee, being one of the cheapest providers.
ATO levy $259
Esuperfund fee which includes te audit $799
ASIC company fee $47
The current offer from esuperfund is the first year is free, it use to be 2 years free. In the first year you will also incur company set up cost and a double ATO levy fee though.
Say you were to buy ETFs in a simple 3 ETF portfolio once per quarter. That is another $240 of brokerage incurred. Make sure you do the sums before deciding that an smsf is right for you.
Compared to say hostplus at $78 p.a. admin
plus lower internal management fees in the fund itself (e.g. 0.02% MER indexed balanced)
less time/hassle of SMSF compliance
Sunsuper is a bit higher on admin as they also have 0.1% of funds on top of the $78. But that 0.1% caps out at $800 presumably to slightly undercut what one could achieve with eSuperfund.
Any concerns about fund performance, you can always monitor returns versus the index for tracking error.
Or, taking a top down approach on industry funds, HostPlus managed to spend almost $100,000,000 ($96.7M, p98 of their 2016 annual report) on "administration" expenses. I find the amount of money blown by super administrators absolutely mind-boggling.
Post by: FFA on April 05, 2017, 08:12:37 PM
My comments here and I think potm's too are specifically for people looking at a simple index portfolio in their Super, which I believe is a significant percentage in this community. I just look at the admin fees they charge me and the management fee embedded in the option - that's all that impacts on me. Also as you said it's worth checking historical returns against the benchmark index to make sure it tracks well and there is no other hidden inefficiency embedded inside the unit pricing. I haven't found that to be the case with Hostplus indexed balanced, but I might check it again more closely after all the concerns I'm picking up here. If you're looking at active (non-index) investment options then it's much harder to analyse and part of the gap is also the fund manager performance (alpha).
All managed funds, LIC's and even ETF's have some disadvantages like embedded capital gains, etc. Sometimes this can be favourable too (e.g. a fund with embedded losses), as well as other times unfavourable. Sometimes it is more transparent (e.g. LIC's publish NTA after tax) and other times hard to know (e.g. managed funds/ETF's don't generally disclose embedded tax position). There are obvious benefits to pooled investing but everything comes with pros and cons. Yes DIY has benefits of full control, transparency and understanding what's going on but it also takes more time and can lose economies of scale.
Post by: potm on April 05, 2017, 08:28:18 PM
I just wanted to add you are still investing in ETFs, so you are still relying on Vanguard or some other fund manager.
Vanguard are actually managing sunsuper's index options now. Just minimise the fees as much as possible and monitor the performance against the index, ETFs or whatever benchmark you want.
SMSFs will be more worthwhile as your balance increases or you share with multiple people. Esuperfund charges the same fee for 4 people.
With the downward movement on fees and increased index options we have seen in the last couple of years, I am still sceptical of the benefit of an SMSF for someone who just wants to buy Index ETFs. I'm not dismissing SMSFs totally though, I have set one up myself. I also still have an account with Sunsuper.
Post by: TimCinel on April 08, 2017, 05:53:26 PM
http://www.afr.com/personal-finance/superannuation-and-smsfs/how-discount-smsf-players-are-clipping-your-ticket-20150710-gi9seh
It would be nice to use a commission rebater (http://www.smh.com.au/money/investing/claw-back-the-commission-youre-owed-20110820-1j3el.html) to receive commissions on my super investments - I wonder if the commissions could be paid out to me directly (as opposed to superannuation me).
Post by: Wadiman on April 08, 2017, 07:35:35 PM
I can't access the AFR article - who is ESuperfund paying commissions to?
Thanks
Post by: superannuationfreak on April 08, 2017, 09:29:53 PM
Quote
Clients of Esuperfund are compulsorily required to open a transaction account with either ANZ or Commonwealth Bank of Australia. In addition, it is compulsory for clients to use one of the two brokers it nominates, either CommSec or Ebroking (a white-label platform licensed by Esuperfund).
According to Esuperfund's financial services guide, ANZ and CBA pay it commissions of between 100 and 115 basis points on the cash balances of every transaction account opened by Esuperfund clients. That is, all of them.
A spokesperson for CBA says the bank does not discuss commercial arrangements with third parties. ANZ says it did not pay the commissions at the level outlined in the financial services guide.
In addition, every trade made by clients on either the CommSec or Ebroking platforms will attract a commission of up to $16.75 for trades under $25,000 and 0.075 per cent for trades over $25,000.
But that's just the start. The network of relationships and commissions on products extends to options, contracts for difference, term deposits, precious metals and life insurance. For instance, a policy bought from Macquarie or AIA triggers commissions of 0.20 per cent and 0.30 per cent respectively.
Perhaps the most lucrative of the arrangements sees Macquarie and St George Bank paid upfront commissions of 0.65 per cent and trailing commissions of 0.15 per cent on loans or limited recourse borrowing arrangements used to purchase property.
Post by: Wadiman on April 09, 2017, 02:16:44 AM
Post by: TimCinel on April 11, 2017, 09:47:32 AM
Hi Tim -
I can't access the AFR article - who is ESuperfund paying commissions to?
Thanks
Oops, sorry.
For now, AFR can be viewed without a subscription: Disable Javascript or press the stop button really quickly before the JS loads :D
Post by: oysters on April 12, 2017, 06:48:20 PM
(All individuals, regardless of age)
That kinda sucks, I was planning in 5-10 years to max that out for a while.
Will anyone here shift their strategies as a result of this?
ATO link:
https://www.ato.gov.au/super/self-managed-super-funds/contributions-and-rollovers/contribution-caps/
Post by: bigchrisb on April 12, 2017, 07:50:27 PM
I just discovered that the Concessional Cap limit to Super will reduce in the next financial year from $30k/yr to $25k/yr
Will anyone here shift their strategies as a result of this?
Yep, we are all captured by this. I've been maxing my contributions for close to a decade, and will continue to do so, so I'll be paying full tax on an extra $5k/year.
Government seems a bit shy to change the rules too much about how money is taken out of super, so most of the rule changes of late have been about how (and how much) money you can get into super. Non-concessional contribution rules are also changing (dropping from $180k to $100k, and no longer able to do so if balance is over $1.6m). It is getting harder and harder to do a super "sprint" in the last few years pre-retirement.
The concessional contribution is a limited resource. Despite all the issues about having the money locked up and exposed to sovereign risk, I'll be maxing this out every year that I am able to do so.
Post by: mjr on April 12, 2017, 08:22:20 PM
You can consider dropping in the full $540k (over 3 years) in non-concessional contributions before the end of June. Which you can do only if (a) you have the dosh lying around and (b) you haven't already invoked the bring-forward rule in the last 2 years.
At least the concessional contribution is easier to max out now that's $25k.
Post by: Ozlady on April 12, 2017, 09:15:27 PM
https://www.superguide.com.au/boost-your-superannuation/super-catch-up-concessional-contributions
Post by: marty998 on April 13, 2017, 01:51:48 AM
I would think if you are lucky enough to have over $1.6m in super you probably don't require the tax concession as an additional incentive to save.
Pay your marginal rate of tax like every poor sucker millennial has to.
Post by: deborah on April 13, 2017, 05:22:30 AM
Post by: FFA on April 13, 2017, 04:54:22 PM
Post by: Luckyvik on April 14, 2017, 04:34:25 AM
The problem with the $1.6mill is that if you have a pension (any pension I think), it is considered to be worth 16 x the amount you receive each year. As government pensions are from untaxed funds, the recipient has to pay tax on the pension, so they are actually worth a lot less (at least according to actuaries). There are a lot of people who receive a pension and have money in super who are over the limit. I guess it's a nice problem for them to have, but financial planners were initially told that the regulation was going to exclude government pensions, so there is a lot of incorrect information out there (including on a number of trusted web sites - for instance, until a couple of weeks ago, Trish Power had the wrong information, and now some of her information doesn't make sense), which is going to cause problems for these people in the coming months.The 1.6 cap only applies to the pension phase as at 1/7/17 so you can have extra money above this in the super phase (tax-free) or roll the excess back into the super phase. Eg. You can have 2M in the super phase, the cap would only come into play when you decide to start a pension.
For defined benefit, government pensions, anything that's not a straight forward allocated pension, the annual income comes into play when calculating the cap, it's not a straight forward 16x calculation, depends on the pension, the calculation for different type of pensions is in the regulations that came out late march but can be complex, the super fund should be able to give you some info or a specialised adviser.
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Post by: deborah on April 15, 2017, 12:04:16 AM
What you said may be correct, and I may have read it wrong.The problem with the $1.6mill is that if you have a pension (any pension I think), it is considered to be worth 16 x the amount you receive each year. As government pensions are from untaxed funds, the recipient has to pay tax on the pension, so they are actually worth a lot less (at least according to actuaries). There are a lot of people who receive a pension and have money in super who are over the limit. I guess it's a nice problem for them to have, but financial planners were initially told that the regulation was going to exclude government pensions, so there is a lot of incorrect information out there (including on a number of trusted web sites - for instance, until a couple of weeks ago, Trish Power had the wrong information, and now some of her information doesn't make sense), which is going to cause problems for these people in the coming months.The 1.6 cap only applies to the pension phase as at 1/7/17 so you can have extra money above this in the super phase (tax-free) or roll the excess back into the super phase. Eg. You can have 2M in the super phase, the cap would only come into play when you decide to start a pension.
For defined benefit, government pensions, anything that's not a straight forward allocated pension, the annual income comes into play when calculating the cap, it's not a straight forward 16x calculation, depends on the pension, the calculation for different type of pensions is in the regulations that came out late march but can be complex, the super fund should be able to give you some info or a specialised adviser.
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A super fund can be in one of two phases - accumulation phase and pension phase. I assume you were using "super phase" to mean "accumulation phase". When your money is in accumulation phase, it pays tax of 15% on any income, as well as CGT... so it is not tax free. When it goes into pension phase it is tax free. You can put any amount into pension phase, and keep some of it in accumulation phase if you want to. Because all super in accumulation phase is taxed, you may be better off having any extra above $1.6mill outside superannuation, since you will only start to pay tax on its income once you reach a taxable income of $18,200.
The regulations were supposed to be different for different types of funds, but those regulations were not passed, so after extensive research I have taken the advice that is just about everywhere that EVERY DB pension is the straight forward 16x calculation. If you have information that this is not correct, please advise, as the newspaper financial columns, and everywhere else (including the superannuation funds) I have seen have advised about the 16x calculation in all their recent information.
Post by: Ozstache on April 15, 2017, 04:41:32 AM
.. since you will only start to pay tax on its income once you reach a taxable income of $18,200.
With the Seniors & Pensioners Tax Offset (SAPTO), that tax free threshold can raise as high as $28,974 each person meaning a couple can pull in $57,948 tax free outside of super. See https://www.superguide.com.au/smsfs/no-tax-retirement-sapto (https://www.superguide.com.au/smsfs/no-tax-retirement-sapto)
Post by: marty998 on April 15, 2017, 04:47:57 AM
Post by: deborah on April 15, 2017, 05:53:19 AM
Correct - which makes it even more unreasonable to keep money in accumulation phase when you are old enough for the SAPTO... since you will only start to pay tax on its income once you reach a taxable income of $18,200.
With the Seniors & Pensioners Tax Offset (SAPTO), that tax free threshold can raise as high as $28,974 each person meaning a couple can pull in $57,948 tax free outside of super. See https://www.superguide.com.au/smsfs/no-tax-retirement-sapto (https://www.superguide.com.au/smsfs/no-tax-retirement-sapto)
*Crankypants rant removed* Wasn't a very well thought out post.Yes, superannuation still needs to be fixed so that the tax incentives are sustainable. The current problem is a) that people have been given the run around, so they haven't a clue about how a change that is arriving in less than an couple of months will affect them and b) more changes still need to be made, so everyone is feeling that super is not worth it because it changes all the time. John Howard was not good for the economy - he didn't have to do what he did, he made it very difficult for his successors to claw back benefits that really didn't need to be given, and he wasted a once-in-a-lifetime windfall on tax breaks, when it should have been used to future-proof Australia.
Post by: Luckyvik on April 15, 2017, 04:28:53 PM
[/quote]
The regulations were supposed to be different for different types of funds, but those regulations were not passed, so after extensive research I have taken the advice that is just about everywhere that EVERY DB pension is the straight forward 16x calculation. If you have information that this is not correct, please advise, as the newspaper financial columns, and everywhere else (including the superannuation funds) I have seen have advised about the 16x calculation in all their recent information.
[/quote]
My understanding is for a DB pension the calculation is 16*annual pension but annual pension is based on the first pension payment after 1 July annualised so if a pension was indexed in Sept this is ignored. Best to check with your fund for the exact calculation.
If you are over the 100kpa what you pay in tax is different depending on whether the pension has an untaxed component or not.
https://www.ato.gov.au/individuals/super/accessing-your-super/transfer-balance-cap/#Cappeddefinedbenefitincomestreammodific1
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Post by: deborah on April 15, 2017, 05:53:31 PM
My understanding is for a DB pension the calculation is 16*annual pension but annual pension is based on the first pension payment after 1 July annualised so if a pension was indexed in Sept this is ignored. Best to check with your fund for the exact calculation.So basically you are saying that it is 16 x the pension for all DB (or DB like) pensions. Thanks for the link for the over $100k per annum pensions. I definitely don't need it, but I may come across someone who does.
If you are over the 100kpa what you pay in tax is different depending on whether the pension has an untaxed component or not.
https://www.ato.gov.au/individuals/super/accessing-your-super/transfer-balance-cap/#Cappeddefinedbenefitincomestreammodific1
Post by: Luckyvik on April 16, 2017, 02:41:55 PM
[/quote]So basically you are saying that it is 16 x the pension for all DB (or DB like) pensions. Thanks for the link for the over $100k per annum pensions. I definitely don't need it, but I may come across someone who does.
[/quote]
Yes this is my understanding for DB pensions.
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Post by: oysters on April 17, 2017, 03:44:36 AM
Catch up catch up!
https://www.superguide.com.au/boost-your-superannuation/super-catch-up-concessional-contributions
Oooh. The Catch Up stuff looks quite useful. Is there an easy way to determine how much you have in this catch up bank to use? Eg something in the ATO part of MyGov (laughs, hahahahahahahah)?
Post by: Anatidae V on April 17, 2017, 03:46:59 AM
Fucking ATO part of MyGov was down all of Easter longer weekend "for upgrades", so we couldn't make the HECS repayment we were going to put through. Buggers.Catch up catch up!
https://www.superguide.com.au/boost-your-superannuation/super-catch-up-concessional-contributions
Oooh. The Catch Up stuff looks quite useful. Is there an easy way to determine how much you have in this catch up bank to use? Eg something in the ATO part of MyGov (laughs, hahahahahahahah)?
Post by: Luckyvik on April 18, 2017, 04:03:58 AM
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Post by: oysters on April 18, 2017, 07:05:38 AM
Fucking ATO part of MyGov was down all of Easter longer weekend "for upgrades", so we couldn't make the HECS repayment we were going to put through. Buggers.Catch up catch up!
https://www.superguide.com.au/boost-your-superannuation/super-catch-up-concessional-contributions
Oooh. The Catch Up stuff looks quite useful. Is there an easy way to determine how much you have in this catch up bank to use? Eg something in the ATO part of MyGov (laughs, hahahahahahahah)?
I've noticed they've had a flag up for payments on there for a while... they still haven't fixed the issue.
Why are you paying off your HECS, now that there is no longer a bonus for any extra repayments (as of start of this year)?
Post by: Rowellen on April 18, 2017, 09:45:49 PM
Join an online broker and buy the following ETF (Exchange Traded Fund):
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=0970/?overview
Note, that fund is domiciled in the US. So any dividends will come to you in US dollars. Which can be a bit of an admin issue.
But there are other options you may wish to consider as well. Like the International (ex Aus) ETF:
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=8212/?overview
Or the retail managed funds:
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/productType=retail
Cool. What are the pros and cons of each (i.e why would you consider International (ex Aus) ETF or retail managed funds over using an online broker?
Also any recommendations on an online broker? I am signed up with Commsec - but assuming we need a specialised broker for this?
Thanks!
Just realised I never responded to this.
ETFs are managed funds/index funds that are bought and sold as if they are shares on the stock exchange (hence the name, Exchange Traded Funds). You need a broker to buy and sell these, as with any other shares. Comsec will do it for you - although there are cheaper.
Take a deep dive into the vanguard website. It's full of reasonably good info.
On the other hand a Retailed Managed Fund is managed directly by Vanguard. You don't go through a broker. You bpay to vanguard.
There are a whole range of reasons why one is preferable to the other - but the reasons aren't necessarily objective - they depend on the individual circumstances of each investor.
I'm thinking of trying to write a FAQ on these kinds of fundamental concepts - but it may take me a while. In the meantime, if anyone has any suggestions do chime in.
Did you end up doing this? I just ask because I've been trying to work out if it would be better to go for the etf portion or the retail managed find option. I have an accounting background and still find it horrendously complicated. I've been reading this forum and googling but not sure what to look for. If anyone can point me in the right direction for info I'd appreciate it.
Post by: Anatidae V on April 19, 2017, 01:37:04 AM
Emotional decision, and we have no other debt. I'm just grumpy because this should have been so easy (and done last year...)Fucking ATO part of MyGov was down all of Easter longer weekend "for upgrades", so we couldn't make the HECS repayment we were going to put through. Buggers.Catch up catch up!
https://www.superguide.com.au/boost-your-superannuation/super-catch-up-concessional-contributions
Oooh. The Catch Up stuff looks quite useful. Is there an easy way to determine how much you have in this catch up bank to use? Eg something in the ATO part of MyGov (laughs, hahahahahahahah)?
I've noticed they've had a flag up for payments on there for a while... they still haven't fixed the issue.
Why are you paying off your HECS, now that there is no longer a bonus for any extra repayments (as of start of this year)?
Post by: marty998 on April 19, 2017, 03:16:39 AM
Emotional decision, and we have no other debt. I'm just grumpy because this should have been so easy (and done last year...)Fucking ATO part of MyGov was down all of Easter longer weekend "for upgrades", so we couldn't make the HECS repayment we were going to put through. Buggers.Catch up catch up!
https://www.superguide.com.au/boost-your-superannuation/super-catch-up-concessional-contributions
Oooh. The Catch Up stuff looks quite useful. Is there an easy way to determine how much you have in this catch up bank to use? Eg something in the ATO part of MyGov (laughs, hahahahahahahah)?
I've noticed they've had a flag up for payments on there for a while... they still haven't fixed the issue.
Why are you paying off your HECS, now that there is no longer a bonus for any extra repayments (as of start of this year)?
I have posted about this before but there is still a small benefit in paying off your HECS in a lump sum if it is your last year of repayments.
This is because indexation is applied on 1 June each year... so you save a couple of % in interest / CPI. You then simply get all the extra tax deducted through the year back in your tax return.
Post by: marty998 on April 19, 2017, 03:22:02 AM
AMP Capital has awarded UBS what is possibly the single largest index fund mandate in the country at $17 billion.
Astonishing that an active fund manager is basically raising the white flag and saying that their customers want index funds in Fixed Interest and Equities.
Question is...why should a retail customer bother going through AMP and paying 2 sets of fees (1 to UBS and then a platform fee to AMP)?
Post by: deborah on April 19, 2017, 03:33:50 AM
Post by: Anatidae V on April 19, 2017, 04:05:15 AM
Ugh, maybe we should wait a few months and do it next financial year, then (it is my partner's HECS debt). *bangs head against brick wall* Back to your regularly scheduled money chats...Emotional decision, and we have no other debt. I'm just grumpy because this should have been so easy (and done last year...)Fucking ATO part of MyGov was down all of Easter longer weekend "for upgrades", so we couldn't make the HECS repayment we were going to put through. Buggers.Catch up catch up!
https://www.superguide.com.au/boost-your-superannuation/super-catch-up-concessional-contributions
Oooh. The Catch Up stuff looks quite useful. Is there an easy way to determine how much you have in this catch up bank to use? Eg something in the ATO part of MyGov (laughs, hahahahahahahah)?
I've noticed they've had a flag up for payments on there for a while... they still haven't fixed the issue.
Why are you paying off your HECS, now that there is no longer a bonus for any extra repayments (as of start of this year)?
I have posted about this before but there is still a small benefit in paying off your HECS in a lump sum if it is your last year of repayments.
This is because indexation is applied on 1 June each year... so you save a couple of % in interest / CPI. You then simply get all the extra tax deducted through the year back in your tax return.
Post by: FFA on April 20, 2017, 04:25:33 AM
AMP is known for being the most expensive fund, yet they still have business.thankfully, us mustachians are still the minority :)
Post by: Fresh Bread on April 20, 2017, 06:30:36 PM
AMP is known for being the most expensive fund, yet they still have business.thankfully, us mustachians are still the minority :)
Maybe most people are on heavily discounted arrangements though corporate plans? But yeah, if it's the fund your company has chosen then most wouldn't compare. When I was working in corporate I used them and I can't remember the details because hubby checked it (he was in the industry) but it made it comparable because it was a 1% fee discount or something. As you can tell I am across it all :/
Post by: marty998 on April 21, 2017, 04:17:55 AM
AMP is known for being the most expensive fund, yet they still have business.thankfully, us mustachians are still the minority :)
Maybe most people are on heavily discounted arrangements though corporate plans? But yeah, if it's the fund your company has chosen then most wouldn't compare. When I was working in corporate I used them and I can't remember the details because hubby checked it (he was in the industry) but it made it comparable because it was a 1% fee discount or something. As you can tell I am across it all :/
My very first professional job in 2005 I was placed in an AMP corporate super plan.
A commission of 4% was deducted from every contribution and paid to a financial planner I'd never met or dealt with. Insurance premiums representing a further 30% of my total balance over the 6 months I was in there were also deducted. They'd put me in some high risk category and given me almost a million bucks in death cover.
Bastards.
I wised up very quickly as soon as I got my first half year statement (didn't have the ability to login online and view my balance/transactions any earlier) and I've have been with Australian Super ever since.
Post by: superannuationfreak on April 21, 2017, 06:18:48 AM
https://www.investordaily.com.au/markets/41128-ubs-wins-17bn-passive-mandate
AMP Capital has awarded UBS what is possibly the single largest index fund mandate in the country at $17 billion.
Astonishing that an active fund manager is basically raising the white flag and saying that their customers want index funds in Fixed Interest and Equities.
Question is...why should a retail customer bother going through AMP and paying 2 sets of fees (1 to UBS and then a platform fee to AMP)?
Although I'm no fan of AMP, this is probably an existing fund mandate just with a new manager rather than "raising the white flag". Most diversified funds will have at least a component in an index mandate (as it's cheap), although I'm more used to seeing Vanguard, Blackrock and State Street as the dominant providers. AMP Super had about $70b in assets at June last year, probably more now, so it's not nothing but it's probably ~20% of their assets.
And I imagine the majority of customers don't see any fees from UBS as it's most likely part of their diversified options, particularly their MySuper ones. Almost every fund outsources the index component of their funds as it's very cheap to do when you're talking multiple billions while outsourcing many of the operational risks to those with the largest economies of scale. It'll just be part of the overall investment fees. I think Aussie do some of their own index implementation but that's the exception.
Post by: 11ducks on April 23, 2017, 03:20:12 AM
I had a question. I invested my first $10k last year (AFI: diversified LIC, fully-franked dividends reinvested, recommended by barefoot investor for long-term investing) -it cost $29.95 (commsec acct, v low ongoing fees). I was warned to save up and deposit big sums (to avoid the trading fee eating away at my money. But it will take me over a year to save my next $10k (saving around $700 a fortnight atm). I'm around $6k now, and $10k seems forever away!
It got me thinking, where is the line between keeping cash in an account earning barely anything, vs paying the fee each time but having that then sitting in shares (hopefully outpacing inflation)? My current 'high interest' savings account earns around 1.7% interest, which is tiny. Where would you draw the line - should I invest in $1k or $2k or $5k lots, or keep saving until I hit $10k?
(* I'm sure there are probably better ways to invest or pay low fees - I chose commsec as it seems very simple for a novice investor - I just want to 'set and forget' essentially, and hope to leave it there making conservative gains over the long term).
Post by: mjr on April 23, 2017, 03:38:10 AM
$19.95 brokerage on a $2000 trade is of course 1%, straight off your 1st year's return.
If you want to use Commsec for convenience, you'll pay for it. If you want to execute frequent low-value trades you should find a low-cost broker like ig.
I use Westpac for the same convenience reasons, but I never trade less than $18k to make sure I don't pay more than 0.11% brokerage.
Post by: Grogounet on April 23, 2017, 03:50:11 AM
AMP is known for being the most expensive fund, yet they still have business.thankfully, us mustachians are still the minority :)
Maybe most people are on heavily discounted arrangements though corporate plans? But yeah, if it's the fund your company has chosen then most wouldn't compare. When I was working in corporate I used them and I can't remember the details because hubby checked it (he was in the industry) but it made it comparable because it was a 1% fee discount or something. As you can tell I am across it all :/
My very first professional job in 2005 I was placed in an AMP corporate super plan.
A commission of 4% was deducted from every contribution and paid to a financial planner I'd never met or dealt with. Insurance premiums representing a further 30% of my total balance over the 6 months I was in there were also deducted. They'd put me in some high risk category and given me almost a million bucks in death cover.
Bastards.
I wised up very quickly as soon as I got my first half year statement (didn't have the ability to login online and view my balance/transactions any earlier) and I've have been with Australian Super ever since.
Yeah... It took me 5 years to realize I was getting screwed... Just switched to Hostplus. I can't believe I was so blind about AMP fees...
Post by: krustyburger on April 23, 2017, 06:02:02 AM
Hey guys,
I had a question. I invested my first $10k last year (AFI: diversified LIC, fully-franked dividends reinvested, recommended by barefoot investor for long-term investing) -it cost $29.95 (commsec acct, v low ongoing fees). I was warned to save up and deposit big sums (to avoid the trading fee eating away at my money. But it will take me over a year to save my next $10k (saving around $700 a fortnight atm). I'm around $6k now, and $10k seems forever away!
It got me thinking, where is the line between keeping cash in an account earning barely anything, vs paying the fee each time but having that then sitting in shares (hopefully outpacing inflation)? My current 'high interest' savings account earns around 1.7% interest, which is tiny. Where would you draw the line - should I invest in $1k or $2k or $5k lots, or keep saving until I hit $10k?
(* I'm sure there are probably better ways to invest or pay low fees - I chose commsec as it seems very simple for a novice investor - I just want to 'set and forget' essentially, and hope to leave it there making conservative gains over the long term).
I am also a brand new investor, I went with VAS and VGS after months of research and indecision.
I also went with commsec, happy to pay more brokerage for the simplicity.
I've got my savings with ING earning 3% and I calculated the optimum lump sum amount/time out of market trade off in excel including brokerage. From memory, for me it worked out best to invest about every 5-6 weeks to maximise time in market while minimising brokerage. But I haven't stuck with it, I just buy shares when the balance gets to a certain amount that I feel is too much in cash.
I'm saving about double what you are so if your cash was earning 3% you might be best investing every 3 months or so.
Post by: Fresh Bread on April 23, 2017, 06:14:41 AM
If you look at Canstar it would seem that AMP are one of the cheapest - their estimate of annual fees are nowhere near what I've paid them when I was no longer on a massive discount. Their statements are also quite opaque so I can understand how people would not realise. So much for the moves to transparency. It shows them as being about $100 cheaper than Australian Super whereas I actually I save a few hundred.
Post by: deborah on April 23, 2017, 02:43:04 PM
Marty, how the hell did you have $1m of death cover - I thought you need to fill in medical questionnaires to get anywhere near that much!!??I just sorted Canstar in order of cheapness, and they were 25th out of 66, and they only had 3 stars, so Canstar can't think THAT much of them. However, it is interesting that in the Superguide, Trish Power says that they are one of the 10 cheapest when the fund is in PENSION phase - https://www.superguide.com.au/boost-your-superannuation/comparing-super-funds-check-out-the-cheapest-funds.
If you look at Canstar it would seem that AMP are one of the cheapest - their estimate of annual fees are nowhere near what I've paid them when I was no longer on a massive discount. Their statements are also quite opaque so I can understand how people would not realise. So much for the moves to transparency. It shows them as being about $100 cheaper than Australian Super whereas I actually I save a few hundred.
Post by: marty998 on April 23, 2017, 03:13:46 PM
Marty, how the hell did you have $1m of death cover - I thought you need to fill in medical questionnaires to get anywhere near that much!!??
If you look at Canstar it would seem that AMP are one of the cheapest - their estimate of annual fees are nowhere near what I've paid them when I was no longer on a massive discount. Their statements are also quite opaque so I can understand how people would not realise. So much for the moves to transparency. It shows them as being about $100 cheaper than Australian Super whereas I actually I save a few hundred.
It was a corporate plan - must have been negotiated as standard cover for everyone in the plan.
I guess the accounting partners I was working for needed lots of cover for themselves, and it was extended down to the serfs who were working for them :)
Post by: 11ducks on April 24, 2017, 03:15:59 AM
If you set up a Commonwealth Direct Investment Account with Commsec, you'll drop the brokerage from $29.95 to $19.95 for your sub $10,000 trades.
$19.95 brokerage on a $2000 trade is of course 1%, straight off your 1st year's return.
If you want to use Commsec for convenience, you'll pay for it. If you want to execute frequent low-value trades you should find a low-cost broker like ig.
I use Westpac for the same convenience reasons, but I never trade less than $18k to make sure I don't pay more than 0.11% brokerage.
Thanks MJR, will look into it!
Post by: 11ducks on April 24, 2017, 03:18:10 AM
Hey guys,
I had a question. I invested my first $10k last year (AFI: diversified LIC, fully-franked dividends reinvested, recommended by barefoot investor for long-term investing) -it cost $29.95 (commsec acct, v low ongoing fees). I was warned to save up and deposit big sums (to avoid the trading fee eating away at my money. But it will take me over a year to save my next $10k (saving around $700 a fortnight atm). I'm around $6k now, and $10k seems forever away!
It got me thinking, where is the line between keeping cash in an account earning barely anything, vs paying the fee each time but having that then sitting in shares (hopefully outpacing inflation)? My current 'high interest' savings account earns around 1.7% interest, which is tiny. Where would you draw the line - should I invest in $1k or $2k or $5k lots, or keep saving until I hit $10k?
(* I'm sure there are probably better ways to invest or pay low fees - I chose commsec as it seems very simple for a novice investor - I just want to 'set and forget' essentially, and hope to leave it there making conservative gains over the long term).
I am also a brand new investor, I went with VAS and VGS after months of research and indecision.
I also went with commsec, happy to pay more brokerage for the simplicity.
I've got my savings with ING earning 3% and I calculated the optimum lump sum amount/time out of market trade off in excel including brokerage. From memory, for me it worked out best to invest about every 5-6 weeks to maximise time in market while minimising brokerage. But I haven't stuck with it, I just buy shares when the balance gets to a certain amount that I feel is too much in cash.
I'm saving about double what you are so if your cash was earning 3% you might be best investing every 3 months or so.
I didn't know there was a Vanguard Australia, will look into it next time I go to invest, thanks. This is perfect, thankyou, may work on $5k lump sums or the like.
Post by: dystopic on April 25, 2017, 07:41:15 PM
Post by: dystopic on April 25, 2017, 08:21:09 PM
Hey guys,
I had a question. I invested my first $10k last year (AFI: diversified LIC, fully-franked dividends reinvested, recommended by barefoot investor for long-term investing) -it cost $29.95 (commsec acct, v low ongoing fees). I was warned to save up and deposit big sums (to avoid the trading fee eating away at my money. But it will take me over a year to save my next $10k (saving around $700 a fortnight atm). I'm around $6k now, and $10k seems forever away!
It got me thinking, where is the line between keeping cash in an account earning barely anything, vs paying the fee each time but having that then sitting in shares (hopefully outpacing inflation)? My current 'high interest' savings account earns around 1.7% interest, which is tiny. Where would you draw the line - should I invest in $1k or $2k or $5k lots, or keep saving until I hit $10k?
(* I'm sure there are probably better ways to invest or pay low fees - I chose commsec as it seems very simple for a novice investor - I just want to 'set and forget' essentially, and hope to leave it there making conservative gains over the long term).
Sounds like Vanguard Retail funds may be a better option for you. You can BPAY however small amount however often you want.
Post by: Tyler on April 25, 2017, 10:09:34 PM
I've been doing a lot of research into foreign markets (I'm American, but interested in modeling portfolios everywhere), and I'm a little stuck on Australian bonds. I've read that they have treasuries out to 30 years these days, but I can't seem to find any historical interest rate data past 10 years maturity. So I have two questions:
1) Are long term bond index funds legit options in Australia? If so, can you please point me to one?
2) Does anyone know where I can find good historical data on long term Australian interest rates (maturities greater than 10 years)?
Thanks for the help.
Post by: Ozstache on April 25, 2017, 11:02:41 PM
Given that we may wish to sell some of these shares in future, possibly even before she dies to pay towards entry into an aged care facility, we need to know the respective share purchase history to determine the cost base for calculating CGT. Does anyone know how to going about finding out this information? Contact the companies directly? Share broker? Law firm?
Post by: steveo on April 25, 2017, 11:07:21 PM
My wife will one day inherit my MIL's share portfolio, which we are currently managing on her behalf as Power of Attorney. While we know how many shares she has in each company through the dividend letters we get, we are unable to locate any records of hers as to when she bought each share parcel over the years. Her memory is not currently reliable enough to come even close to reconstituting these records.
Given that we may wish to sell some of these shares in future, possibly even before she dies to pay towards entry into an aged care facility, we need to know the respective share purchase history to determine the cost base for calculating CGT. Does anyone know how to going about finding out this information? Contact the companies directly? Share broker? Law firm?
The share registry should be the place to go. I remember some scamming bastard got that information and tried to buy shares at below market prices. He ripped off old people that way.
Post by: deborah on April 25, 2017, 11:53:29 PM
Post by: FFA on April 26, 2017, 12:12:44 AM
Sorry Tyler, would like to help but I don't know the answer for long term bond indices and/or rates.
Post by: Ozstache on April 26, 2017, 12:45:33 AM
Post by: MajorTom on April 26, 2017, 05:31:37 PM
I can't help with the information you're after but just wanted to say your site is great and I'm very interested in being able to model Australian-specific portfolios.
Dystopic,
Thanks for pointing out the Vanguard Diversified Wholesale changes. I've been planning on probably investing in either the Growth or High Growth funds (just as soon as I finish paying off the house in the next year and a bit), so the drop in fees from 0.36% or 0.37% to 0.29% is very welcome. I was pretty on board with the current makeup of the funds though, so will have to get my head around the new ones (basically dropping property as a discrete class, reducing home bias/increasing international shares, introducing hedging for about 1/3 of international shares, changing the fixed interest components) - but in the end I'll probably just defer to Vanguard knowing more than me, which is likely a safe bet.
Post by: marty998 on April 27, 2017, 05:28:57 AM
I've gotta say, the moment I had a question about Australian investing I knew exactly where I would turn. :)
I've been doing a lot of research into foreign markets (I'm American, but interested in modeling portfolios everywhere), and I'm a little stuck on Australian bonds. I've read that they have treasuries out to 30 years these days, but I can't seem to find any historical interest rate data past 10 years maturity. So I have two questions:
1) Are long term bond index funds legit options in Australia? If so, can you please point me to one?
2) Does anyone know where I can find good historical data on long term Australian interest rates (maturities greater than 10 years)?
Thanks for the help.
1) Vanguard has one, which is invested in a mix of corporate and government securities. The bond market in Australia is not as deep or liquid as the US, indeed back in 2006 when the federal government paid off the national debt, market participants requested the government to leave a pool of bonds on issue just so there would still be a market for banks and insurance companies to be able to park money in!!
Corporate bond market is small but growing. Companies in the past have simply borrowed from the banks as it is cheaper. You should appreciate that many companies will only issue bonds if they've already been knocked back by a bank.
2) The Reserve Bank of Australia website should have some historical data, else the Australian Office of Financial Management (AOFM), which is the body that issues government bonds, should also have some info.
Post by: Tyler on April 27, 2017, 10:50:21 AM
Thanks for the info -- that helps a lot.
Post by: mjr on April 27, 2017, 01:55:43 PM
Paying off the national debt -- what a novel concept!
Rest assured that we don't do that any more.
Post by: FFA on April 27, 2017, 04:25:22 PM
btw anyone using self wealth as an online broker? $9.50 for unlimited size. A very good deal if you trade in big size, e.g. a lump sum to invest, or switching portfolio around. Interested to hear feedback if anyone using them ? thanks
Post by: Tyler on April 29, 2017, 04:50:56 PM
Hi Tyler,
I can't help with the information you're after but just wanted to say your site is great and I'm very interested in being able to model Australian-specific portfolios.
Thanks!
Give this a try and let me know what you think: https://portfoliocharts.com/2017/04/29/portfolio-charts-is-going-global/
I don't have data for every asset, but it should be more than enough to get a good idea for how Australian asset allocations work.
Post by: oysters on April 29, 2017, 05:39:19 PM
Hi Tyler,
I can't help with the information you're after but just wanted to say your site is great and I'm very interested in being able to model Australian-specific portfolios.
Thanks!
Give this a try and let me know what you think: https://portfoliocharts.com/2017/04/29/portfolio-charts-is-going-global/
I don't have data for every asset, but it should be more than enough to get a good idea for how Australian asset allocations work.
Just got your email and checked it out... wow!
One thing I'm wondering is how/if you've somehow got franking credits in there for Aus domestic stocks? I guess this is getting pretty hard to encompass.
Also, for the colour blind like me, is it possible to change the colour of the Safe WR line in the withdrawal rates tool (which I love by the way)? Its too close in colour to the perpetual WR colour, I can't tell the difference (though I assume perpetual WR is the bottom one). A black line for the bottom one would be a safe bet I would say.
Perhaps people from this thread can give you suggestions on stocks to put in the Assetts pages once you start making them for Aus (though a new thread might be better for that).
Cheers!
Post by: Tyler on April 29, 2017, 08:09:32 PM
Also, for the colour blind like me, is it possible to change the colour of the Safe WR line in the withdrawal rates tool (which I love by the way)? Its too close in colour to the perpetual WR colour, I can't tell the difference (though I assume perpetual WR is the bottom one). A black line for the bottom one would be a safe bet I would say.
Sure thing. I'll eventually get around to fixing it on the portfolio pages, but updating the calculator was a quick fix. I also changed the Benchmark calculator which had the same issue. Thanks for the heads-up -- I had no idea that was still a poor color combo for colorblindness.
As for the franking credits, I've intentionally avoided touching taxation issues. The numbers are total returns as reported by MSCI and included in Fama-French data, if that helps.
Post by: gsp on May 01, 2017, 10:22:04 PM
I am planning to start investing in Vanguard ETF every 3 months around 3k.
Can you please help to understand pros and cons of VTS ? I am more positive towards US market then Euro/Asia
Post by: bigchrisb on May 03, 2017, 11:32:18 PM
However, based on the last 12 months returns from the Vanguard Australia webpage, I can't reconcile the differences:
VGS: 16.4%
VTS: 19.06%
VEU: 14.9%
VGE: 17.94%
VGS is approx 60% US and 40% developed international. That would suggest a return of approx 17.4%, if blending 60/40 VTS/VEU, compared to 16.4% for VGS.
Given that VEU is about 25% emerging markets / 75% developed, and the relative difference between VGE and VEU, it looks like the emerging markets made up most of the 1% performance difference.
All have been very healthy returns. However, on this, I think I'll stick with the VEU/VTS combination for my international stock allocations.
Post by: mjr on May 04, 2017, 03:54:57 AM
About 1.6-1.7% dividends these days, bigchrisb has listed the returns above. Obviously there's currency volatility, but I like that the underlying currency is in USD, it's a hedge on the AUD. Trades and dividends are all remitted in AUD, so taxes are simple. FIlling out the appropriate form lowers the withholding tax to 15% which can be credited against other taxes.
Note that if you have an SMSF in pension phase, you won't have any taxes to credit against. Even then though, as withholding tax is 15% of 1.6% of the holding value, it's not a huge price to pay for the US market exposure.
Post by: Realist35 on May 04, 2017, 06:55:20 AM
I would like to invest 100k in shares and I have a big headache from the info overload. My main idea is to invest in low cost index funds/ETFs. I'm not too sure about LIC's as they require more involvement. Also LICs try to beat the market which is unlikely in the long term. They provide less diversification then index funds. Does all this make sense?
I'm thinking of investing in Vanguard wholesale high growth index fund, or a mix of VAS and VGS? Still very confused and don't understand this whole retail/wholesale thing..
Also should I invest 100k all in one go?
Thanks a lot:)!
Post by: cakie on May 04, 2017, 04:51:15 PM
Post by: Todge on May 04, 2017, 05:52:59 PM
For example - management fee of the Retail High Growth Fund is .90%; that's a little high in my view. The same wholesale fund is .37%. So you will pay more in fees in the retail fund. In the same way that compound interest helps grow your money over long periods, compound fees erode it.
Assuming a 7% annual rate of return on 100k invested over 10 years, the difference in fees between these two products would cost you just shy of 10k. This tool will allow you to check the impact of fees on your investment: https://www.dinkytown.net/java/CompareFees.html
One benefit of the retail and wholesale funds are no transaction fees. So no brokerage fees. Although, that's not really true though as you don't get anything for free in the financial industry. The brokerage is simply passed onto you through those .9% and .37% management costs. But if you are investing small amounts often or switching your investments a lot, this might be a good option as paying brokerage for small trades adds up.
With 100k to play with, maybe the VAS/VGS ETF would be better than the retail/wholesale funds. The ETF fees are lower (VAS .14% and VGS .18%), because you pay for brokerage. Over time these lower fees will help your money grow - all things being equal. Let's say you adopt a 50/50 split - your management fees would be .16%. Buying 100k on the share market through a bank brokerage like NAB would cost you .11% of the trade value - so $110 (plus .11% when you sell). Each year you'll then pay $160 in management fees on that 100k. The retail fund costs nothing in brokerage but you'll pay $900 per year and the wholesale fund will cost you $370.
We are comparing apples and oranges here though - but these are the fee differences in the funds you mention.
To learn more about this, there are great books suggested in this post: https://forum.mrmoneymustache.com/reader-recommendations/booksvideo-lessons-for-beginner-investor/msg1523893/#msg1523893
Post by: mjr on May 04, 2017, 06:21:20 PM
One benefit of the retail and wholesale funds are no transaction fees. So no brokerage fees. Although, that's not really true though as you don't get anything for free in the financial industry. The brokerage is simply passed onto you through those .9% and .37% management costs.
Don't forget the 0.12% buy and sell spread
Post by: Realist35 on May 04, 2017, 09:59:00 PM
Thank you so much for such a great post:). That clarified quite a few things for me. Definitely sounds like etf combo is the way to go.
Just a quick question to you and other experienced investors with regards to asset allocation. Would it make sense if I went for one of these two options:
1. 60k in VAS and 40k in VTS, or
2. 60k in VAS and 40k in VGS.
I would invest 100k all in one go. I'll also be investing 15k quarterly in the above split. I'm investing with a min 15 yr time frame in mind. What are your thoughts?
I haven't included any bonds in the mix so I'm not sure whether that's considered too risky.
Post by: mjr on May 04, 2017, 11:06:14 PM
With a 15 year timeframe and interest rates at the bottom of the cycle, I think you're ok with no bonds. But *you* have to be comfortable and able to handle big drops in portfolio value without selling.
Post by: Todge on May 04, 2017, 11:48:20 PM
Post by: steveo on May 05, 2017, 05:14:09 AM
My parents are about to leave their financial advisor because the financial advisor has been sacked from their company. I'm pretty stoked with this because I am sure they are getting fleeced.
A couple of questions:-
1. Where is the best spot to get a SMSF managed from a legal/accounting perspective at the best possible cost ?
2. They are pretty risk averse. I think the best option for them is something like the balanced vanguard diversified fund with a fee of .34%. Alternatively they could go the ETF route and diversity into something like VAF/VGS & VAS (I do this) and the fees will be a little cheaper. What do you think of the best option.
3. Are there any other options than Vanguard just to diversify across companies and do you think it is worth it ?
They will have I think about $3 million to invest and they also get a pension of about $50k per year to live off. Mum at 72 still works but she is crazy.
My opinion to keep it simple is to just chuck it all in the balanced Vanguard fund and transfer the super fund (already existing) to be managed via https://www.esuperfund.com.au/.
Post by: FFA on May 05, 2017, 06:26:38 AM
1. I don't use SMSF so no direct experience but people seem to say esuperfund works well
2. As we've discussed many times, no right or wrong it's a personal preference. For someone in their 70's I could imagine keeping it simple and hands off might be preferable over skimming 0.1-0.2% in the MER..... If risk averse maybe check whether balanced or conservative is the appropriate option? Remember markets are due for a pullback, and you probably don't want them tapping you on the shoulder to explain why their balance just dropped by 10%, if they don't have the risk tolerance for it.
3. Blackrock is the biggest. Vanguard fast catching up. SPDR slowly losing the race. VanEck and Betashares are more niche/smart beta ETF's which it doesn't sound like you're after. If it gives you piece of mind just substitute STW/IOZ for VAS so that it's not all in the Vanguard basket. I think it's a very, very low risk but equally if it doesn't cost much to make the substitution (i.e. starting from scratch), then why not.
Post by: steveo on May 05, 2017, 03:31:21 PM
Another point that I'm only just thinking about is I bet their current Super has all sorts of shares/bonds sitting all over the place. It might be best to leave some of that as it is or more slowly move it all into the Vanguard fund.
Basically maybe it's not all in Vanguard anyway.
Post by: MajorTom on May 05, 2017, 03:59:47 PM
2. They are pretty risk averse. I think the best option for them is something like the balanced vanguard diversified fund with a fee of .34%.
The fees for the wholesale funds are dropping to 0.29% in July, in case that makes a difference for you.
Post by: deborah on May 05, 2017, 04:05:38 PM
As they have so much, I assume that they may need to put some of the money outside super, because one of them will probably have more than $1.6mill in super (particularly since the pension is valued at 16 times its annual amount if it is a DB pension and is separate from the rest of their super). This is a very bad time to be trying to change financial advisors because of the changes and people needing to move money to be within the cap by 1st July! If your father is not working there may be limited options for him to move stuff around since he is over 65.
Post by: Todge on May 05, 2017, 04:23:06 PM
I've just done with with my parents - they've moved away from their financial advisor - who was charging them almost 1.5% for 'service'. They wanted to keep it simple with low fees so we went the ETF route.
My parents' main worry was not really knowing where their money was invested and seeing these large numbers as line items for fees when they only got a yearly phone call about their finances. They assumed that the advisor had them in some really advanced and complex asset structure. Nope. Basically they were in Vanguard wholesale funds. I showed them exactly what these were onthe Vanguard website and what they cost. They were paying fees to their financial advisor, and fees to the investment house the advisor used who then simply bought Vanguard wholesale funds. They decided to cut out the middle men and buy the same assets directly. So we were able to replicate the holdings they had through their advisor almost exactly with VAS, VGS and VAF.
We sought advice from an independent financial advisor via centrelink (you don't have to be on benefits to see them). She was able to confirm everything we thought and it made the folks happy to get a second opinion.The upshot is, they are saving thousands a year in fees (almost 2.5% lower now), feel far more in control of their finances as they now know what they own and how it all works. Also the Vanguard statement is much easier to read and understand for my dad to do his tax.
I guess the only issue is their concentration in Vanguard. But this is only one of their income streams and they were in Vanguard before via the Wholesale funds through an advisor and secondary investment broker.
Post by: mjr on May 05, 2017, 07:03:45 PM
As they have so much, I assume that they may need to put some of the money outside super, because one of them will probably have more than $1.6mill in super
The new rules don't prohibit having more than $1.6m in super, rather a tax-free pension account. Values over that can stay in super in an accumulation account where earnings incur the 15% tax.
Post by: marty998 on May 05, 2017, 07:09:03 PM
As they have so much, I assume that they may need to put some of the money outside super, because one of them will probably have more than $1.6mill in super
The new rules don't prohibit having more than $1.6m in super, rather a tax-free pension account. Values over that can stay in super in an allocation account where earnings incur the 15% tax.
Exactly right. There is so much bad advice out there telling people there's a hard cap of $1.6m.
It's still better to be taxed at 15% inside super than at marginal rates outside.
Post by: deborah on May 05, 2017, 07:24:19 PM
Yes, but as their superannuation pension is not taxed, they can earn up to some revolting amount each year ($25,000?) outside super before being taxed at all, so for a group of people, it can be better to have any excess outside super if it isn't too large an amount. Considering just how much Steveo is talking about, I would think his parents would fall into that group.As they have so much, I assume that they may need to put some of the money outside super, because one of them will probably have more than $1.6mill in super
The new rules don't prohibit having more than $1.6m in super, rather a tax-free pension account. Values over that can stay in super in an allocation account where earnings incur the 15% tax.
Post by: steveo on May 06, 2017, 01:22:30 AM
We can just transfer everything so that it is a self managed super fund rather than a super fund managed by financial advisors. I am pretty sure that they have two super funds each with about the cap in there I assume to maximise the tax benefits. I can just set up another couple of accounts - say in Super and outside Super where they can put their excess money in.
Todge - I know that their financial advisor has put them into Vanguard funds. My dad tells me and just shakes his head. Prior to this point I think mum wanted to tell people she had a financial advisor. Interestingly their financial advisor told them to let he children run it.
Post by: Realist35 on May 06, 2017, 05:36:49 AM
From my reading so far, it sounds like ETFs might be the right choice for me. I'm thinking of investing 50k in VAS and 50k in VGS. However I'm really struggling to understand the potential returns. I'm planning to hold for at least 15 years. If the last 15 yr history repeats, what sort of return can I expect to get on 100k in 15 years, with dividend and FF credits reinvestment and quarterly 5k DCA contributions?
There are FF credits there at play as well and I'm struggling to get my head around everything (I don't think I'd get FF on VGS).
Your thoughts would be much appreciated:).
Post by: steveo on May 06, 2017, 06:19:53 PM
I use ETF's. I use VAS, VGS and VAF. I also have an industry Super account. VAS will give you FF credits but the Australian market is also much less diversified than the entire world market. I think the sanest approach is to put everything into VGS and VAF based on your risk profile but I use VAS because I think there are benefits to VAS such as FF credits and less impact of foreign currency fluctuations.
I have a goal to get too outside of super. For me it is 200k VAS, 100k VAF and 100k VGS and I just invest on that basis when I get 10k saved up. I have some direct Australian shares which I'm not going to sell and I just group that into the VAS allocation.
I think you will probably get real returns of about 5% but I don't really focus on that.
Post by: FFA on May 06, 2017, 08:53:14 PM
Correct, no franking on VGS but you might get some foreign tax credits. If you want to adjust the VAS return for franking roughly, consider the income component approx. 4.5% at average 80% franking level and gross it up (i.e. divide that by 0.7) = 5.1%. So franking is an additional 0.6% approximately.
Post by: Realist35 on May 07, 2017, 01:25:09 PM
Realist35 - my advice is to pick an asset allocation and stick to it. You can't predict returns with any certainty but you can have a solid plan and stick to it.Thanks a lot for your thoughts mate, really appreciate it:)!
I use ETF's. I use VAS, VGS and VAF. I also have an industry Super account. VAS will give you FF credits but the Australian market is also much less diversified than the entire world market. I think the sanest approach is to put everything into VGS and VAF based on your risk profile but I use VAS because I think there are benefits to VAS such as FF credits and less impact of foreign currency fluctuations.
I have a goal to get too outside of super. For me it is 200k VAS, 100k VAF and 100k VGS and I just invest on that basis when I get 10k saved up. I have some direct Australian shares which I'm not going to sell and I just group that into the VAS allocation.
I think you will probably get real returns of about 5% but I don't really focus on that.
A few questions if you don't mind:
1. I'm thinking between 75:25 vs 50:50 VAS:VGS. Which one do you think would make more sense? I'm planning to retire in 15 yrs and live in Europe; not sure whether that would affect the split decision.
2. What are your thoughts on LICS vs etf's? I'd love to find a study comparing performances of the big LICS Vs etfs.
3. If I plan to retire off dividends in Europe, are there any tax implications that I need to be aware of? Do I still pay tax on dividends in australia or just in the country that I move to?
Thanks a lot!
Post by: Realist35 on May 07, 2017, 01:32:45 PM
if you google "vanguard long term chart" they publish a chart each year, with long-term asset class returns on it. Typically 8-10% total return based on history. Real returns are lower as steveo said.
Correct, no franking on VGS but you might get some foreign tax credits. If you want to adjust the VAS return for franking roughly, consider the income component approx. 4.5% at average 80% franking level and gross it up (i.e. divide that by 0.7) = 5.1%. So franking is an additional 0.6% approximately.
Thanks mate!
I think I've read VAS dividends are 63% franked. How do I calculate grossed yield in this case?
Also, if I get a LIC that would cover international shares, would I get franking credits for that?
Post by: steveo on May 07, 2017, 04:03:29 PM
Realist35 - my advice is to pick an asset allocation and stick to it. You can't predict returns with any certainty but you can have a solid plan and stick to it.Thanks a lot for your thoughts mate, really appreciate it:)!
I use ETF's. I use VAS, VGS and VAF. I also have an industry Super account. VAS will give you FF credits but the Australian market is also much less diversified than the entire world market. I think the sanest approach is to put everything into VGS and VAF based on your risk profile but I use VAS because I think there are benefits to VAS such as FF credits and less impact of foreign currency fluctuations.
I have a goal to get too outside of super. For me it is 200k VAS, 100k VAF and 100k VGS and I just invest on that basis when I get 10k saved up. I have some direct Australian shares which I'm not going to sell and I just group that into the VAS allocation.
I think you will probably get real returns of about 5% but I don't really focus on that.
A few questions if you don't mind:
1. I'm thinking between 75:25 vs 50:50 VAS:VGS. Which one do you think would make more sense? I'm planning to retire in 15 yrs and live in Europe; not sure whether that would affect the split decision.
2. What are your thoughts on LICS vs etf's? I'd love to find a study comparing performances of the big LICS Vs etfs.
3. If I plan to retire off dividends in Europe, are there any tax implications that I need to be aware of? Do I still pay tax on dividends in australia or just in the country that I move to?
Thanks a lot!
My opinions in relation to your questions are:-
1. if were going to live in Europe I would definitely do 50:50 however I'd probably just do 100 VGS.
2. I use ETF's. I think LIC's are good especially if you can get them at a below NAV.
3. I honestly don't know however I would assume in the country that you move too.
Post by: Realist35 on May 07, 2017, 04:18:52 PM
Would you be elaborate on the first point?
Also do you think LICS involve more risk due to the manager risk?
Post by: steveo on May 07, 2017, 08:44:10 PM
Thanks mate:).
Would you be elaborate on the first point?
Also do you think LICS involve more risk due to the manager risk?
I think VGS is basically a better fund compared to VAS. VGS is an international fund. It's going to be much more diversified because of that. The risk to me with VGS if you are living in Australia is mainly due to foreign currency fluctuations. If I was living in Europe I'd think VGS would be safer.
I think LIC's may have a little more risk because they are actively managed however from what I know about the LIC's in Australia they have performed really well and they are low cost options.
Post by: bigchrisb on May 07, 2017, 09:03:48 PM
In terms of risk of ETFs vs LICs, the major LICs are currently trading below NTA (all of MLT, ARG and AFI are, by up to 5%). This means you are getting exposure to 5% more shares for the same price compared to an index fund. I don't believe the LICs will under perform the index by 5%, so this provides an extra margin of safety compared to ETFs, all else considered equal.
Note that this is different to saying that the share market is good or bad value at the moment. However, getting exposure through LICs is better value than ETFs right now.
Post by: Todge on May 08, 2017, 05:24:53 AM
Generally speaking, as a 'non resident' for tax purposes, you will be liable for tax on dividends (no tax free threshold either) but capital gains tax exempt on shares. The ATO website has all the updated info on this - tax treaties also impact how this is applied.
Post by: Realist35 on May 08, 2017, 09:42:16 AM
Agree on the comments of the Australian economy being fairly narrow, and international indices providing much broader industry coverage. They also provide a different currency exposure. If expecting to spend a lot in AUD, it makes sense to have more domestic exposure. However, if you are going to retire in Europe, I'd be having a lower than usual Australian exposure.Thanks a lot:).
In terms of risk of ETFs vs LICs, the major LICs are currently trading below NTA (all of MLT, ARG and AFI are, by up to 5%). This means you are getting exposure to 5% more shares for the same price compared to an index fund. I don't believe the LICs will under perform the index by 5%, so this provides an extra margin of safety compared to ETFs, all else considered equal.
Note that this is different to saying that the share market is good or bad value at the moment. However, getting exposure through LICs is better value than ETFs right now.
What do you think with this approach: Argo (25k), API (25K), 50K VGS. So that's a 100k lump sum and all in one go, now.
From this point on, whenever I have cash on hand I'll buy LICs if they trade at a discount, otherwise I'll buy VAS.
Would this be considered a fairly safe and reasonable approach?
Post by: Realist35 on May 08, 2017, 09:51:59 AM
Realist:Thanks:).
Generally speaking, as a 'non resident' for tax purposes, you will be liable for tax on dividends (no tax free threshold either) but capital gains tax exempt on shares. The ATO website has all the updated info on this - tax treaties also impact how this is applied.
Just looked into it a bit further. From the link below, it seems that:
1. If the dividend income is Australian sourced they are tax free when fully franked.
2. If the dividends are unfranked, they are taxed at 30% unless their is a tax treaty with that country so it might be 15%.
Or am I missing something?
https://www.ato.gov.au/forms/you-and-your-shares-2013-14/?page=14
Post by: mjr on May 08, 2017, 02:49:07 PM
1. If the dividend income is Australian sourced they are tax free when fully franked.
https://www.ato.gov.au/forms/you-and-your-shares-2013-14/?page=14
This isn't what that web page says. The franked component is tax-free. Up to 30% can be franked. The unfranked component is subject to withholding tax.
You're looking at a complicated area here. You really should call the ATO and ask them.
Post by: steveo on May 08, 2017, 04:27:51 PM
Agree on the comments of the Australian economy being fairly narrow, and international indices providing much broader industry coverage. They also provide a different currency exposure. If expecting to spend a lot in AUD, it makes sense to have more domestic exposure. However, if you are going to retire in Europe, I'd be having a lower than usual Australian exposure.Thanks a lot:).
In terms of risk of ETFs vs LICs, the major LICs are currently trading below NTA (all of MLT, ARG and AFI are, by up to 5%). This means you are getting exposure to 5% more shares for the same price compared to an index fund. I don't believe the LICs will under perform the index by 5%, so this provides an extra margin of safety compared to ETFs, all else considered equal.
Note that this is different to saying that the share market is good or bad value at the moment. However, getting exposure through LICs is better value than ETFs right now.
What do you think with this approach: Argo (25k), API (25K), 50K VGS. So that's a 100k lump sum and all in one go, now.
From this point on, whenever I have cash on hand I'll buy LICs if they trade at a discount, otherwise I'll buy VAS.
Would this be considered a fairly safe and reasonable approach?
I think so. The only question is how much to you have in Australia market compared to the international market.
Post by: FFA on May 08, 2017, 04:40:49 PM
I think that's right, fully franked div's, you just leave them off your tax return as a non-resident. Unfranked div's will have withholding tax deducted if you declare you TFN status as non-resident. (I was a non-resident for many years so know this first hand)
1. If the dividend income is Australian sourced they are tax free when fully franked.
https://www.ato.gov.au/forms/you-and-your-shares-2013-14/?page=14
This isn't what that web page says. The franked component is tax-free. Up to 30% can be franked. The unfranked component is subject to withholding tax.
You're looking at a complicated area here. You really should call the ATO and ask them.
Post by: bigchrisb on May 08, 2017, 05:10:50 PM
Agree on the comments of the Australian economy being fairly narrow, and international indices providing much broader industry coverage. They also provide a different currency exposure. If expecting to spend a lot in AUD, it makes sense to have more domestic exposure. However, if you are going to retire in Europe, I'd be having a lower than usual Australian exposure.Thanks a lot:).
In terms of risk of ETFs vs LICs, the major LICs are currently trading below NTA (all of MLT, ARG and AFI are, by up to 5%). This means you are getting exposure to 5% more shares for the same price compared to an index fund. I don't believe the LICs will under perform the index by 5%, so this provides an extra margin of safety compared to ETFs, all else considered equal.
Note that this is different to saying that the share market is good or bad value at the moment. However, getting exposure through LICs is better value than ETFs right now.
What do you think with this approach: Argo (25k), API (25K), 50K VGS. So that's a 100k lump sum and all in one go, now.
From this point on, whenever I have cash on hand I'll buy LICs if they trade at a discount, otherwise I'll buy VAS.
Would this be considered a fairly safe and reasonable approach?
I think so. The only question is how much to you have in Australia market compared to the international market.
Presume you mean 25% AFI, not 25% API. API is a good company (I hold some shares in it), but a diversified LIC it is not. Assuming 25% ARG, 25% AFI and 50% VGS, that seems like a pretty sensible buy and hold forever portfolio to me. We can all argue about the right domestic/international mix, but 50/50 seems like a good enough starting point to me.
Post by: Todge on May 08, 2017, 05:25:23 PM
Post by: Realist35 on May 09, 2017, 02:07:02 AM
Thanks a lot:).Agree on the comments of the Australian economy being fairly narrow, and international indices providing much broader industry coverage. They also provide a different currency exposure. If expecting to spend a lot in AUD, it makes sense to have more domestic exposure. However, if you are going to retire in Europe, I'd be having a lower than usual Australian exposure.Thanks a lot:).
In terms of risk of ETFs vs LICs, the major LICs are currently trading below NTA (all of MLT, ARG and AFI are, by up to 5%). This means you are getting exposure to 5% more shares for the same price compared to an index fund. I don't believe the LICs will under perform the index by 5%, so this provides an extra margin of safety compared to ETFs, all else considered equal.
Note that this is different to saying that the share market is good or bad value at the moment. However, getting exposure through LICs is better value than ETFs right now.
What do you think with this approach: Argo (25k), API (25K), 50K VGS. So that's a 100k lump sum and all in one go, now.
From this point on, whenever I have cash on hand I'll buy LICs if they trade at a discount, otherwise I'll buy VAS.
Would this be considered a fairly safe and reasonable approach?
I think so. The only question is how much to you have in Australia market compared to the international market.
Presume you mean 25% AFI, not 25% API. API is a good company (I hold some shares in it), but a diversified LIC it is not. Assuming 25% ARG, 25% AFI and 50% VGS, that seems like a pretty sensible buy and hold forever portfolio to me. We can all argue about the right domestic/international mix, but 50/50 seems like a good enough starting point to me.
I've been reading more over the last couple of days and I'm thinking of even going all in Oz market. Maybe holding long term AFI, ARG, MLT, BKI, WHF. The idea is to own all of them and try buying them when they are trading at discount. I'm favoring to go all Australian due to fully franked dividends. If I reinvest them this should be a big advantage over going for VAS (only 70-80% franked) and VGS (not franked). What are your thoughts?
The only reason I would go for VAS over LICs is to eliminate the key person risk. How big do you think this risk is with the above mentioned 5 LICs?
Post by: Realist35 on May 09, 2017, 02:10:38 AM
Whatever you choose 70/30 50/50, stick to it. This gives a pretty good summation of why: http://www.cbsnews.com/news/john-bogles-10-rules-of-investing/That's such an excellent read! Really enjoyed it. My options are slowly starting to become more clear.
Post by: Todge on May 09, 2017, 05:43:41 AM
Post by: FFA on May 09, 2017, 05:50:13 AM
I don't think you can look at the franking of VAS vs traditional LIC's in isolation. Even more so as a driver to decide your asset allocation. You need to think about total returns - capital, income, tax. Not just one aspect of tax. The key reason to invest globally is access to a whole raft of companies like Google, Amazon, Apple, Facebook, etc that you have no hope of accessing in the Australian market which is 2-3% of global equities. The Oz market is very small and very concentrated. Historically it has held up very well versus global indices but that may not be the case forever, so these are the factors I'd be thinking about
Post by: Realist35 on May 09, 2017, 06:23:03 AM
I don't see much key man risk in the traditional LIC's. Maybe of these 5, I rate Frank Gooch at MLT the highest and if he disappeared it might leave a gap. The risks I see are - NTA discounts (even if you're buying at a discount, it could get bigger), concentration risk. These LIC's are even heavier in the banks than the index itself. There are so many other products now both ETF's and LIC's that help you diversify, some examples I've posted about and hold include MVW, EX20, MVS (ETF's) and PIC. I also hold ARG of the five traditional LIC's mentioned. There is nothing wrong with them at all, especially at NTA discounts, but I'd just pick one or two instead of all five, and then add some other products that improve the diversification of your underlying investment and avoid having all your eggs in the traditional LIC basket (unlikely but just in case).What do you think about reversion to the mean theory? Australian shares (ASX200 All Ordinaries) has had 9.1% return over the last 30 years. That`s very good.
I don't think you can look at the franking of VAS vs traditional LIC's in isolation. Even more so as a driver to decide your asset allocation. You need to think about total returns - capital, income, tax. Not just one aspect of tax. The key reason to invest globally is access to a whole raft of companies like Google, Amazon, Apple, Facebook, etc that you have no hope of accessing in the Australian market which is 2-3% of global equities. The Oz market is very small and very concentrated. Historically it has held up very well versus global indices but that may not be the case forever, so these are the factors I'd be thinking about
A silly question. Can a LIC go bust/bankrupt and all their shareholders lose money? Can that happen to an ETF (such as Vanguard)?
Post by: Realist35 on May 09, 2017, 06:27:00 AM
Yep, on the face of it , it's pretty simple - diversify and keep costs low. The only concern I have is your plan to live in Europe in 15 years. If that's 100% certain then going 'all in' to the Oz market be a little constraining.Constraining as in a currency risk?
Post by: Todge on May 09, 2017, 07:17:56 AM
Currency - Not just FOREX rates but also the costs of moving money internationally.
Taxation - What are the tax rules where you plan on living - some european countries have high (relative) tax, also the current OZ rules may change as they give a pretty good deal to overseas investors - especially the CGT aspect.
Diversification - The companies you mention ARG, AFI MLT etc are pretty concentrated in the Oz market.
I just don't see why you'd want to be neck deep in Oz if you plan on living in Europe.
Post by: Realist35 on May 09, 2017, 07:36:36 AM
Yes, constrained in terms of Currency risk, taxation, diversification.Well my reasons for going all in Oz are:
Currency - Not just FOREX rates but also the costs of moving money internationally.
Taxation - What are the tax rules where you plan on living - some european countries have high (relative) tax, also the current OZ rules may change as they give a pretty good deal to overseas investors - especially the CGT aspect.
Diversification - The companies you mention ARG, AFI MLT etc are pretty concentrated in the Oz market.
I just don't see why you'd want to be neck deep in Oz if you plan on living in Europe.
1. Fully franked dividends and I wouldnt pay any tax on them in Australia. Also I would only pay 9% tax in my home country. That sounds pretty good:),
2. Second reason - reversion to the mean. ASX All Ordinaries had 9.1% growth over the last 30 years (see the link below). If reversion to the mean theory makes any sense (and John Bogle believes in it from my memory), 9.1% is what we can expect in the long run.
http://www.fidelity.com.au/FidelityP2/index.cfm?LinkServID=B9210BF9-C60F-E304-B34EDDAC8FD13D52
What are your thoughts?
Post by: FFA on May 09, 2017, 11:02:52 PM
I generally agree with reversion to the mean, but trying to predict the timing is the difficult part. Most experts (including vanguard) are saying expect much lower returns over the next 30 years because we start at higher valuations (e.g. P/E) and low interest rates.I don't see much key man risk in the traditional LIC's. Maybe of these 5, I rate Frank Gooch at MLT the highest and if he disappeared it might leave a gap. The risks I see are - NTA discounts (even if you're buying at a discount, it could get bigger), concentration risk. These LIC's are even heavier in the banks than the index itself. There are so many other products now both ETF's and LIC's that help you diversify, some examples I've posted about and hold include MVW, EX20, MVS (ETF's) and PIC. I also hold ARG of the five traditional LIC's mentioned. There is nothing wrong with them at all, especially at NTA discounts, but I'd just pick one or two instead of all five, and then add some other products that improve the diversification of your underlying investment and avoid having all your eggs in the traditional LIC basket (unlikely but just in case).What do you think about reversion to the mean theory? Australian shares (ASX200 All Ordinaries) has had 9.1% return over the last 30 years. That`s very good.
I don't think you can look at the franking of VAS vs traditional LIC's in isolation. Even more so as a driver to decide your asset allocation. You need to think about total returns - capital, income, tax. Not just one aspect of tax. The key reason to invest globally is access to a whole raft of companies like Google, Amazon, Apple, Facebook, etc that you have no hope of accessing in the Australian market which is 2-3% of global equities. The Oz market is very small and very concentrated. Historically it has held up very well versus global indices but that may not be the case forever, so these are the factors I'd be thinking about
A silly question. Can a LIC go bust/bankrupt and all their shareholders lose money? Can that happen to an ETF (such as Vanguard)?
Not a silly question at all. Best always to be skeptical of any investment. Yes anything's possible. Check on any gearing/leverage being used in the investment mandate. Funds investing in microcaps or other illiquid markets may have to suspend redemptions for periods. I avoid synthetic ETF's where they use options or other derivatives, you always want the ETF to be holding the underlying assets directly, i.e. "replication of the index". There's always a risk of fraud/rogue trading which I think is probably less at a Vanguard or a traditional LIC where there is less of a performance fee / bonus incentive. I think these risks a generally very low if you stick to mainstream LIC/ETF's. But it wouldn't heard to spread your investments around a little just to limit the risk. Very low probability but very high consequence if it were to ever happen!
Post by: Realist35 on May 10, 2017, 04:44:19 AM
Thank a lot for such a knowledgeable reply:).I generally agree with reversion to the mean, but trying to predict the timing is the difficult part. Most experts (including vanguard) are saying expect much lower returns over the next 30 years because we start at higher valuations (e.g. P/E) and low interest rates.I don't see much key man risk in the traditional LIC's. Maybe of these 5, I rate Frank Gooch at MLT the highest and if he disappeared it might leave a gap. The risks I see are - NTA discounts (even if you're buying at a discount, it could get bigger), concentration risk. These LIC's are even heavier in the banks than the index itself. There are so many other products now both ETF's and LIC's that help you diversify, some examples I've posted about and hold include MVW, EX20, MVS (ETF's) and PIC. I also hold ARG of the five traditional LIC's mentioned. There is nothing wrong with them at all, especially at NTA discounts, but I'd just pick one or two instead of all five, and then add some other products that improve the diversification of your underlying investment and avoid having all your eggs in the traditional LIC basket (unlikely but just in case).What do you think about reversion to the mean theory? Australian shares (ASX200 All Ordinaries) has had 9.1% return over the last 30 years. That`s very good.
I don't think you can look at the franking of VAS vs traditional LIC's in isolation. Even more so as a driver to decide your asset allocation. You need to think about total returns - capital, income, tax. Not just one aspect of tax. The key reason to invest globally is access to a whole raft of companies like Google, Amazon, Apple, Facebook, etc that you have no hope of accessing in the Australian market which is 2-3% of global equities. The Oz market is very small and very concentrated. Historically it has held up very well versus global indices but that may not be the case forever, so these are the factors I'd be thinking about
A silly question. Can a LIC go bust/bankrupt and all their shareholders lose money? Can that happen to an ETF (such as Vanguard)?
Not a silly question at all. Best always to be skeptical of any investment. Yes anything's possible. Check on any gearing/leverage being used in the investment mandate. Funds investing in microcaps or other illiquid markets may have to suspend redemptions for periods. I avoid synthetic ETF's where they use options or other derivatives, you always want the ETF to be holding the underlying assets directly, i.e. "replication of the index". There's always a risk of fraud/rogue trading which I think is probably less at a Vanguard or a traditional LIC where there is less of a performance fee / bonus incentive. I think these risks a generally very low if you stick to mainstream LIC/ETF's. But it wouldn't heard to spread your investments around a little just to limit the risk. Very low probability but very high consequence if it were to ever happen!
If we say index funds (such as VAS or VGS) will have an average accumulation growth of 5% over the next 15 years, would that be an underestimate or overestimate in your opinion? I am creating a spreadsheet with some projections of our portfolio and years to retirement. It includes both properties and shares, so I have assumed 5% capital growth for IPs and 5% accumulation growth (with dividends reinvested) for shares.
Post by: FFA on May 10, 2017, 05:24:42 AM
Post by: Realist35 on May 10, 2017, 07:54:03 AM
I think 5% total return for VAS/VGS is a reasonable/safe assumption for long-term. Historical has been more like 8-10%. Given the current high levels, we should expect less, maybe 6-8%, so I'd say 5% is on the underestimate side. If you expect any less than that it would not make sense to invest in shares, i.e. the risk is not warranted. However it's never a straight line so 5% p.a. over 15-20 years could see any given year up or down 20% (or 50% in a real market meltdown). These kind of numbers can misrepresent the volatility and people who don't appreciate that will freak out and sell at the bottoms. No comment on IP's as it really depends a lot on the IP, location etc.Cool, I'll plug in 6% in my spreadsheet, that will give me earlier retirement haha
Post by: itchyfeet on May 11, 2017, 09:16:42 AM
Maybe 3%+ net rental yield.
Really, what is the driver for growth beyond pure speculation?
Post by: Ozstache on May 11, 2017, 03:42:50 PM
I really don't see how IPs in any Oz cap city can have cap gains of 5% pa over the next 15-30 years. They are already pretty unaffordable.
Maybe 3%+ net rental yield.
Really, what is the driver for growth beyond pure speculation?
Property fans say continued under supply driven mainly by population growth through immigration will keep growth going.
Post by: itchyfeet on May 11, 2017, 10:15:11 PM
Post by: mpcharles on May 12, 2017, 04:31:52 AM
Sent from my ASUS_Z00AD using Tapatalk
Post by: mjr on May 12, 2017, 04:54:42 AM
Post by: JJ on May 14, 2017, 11:46:48 PM
Post by: Sydneystache on May 15, 2017, 12:40:43 AM
Do you think it's time to ask for a forum rather than a thread? 63 pages is a lot to wade through...
Have you gone through "Overhead at work"? This thread's a baby compared to it.
Post by: Dropbear on May 15, 2017, 05:33:18 AM
Do you think it's time to ask for a forum rather than a thread? 63 pages is a lot to wade through...
+1
Yes, please! This thread is so full of useful info, except that everything is all mixed up together. It'd be wonderful to have separate threads for various AU-specific things like asset allocation, super, tax, and smashed avo sangers.
Post by: turboslob on May 16, 2017, 02:26:05 AM
Finally saved up for a parcel of ETFs (VTS, VEU or VAS), but when I look at recent performance they've all done really well of late. This makes me think I should hold it in cash (getting 3%) until a drop.
My mind conflicts between; 'buy low/when confidence is low' and 'long term the market always rises'.
Am I being clever, stupid or somewhere in the middle? Investing for an approx 10 year term at this stage.
Appreciate any advice as I only have a small moustache.
Post by: mjr on May 16, 2017, 04:16:21 AM
I know that if you're investing all/most of your available cash, then the amount is not really relevant - it's 100% of your investable funds and the thought of it losing value is scary. But if it's of that order, it's not really *that* much money.
You know the rest of the drill - you can't time the market.
You have a 10 year investment horizon. Get the money in and start earning the returns and keep saving. Even if it drops tomorrow, you care only about what the returns will be in 10 years.
Post by: itchyfeet on May 16, 2017, 10:36:58 AM
Post by: steveo on May 16, 2017, 04:40:11 PM
Post by: Dropbear on May 18, 2017, 07:32:43 AM
Doing more reading up about this hedged / unhedged question, most articles weigh these alternatives on the basis that hedged funds are usually higher cost, and yet still generally recommend a personal decision somewhere between 100% unhedged or a 50/50 mix. Given that Sunsuper's funds are the same price, would I be right in thinking that this makes the 50/50 option relatively more attractive?
(For context: I have previously decided upon VGS over VGAD or a 50/50 mix for international allocations outside of super, and from what I've read on various forums, this appears to be a common choice?)
I also noticed that Sunsuper has no buy / sell spread, and that there is no automatic rebalancing of savings accounts. So this means if I log in annually to rebalance manually, it'll be free.
Post by: kivex on May 18, 2017, 07:35:05 PM
Back to a super question - I'm now in the process of switching out of ING and into Sunsuper, and noticed that the international index options for hedged and unhedged investments have identical fees.
Doing more reading up about this hedged / unhedged question, most articles weigh these alternatives on the basis that hedged funds are usually higher cost, and yet still generally recommend a personal decision somewhere between 100% unhedged or a 50/50 mix. Given that Sunsuper's funds are the same price, would I be right in thinking that this makes the 50/50 option relatively more attractive?
I noticed the same with SunSuper and went 50/50 hedged/unhedged.
Post by: JamesSyd on May 18, 2017, 07:40:44 PM
I am finding it quite difficult to figure out the best value super fund because I find all the terminology confusingly nondescript and the total fees unclear... any advice?
Thanks
Post by: bigchrisb on May 18, 2017, 07:49:32 PM
I am in the same boat needing to switch from ING super to another fund. I have about 120k in Australian shares and will continue to max out concessional contributions going forward.
I am finding it quite difficult to figure out the best value super fund because I find all the terminology confusingly nondescript and the total fees unclear... any advice?
Thanks
The opacity of super funds, combined with their ability to change the rules mid-game is one of the major reasons I moved to operating a SMSF. It was borderline worth it at $200k, and now ($470k) I'm well ahead, with full transparency and control.
Post by: GT on May 18, 2017, 09:03:49 PM
I am in the same boat needing to switch from ING super to another fund. I have about 120k in Australian shares and will continue to max out concessional contributions going forward.
I am finding it quite difficult to figure out the best value super fund because I find all the terminology confusingly nondescript and the total fees unclear... any advice?
Thanks
The opacity of super funds, combined with their ability to change the rules mid-game is one of the major reasons I moved to operating a SMSF. It was borderline worth it at $200k, and now ($470k) I'm well ahead, with full transparency and control.
Would you recommend it for the $330k combined my wife and I have?
Post by: bigchrisb on May 18, 2017, 09:16:44 PM
If you hold insurance with a conventional super fund, may be worth keeping a small balance in your existing fund for the insurance. They seem to be able to get better pricing than I've managed with the SMSF.
Post by: Abundant life on May 19, 2017, 02:41:59 PM
I'm in the same boat with ING, just when I got it all established last July, now the fees are increasing five fold, argh!I am in the same boat needing to switch from ING super to another fund. I have about 120k in Australian shares and will continue to max out concessional contributions going forward.
I am finding it quite difficult to figure out the best value super fund because I find all the terminology confusingly nondescript and the total fees unclear... any advice?
Thanks.
The opacity of super funds, combined with their ability to change the rules mid-game is one of the major reasons I moved to operating a SMSF. It was borderline worth it at $200k, and now ($470k) I'm well ahead, with full transparency and control.
My problem is the CGT if I sell the share parcels now will be 15%, if I can wait until after 12 months it will reduce to 10%.
I have about half of the super in share parcels, mostly ETFs and the other half in cash. I've been thinking of doing a partial roll-over of the cash component to Hostplus, then when I reach the 12 month point, selling each share holding and buying it in the new fund on the same day. When all shares are liquidated in ING, then rolling over the cash to the new fund.
However the point bigchrisb raises concerns me too, they can change the rules on a whim. It is a PITA dealing with the red tape.
Post by: Rowellen on May 19, 2017, 03:32:57 PM
Post by: Wadiman on May 19, 2017, 03:42:01 PM
I hear you re ING - have cashed out all my investments and am just waiting for the rollover to E-Superfund (SMSF) to be completed. It was hard taking a big CGT hit ($3k) but I will recover this within a year compared to staying on with ING.
Post by: FFA on May 19, 2017, 08:27:30 PM
However just to point out there are also "SMSF-lite" options in the industry funds. I know AustralianSuper and Hostplus have options where you can invest in ASX200 and a subset of LIC/ETF's. Just to put it out there as another option which I think is lower cost, lower responsibility versus setting up a SMSF, and might be suitable if your investment strategy is simple. e.g. Hostplus choiceplus is $180 p.a. portfolio admin fee. It should also be isolated from others to address bigchris' concern about transparency/control. If you are doing complex stuff or if you just want to have an SMSF, then by all means go the SMSF route. I'm not arguing against it just to make people aware of other options that might suit their needs better and at lower cost.
Of course there's always a risk industry funds could change their fee structure down the track, but it seems less risky given they are not for profit organizations unlike ING. The same risk also applies to SMSF admin providers, I guess.
Post by: FFA on May 19, 2017, 08:33:06 PM
Post by: Popgun on May 20, 2017, 12:13:32 AM
I'm new to the forum. While I have no plans for early retirement (I really love my job), I am a keen investor (for financial security in retirement as well as fun!) and it has been great to be able to read so much Oz-centric information given the massive US-focus of this site.
I've just read all 63 pages of the thread...took me about 2 weeks.
Thanks to all those who have participated with their questions, knowledge and insight. Its much appreciated.
Popgun
Post by: Abundant life on May 20, 2017, 01:55:31 PM
i've made the point before about industry funds, if you are just doing a simple index portfolio. Understand there are some reservations about union linkages, pooled investments and transparency in industry funds, and no intention to revisit those specifically over again.Thanks FFA, yes what I have in ING is classed as a 'SMSF-lite', and Hostplus offers the same thing. (Scott Pape recommends Hostplus as a low-cost good value fund, although he uses the indexed balanced fund option, rather than the DIY choice plus).
However just to point out there are also "SMSF-lite" options in the industry funds. I know AustralianSuper and Hostplus have options where you can invest in ASX200 and a subset of LIC/ETF's. Just to put it out there as another option which I think is lower cost, lower responsibility versus setting up a SMSF, and might be suitable if your investment strategy is simple. e.g. Hostplus choiceplus is $180 p.a. portfolio admin fee. It should also be isolated from others to address bigchris' concern about transparency/control. If you are doing complex stuff or if you just want to have an SMSF, then by all means go the SMSF route. I'm not arguing against it just to make people aware of other options that might suit their needs better and at lower cost.
Of course there's always a risk industry funds could change their fee structure down the track, but it seems less risky given they are not for profit organizations unlike ING. The same risk also applies to SMSF admin providers, I guess.
What I like to be able to do is the real-time trading, so I can pick what price and when I'm prepared to buy and sell, (not that I want to sell, but just in case, I have that option).
There are no delays once you put an order in, I was able to pick up a bargain on the afternoon of the US election.
I know it sounds like market-timing, but when buying ETF's within super for me, it is in large chunks where a modest fluctuation can mean quite a difference in price. Also optimising the trading costs.
Post by: johnnydoe on May 22, 2017, 07:41:15 AM
Why to diversify internationally!
Post by: nnls on May 26, 2017, 03:18:07 AM
So a guy from work was talking about Dividend Harvesting Funds (http://www.betashares.com.au/fund/australian-dividend-harvester-fund/), I am looking into them though from what he said it sounds like it might be too good to be true. He claims to consistently get 11% returns, though even their website doesnt say that.
Though it does pay dividends monthly which could be an ok passive income stream
I will probably stick with vanguard but figured I would come on here and ask some people with a lot more knowledge for their opinions
Post by: JamesSyd on May 26, 2017, 03:25:37 AM
hi61% financials...
So a guy from work was talking about Dividend Harvesting Funds (http://www.betashares.com.au/fund/australian-dividend-harvester-fund/), I am looking into them though from what he said it sounds like it might be too good to be true. He claims to consistently get 11% returns, though even their website doesnt say that.
Though it does pay dividends monthly which could be an ok passive income stream
I will probably stick with vanguard but figured I would come on here and ask some people with a lot more knowledge for their opinions
And fees very high as well partly because they do a lot of trading. I.e rebalancing every two months to hold stocks before they go ex-div.
Post by: mjr on May 26, 2017, 05:28:55 AM
They can't possibly deliver more total return than the underlying shares and as James said their fees are high due to their trading frequency.
I wouldn't touch them with a barge pole.
Post by: Rob_S on May 26, 2017, 10:19:49 PM
I occassionaly consider picking up some HVST once we have both stopped working and can make best use of the franking credits. In the end I figure VHY is easier. The lack of capital gains is the deal breaker for me.
Post by: bigchrisb on May 28, 2017, 06:21:10 PM
http://www.canberratimes.com.au/business/banking-and-finance/australians-paying-31-billion-in-super-fees-anually-20170528-gwexb2.html (http://www.canberratimes.com.au/business/banking-and-finance/australians-paying-31-billion-in-super-fees-anually-20170528-gwexb2.html)
Total admin fees paid to super industry:
$31b.
Industry funds: $13B to manage $942b = 1.3%
Retail funds: $15.5B to manage $638b = 2.4%
SMSF: $2.1B to manage $660b = 0.3%.
I know where I'd rather have my money.
Post by: JamesSyd on May 29, 2017, 07:21:18 PM
Interesting bit of top-down data on fees from super from this article:
http://www.canberratimes.com.au/business/banking-and-finance/australians-paying-31-billion-in-super-fees-anually-20170528-gwexb2.html (http://www.canberratimes.com.au/business/banking-and-finance/australians-paying-31-billion-in-super-fees-anually-20170528-gwexb2.html)
Total admin fees paid to super industry:
$31b.
Industry funds: $13B to manage $942b = 1.3%
Retail funds: $15.5B to manage $638b = 2.4%
SMSF: $2.1B to manage $660b = 0.3%.
I know where I'd rather have my money.
I am leaning towards an SMSF, mind if I ask you some questions?
-Do you use esuperfund (if not how have you set it up)? if so how have you found it?
-My main concern is the extra admin; is that time consuming or pretty much automated by them?
-Their fees are $800 per year but they state:
"When setting up a SMSF it is important to understand that additional fees may apply that must be carefully considered prior to making a decision to setup a SMSF including an ATO Supervisory Levy , Company Trustee Setup Fee (where applicable) , and Investment Fees ."
Google tells me the ATO Supervisory Levy is a few hundred $, don't think a company trustee is neccessary, and investment fees are pretty straight forward (i.e. commsec trading fees and ETF management fees). Are those assumptions correct? Are there any other fees to consider?
Cheers
Post by: mjr on May 29, 2017, 07:31:51 PM
Investment fees are straight forward, as you've listed.
I strongly suggest you set up a corporate trustee. Then no matter how your trustee situation changes over the decades, assets bought by the SMSF can stay owned by the trustee. It's less than a grand.
I can't comment on esuperfund, other than I'm looking closely at them for my parents and they have a special sign-on offer that ends tomorrow.
Post by: Rowellen on May 29, 2017, 08:08:44 PM
Corporate trustee has an annual fee of $47 a year. It goes up every July.
Audit fees. Not sure what esuperfund charges. They probably have a low cost provider.
Other costs would be documentation for starting a pension.
Actuarial fee if the fund is part pension / part accumulation.
Post by: Ozstache on May 30, 2017, 06:47:33 PM
Post by: marty998 on May 31, 2017, 01:23:14 AM
You will regret it painfully so if you don't.
Interesting bit of top-down data on fees from super from this article:
http://www.canberratimes.com.au/business/banking-and-finance/australians-paying-31-billion-in-super-fees-anually-20170528-gwexb2.html (http://www.canberratimes.com.au/business/banking-and-finance/australians-paying-31-billion-in-super-fees-anually-20170528-gwexb2.html)
Total admin fees paid to super industry:
$31b.
Industry funds: $13B to manage $942b = 1.3%
Retail funds: $15.5B to manage $638b = 2.4%
SMSF: $2.1B to manage $660b = 0.3%.
I know where I'd rather have my money.
I am leaning towards an SMSF, mind if I ask you some questions?
-Do you use esuperfund (if not how have you set it up)? if so how have you found it?
-My main concern is the extra admin; is that time consuming or pretty much automated by them?
-Their fees are $800 per year but they state:
"When setting up a SMSF it is important to understand that additional fees may apply that must be carefully considered prior to making a decision to setup a SMSF including an ATO Supervisory Levy , Company Trustee Setup Fee (where applicable) , and Investment Fees ."
Google tells me the ATO Supervisory Levy is a few hundred $, don't think a company trustee is neccessary, and investment fees are pretty straight forward (i.e. commsec trading fees and ETF management fees). Are those assumptions correct? Are there any other fees to consider?
Cheers
Post by: coachky on May 31, 2017, 01:58:21 AM
My wife and I (both 33) currently live in the UAE and have about AUD$225k in savings that we would like to invest in a passive portfolio. We have no debt and no property. We save around AUD$100k a year. We will probably remain overseas for the next 10 years before returning to Australia to retire. As we get paid in USD, would it make more sense to purchase VTS + VEU or purchase VAS + VGS?
I’m leaning more towards VAS + VGS as I don’t want to take the currency hit on converting our existing AUD savings to USD and our current buying power is greater if we buy AUD.
Also, as I would be purchasing through a brokerage in Luxembourg, would I still receive the franking benefits if I purchased VAS?
Finally, my super has the option to self invest with VAS, VTS or VEU, does it make sense to hold any of the funds in my super as well given that I will not be contributing to it until I get back or should I just leave it set to aggressive/high growth (40% Aussie shares/40% Intl hedged shares/20% diversified bonds)?
Thank you so much!
Post by: itchyfeet on May 31, 2017, 10:57:24 AM
DW and I are also working in the UAE enjoying tax free USD and I presume from your intro you are also not a tax resident of Australia.
I do not know all the correct answers to your questions, but will tell you what I do....and because your questions are directly relevant to me I welcome advice and corrections from the clever peeps on this thread.
We invest in a mix of VAS, VWRD and VDEM. We have own some property in Oz that is leveraged to a point that, with depreciation deductions, we don't pay tax. We also have a decent amount in super back in Oz, but are not adding to the stash.
We are not adding to super as we want a stash outside of super to fund our FIRE. We will FIRE when I am 46-47 and DW 40-41, so a long time till we can access super.
We are investing in international and emerging markets (in USD) because I know we will spend plenty of time (years most likely) outide Australia over the remainder of our life so having exposure to different currencies and markets works for us.
I also am a bit bullish on emerging markets.... but that is just a personal bet, not a recommendation.
I don't know if you saw Bill Evan (WBC) comments this week forecasting the AUD to continue to drop v the USD over the coming year. He was predicting 65c. If this happens it'll be a huge bonanza for us getting paid in USD and shipping cash back to Oz.
For VAS, as non-Oz tax residents we have to pay tax on un-franked dividends. No tax on franked dividends. Tax on unfranked dividends can be offset against tax losses on negatively geared property (confirmation from others please :-) )
My understanding is that generally we won't be liable for CGT on selling VAS, except for any portion that relates to a sale of shares of Taxable Australian Property.... this part is a bit unclear for me so again I would value the knowledge of others..., we are not selling now just accumulating so this hasn't been an issue thus far. I figure any CGT will be quite insignificant.
For my part, I would be interested to hear the thoughts of others on investing in super as a non-tax resident. It seems to me that getting money into super is a good idea, but an even better idea if I wait until I get back to Australia and can benefit from some tax breaks by loading up my super then. I am thinking while out of Australia build up my non-super stash. When in Australia build up my super stash.
Post by: steveo on May 31, 2017, 04:42:57 PM
I looked into eSuperFund a while back and found that not only were their investment options very limited but buried deep in their PDS are some notable fees they cream off some of the options you can choose. eg. Term deposits has something like a 1% fee deducted from the headline interest rate. Also, their bonus offers seem to perpetually renew, so I wouldn't worry too much about any impending closing date of an offer. I ended up giving them a miss and went with SunSuper instead.
This is good information.
Post by: coachky on June 01, 2017, 01:17:53 AM
Hey Coachky
DW and I are also working in the UAE enjoying tax free USD and I presume from your intro you are also not a tax resident of Australia.
I do not know all the correct answers to your questions, but will tell you what I do....and because your questions are directly relevant to me I welcome advice and corrections from the clever peeps on this thread.
We invest in a mix of VAS, VWRD and VDEM. We have own some property in Oz that is leveraged to a point that, with depreciation deductions, we don't pay tax. We also have a decent amount in super back in Oz, but are not adding to the stash.
We are not adding to super as we want a stash outside of super to fund our FIRE. We will FIRE when I am 46-47 and DW 40-41, so a long time till we can access super.
We are investing in international and emerging markets (in USD) because I know we will spend plenty of time (years most likely) outide Australia over the remainder of our life so having exposure to different currencies and markets works for us.
I also am a bit bullish on emerging markets.... but that is just a personal bet, not a recommendation.
I don't know if you saw Bill Evan (WBC) comments this week forecasting the AUD to continue to drop v the USD over the coming year. He was predicting 65c. If this happens it'll be a huge bonanza for us getting paid in USD and shipping cash back to Oz.
For VAS, as non-Oz tax residents we have to pay tax on un-franked dividends. No tax on franked dividends. Tax on unfranked dividends can be offset against tax losses on negatively geared property (confirmation from others please :-) )
My understanding is that generally we won't be liable for CGT on selling VAS, except for any portion that relates to a sale of shares of Taxable Australian Property.... this part is a bit unclear for me so again I would value the knowledge of others..., we are not selling now just accumulating so this hasn't been an issue thus far. I figure any CGT will be quite insignificant.
For my part, I would be interested to hear the thoughts of others on investing in super as a non-tax resident. It seems to me that getting money into super is a good idea, but an even better idea if I wait until I get back to Australia and can benefit from some tax breaks by loading up my super then. I am thinking while out of Australia build up my non-super stash. When in Australia build up my super stash.
Thanks for the reply Itchyfeet. I was also thinking about having half in USD and buying VWRD and the other half in AUD and buying VAS. Why did you not consider VGS? Did you want a fund listed in USD with more exposure to emerging markets? It would be great if the AUD dropped to 65 cents, but who knows really! Thanks again!
Post by: switch42 on June 01, 2017, 02:11:28 AM
I looked into eSuperFund a while back and found that not only were their investment options very limited but buried deep in their PDS are some notable fees they cream off some of the options you can choose. eg. Term deposits has something like a 1% fee deducted from the headline interest rate. Also, their bonus offers seem to perpetually renew, so I wouldn't worry too much about any impending closing date of an offer. I ended up giving them a miss and went with SunSuper instead.
This is good information.
I've just set up my smsf with esuperfund. Still waiting for 12 months CGT discount on etfs before I rollover from ING (next week), but I've read all the info fairly thoroughly.
The interest rates I receive from a term deposit through esuperfund are the same as I'd receive through the bank. eg ING
https://app.esuperfund.com.au/smsf-term-deposits/interest-rates.html
https://www.ingdirect.com.au/superannuation/smsf-term-deposit.html
both 2.7% for 1 year.
Yes, esuperfund take a cut, but it's not out of my return, it's out of ING's return.
There don't appear to be any restrictions on investments other than ATO restrictions, but if you invest outside their preferred service providers it makes a little more work for you at tax return time as they don't automate it. From what I've read that's as simple as sending them a csv file of the last 12 months transactions.
https://www.esuperfund.com.au/investments/allowed
Post by: Ozstache on June 01, 2017, 04:17:40 AM
Re the eSuperFund's fee cut I had mentioned, I can no longer find it in their PDS. When I was reviewing them as an option, I had an email exchange with the one of the managers (possibly even the boss) of eSuperFund and let them know I thought it was underhanded to bury a fee in a PDS and not clearly state it on their summary of fees on their main webpage. They told me they were meeting financial regs by disclosing it in the PDS only at which point I said thanks but no thanks. Looks like they have revised this policy, which is great for current and new investors.
Post by: deborah on June 01, 2017, 06:28:45 AM
I just had another look at eSuperFund's website and, as switch42 says, it does seem you can now choose other investments outside their chosen set as long as you accept the extra paperwork involved. I'm quite sure, but not 100%, that this was not an option when I looked at them in 2014.I had very similar views on eSuperFund when I was looking at it a few years ago. When it came up here, I was surprised that the fees were low enough to look at it, because it certainly wasn't a low cost alternative at that stage. Since everyone had a different take on it, I guessed it must have moved on. However, with such big changes in policy in just a few years, I wonder whether they will revert.
Re the eSuperFund's fee cut I had mentioned, I can no longer find it in their PDS. When I was reviewing them as an option, I had an email exchange with the one of the managers (possibly even the boss) of eSuperFund and let them know I thought it was underhanded to bury a fee in a PDS and not clearly state it on their summary of fees on their main webpage. They told me they were meeting financial regs by disclosing it in the PDS only at which point I said thanks but no thanks. Looks like they have revised this policy, which is great for current and new investors.
Post by: itchyfeet on June 01, 2017, 06:46:07 AM
Thanks for the reply Itchyfeet. I was also thinking about having half in USD and buying VWRD and the other half in AUD and buying VAS. Why did you not consider VGS? Did you want a fund listed in USD with more exposure to emerging markets? It would be great if the AUD dropped to 65 cents, but who knows really! Thanks again!
We are investing in VWRD and not VGS because we are paid in USD and I didn't want the FX costs of changing to AUD now, when we may end up using the USD in the future (toying with the idea of buying property here in Dubai for instance).
Of our NW, only about 10% is currently in USD. The other 90% is AUD.
Our increased exposure to emerging markets is the VDEM (this is part of our USD investments).
By far our biggest exposure is to Australian residential property. As I have mentioned before here, I am a little uneasy with this, but for non-financial reasons I have my hands a little tied at this time (ie DW wont agree to sell some. LOL)
Post by: FFA on June 01, 2017, 06:57:50 AM
Same here too, also studied options carefully back in 2014 and decided to go the industry fund route. I noted bigchrisb's top down stats above but personally I don't find them very relevant. i.e. How does it matter to me if the average industry fund investor is paying 1.2% in admin fees. All I care about is the fact I am paying 0.05% with Hostplus, and what I get for those fees. Also does it help me if the average SMSF investor only pays 0.3% if my costs might be higher than that? Given that nearly all High Net Worth investors have SMSF's those ultra high balances are obviously going to skew the statistics, especially compared to a raft of casual workers with lost/low balance super accounts most likely in industry funds...I just had another look at eSuperFund's website and, as switch42 says, it does seem you can now choose other investments outside their chosen set as long as you accept the extra paperwork involved. I'm quite sure, but not 100%, that this was not an option when I looked at them in 2014.I had very similar views on eSuperFund when I was looking at it a few years ago. When it came up here, I was surprised that the fees were low enough to look at it, because it certainly wasn't a low cost alternative at that stage. Since everyone had a different take on it, I guessed it must have moved on. However, with such big changes in policy in just a few years, I wonder whether they will revert.
Re the eSuperFund's fee cut I had mentioned, I can no longer find it in their PDS. When I was reviewing them as an option, I had an email exchange with the one of the managers (possibly even the boss) of eSuperFund and let them know I thought it was underhanded to bury a fee in a PDS and not clearly state it on their summary of fees on their main webpage. They told me they were meeting financial regs by disclosing it in the PDS only at which point I said thanks but no thanks. Looks like they have revised this policy, which is great for current and new investors.
As posted many times earlier if you want a lot of control and/or you are uncomfortable/untrusting of industry funds, then by all means stay away from them. But if you are just investing in index funds in Super (or ASX200 shares) and you have no such aversion to industry funds, personally I find it very hard to see how a SMSF can be more cost or time efficient, regardless of these top down numbers.
Post by: switch42 on June 01, 2017, 12:45:31 PM
I just had another look at eSuperFund's website and, as switch42 says, it does seem you can now choose other investments outside their chosen set as long as you accept the extra paperwork involved. I'm quite sure, but not 100%, that this was not an option when I looked at them in 2014.
Re the eSuperFund's fee cut I had mentioned, I can no longer find it in their PDS. When I was reviewing them as an option, I had an email exchange with the one of the managers (possibly even the boss) of eSuperFund and let them know I thought it was underhanded to bury a fee in a PDS and not clearly state it on their summary of fees on their main webpage. They told me they were meeting financial regs by disclosing it in the PDS only at which point I said thanks but no thanks. Looks like they have revised this policy, which is great for current and new investors.
All the details of esuperfunds commissions are listed in their financial services guide
https://www.esuperfund.com.au/Libraries/documents/smsf-financial-service-guide.pdf
They do get a decent cut of many of the transactions, but as mentioned above they get that from the service providers, not from the clients account.
Post by: GT on June 01, 2017, 10:43:21 PM
Just trying to nut out some scenarios for the kids seed money as I've now reached a stage where MF's are accessible and can drip feed in $300 every month, or just buy a chunk of ETF now and then wait the 16 months between purchases of the next chunk ~$5k at a time.
Post by: FFA on June 02, 2017, 07:54:10 AM
Post by: marty998 on June 06, 2017, 05:09:33 AM
Post by: marty998 on June 06, 2017, 05:12:38 AM
ASX took a bath today (1.5% down). The old "sell in May and go away" trick would appear to be truth again.
Post by: JuicyCrab on June 06, 2017, 10:44:23 PM
Have not been keeping up with this thread lately.
ASX took a bath today (1.5% down). The old "sell in May and go away" trick would appear to be truth again.
First time I've come across this sell in May and go away idea:
http://www.investopedia.com/terms/s/sell-in-may-and-go-away.asp
Is this an actual legitimate investment strategy based on historic trends?
Post by: FFA on June 06, 2017, 11:11:53 PM
I would guess an accrual would be built into the daily unit price. Cash payment would occur monthly.
yes agreed, cash payment probably monthly, but taken out of the NAV calculation daily so would be reflected in market prices each day. i.e. there is no advantage/disadvantage to be timed.
Post by: steveo on June 06, 2017, 11:14:04 PM
Have not been keeping up with this thread lately.
ASX took a bath today (1.5% down). The old "sell in May and go away" trick would appear to be truth again.
First time I've come across this sell in May and go away idea:
http://www.investopedia.com/terms/s/sell-in-may-and-go-away.asp
Is this an actual legitimate investment strategy based on historic trends?
I think so but I don't know how well it would work in practice. Say you take a profit and you pay tax on the profit and get back in and do it all again. I think you'd be better off just staying the course.
You also won't have it work out for you all the time. At some point you will take a bath. Your profits will be taxed but you won't gain anything on the loss.
Post by: marty998 on June 07, 2017, 03:06:10 AM
Expect to see poorly performing companies blaming "tough market conditions", "FX", "weak consumer sentiment", "the Government" for all their bad results.
It's never the fault of bad decisions from executive management.
Post by: Abundant life on June 07, 2017, 06:15:20 AM
I've been wondering if a capital gain can be offset by a capital loss within super?
Post by: deborah on June 07, 2017, 11:49:21 AM
I'm in the process of waiting for the shares I've bought in ING super to reach the 12 month mark so that I can avoid the maximum CGT before I roll it over into an industry fund.As long as they are in the same tax entity - eg, they are both within your SMSF.
I've been wondering if a capital gain can be offset by a capital loss within super?
Post by: Rowellen on June 07, 2017, 06:32:23 PM
I'm in the process of waiting for the shares I've bought in ING super to reach the 12 month mark so that I can avoid the maximum CGT before I roll it over into an industry fund.As long as they are in the same tax entity - eg, they are both within your SMSF.
I've been wondering if a capital gain can be offset by a capital loss within super?
And the loss can't be made in a later financial year. Ie. It must be made in the same financial year or carried forward from a previous year.
Post by: Abundant life on June 07, 2017, 08:51:14 PM
Post by: givemesunshine on June 07, 2017, 09:04:20 PM
Noobie EOFY question;
I have bought a couple of lots of Vanguard ETFs (about $40K across two transactions - VAS, VHY and VGS) this year (Jan 17 and Apr 17). I did receive some dividends (I had failed to tick the correct box to auto reinvest in all three but from now on they should).
Come tax time - what do I need to report? Just dividends I actually received or all dividends including those that were reinvested?
Anything else?
Any good guides I can read? Thanks for the ongoing help.
Post by: Rowellen on June 07, 2017, 09:42:27 PM
Hi all,
Noobie EOFY question;
I have bought a couple of lots of Vanguard ETFs (about $40K across two transactions - VAS, VHY and VGS) this year (Jan 17 and Apr 17). I did receive some dividends (I had failed to tick the correct box to auto reinvest in all three but from now on they should).
Come tax time - what do I need to report? Just dividends I actually received or all dividends including those that were reinvested?
Anything else?
Any good guides I can read? Thanks for the ongoing help.
Yes you need to report dividends and distributions both received and reinvested. If there are franking credits, these will also need to be reported. These are added to your income. Then you receive a credit against your tax payable amount.
The ATO actually has some pretty good basic resources on their website. Google ato investing in shares.
Post by: cakie on June 07, 2017, 09:44:48 PM
Post by: Gremlin on June 07, 2017, 10:14:58 PM
Post by: switch42 on June 07, 2017, 11:46:51 PM
I'm in the process of waiting for the shares I've bought in ING super to reach the 12 month mark so that I can avoid the maximum CGT before I roll it over into an industry fund.
I've been wondering if a capital gain can be offset by a capital loss within super?
I just sold my gain making etfs with ING today, after selling the loss making etfs a few weeks back.
There was a money in transaction as "capital gains taxes" when I sold the loss making etfs, followed immediately by a money out as "unutilised tax credits" for the same amount.
When I sold my gain making etfs today (been waiting for the 12 month discount), there was a money out as "capital gains taxes", followed immediately by a money in as "unutilised tax credits" for the amount of my previous credit.
Post by: Abundant life on June 08, 2017, 08:27:24 AM
Thanks, that's good to know, I'll keep an eye on it when the time comes.I'm in the process of waiting for the shares I've bought in ING super to reach the 12 month mark so that I can avoid the maximum CGT before I roll it over into an industry fund.
I've been wondering if a capital gain can be offset by a capital loss within super?
I just sold my gain making etfs with ING today, after selling the loss making etfs a few weeks back.
There was a money in transaction as "capital gains taxes" when I sold the loss making etfs, followed immediately by a money out as "unutilised tax credits" for the same amount.
When I sold my gain making etfs today (been waiting for the 12 month discount), there was a money out as "capital gains taxes", followed immediately by a money in as "unutilised tax credits" for the amount of my previous credit.
Post by: Spence on June 09, 2017, 03:45:06 PM
I've always been frugal but I've been aiming towards Fi for about a year now.
My asset allocation is
50% aus stocks
20% international stocks (vgs)
20% aus bonds (vaf)
10% international bonds. (vif)
I have a 25k emergency fund which I include in the bond allocation calculation.
For the aus stocks component I've been buying VAS, but I'd like to start buying AFI and ARG when they're under NTA.
Currently it looks like about 5 years to Fi, I'm calculating that with a 5% withdrawal from the non super part of my investments.
The reason I think I can get away with 5% instead of 4% is because there'll be a big super payment years into the future (currently 34), and with the heavy weighting to aus stocks the portfolio will return a pretty big dividend especially when franking credits are included and I drop down to the bottom tax bracket in Fi. Also intending to live super cheap in the first few Fi years (spend it hiking the te araroa and others)
Interested in any feedback on my approach.
One question I do have for the collective mustachian wisdom though is does anyone have any tricks to work out up to date NTAs for AFI ARG etc? If the published NTA is anywhere from a week to four weeks old its could be hard to be certain I'm buying under NTA?
I've really enjoyed reading everything here, thanks to all that have contributed.
Sent from my E5653 using Tapatalk
Post by: FFA on June 09, 2017, 04:35:00 PM
e.g AFI NTA (pretax) 31 May = 5.87
Share price 31 May = 5.75
NTA discount on 31 May = 2%
ASX 200 on 31 May = 5724.6
ASX200 on 9 Jun = 5677.8
Estimated NTA on 9 Jun = 5677.8/5724.6 * 5.87 = 5.82
Share price 9 Jun = 5.65
estimated NTA discount on 9 Jun = 3%
Just be careful of any ex dividend periods, you need to make adjustments to the NTA and share price for the dividend depending on whether they are pre- or post- dividend.
Post by: Spence on June 09, 2017, 05:49:27 PM
Sent from my E5653 using Tapatalk
Post by: Spence on June 10, 2017, 07:29:16 PM
https://docs.google.com/spreadsheets/d/1A5cUD2jkHRbmRjrHXpIeJjEfqxinGbwh6VtCtY85jUU/edit?usp=sharing
Post by: givemesunshine on June 10, 2017, 10:21:16 PM
Help is greatly appreciated as ever!
Post by: marty998 on June 12, 2017, 06:38:22 AM
These current borrowings are split 25% to PPOR, and 75% to IPs with the PPOR fully offset and about $50k in offsets against the IPs.
Today I pulled out most of the cash in offset against the IPs out and have loaded up the Commsec account with a purchase for VAS input to the buy queue.
I figure if debt is going to be inaccessible in future, now is probably the "end of days" scenario for investors to make the most of it. The distribution yield from VAS largely offsets the interest payable on the debt (4.5%), so I'm quite comfortable engaging in this.
The difference between now and what I went through 10 years ago, is that I won't have a risk of margin calls hanging over my head. Not quite risk free, but certainly risk reduced.
Post by: itchyfeet on June 12, 2017, 11:16:54 AM
I have $200K in my redraw on my old PPOR ( now a rental) and have been toying with the idea of increasing my leverage further and putting the money to work in the same way you are.
Even with the additional leverage the debt on the property will still be only around than 40% of the property value, so it's not like I really risk having the banks hunting me down, even if things go to shit. I am sure There would be some grace given.
But I have been balking.....
I will FIRE in 2 years without increasing risk by taking on more leverage, so it seems a bit greedy/ stupid to put FIRE at risk in the hunt for some better returns.
But, your post is challemging me to reconsider......
Does anyone know off hand, if I was to redraw debt on my former PPOR, and use the funds to generate income by investing it in another vehicle, will the additional interest on the debt be tax deductible, given that the property was previously a PPOR and the loan was not originally drawn to generate assessable income.....
.... and further, if I was to take the cash off-shore (I am not an Aust tax resident) and invest it overseas, could I claim a further tax deduction in Oz on the interest on my IP (ex-PPOR).
I doubt it has any impact, but just for full disclosure. it is critical that whatever I do I don't jeopardise the 6 year rule ie: the Property must be PPOR for CGT if I sell it within 6 years.
Well, if no one knows off hand, I will do some research.....
Post by: marty998 on June 12, 2017, 03:33:34 PM
Does anyone know off hand, if I was to redraw debt on my former PPOR, and use the funds to generate income by investing it in another vehicle, will the additional interest on the debt be tax deductible, given that the property was previously a PPOR and the loan was not originally drawn to generate assessable income.....
I think you know the answer is no. For cleanliness, you should to take out a new loan against the PPOR and make sure it is split from the old one. (reborrow, not redraw).
Very easy to get muddled into a mess of mixed purpose loans where you have to start apportioning interest as deductible and non-deductible... best analogy I've seen is that once you piss in the honey you can't unix it no matter what you do.
For the other 2 questions - you really need proper tax advice to sort that situation out.
Post by: itchyfeet on June 12, 2017, 09:07:42 PM
The was a case study in the SMH that perfectly highlights your point
http://www.smh.com.au/articles/2004/08/13/1092340458713.html?from=storylhs
However, I am not 100% sure the answer is "no" in my particular circumstances.
The house is currently rented out, so the loan interest is already now tax deductible.
https://www.ato.gov.au/General/Property/Your-home/Renting-out-part-or-all-of-your-home/
If I redraw funds on that loan the ATO will classify this as a new loan (refer case study in SMH), and its purpose will be for investment, so therefore tax deductible.
If I take the funds offshore, the funds won't be used for generating assessable income in Australia, so I would imagine that in this instance the interest would not be tax deductible. But if I invested in Australia the interest would be tax deductible. However, as a non resident for tax I expect there are other traps on CGT etc that I need to be carful about.
Definitely not a simple area of tax law and at the end of the day I still come back to my first point which is that I don't need to take on extra risk to achieve FIRE so prudence is probably the wisest course of action...... hmmmm....
Post by: Rowellen on June 12, 2017, 09:51:39 PM
Post by: marty998 on June 13, 2017, 05:12:31 AM
:/
Post by: dbm on June 13, 2017, 07:48:47 AM
Made a google spreadsheet that does all the hard work if anyone is doing the same:
https://docs.google.com/spreadsheets/d/1A5cUD2jkHRbmRjrHXpIeJjEfqxinGbwh6VtCtY85jUU/edit?usp=sharing
I found a better way to calculate the interim NTA is take the top 20-25 holdings and track the market value of these and use the index for the difference.
The top 20-25 are usually published in the monthly NTA, plus every holding is published in the annual report each year. I have access to Iress have it updating in real time, but I think you can do this by calling the prices from yahoo finance or google finance.
WHF and DUI seem to have a decent discount to NTA, but always seem to trade at a discount, so I'm not holding my breath that the gap will close. Also their yield is currently below AFI, ARG, AUI, MLT and BKI.
A couple of spreadsheets I'm looking to build are firstly back testing to see if it is better to not hold the larger LIC's (AFI, ARG, AUI, DUI, MLT, WHF) for the dividend, instead selling on ex-date -1 and buy back in the days afterwards, and the second is to to see if it is worth trading between a large LIC and VAS. As VAS has market makers, it will generally trade at intra-day NTA, whereas AFI will trade wherever the market takes it, so there are often days VAS is down 0.75% and AFI is up 0.5%, so would it be worth selling AFI and buying VAS, and vice versa. A good example is the 22/05 VAS was up 0.869% and AFI down 0.321%.
I do love my LIC's and spreadsheets, and always fun to combine the two!
Cheers
Post by: Rowellen on June 13, 2017, 03:35:10 PM
I'm not familiar with the law regarding non residents. However you are correct that the interest would generally be deductible if you are using the money to produce taxable income.
Also make sure that the money isn't combined with a private spending account at any point. Either purchase investments direct from the redraw or transfer to an account used solely for investing.
Post by: itchyfeet on June 13, 2017, 08:51:41 PM
I'm not familiar with the law regarding non residents. However you are correct that the interest would generally be deductible if you are using the money to produce taxable income.
Also make sure that the money isn't combined with a private spending account at any point. Either purchase investments direct from the redraw or transfer to an account used solely for investing.
Thanks. Good point
Post by: FFA on June 13, 2017, 10:14:24 PM
Post by: Mandy656 on June 14, 2017, 10:08:46 PM
I've been reading this blog, thread and info over at jlcollins and would like some advice please. Pretty new to all this FI business!
My partner and I (both late 30's) are looking to invest around $630k joint into vanguard ETFs. I'd say most of it split 70/30 in VGS and VAS, with the last 20% or so in bonds. Considering the amount of capital we are starting with and our age, are these good options, and how do we actually transact them, as wholesale trades? We need something simple and uncomplicated.
Also I currently work part time and he works full time - what are the tax implications for the gains that are made each year? Are they just treated as income tax or are there other things to consider?! Lots to learn on this journey!
Thanks in advance
Post by: GT on June 14, 2017, 10:22:03 PM
Hello,
I've been reading this blog, thread and info over at jlcollins and would like some advice please. Pretty new to all this FI business!
My partner and I (both late 30's) are looking to invest around $630k joint into vanguard ETFs. I'd say most of it split 70/30 in VGS and VAS, with the last 20% or so in bonds. Considering the amount of capital we are starting with and our age, are these good options, and how do we actually transact them, as wholesale trades? We need something simple and uncomplicated.
Also I currently work part time and he works full time - what are the tax implications for the gains that are made each year? Are they just treated as income tax or are there other things to consider?! Lots to learn on this journey!
Thanks in advance
Do you have an Investment Plan? What do you want to do, where do you want to end up, how are you going to get there? Are you contemplating FIRE? When do you want to retire? Do you want to live off your investments? Do you both have Super funds? Where are they and what are they invested in?
Contemplate your super being invested in VAS (more tax effective for Aussies) and your extra $630K funds being invested in VGS and some bonds.
Contact Vanguard direct and get them to set you up with a Wholesale account, saves you in the Management costs %.
Post by: marty998 on June 17, 2017, 08:42:30 PM
Hello,
I've been reading this blog, thread and info over at jlcollins and would like some advice please. Pretty new to all this FI business!
My partner and I (both late 30's) are looking to invest around $630k joint into vanguard ETFs. I'd say most of it split 70/30 in VGS and VAS, with the last 20% or so in bonds. Considering the amount of capital we are starting with and our age, are these good options, and how do we actually transact them, as wholesale trades? We need something simple and uncomplicated.
Also I currently work part time and he works full time - what are the tax implications for the gains that are made each year? Are they just treated as income tax or are there other things to consider?! Lots to learn on this journey!
Thanks in advance
You may want to invest it all in your name, as I'm guessing you are in a lower tax bracket. If invested in VGS and VAS, you will pay tax on the distribution income each year, but won't pay tax on unrealised gains until you sell (if ever).
Post by: hm520 on June 19, 2017, 03:20:18 PM
I've read about tax loss harvesting that is performed by betterment in the states, but does any Australian based ETF fund perform a similar service?
As a background, I have investments in ETFs but also in individual stocks. I'm not wanting to buy any more at the moment and instead I'm putting small amounts into an acorns account as a way to beat the 3% interest in a HISA. There's been a recent explosion in providers of these accounts (Acorns, Sixpark, quietgrowth, stockspot) etc. and as far as I can tell, Acorns is still the cheapest but none offer specific benefits of tax loss harvesting.
Cheers
Post by: Adram on June 21, 2017, 06:14:40 AM
Marty,
The was a case study in the SMH that perfectly highlights your point
http://www.smh.com.au/articles/2004/08/13/1092340458713.html?from=storylhs
However, I am not 100% sure the answer is "no" in my particular circumstances.
The house is currently rented out, so the loan interest is already now tax deductible.
https://www.ato.gov.au/General/Property/Your-home/Renting-out-part-or-all-of-your-home/
If I redraw funds on that loan the ATO will classify this as a new loan (refer case study in SMH), and its purpose will be for investment, so therefore tax deductible.
If I take the funds offshore, the funds won't be used for generating assessable income in Australia, so I would imagine that in this instance the interest would not be tax deductible. But if I invested in Australia the interest would be tax deductible. However, as a non resident for tax I expect there are other traps on CGT etc that I need to be carful about.
Definitely not a simple area of tax law and at the end of the day I still come back to my first point which is that I don't need to take on extra risk to achieve FIRE so prudence is probably the wisest course of action...... hmmmm....
As a non-resident, interest on any redraw for share purchases will not be tax deductible in Australia regardless of whether you invest in Australian or overseas share investments, as Australian dividends are not taxable income for you in Australia and should not be declared in your Australian return (you also don't get the benefit of any franking credits). No Australian CGT will apply if you sell the shares while still a non-resident.
However, as a non-resident any Australian dividends may be taxable income in the country in which you are a tax resident, along with a possible tax credit depending on tax treaties for any withholding tax on unfranked dividends. In that case, i would imagine that the additional interest is deductible in that country against the australian dividend income.
It certainly isn't deductible against your rental property in Australia as the redraw is not for a purpose associated with that property.
As to your question about the 6 year rule on PPOR, any redraw or change to the loan is completely irrelevant.
Post by: itchyfeet on June 22, 2017, 12:15:54 AM
Marty,
The was a case study in the SMH that perfectly highlights your point
http://www.smh.com.au/articles/2004/08/13/1092340458713.html?from=storylhs
However, I am not 100% sure the answer is "no" in my particular circumstances.
The house is currently rented out, so the loan interest is already now tax deductible.
https://www.ato.gov.au/General/Property/Your-home/Renting-out-part-or-all-of-your-home/
If I redraw funds on that loan the ATO will classify this as a new loan (refer case study in SMH), and its purpose will be for investment, so therefore tax deductible.
If I take the funds offshore, the funds won't be used for generating assessable income in Australia, so I would imagine that in this instance the interest would not be tax deductible. But if I invested in Australia the interest would be tax deductible. However, as a non resident for tax I expect there are other traps on CGT etc that I need to be carful about.
Definitely not a simple area of tax law and at the end of the day I still come back to my first point which is that I don't need to take on extra risk to achieve FIRE so prudence is probably the wisest course of action...... hmmmm....
As a non-resident, interest on any redraw for share purchases will not be tax deductible in Australia regardless of whether you invest in Australian or overseas share investments, as Australian dividends are not taxable income for you in Australia and should not be declared in your Australian return (you also don't get the benefit of any franking credits). No Australian CGT will apply if you sell the shares while still a non-resident.
However, as a non-resident any Australian dividends may be taxable income in the country in which you are a tax resident, along with a possible tax credit depending on tax treaties for any withholding tax on unfranked dividends. In that case, i would imagine that the additional interest is deductible in that country against the australian dividend income.
It certainly isn't deductible against your rental property in Australia as the redraw is not for a purpose associated with that property.
As to your question about the 6 year rule on PPOR, any redraw or change to the loan is completely irrelevant.
This sounds correct to me. Thanks for the detailed explanation.
Post by: DavidAnnArbor on June 22, 2017, 09:43:41 AM
Post by: mjr on June 22, 2017, 03:34:36 PM
Post by: GT on June 22, 2017, 05:46:30 PM
Wow I was struck by how the Australia All Ordinaries Index has never recovered from it's height in Oct. 2007 when it reached a high of around 6800. It dropped by less than half by March 2009, and has recovered quite a bit since then.
Funny, I was looking at the 5yr graph yesterday, and it hasn't broken the 6K (guessing the graph was using end of day value) from what I was looking at. Came close twice. Mar 2015 and April 2017.
Post by: DavidAnnArbor on June 22, 2017, 08:49:47 PM
Post by: Sydneystache on June 22, 2017, 10:15:33 PM
Can I move to Australia? I don't like living in Donald Trumpistan.
Yes. Cold but - winter here.
Post by: marty998 on June 23, 2017, 04:07:26 AM
Yes... the index is still below the Nov 2007 peak, but as mjr said the ASX 200, 300 and All Ords (500) accumulation indices have all surpassed that due to the (comparatively large) dividend payouts of Australian companies.
Our governments are starting to do really stupid things. FID and BAD bank account taxes were removed 15-20 years ago because they were inefficient and crap. Now various governments are floating dumb ideas to start bringing them back in one shape or another.
We may not be the utopia you are seeking if the level of intelligence at the political level is a measure.
Post by: Sydneystache on June 23, 2017, 05:06:07 AM
We may not be the utopia you are seeking if the level of intelligence at the political level is a measure.
I will take our silver tongued barrister of a Prime Minister over an overblown egoistic wigged orange geriatric who struggles to come up with more than two syllables and divides the world in "good for Trump" "bad for Trump."
PS Utopia is across the Tasman Sea, in Hobbiton, New Zealand. Or so I am told.
Post by: superannuationfreak on June 24, 2017, 06:11:22 AM
Roll your own cash fund - why you should consider managing your own defensive assets
In this post I outline why it may be beneficial for conservative investors with fairly substantial savings to manage their own defensive assets in cash, rather than use a Cash or Fixed Interest allocation in Super. This is not intended as advice, just some insights from institutional asset management. Note that I work for an industry super fund so at the margin it could be argued that I benefit from people doing the opposite of this advice.
We regularly hear SMSFs have too much cash. And there are probably many cases where those statements are right. Historically government bonds have provided better returns. But there are good reasons, if you want to lean more towards defensive assets, why managing more of your own cash can be the best choice available at the moment.
Why Cash rather than a Bond or Fixed Interest option?
If you are a more conservative investor (less than 50% in growth/risky assets such as shares and property) in these days of low interest rates you need to eke out the highest expected returns from your defensive assets you can. One alternative is to take more risk but for many conservative investors that has psychological costs or invites sequence of returns risk (where a bad equity market just before or just after retirement can derail your plans).
So that begs the question, what are expected returns of Cash and Bonds. Ignoring fees, etc. at time of writing:
Good online savings accounts outside super yield 2.87-3.0% p.a. (e.g. UBank, ING, Rams)
Good Term Deposits inside or outside super yield around 2.5 - 2.8% p.a.
AusBond Composite 0+ Bond Index YTM 2.27% p.a.
AusBond Treasury 0+ Bond Index YTM 2.13% p.a.
The Yield to Maturity (YTM) from the iShares website is a good estimate of the expected return of a broad bond index that doesn't have much credit risk, as is the case with these standard Australian bond indices (Composite 0+ does include about 10% Corporate Bonds which accounts for the higher yield and shorter duration). The actual return will be higher when interest rates fall and lower when interest rates rise (interest rate risk, which can be measured by duration). Where, historically in many countries, bonds have outperformed cash we can see good estimates today suggest they can only do so today if intermediate to long-term interest rates fall.
If your portfolio (super, outside investments and savings) are invested more in equities, property and other growth assets you might invest more in bonds for the diversification, in the expectation that when shares fall bonds will get better returns. We saw that happen in 2008 but not in 1994, so there are no guarantees. But if you are running a more conservative portfolio then these potential correlation benefits are likely to be outweighed by differences in expected return.
Why invest Cash yourself rather than the Cash investment option of your Super Fund
In equities, bonds, commercial property, infrastructure and alternative assets I see big drawbacks in DIY. If you're index investing, the large funds can get much cheaper rates. If you're active, large funds can not only get cheaper rates but access to better managers. So why would I suggest investing cash yourself?
The key reason is bank regulation. In current and upcoming regulation (LCR and NSFR for example, if you want to Google for more information) banks are incentivised to have more of their liabilities either in long-term funding or 'retail' funding, that is funding from individuals. Funding from financial institutions, which includes all large super funds, is penalised.
The bottom line of this is that banks can (and do) offer better rates to individuals than to large super funds. And the difference is large, with term deposits of 3 - 6 months I see offered to super funds more like 2.0-2.3%, around 0.5% lower than an individual could get even before fees. When rates have a 2 in front of them that's a very big difference.
How would I invest like this?
I can't give advice but will give a couple of examples that relate to me personally. In my case, my plan for defensive assets is to either to:
i) hold cash in an offset account while I have a mortgage
ii) once my mortgage is paid off, use online savings accounts
This sort of cash has the advantage of being extremely flexible in that I can use it for emergencies also and it has no fees. Of course with ii) above I'll pay taxes at my marginal rate whereas in Super I would pay a lower tax rate. So while I'm working, even with the higher rate, it's very close to the expected return I'd get from Cash or Bonds in Super after tax.
For my parents, they have most of their financial assets in Super so the availability of good ongoing high-interest savings accounts is more limited but they pay zero taxes in retirement. They run a much more conservative asset allocation also. In their case I will be suggesting the direct investing option of their super fund so long as those term deposits continue to be treated by regulators as retail money and so gets retail rates.
One of my parents is with NGS Super (they have been for a long time so I'm using them as an example, not a recommendation). NGS charge an extra $247 p.a. to invest in individual shares, ETFs and Term Deposits (they have four different banks available, although one of them has particularly poor rates). In my parents' case they have a big enough balance that it's worth it to use just for TDs (for example, if you had $247,000 then $247 p.a. amounts to 0.1% p.a in addition to their base admin fees of $65 + 0.1% p.a.).
So what we'll likely do is use the transaction account and term deposits to build a ladder of term deposits. That is, instead of having a single 3Month or 6M term deposit with one or more banks, invest each month so that a term deposit is maturing every month. A simple example:
At the start invest 1/3rd in a 3M term deposit and 2/3 in cash or a 1M term deposit
After 1 month, invest another 1/3rd in a 3M term deposit and the remaining 1/3rd in cash or a 1M term deposit
After another month invest in another 3M term deposit.
Then every month invest the maturing money in a new 3M term deposit
At current rates you'd have a ladder paying 2.4-2.7% p.a. depending on the bank.
The advantage of the ladder is that a term deposit matures every month so you get around the illiquidity if you need to access the money early (in retirement) or make an asset allocation change.
Obviously you could spread this out if you wanted a 6 Month or longer ladder as well/instead, or you could invest smaller amounts weekly if you wanted to improve liquidity further (but with additional work as you'll have to either set them to auto roll-over or be reinvesting a term deposit every week).
Similarly if you had an SMSF you could build a ladder of Term Deposits (although using multiple banks would require a fair bit more paperwork in that case). If you stay within limits for each bank, SMSF cash can also be government guaranteed.
Note that even in my parents' case we'll be keeping some fixed income in bonds, partly for diversification (I could be wrong!) and partly because it is not worthwhile financially in their other fund given their particular asset allocation.
Why would I not invest like this?
- If you had a higher allocation to growth assets, as mentioned above, you might see more diversification benefit from longer-term bonds if shares fall in a crisis and you are willing to rebalance regularly when this happens
- If you have a smaller balance in defensive assets (10s rather than 100s of thousands) the fixed admin costs swamp the difference in interest rates
- If you are a nervous investor who looks at their investments individually and seeing larger fluctuations in the non-defensive parts of your portfolio whenever you log in to roll a term deposit would stop you sleeping well at night. In this case an all-in-one "Conservative" option is probably better for your sanity
Post by: FFA on June 24, 2017, 04:23:59 PM
Edit to add: One further tax benefit might be to keep majority growth in Super, and defensive ex Super. Since in the long-term your growth assets are going to earn bigger returns, it's best to keep them in the lower tax environment. Of course this depends on your net assets and marginal tax rate ex Super. If you are on the tax free threshold it might be the opposite. But for us we pay higher tax ex Super than inside, so directionally it's better to put higher returning assets in the lower tax environment.
Post by: superannuationfreak on June 24, 2017, 06:11:11 PM
Re: taxes, it's less clear in my view. Keep in mind that there's still currently a 50% discount on long-term capital gains outside super, so depending on your expected tax bracket in retirement Shares outside Super may make more sense. Australian Shares are often high dividend paying which points in the other direction for those perhaps. And if you're still in a higher tax bracket there can be a significant difference to the tax on Cash/Bond interest (15% in Super vs. 40-50% outside Super).
Post by: Little Bird on June 26, 2017, 10:08:08 PM
I hold a lot of shares from before I became a USC and am now wanting to organise my portfolio and realising that now being a USC complicates things somewhat...
Thanks!
Post by: GT on June 26, 2017, 11:06:17 PM
Just wondering what is the best way for a US citizen to invest in Australia? I understand that by having shares you avoid the passive tax levied instead if you had Vanguard mutual funds, is this correct?
I hold a lot of shares from before I became a USC and am now wanting to organise my portfolio and realising that now being a USC complicates things somewhat...
Thanks!
I would have thought Vanguard would have an ASX fund you could buy into. A quick look shows their ETF VPL buys into the Aussie market as well as a few others in the Pacific. Could be worth a direct call to Vanguard. You'd be after the equivalent of our VAS or VHY ETF.
Post by: Dropbear on June 26, 2017, 11:37:00 PM
1 - My parents are wanting to set up a separate fund for a new nephew's future education expenses, and anticipate starting with about $500 and adding around $100 annually for 12-18 or more years. Can anybody recommend broad and low-fee options for investing small amounts like this? A Vanguard retail fund would probably be ideal if not for the minimum investment amount, unless this requirement could be circumvented under circumstances such as this?
2 - Is a $120k principal enough to be asking Vanguard for admission into a wholesale fund, despite the minimum $500k investment amount? The purpose would be to park this investment in a broad and low-fee account for 7-10 years or more, and to not make regular contributions to it over time.
Thanks!
Post by: FFA on June 27, 2017, 02:12:15 AM
1 -you could try calling Vanguard to see if they might waive it. Your parents might also consider co-mingling the funds within their own investments to minimize fees, just keep a separate spreadsheet to tally what is set aside for the nephews education.
2 - Many have posted before Vanguard will accept 100k minimum, I don't have first hand experience myself but seems to be the case, so on both accounts give Vanguard a bell....
Post by: deborah on June 28, 2017, 08:39:00 PM
Post by: FFA on June 28, 2017, 10:38:14 PM
Is anyone putting more into super this year because of all the lower contribution limits next year? I need to change the Australian Investment Order advice because of the limits.No change for me, deborah
Post by: mjr on June 29, 2017, 02:00:08 AM
Plus the $35k concessional but I was doing that anyway
Post by: marty998 on June 29, 2017, 03:00:52 AM
Is anyone putting more into super this year because of all the lower contribution limits next year? I need to change the Australian Investment Order advice because of the limits.No change for me, deborah
I do not have that big a pot of cash LOL. Banks keep jacking up my rates so I'm starting to pay off my pile of investment debt.
Honestly $125k a year (concessional and non-concessional caps) is plenty much for most people. If you have more than that lying around to contribute you probably don't need the benefit of the super system anyway.
Post by: itchyfeet on June 29, 2017, 03:29:18 AM
I suppose there is a thread....
I must confess that I am again asking a question prior to doing any thinking/ reading on my part re: the merits. The thought just popped into my head.
I also expect that the greater percentage of FIRE'ees have too much in Super at FIRE date and not enough outside, so may not be looking to continue tipping up Super.
Post by: JamesSyd on June 29, 2017, 03:39:14 AM
Ok, a quick google shows you need to pass the "work test". I guess people have some thoughts on that.Not true from next financial year I believe
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Post by: itchyfeet on June 29, 2017, 03:41:22 AM
Ok, a quick google shows you need to pass the "work test". I guess people have some thoughts on that.Not true from next financial year I believe
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Lol, I just deleted my post. I need to post less and read more 😬
Post by: FFA on June 29, 2017, 04:42:11 AM
Is anyone putting more into super this year because of all the lower contribution limits next year? I need to change the Australian Investment Order advice because of the limits.No change for me, deborah
I do not have that big a pot of cash LOL. Banks keep jacking up my rates so I'm starting to pay off my pile of investment debt.
Honestly $125k a year (concessional and non-concessional caps) is plenty much for most people. If you have more than that lying around to contribute you probably don't need the benefit of the super system anyway.
That was the conclusion I came to. As well as being only 40, and the markets being quite high lately.
Post by: JuicyCrab on June 29, 2017, 09:07:14 PM
Just had a little bub, and now with the new knowledge of MMM I want to start an investment fund for her education/housing/whatever the hell happens to our country in 25 years time.
So the investment horizon is 25 years, $25-$50 invested weekly, share market index funds (international + local).
What are you guys using for the purpose of funds invested for your child? I was thinking either mixing it in with my current shares and tracking it via a spreadsheet OR the AMP growth bond product designed for this exact purpose.
https://www.amp.com.au/personal/investments/products/investments/growth-bond
Thoughts?
Post by: terrier56 on June 29, 2017, 09:21:46 PM
Just had a look at the dividend estimate for VAS. It looks low. Like I expect this kind of thing for the April div. but another 50c/unit sting a little. Does anyone know why this might be?
If it carries into the future then we are looking like a 2-3% yield which is un-Australian, to say the least haha.
Post by: HowMuchCanAKoalaBear on June 29, 2017, 11:23:29 PM
Actually checking the reinvesting prices over the year average would be $73 per shares so a yield of 4.1% Last year was 4.2% from memory.
Koala out.
Post by: tim_oz on June 30, 2017, 04:44:10 AM
but as koala says, it averages to 4.1% or around 5.5% grossed up with the average 80% franking VAS achieves.
tim.
Post by: marty998 on June 30, 2017, 07:49:45 PM
VHY is estimating a whopper of $1.71. Must be all the rebalancing in June triggering cap gains over this year.
Paging Rob_S.
Post by: HowMuchCanAKoalaBear on June 30, 2017, 10:56:06 PM
Does anyone know if it does prefill into Mytax?
thanks. Koala.
Post by: deborah on June 30, 2017, 11:31:09 PM
Post by: Rob_S on July 01, 2017, 05:28:46 AM
Yes was just about to post this. 50c is fine, don't mind not being taxed on extra income if I can help it.
VHY is estimating a whopper of $1.71. Must be all the rebalancing in June triggering cap gains over this year.
Paging Rob_S.
I saw the 1.71 dividend and had the oddest feeling. I keep a spreadsheet ... its not much really... of the number of shares we own plus the last four quarters dividends along with franking. 1.71 was a lot more than I expected. I plugged it into the spreadsheet and ... well.. based on the last 4 dividends we comfortably cover our expenses. Before this dividend we had enough to cover our expenses as long as the govt kicked in some family tax benefits. Now we can support ourselves even if these benefits get the chop.
This sort of spike in dividends happened last time (2015?) VHY sold down the banks to buy RIO/Woodside/BHP, probably not the best idea in hindsight but thats what you get from a rules based ETF. I agree this quarters spike is cap gains again with a sell down of banks to buy QANTAS?!?!... Cap gains wont really hurt us as the shares are in my wifes name and she's a stay at home mum these days with no other income besides dividends. If the shares were in my name the cap gains would bite and I get why many investors, after initially being excited by the yield end up ruling out VHY for that reason.
I still plan to wait 6 more months and see if the dividends hold before doing anything rash on the work front. We will be buying LICs from here on in to stabilise the dividend stream. MLT, ARG and BKI are on the radar. I know - shock horror - I said I would stick to VHY and here I am moving on to LICs. I might post my thoughts on this to my journal. Then its time to build the cash buffer and figure out if I want to hang on for one more year and collect the long service payout...
I'm pretty excited. The VHY plan looks to have worked. So far.
Post by: ianvestor on July 01, 2017, 11:02:25 AM
I'm unlucky enough to be shareholder in Contango Microcap, a small LIC targeting small cap companies. When I pushed a lot of my money into indexes I thought I'd put a small amount into an active investment manager just for larfs, and I thought one area where it might be interesting would be the small cap space.
Anyhoo, someone way back asked what the difference was between ETFs and LICs?
LICs are generally an active managed fund overseen by a fund manager. Which may be internal or outsourced. One key issue is that the active management of LIC's can make them subject to governance risk. Fist fights and powerplays between the investment managers, unhappy shareholders, fighting for control over funds under management.
By comparison, you'd think the remit of an index is pretty straightforward (i.e. Replicate the index. ) and the relatively low fees they charge wouldn't make active management sustainable.
So this is what's happening at CTN at the moment.
http://www.smh.com.au/business/banking-and-finance/extraordinary-battle-under-way-at-contango-microcap-20170302-gup7ot.html
The price is depressed at the moment due to underperformance, but no doubt also due to the current uncertainty. It may resolve itself eventually but I'm wishing I'd just shoved the whole thing into a index.
Hunter Hall is another weird one.
http://www.afr.com/business/banking-and-finance/financial-services/hunter-hall-lic-saga-a-lesson-for-listed-invested-companies-everywhere-20170308-gutnrj
I am new to this forum and still need to spend some time going over some old posts here on the Australian thread. Was surprised to see the level of activity hence I joined. I found this topic above of interest since I spend quite a bit of time looking into some of the LICs. I would also stress that with these two (CTN & HHV), one should do plenty of research into their corporate governance. Both have undergone change in recent times and are not shy in asking for shareholders to stump up new cash for new options, rights, placement issues etc
If I was forced to place money with a microcap manager I would probably be more comfortable with the latest Wilson offering (WMI) which has traded just a cent or two above the issue price thus far. I'd prefer alternative offshore LICs to HHV I would say also. Just an opinion though which could well be wrong, but thought I would share. :)
Post by: Luckyvik on July 02, 2017, 01:08:46 AM
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Post by: Sydneystache on July 02, 2017, 01:30:14 AM
Post by: marty998 on July 02, 2017, 03:26:21 PM
Post by: misterhorsey on July 02, 2017, 10:36:20 PM
I'm unlucky enough to be shareholder in Contango Microcap, a small LIC targeting small cap companies. When I pushed a lot of my money into indexes I thought I'd put a small amount into an active investment manager just for larfs, and I thought one area where it might be interesting would be the small cap space.
Anyhoo, someone way back asked what the difference was between ETFs and LICs?
LICs are generally an active managed fund overseen by a fund manager. Which may be internal or outsourced. One key issue is that the active management of LIC's can make them subject to governance risk. Fist fights and powerplays between the investment managers, unhappy shareholders, fighting for control over funds under management.
By comparison, you'd think the remit of an index is pretty straightforward (i.e. Replicate the index. ) and the relatively low fees they charge wouldn't make active management sustainable.
So this is what's happening at CTN at the moment.
http://www.smh.com.au/business/banking-and-finance/extraordinary-battle-under-way-at-contango-microcap-20170302-gup7ot.html
The price is depressed at the moment due to underperformance, but no doubt also due to the current uncertainty. It may resolve itself eventually but I'm wishing I'd just shoved the whole thing into a index.
Hunter Hall is another weird one.
http://www.afr.com/business/banking-and-finance/financial-services/hunter-hall-lic-saga-a-lesson-for-listed-invested-companies-everywhere-20170308-gutnrj
...I found this topic above of interest since I spend quite a bit of time looking into some of the LICs. I would also stress that with these two (CTN & HHV), one should do plenty of research into their corporate governance. Both have undergone change in recent times and are not shy in asking for shareholders to stump up new cash for new options, rights, placement issues etc
Hey ianvestor
I don't follow this thread as much as I used to but then popped in today and saw that you've quoted a previous post of mine.
I've quoted your note about doing research into corporate governance. I think it's good advice. However, no amount of research can uncover the future intentions of management, or significant shareholders, that may or may not be in control at the time you are considering making an investment - as well as the decisions they may make about the investment of funds.
So I would advise caution and knowing the limits of the ability of your own research.
I think the investors in Hunter Hall got blind sided. They would have got into it as an ethical fund. With an environmental screen Whatshisface gets cold feet and sells it to Soul Patts for a bargain, Soul Patts who are a key shareholder in New Hope Coal. Surely he could have found a buyer that had interests more in line with the mission of the fund he originally set up??? Very weird.
I got into CTN before any of the recent governance issues came to a head. It's died down a little. However, their price continues to underperform in the short term. While I think it's partly due to governance disputes, their price isn't too far away from the value of their Net Tangible Assets, so I think it's mainly down to bad stock picking. For example, the manager taking overweight positions (relative to the market) in frothy dumb punts - i.e. Slater and Gordon used to amount to about 3% of the fund. I doubt they would have had time to sell out so about 3% of the value of the fund would have disappeared in a few days.
Of course, if all goes well you go with an LIC that is able to outperform the market, year in and year out........
From my own experience with CTN, once reinvestment is taken into account, I've broken even - for now. However, I would have been better off had I put it into VAS or VGS. Then again, I've only held CTN since 2014 and 3 years is too short a time to really measure the performance of investments - but seeing a Board and the Board's management get rolled by hostile directors and shareholders does not inspire confidence!!!
Post by: Dropbear on July 03, 2017, 01:16:17 AM
Hi Dropbear,
1 -you could try calling Vanguard to see if they might waive it. Your parents might also consider co-mingling the funds within their own investments to minimize fees, just keep a separate spreadsheet to tally what is set aside for the nephews education.
2 - Many have posted before Vanguard will accept 100k minimum, I don't have first hand experience myself but seems to be the case, so on both accounts give Vanguard a bell....
I asked Vanguard, and they replied that they'll accept the latter wholesale investment for an existing customer below the $500k minimum, but not the former retail fund below the $5k minimum... in case anyone else is interested in these products also.
Does anyone know or recommend any cost-effective broad market investment options for small initial amounts like $500, please? Stockspot, for example, would be ok if we were making regular small contributions to quickly bring the balance up to outweigh the monthly fees, as we'd only be making irregular or annual contributions, the monthly fees would be too much for the small income-producing capital to bear.
Thanks for your suggestions, FFA!
Post by: deborah on July 03, 2017, 01:31:36 AM
Post by: ianvestor on July 03, 2017, 02:55:31 AM
So I would advise caution and knowing the limits of the ability of your own research.
I think the investors in Hunter Hall got blind sided. They would have got into it as an ethical fund. With an environmental screen Whatshisface gets cold feet and sells it to Soul Patts for a bargain, Soul Patts who are a key shareholder in New Hope Coal. Surely he could have found a buyer that had interests more in line with the mission of the fund he originally set up??? Very weird.
I got into CTN before any of the recent governance issues came to a head. It's died down a little. However, their price continues to underperform in the short term. While I think it's partly due to governance disputes, their price isn't too far away from the value of their Net Tangible Assets, so I think it's mainly down to bad stock picking. For example, the manager taking overweight positions (relative to the market) in frothy dumb punts - i.e. Slater and Gordon used to amount to about 3% of the fund. I doubt they would have had time to sell out so about 3% of the value of the fund would have disappeared in a few days.
Of course, if all goes well you go with an LIC that is able to outperform the market, year in and year out........
From my own experience with CTN, once reinvestment is taken into account, I've broken even - for now. However, I would have been better off had I put it into VAS or VGS. Then again, I've only held CTN since 2014 and 3 years is too short a time to really measure the performance of investments - but seeing a Board and the Board's management get rolled by hostile directors and shareholders does not inspire confidence!!!
Hey misterhorsey,
Yes agree research has its limitations for sure. I certainly don't suggest the departure of Peter Hall or this years boardroom battles with CTN were predictable. So much change has occurred in these cases that were beyond any research to predict.
I guess my point was to beware of governance issues. I could point to weakness with how CTN and HHV treated shareholders from not too long after listing around 2004. Some of this persisted later on, but I suppose I am using hindsight when referring to this.
Agree totally though the stock picking is a major reason in both cases for the shares to be weak over the last year, more so than governance issues.
Just thought I would comment on this situation as many investors are not aware of some of the capital raising games some LICs play whilst stating it is beneficial for the shareholder base. These two have been offenders in the past of dilutive capital raisings prior to 2014 I think from memory so I was more referring to those rather than more recent events.
Post by: misterhorsey on July 03, 2017, 07:23:43 AM
Yes agree research has its limitations for sure. I certainly don't suggest the departure of Peter Hall or this years boardroom battles with CTN were predictable. So much change has occurred in these cases that were beyond any research to predict.
I guess my point was to beware of governance issues. I could point to weakness with how CTN and HHV treated shareholders from not too long after listing around 2004. Some of this persisted later on, but I suppose I am using hindsight when referring to this.
Agree totally though the stock picking is a major reason in both cases for the shares to be weak over the last year, more so than governance issues.
Just thought I would comment on this situation as many investors are not aware of some of the capital raising games some LICs play whilst stating it is beneficial for the shareholder base. These two have been offenders in the past of dilutive capital raisings prior to 2014 I think from memory so I was more referring to those rather than more recent events.
Yes, in agreement with you ianvestors. And good to warn others.
My investment in CTN was like most of my previous investments in my direct holdings, namely, poorly researched! I wasn't aware of the capital raisings at the time I bought in. Just the impressive past performance figures made me think it might be worth spicing up my portfolio with a bit of small cap. Although now I wish I hadn't.
CTN is currently conducting a buy back of shares. I don't know why. You'd think if they had spare cash they would invest it? In, um, like, shares? Small cap, maybe?
Even if there are reasons to do it to increase shareholder value (by addressing pass dilutions, or increasing earnings per share) due to recent previous shenanigans I don't trust them!
But I've kind of stopped following them too closely. Just waiting for a bit of a recovery in the ETF price whereupon I will cash out and move it over to VGS methinks!
Post by: FFA on July 03, 2017, 07:28:57 AM
Hi Dropbear,
1 -you could try calling Vanguard to see if they might waive it. Your parents might also consider co-mingling the funds within their own investments to minimize fees, just keep a separate spreadsheet to tally what is set aside for the nephews education.
2 - Many have posted before Vanguard will accept 100k minimum, I don't have first hand experience myself but seems to be the case, so on both accounts give Vanguard a bell....
I asked Vanguard, and they replied that they'll accept the latter wholesale investment for an existing customer below the $500k minimum, but not the former retail fund below the $5k minimum... in case anyone else is interested in these products also.
Does anyone know or recommend any cost-effective broad market investment options for small initial amounts like $500, please? Stockspot, for example, would be ok if we were making regular small contributions to quickly bring the balance up to outweigh the monthly fees, as we'd only be making irregular or annual contributions, the monthly fees would be too much for the small income-producing capital to bear.
Thanks for your suggestions, FFA!
$500 you might be able to buy an ETF. Commsec recently cut their brokerage to $10 below $1,000. However that doesn't solve the problem of the $100 annual contributions thereafter. Sorry dropbear I'm not sure the answer usually these kind of amounts go into saving accounts to accumulate an investable size. Definitely screen any options carefully to make sure the fees don't suck the account empty. As per my earlier post, I suggest your parents or even yourself could just invest the funds along with your own money and keep a separate tab of how much is set aside for the nephew. That's what I'd do anyway...
Post by: chasingthegoodlife on July 03, 2017, 02:49:05 PM
Post by: deborah on July 03, 2017, 03:15:33 PM
Post by: BattlaP on July 03, 2017, 03:45:11 PM
Hi Dropbear,
1 -you could try calling Vanguard to see if they might waive it. Your parents might also consider co-mingling the funds within their own investments to minimize fees, just keep a separate spreadsheet to tally what is set aside for the nephews education.
2 - Many have posted before Vanguard will accept 100k minimum, I don't have first hand experience myself but seems to be the case, so on both accounts give Vanguard a bell....
I asked Vanguard, and they replied that they'll accept the latter wholesale investment for an existing customer below the $500k minimum, but not the former retail fund below the $5k minimum... in case anyone else is interested in these products also.
Does anyone know or recommend any cost-effective broad market investment options for small initial amounts like $500, please? Stockspot, for example, would be ok if we were making regular small contributions to quickly bring the balance up to outweigh the monthly fees, as we'd only be making irregular or annual contributions, the monthly fees would be too much for the small income-producing capital to bear.
Thanks for your suggestions, FFA!
Hey mate, I'm in exactly the same boat as you, investing for a newborn. I'm just holding it in cash until I have the $5000 for a minimum. If you want short-term returns in the interim I'd just use a couple term deposits to meet inflation, who knows what the market will do. I'm not going to worry about the first year or two too much, she's got a whole lifetime of compound interest ahead of her.
Post by: mjr on July 03, 2017, 04:14:09 PM
Wondering what others do when buying a parcel of shares around the ex dividend date? (In this case for VGS). Buy before and get the dividend? Buy just after when the price has fallen? Or try not to buy around that time?
Depends on your tax situation. Say you're on the top tax bracket and you buy the day before ex-dividend. The next day the share price drops by the dividend amount and you pay half that straight to the ATO.
That's worst case, but I tend to buy just after ex-dividend, all other things being equal.
Post by: chasingthegoodlife on July 03, 2017, 05:14:25 PM
Post by: Anatidae V on July 05, 2017, 03:31:06 AM
Ex dividend, since I don't want the income.+1 We're doing this too.
Post by: steveo on July 05, 2017, 04:53:57 AM
Wondering what others do when buying a parcel of shares around the ex dividend date? (In this case for VGS). Buy before and get the dividend? Buy just after when the price has fallen? Or try not to buy around that time?
When I have 10 grand I buy.
Post by: marty998 on July 05, 2017, 03:52:20 PM
Amazing how people can get their taxes done in the 1st week of July.... must have very simple affairs.
I'm waiting for VAS statement, Health Insurance statement, and I need a little time to tally up my rental deductions... figure out depreciation on a couple of new items (add to a low value pool).
Should be lodging by early August.
Post by: Rowellen on July 05, 2017, 04:10:39 PM
Did the ATO website crash?
Amazing how people can get their taxes done in the 1st week of July.... must have very simple affairs.
I'm waiting for VAS statement, Health Insurance statement, and I need a little time to tally up my rental deductions... figure out depreciation on a couple of new items (add to a low value pool).
Should be lodging by early August.
They've been having trouble for months. I got text messages and emails from them yesterday saying it was down (I'm a tax agent) but I haven't got anything yet to say it's back. I tried to log on to the ABR yesterday and that was down too.
Post by: Rowellen on July 05, 2017, 05:09:06 PM
Post by: steveo on July 05, 2017, 05:43:26 PM
Post by: GT on July 05, 2017, 06:46:34 PM
I don't do my taxes for a couple of months. By that point it's all pre-filled and I just click a couple of buttons.
How is it prefilled?
We generally do ours in October, if not the year afterwards. Never had any great necessity to do our taxes as we've not had anything in place to generate massive returns to make it worthwhile rushing.
Post by: deborah on July 05, 2017, 07:41:10 PM
All the investment places send information to the tax office, so they pre-fill your MyTax with that information (you can load it down). Check it and send it back. Easy peesy!I don't do my taxes for a couple of months. By that point it's all pre-filled and I just click a couple of buttons.
How is it prefilled?
We generally do ours in October, if not the year afterwards. Never had any great necessity to do our taxes as we've not had anything in place to generate massive returns to make it worthwhile rushing.
Post by: marty998 on July 06, 2017, 03:23:11 AM
I don't do my taxes for a couple of months. By that point it's all pre-filled and I just click a couple of buttons.
How is it prefilled?
We generally do ours in October, if not the year afterwards. Never had any great necessity to do our taxes as we've not had anything in place to generate massive returns to make it worthwhile rushing.
Do you use a tax agent or do it yourself? Not sure how you can do it yourself after October....
I hate myTax. I want them to bring back eTax.
Post by: Anatidae V on July 06, 2017, 03:31:39 AM
Yup. We add the expense of a tax accountant because otherwise DH drags his feet and drives me batty - now he's someone else's problem.All the investment places send information to the tax office, so they pre-fill your MyTax with that information (you can load it down). Check it and send it back. Easy peesy!I don't do my taxes for a couple of months. By that point it's all pre-filled and I just click a couple of buttons.
How is it prefilled?
We generally do ours in October, if not the year afterwards. Never had any great necessity to do our taxes as we've not had anything in place to generate massive returns to make it worthwhile rushing.
Post by: steveo on July 06, 2017, 04:28:20 AM
I don't do my taxes for a couple of months. By that point it's all pre-filled and I just click a couple of buttons.
How is it prefilled?
We generally do ours in October, if not the year afterwards. Never had any great necessity to do our taxes as we've not had anything in place to generate massive returns to make it worthwhile rushing.
Do you use a tax agent or do it yourself? Not sure how you can do it yourself after October....
I hate myTax. I want them to bring back eTax.
I used myTax last year and it was all prefilled. I just put in $200 expenses and clicked some buttons. It was over. I don't use a tax agent. I must do it prior to October but I leave it till a late time.
Post by: GT on July 06, 2017, 05:26:27 AM
I don't do my taxes for a couple of months. By that point it's all pre-filled and I just click a couple of buttons.
How is it prefilled?
We generally do ours in October, if not the year afterwards. Never had any great necessity to do our taxes as we've not had anything in place to generate massive returns to make it worthwhile rushing.
Do you use a tax agent or do it yourself? Not sure how you can do it yourself after October....
I hate myTax. I want them to bring back eTax.
I used myTax last year and it was all prefilled. I just put in $200 expenses and clicked some buttons. It was over. I don't use a tax agent. I must do it prior to October but I leave it till a late time.
Tax agent, as there's been years where we've just not done our tax and had to do multiple years in one go. Again, due to not being able to make any claims apart from the absolute basics of laundry for work clothes, makes our taxes easy. This year again will be easy, we both have our PAYG statements, just waiting on the health insurance letter and we're done with all our paperwork. Next year will be different, with the sale of the house, me not working for a period of time, and the profit from the house somehow generating some cash for us before we delve back into the housing market.
Post by: marty998 on July 06, 2017, 03:28:43 PM
Tax agent, as there's been years where we've just not done our tax and had to do multiple years in one go. Again, due to not being able to make any claims apart from the absolute basics of laundry for work clothes, makes our taxes easy. This year again will be easy, we both have our PAYG statements, just waiting on the health insurance letter and we're done with all our paperwork. Next year will be different, with the sale of the house, me not working for a period of time, and the profit from the house somehow generating some cash for us before we delve back into the housing market.
I'm with NIB, and just go online and download my letter as it usually takes them a few weeks to send it out. I did my return on myTax on Monday morning. Nothing was pre-filled, but I only had to put in my group certificate info and health insurance rebate info -- took about five minutes. I'm not normally in a rush to do it, but was expecting a decent return this year, so the money is better in my bank account than the governments!
This involves remembering yet another username and password. I have filled out a book with them and the book is so large that I can't find the password I need when the time comes!
Post by: Rowellen on July 06, 2017, 04:13:06 PM
But I now have some VAS so I still have to wait. I'll be leaving my DH's until later as he'll have a large than normal bill, then be hit with PAYG instalments.
Post by: BattlaP on July 06, 2017, 06:35:27 PM
On the downside they were significant enough to probably affect my taxes next year.
Post by: misterhorsey on July 06, 2017, 07:51:56 PM
Dividends in my vanguard managed funds were stupidly large this month.. on the order of 6% for my wholesale High Growth Lifestrategy. I guess it was from all the rebalancing they did, removing Australian property etc. Anyway gave me a nice boost to # of units with auto reinvestment even though the total value just dropped straight back to where it was the day afterwards.
On the downside they were significant enough to probably affect my taxes next year.
I'm in the same fund. I think you may find that even though the statement is emailed to you on 1 July 2017, it actually covers the distribution in the previous financial year (up to 30 June 2016). So they won't affect your taxes next year, but will impact your taxes in the financial year just past.
This is my one complaint about vanguard wholesale fund, and retail too probably. The distribution usually includes some capital gains, but they can't figure out the amount of CGT until 30 June (according to the vanguard rep I spoke to), meaning that if you have a range of investments it's impossible to strategically manage them. For example, I have a few direct share investments that are showing a bit of a loss, and if I'm going to have capital gains from a fund it would be good to crystallise those losses, but until I know how much CGT I'm up for, you don't know how much to sell.
I appreciate this is bit of a niche concern for most people.
The simple solution is to sell everything and just put all the proceeds into funds. But unfortunately legacy investment choices can incur capital gains tax implications so it's not so easy to do this.
Post by: seranade on July 06, 2017, 09:00:07 PM
Not sure if this is the right thread to ask:
I am an expat living in Australia and am looking for a low-fee online stock brokerage company. My goal is to:
- invest about $1000/month (or hold off, and invest quarterly lump-sums)
- be able to invest in international stocks (US, Canada, Europe, Asia etc)
- would like to convert to US dollars if needed (cheaply)
- have a decent user interface (I'm a newbie, so simple is good)
- mainly invest in index/etf funds
- the goal is to buy and hold with my investments (long term)
Any suggestions as to what brokerage is appreciated, and if anyone knows of the tax implications of having US money invested, I'd love to hear more about it.
A side note, I am with CommonWealth, and it looks like their fees are pretty high in comparison.
Also, not sure if it's beneficial to invest in my Super, since I am an expat, and don't know the implications of if I decide to stay/leave Australia.
Thanks.
Post by: nnls on July 06, 2017, 09:31:17 PM
Hey all,
Not sure if this is the right thread to ask:
I am an expat living in Australia and am looking for a low-fee online stock brokerage company. My goal is to:
- invest about $1000/month (or hold off, and invest quarterly lump-sums)
- be able to invest in international stocks (US, Canada, Europe, Asia etc)
- would like to convert to US dollars if needed (cheaply)
- have a decent user interface (I'm a newbie, so simple is good)
- mainly invest in index/etf funds
- the goal is to buy and hold with my investments (long term)
Any suggestions as to what brokerage is appreciated, and if anyone knows of the tax implications of having US money invested, I'd love to hear more about it.
A side note, I am with CommonWealth, and it looks like their fees are pretty high in comparison.
Also, not sure if it's beneficial to invest in my Super, since I am an expat, and don't know the implications of if I decide to stay/leave Australia.
Thanks.
I am with CMC for brokerage, they are pretty cheap and easy to use. not too sure about, I use it to invest in vanguard index funds and haven't had any issues
For leaving Australia see here Departing Australia superannuation payment (https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-paying-tax/Super-information-for-temporary-residents-departing-Australia/)
and here I’m leaving Australia: Can I access my super? (https://www.superguide.com.au/accessing-superannuation/accessing-super-early-temporary-resident)
Quote
Temporary residents are treated differently under the super rules in terms of accessing super benefits early, although you need to check with the ATO how the rules specifically apply to your circumstances.
If an individual has held a temporary visa under the Migration Act 1958 (except for visas under subclasses 405 and 410), then such an individual is eligible to apply for a ‘Departing Australia Superannuation Payment’ (DASP) when leaving Australia.
In most cases, a superannuation fund must transfer the temporary resident’s super benefits to the ATO if the individual has not claimed the benefits within 6 months of departing Australia, or within 6 months of the expiry or cancellation of the visa, whichever event is later.
A temporary resident doesn’t have to claim his or her super benefits upon leaving the country or, at a later stage. It’s possible to leave the benefits in Australia until retirement, but if the super benefits are transferred to the ATO, the money is not invested on the individual’s behalf. What this means is that the super benefit does not receive investment earnings or pay insurance premiums.
Instead, since 1 July 2013, the super benefit receives a form of ‘interest’. The ‘interest’ will be paid at a rate equivalent to the rate of inflation – Consumer Price Index (CPI) on all superannuation accounts reclaimed from the ATO. I that super account had remained with the super fund, then you could have expected investment earnings (and sometimes investment losses) less fees.
Post by: lush on July 07, 2017, 09:22:42 PM
• I earn $230k per year. My partner earns about $80k
• I own an Investment property with no loan owing (meaning loan still there but filled up the offset account to have zero interest payments)
• Me and my partner have $116k in VAS & $965k Vanguard Balanced Fund
• I pay about between $20 – 30K in additional tax due to Vanguard distributions & rent return. Partner pays about another $10k in taxes.
• Question: we are thinking of taking out a loan to invest more in VAS in order to offset the tax we are paying – what are people’s thoughts on that? We think it makes sense, however not really sure how much longer either one of us wants to continue to work for. My partner wants to work part-time, and depending on the day I am having at work most days so do I, ….so worried that by taking out a loan we might be making the wrong choice by getting into “debt”.
Cheers.
Post by: mjr on July 07, 2017, 10:05:49 PM
Negatively gear shares if you think there's enough capital growth upside to warrant the risk of gearing, but I wouldn't be doing it "to reduce tax".
Post by: deborah on July 07, 2017, 11:28:46 PM
Post by: misterhorsey on July 07, 2017, 11:31:58 PM
I'd suggest doing a bit of modelling via spreadsheet to see how you'd feel about the outcome of your investment with the changes to key variables (interest rates, capital growth, dividends).
The margin loan calculators on the bank websites are skewed towards the glass overflowing. I seem to recall one default % growth was set at 10% per annum! Which doesn't really give you a realistic picture of how investments will perform over time.
My view was that the small % increase from gearing wasn't worth the stress of potential downside of margin calls - or prolonged underperformance.
I too was also thinking of quitting work for a bit (which I have). Having a reliable source of cashflow would buffer the risks of the investment underperforming for a while. So the idea of continuing working to service a margin loan? Not for me.
These are just a few of my considerations. Others on this forum seem to have some success with gearing. Your own risk appetite will guide you.
Post by: itchyfeet on July 08, 2017, 03:03:01 AM
Post by: deborah on July 08, 2017, 03:10:23 AM
From where I think you are on the journey, negative gearing appears not to be a useful tool for you. And you appear to have maxed out the others except the spending money to save money category. This can take many forms. I did a few things to my home that made it somewhat more energy efficient, and then had an energy assessment done, and spent money on the things that they pointed out. The result was 50% less utility bills. That meant that my retirement expenditure went down substantially. This did not include anything like PV panels. You can apply this thinking to other parts of your budget - list it in expense order, and see what you can come up with to reduce (or eliminate) each major ongoing expense permanently. You may find that such things give you the best return on investment.
Post by: chasingthegoodlife on July 08, 2017, 03:10:19 PM
Post by: LonerMatt on July 08, 2017, 04:04:07 PM
Asking for tax purposes.
Post by: mjr on July 08, 2017, 04:07:15 PM
Post by: lush on July 08, 2017, 11:12:02 PM
If you buy more VAS, your interest costs of somewhere between 5 and 7% will be offset markedly by VAS's dividends of 4%, leaving you with a tax reduction of 0.5% - 1.5% of the loan amount on the top marginal rate.
Negatively gear shares if you think there's enough capital growth upside to warrant the risk of gearing, but I wouldn't be doing it "to reduce tax".
Yes, think you are right. Probably not a good idea if we are only seeking to reduce tax, given the level of risk with it and uncertainty of how long we want to continue to work for. Thank you.
Post by: lush on July 08, 2017, 11:15:24 PM
I've thought about doing the same in the past. Motivated by tax 'benefits'.
I'd suggest doing a bit of modelling via spreadsheet to see how you'd feel about the outcome of your investment with the changes to key variables (interest rates, capital growth, dividends).
The margin loan calculators on the bank websites are skewed towards the glass overflowing. I seem to recall one default % growth was set at 10% per annum! Which doesn't really give you a realistic picture of how investments will perform over time.
My view was that the small % increase from gearing wasn't worth the stress of potential downside of margin calls - or prolonged underperformance.
I too was also thinking of quitting work for a bit (which I have). Having a reliable source of cashflow would buffer the risks of the investment underperforming for a while. So the idea of continuing working to service a margin loan? Not for me.
These are just a few of my considerations. Others on this forum seem to have some success with gearing. Your own risk appetite will guide you.
We have discussed it and don't think gearing is for us. Thank you for responding, it sure does help to hear peoples thoughts and experiences.
Post by: lush on July 08, 2017, 11:29:11 PM
There are several ways to get a tax advantaged return on money. Buy a PPOR. Superannuation. Negative gearing. Spending money to save money.
From where I think you are on the journey, negative gearing appears not to be a useful tool for you. And you appear to have maxed out the others except the spending money to save money category. This can take many forms. I did a few things to my home that made it somewhat more energy efficient, and then had an energy assessment done, and spent money on the things that they pointed out. The result was 50% less utility bills. That meant that my retirement expenditure went down substantially. This did not include anything like PV panels. You can apply this thinking to other parts of your budget - list it in expense order, and see what you can come up with to reduce (or eliminate) each major ongoing expense permanently. You may find that such things give you the best return on investment.
What great advise. Can you tell me where the biggest savings came from to get a 50% less utility bill? When looking at our expenses, there are only 2 other things that we could cut back on: 1) Our Health Insurance - NIB Top Cover Gold package - $320 per month for both us. I am a little hesitant on that front as I have mixed feelings about cutting it back. 2) Less Alcohol :) not that we drink much, about a glass each per night, and just the cheap Yulumba cask wine (LOL) so about $60-80 per month.
Another thing you mentioned was super, but not sure how that works with my tax bracket (45%), if I contribute say another $30k per year after tax, not sure how that helps reduce the tax I pay. Sorry very ignorant when it comes to super, I can't ever seem to get my head round its true benefits.
Post by: lush on July 08, 2017, 11:36:47 PM
Prob the best tax break is to max out super contributions. Have you done that?
No have not looked into this because super always confuses me. But will I need to look into what can be done on this front as a few people have mentioned this. Thanks for the push.
Post by: deborah on July 09, 2017, 12:09:50 AM
Once you have reached preservation age, and you decide to access your super (usually by retiring from work), you can put up to $1.6mill of your super into pension phase. In pension phase, income is untaxed, but you need to take out varying amounts each year, depending on your age - ranging from 4% at 60 to 13% when you are old and decrepit (I think it is 85 or 90). This is why having a super fund that only consists of an investment property is a really bad idea. If you have any assets above the $1.6mill in super, the income is still taxed at 15%, and you can take out lump sums from this.
When pre-tax money is added to super 15% tax is taken out (eg. salary sacrifice, employer contributions, your own contributions that you have deemed as pre-tax). If post-tax money is put in, no tax is taken out. The recent changes limit the amount that can be put in once you have reached the $1.6million cap. You are also limited to $25,000 per year pre-tax (including employer contributions) and $100,000 per year post-tax (you can occasionally put in more, but I'm keeping it simple) - this changed on 1st July.
Post by: deborah on July 09, 2017, 12:29:45 AM
I don't believe you can't do other things as well. Do you have gym membership? Would some equipment be able to replace that?... A bit of lateral thinking can save a lot of money.
Post by: lush on July 09, 2017, 01:01:22 AM
When pre-tax money is added to super 15% tax is taken out (eg. salary sacrifice, employer contributions, your own contributions that you have deemed as pre-tax). If post-tax money is put in, no tax is taken out. The recent changes limit the amount that can be put in once you have reached the $1.6million cap. You are also limited to $25,000 per year pre-tax (including employer contributions) and $100,000 per year post-tax (you can occasionally put in more, but I'm keeping it simple) - this changed on 1st July.
Thanks for the detailed explanation. So based on my income I max out on super and so therefore can't undertake salary sacrifice. I still don't really understand how by putting money in super post tax helps reduce the tax I pay each year. I understand that it doesn't get taxed going into my super, but I am not a big fan of super as I can't touch it for another 20 years and in that time rules can change many times over. I did a very quick bit of reading that suggests that if you pay more than 15% tax in the dollar on your personal income, then super may not be a tax-effective investment. Either I am as thick as 2 bricks (LOL - totally possible when it comes to me and super) or maybe I am on the right track and continue putting as much as I can into our Vanguard index funds (rather than super) to reach the magical figure of about 1.3 Mil in about 2 years. Then FIRE!!! Crazy or not?
Post by: lush on July 09, 2017, 01:16:31 AM
I don't believe you can't do other things as well. Do you have gym membership? Would some equipment be able to replace that?... A bit of lateral thinking can save a lot of money.
Thanks for giving me a better understanding of the savings you made with house / garden changes. Some of those things we have already done and have also undertook a cost benefit analysis of other things like rain water tanks and solar panels - so far it didn't look like a good cost saving measure for return on investment, but will give it another go as things do change. We don't have gym memberships - walking keeps us fit enough. We have gone through all our expenditure for the last 10 years with a fine tooth comb and can only think of the health insurance being a cost we can reduce, but as stated earlier - just a bit concerned doing that - is that something you have looked into?
Post by: marty998 on July 09, 2017, 01:54:55 AM
Seriously though, with that level of assets you should consider looking at family trusts and company structures. Splitting the various income returns (dividends, capital gains etc) to different beneficiaries can save you tens of thousands in tax.
Get a good accountant and some good tax advice.
Post by: Fresh Bread on July 09, 2017, 02:48:10 AM
I don't believe you can't do other things as well. Do you have gym membership? Would some equipment be able to replace that?... A bit of lateral thinking can save a lot of money.
Thanks for giving me a better understanding of the savings you made with house / garden changes. Some of those things we have already done and have also undertook a cost benefit analysis of other things like rain water tanks and solar panels - so far it didn't look like a good cost saving measure for return on investment, but will give it another go as things do change. We don't have gym memberships - walking keeps us fit enough. We have gone through all our expenditure for the last 10 years with a fine tooth comb and can only think of the health insurance being a cost we can reduce, but as stated earlier - just a bit concerned doing that - is that something you have looked into?
You could do a case study (see case study thread section) if you want people to help find those savings.
Do you have hospital cover or hospital plus extras? If you have extras, add up what you spent on the gap + the extras premiums and compare to what it would have cost without insurance. We are better off without extras, I think most people are unless you can find the right provider and pay no gap. I shopped around and found I could get save about $175ish a month if I left Bupa's top cover + extras and got top hospital cover elsewhere. More than enough to cover our physio and dental appointments.
You also need to look at the inclusions and think about whether you want the top hospital cover or if next best is ok. We do things that could lead to joint reconstructions, hence we have top cover as one of those done privately is $30k+. I haven't got round to changing yet...
We saved about a third on electricity usage after we had the place rewired (for safety) and LEDs put in. Bizarre.
Post by: deborah on July 09, 2017, 03:02:43 AM
That bolded bit is totally wrong. If you pay LESS it isn't much chop. If you pay MORE you're in clover! That's why, once you are FIRE (until you reach preservation age), it isn't much good.
When pre-tax money is added to super 15% tax is taken out (eg. salary sacrifice, employer contributions, your own contributions that you have deemed as pre-tax). If post-tax money is put in, no tax is taken out. The recent changes limit the amount that can be put in once you have reached the $1.6million cap. You are also limited to $25,000 per year pre-tax (including employer contributions) and $100,000 per year post-tax (you can occasionally put in more, but I'm keeping it simple) - this changed on 1st July.
Thanks for the detailed explanation. So based on my income I max out on super and so therefore can't undertake salary sacrifice. I still don't really understand how by putting money in super post tax helps reduce the tax I pay each year. I understand that it doesn't get taxed going into my super, but I am not a big fan of super as I can't touch it for another 20 years and in that time rules can change many times over. I did a very quick bit of reading that suggests that if you pay more than 15% tax in the dollar on your personal income, then super may not be a tax-effective investment. Either I am as thick as 2 bricks (LOL - totally possible when it comes to me and super) or maybe I am on the right track and continue putting as much as I can into our Vanguard index funds (rather than super) to reach the magical figure of about 1.3 Mil in about 2 years. Then FIRE!!! Crazy or not?
Post by: Luckyvik on July 09, 2017, 03:39:54 AM
What about your partner, could they salary sacrifice?That bolded bit is totally wrong. If you pay LESS it isn't much chop. If you pay MORE you're in clover! That's why, once you are FIRE (until you reach preservation age), it isn't much good.
When pre-tax money is added to super 15% tax is taken out (eg. salary sacrifice, employer contributions, your own contributions that you have deemed as pre-tax). If post-tax money is put in, no tax is taken out. The recent changes limit the amount that can be put in once you have reached the $1.6million cap. You are also limited to $25,000 per year pre-tax (including employer contributions) and $100,000 per year post-tax (you can occasionally put in more, but I'm keeping it simple) - this changed on 1st July.
Thanks for the detailed explanation. So based on my income I max out on super and so therefore can't undertake salary sacrifice. I still don't really understand how by putting money in super post tax helps reduce the tax I pay each year. I understand that it doesn't get taxed going into my super, but I am not a big fan of super as I can't touch it for another 20 years and in that time rules can change many times over. I did a very quick bit of reading that suggests that if you pay more than 15% tax in the dollar on your personal income, then super may not be a tax-effective investment. Either I am as thick as 2 bricks (LOL - totally possible when it comes to me and super) or maybe I am on the right track and continue putting as much as I can into our Vanguard index funds (rather than super) to reach the magical figure of about 1.3 Mil in about 2 years. Then FIRE!!! Crazy or not?
Also for clarification any post-tax money you put into super does not get taxed in Super as you have already paid tax on it. The difference is that any earnings of investments in Super get taxed at 15% while outside of super they get taxed at your marginal tax rate. Also you can't access Super till you're 60. Personally I don't put any post-tax money in Super as I want to access that money at FI before 60.
Sent from my iPhone using Tapatalk
Post by: itchyfeet on July 09, 2017, 11:08:16 AM
I hear what people are saying about super being locked away, but as Lush has a high marginal tax rate, and already a good stash outside super there could be merit in putting some more into super post-tax.
All those years between now and preservation age only being taxed 15% on returns and the not paying any tax post retirement has to warrant some consideration.
Post by: frozzie on July 09, 2017, 06:17:21 PM
At the time I got a mild face punch (thanks !) and reconsidered ... move forward to now and things have changed sligthly :
- Rents are somewhat cheaper (<$800pw)
- Wife has a stable part time job paying for the rent
- I've got a new job paying a bit more
- Increased savings (groceries etc...), replace the 15 year old 550Kwh fridge by a bigger 310Kwh
- The expected selling value for my unit went from my conservative +30% to an estimated +60%, then 70%, then 75% in a matter of months ... so we sold at +87%!
Renting is not ideal but found a nice house and I'm glad I'm out of the sydney market with that level of crazyness
Now for the stash, I'm considering 60% fund(s)/40% conservative (saving accounts, bond, gold).
What's the general wisdom around asset allocation those days, is 40% too high while not being retired yet? FIRECalc is showing I could while wife wants to keep working for a bit longer but with 2 kids still in primary, I'll probably wait another 3-5 years, maybe 7
Would you put everything in one fund (I'm thinking VGS) or splitting (VGS/VEU ?)
I'm also considering buying a rental in country NSW/QLD (Orange NSW, Roma QLD or something alike) for a lowish $200k potentially earning a $200-$300 rent but considering my lack of experience on this, I'm not so sure it's wise now ?
Post by: steveo on July 09, 2017, 06:56:13 PM
I think the portfolio that makes the most sense is the simplest one as well which to me is international stocks and home currency domiciled bonds based upon your risk profile. In your situation I would use VGS and VAF. There is a guy who recommends this as well but I forget his name.
I also don't follow my own advice. I have 50% Aussie (split between shares that I own and VAS and possibly something else in the future dependent on price). I don't recommend owning individual shares however I've been given shares for free as part of my income for working at a big bank. I then have 25% VGS and 25% VAF. If I choose to work an extra year or two I'd split my assets 1/3 each.
All of that is outside of Super. In Super I just choose the riskiest profile.
The problem with being conservative is that in my opinion the biggest risk to a long retirement is poor returns and being hammered by inflation. Bonds/cash won't help with this problem. At the same time you need enough or some other way (going back to work/spending less) to handle a down period which could be 2-5 years.
Post by: frozzie on July 09, 2017, 07:15:17 PM
Similar case with my individual shares being from employment plans (less than $10k in total)
I do have 3 individual shares I bought for a grand total of $4k (pre-mustach days) and not planning to add to those.
I really like the idea of International stocks and local bonds. I might still but a bit in an online saving account like ING for an emergency/ready to invest stash but VGS+VAF sounds like a good and simple approach.
I had started my allocation on the "100 minus your age in stocks" rule but considering I'm not quite retiring 70/30 might be just fine for the next few years.
Post by: GT on July 09, 2017, 08:59:06 PM
Trying to work out whether it is best to hold onto cash for 11 months (earning interest) and deposit it into super in June to get the match from the government after Tax time in July.
Dunno why I was thinking of it, but I might actually not earn much this financial year due to planned #daddydaycare, so it may affect me.
Post by: Rowellen on July 09, 2017, 09:01:25 PM
Post by: GT on July 09, 2017, 09:05:59 PM
GT After tax time.
Thanks. So no good dropping some in until June then. Cool. Never know, I may decide to go back to work and get a job between now and June next year that earns above $51K thus would miss out on the match.
Post by: steveo on July 10, 2017, 12:28:38 AM
Thanks Steveo,
Similar case with my individual shares being from employment plans (less than $10k in total)
I do have 3 individual shares I bought for a grand total of $4k (pre-mustach days) and not planning to add to those.
I really like the idea of International stocks and local bonds. I might still but a bit in an online saving account like ING for an emergency/ready to invest stash but VGS+VAF sounds like a good and simple approach.
I had started my allocation on the "100 minus your age in stocks" rule but considering I'm not quite retiring 70/30 might be just fine for the next few years.
https://www.youtube.com/watch?v=_chiIIxMGl0
This is the guy who articulated this to me and it makes sense. I think having some money in a cash account is also fine. I think this comes down to your risk profile though. I can take a risk but I want to have some money available if the markets crash so that at worst I don't have to withdraw from a decent amount from my equity portfolio. Ideally I'd like to be able to rebalance my accounts.
I'm a fan of a rising equity portfolio over the course of your retirement but that to me is based on having good returns.
Post by: seranade on July 10, 2017, 01:51:29 AM
Hey all,
Not sure if this is the right thread to ask:
I am an expat living in Australia and am looking for a low-fee online stock brokerage company. My goal is to:
- invest about $1000/month (or hold off, and invest quarterly lump-sums)
- be able to invest in international stocks (US, Canada, Europe, Asia etc)
- would like to convert to US dollars if needed (cheaply)
- have a decent user interface (I'm a newbie, so simple is good)
- mainly invest in index/etf funds
- the goal is to buy and hold with my investments (long term)
Any suggestions as to what brokerage is appreciated, and if anyone knows of the tax implications of having US money invested, I'd love to hear more about it.
A side note, I am with CommonWealth, and it looks like their fees are pretty high in comparison.
Also, not sure if it's beneficial to invest in my Super, since I am an expat, and don't know the implications of if I decide to stay/leave Australia.
Thanks.
I am with CMC for brokerage, they are pretty cheap and easy to use. not too sure about, I use it to invest in vanguard index funds and haven't had any issues
For leaving Australia see here Departing Australia superannuation payment (https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-paying-tax/Super-information-for-temporary-residents-departing-Australia/)
and here I’m leaving Australia: Can I access my super? (https://www.superguide.com.au/accessing-superannuation/accessing-super-early-temporary-resident)QuoteTemporary residents are treated differently under the super rules in terms of accessing super benefits early, although you need to check with the ATO how the rules specifically apply to your circumstances.
If an individual has held a temporary visa under the Migration Act 1958 (except for visas under subclasses 405 and 410), then such an individual is eligible to apply for a ‘Departing Australia Superannuation Payment’ (DASP) when leaving Australia.
In most cases, a superannuation fund must transfer the temporary resident’s super benefits to the ATO if the individual has not claimed the benefits within 6 months of departing Australia, or within 6 months of the expiry or cancellation of the visa, whichever event is later.
A temporary resident doesn’t have to claim his or her super benefits upon leaving the country or, at a later stage. It’s possible to leave the benefits in Australia until retirement, but if the super benefits are transferred to the ATO, the money is not invested on the individual’s behalf. What this means is that the super benefit does not receive investment earnings or pay insurance premiums.
Instead, since 1 July 2013, the super benefit receives a form of ‘interest’. The ‘interest’ will be paid at a rate equivalent to the rate of inflation – Consumer Price Index (CPI) on all superannuation accounts reclaimed from the ATO. I that super account had remained with the super fund, then you could have expected investment earnings (and sometimes investment losses) less fees.
CMC is only Australian stocks. I'm looking for a low fee brokerage that will trade internationally with low cost per trade fees and exchange rates. Looks like NAB might be the best one out of the big banks ...
Post by: JamesSyd on July 10, 2017, 02:19:27 AM
Interactive BrokersHey all,
Not sure if this is the right thread to ask:
I am an expat living in Australia and am looking for a low-fee online stock brokerage company. My goal is to:
- invest about $1000/month (or hold off, and invest quarterly lump-sums)
- be able to invest in international stocks (US, Canada, Europe, Asia etc)
- would like to convert to US dollars if needed (cheaply)
- have a decent user interface (I'm a newbie, so simple is good)
- mainly invest in index/etf funds
- the goal is to buy and hold with my investments (long term)
Any suggestions as to what brokerage is appreciated, and if anyone knows of the tax implications of having US money invested, I'd love to hear more about it.
A side note, I am with CommonWealth, and it looks like their fees are pretty high in comparison.
Also, not sure if it's beneficial to invest in my Super, since I am an expat, and don't know the implications of if I decide to stay/leave Australia.
Thanks.
I am with CMC for brokerage, they are pretty cheap and easy to use. not too sure about, I use it to invest in vanguard index funds and haven't had any issues
For leaving Australia see here Departing Australia superannuation payment (https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-paying-tax/Super-information-for-temporary-residents-departing-Australia/)
and here I’m leaving Australia: Can I access my super? (https://www.superguide.com.au/accessing-superannuation/accessing-super-early-temporary-resident)QuoteTemporary residents are treated differently under the super rules in terms of accessing super benefits early, although you need to check with the ATO how the rules specifically apply to your circumstances.
If an individual has held a temporary visa under the Migration Act 1958 (except for visas under subclasses 405 and 410), then such an individual is eligible to apply for a ‘Departing Australia Superannuation Payment’ (DASP) when leaving Australia.
In most cases, a superannuation fund must transfer the temporary resident’s super benefits to the ATO if the individual has not claimed the benefits within 6 months of departing Australia, or within 6 months of the expiry or cancellation of the visa, whichever event is later.
A temporary resident doesn’t have to claim his or her super benefits upon leaving the country or, at a later stage. It’s possible to leave the benefits in Australia until retirement, but if the super benefits are transferred to the ATO, the money is not invested on the individual’s behalf. What this means is that the super benefit does not receive investment earnings or pay insurance premiums.
Instead, since 1 July 2013, the super benefit receives a form of ‘interest’. The ‘interest’ will be paid at a rate equivalent to the rate of inflation – Consumer Price Index (CPI) on all superannuation accounts reclaimed from the ATO. I that super account had remained with the super fund, then you could have expected investment earnings (and sometimes investment losses) less fees.
CMC is only Australian stocks. I'm looking for a low fee brokerage that will trade internationally with low cost per trade fees and exchange rates. Looks like NAB might be the best one out of the big banks ...
Sent from my SM-G925I using Tapatalk
Post by: frozzie on July 10, 2017, 03:24:02 AM
International trades and $8 brokerage ($10 for US) was just too tempting
Post by: superannuationfreak on July 10, 2017, 05:53:11 AM
IG markets I really can't understand what protections we'd have if something happened to them. There's no mention of SIPC (US Insurance) or CHESS sponsorship on their site.
I currently use optionsxpress.com.au for US trades, now down to 5USD. They're part of Schwab. No Australian trades though.
Post by: seranade on July 11, 2017, 12:42:28 AM
I've recently transferred my ETF from CMC to IG : https://www.ig.com/au/ (https://www.ig.com/au/)
International trades and $8 brokerage ($10 for US) was just too tempting
I'll have to check out their fees and structure.
If I traded frequently then Interactive Brokers would be cheap. I try not to trade often.
IG markets I really can't understand what protections we'd have if something happened to them. There's no mention of SIPC (US Insurance) or CHESS sponsorship on their site.
I currently use optionsxpress.com.au for US trades, now down to 5USD. They're part of Schwab. No Australian trades though.
I was looking at IB, but I'm just a beginner, and their platform feels too complex ... I'm not sure if $1000/month of trades would be worth it with IB, or if I should hold off and do a lump sum, I'm obviously new at this, and recognize that all the banks charge an arm and a leg, and would rather find something cheap and reliable to use.
As for Optionsxpress, I'll take a look at them. I am okay with US and International stocks instead of Aus. Do they also convert money to US? Or do you use an external provider, and transfer money over?
Sorry for all the questions. Thanks for all your help!
Post by: lush on July 11, 2017, 02:21:59 PM
Superannuation is a tax haven with assets that you cannot use until you reach your preservation age - probably 60.Thanks for the super overview - our biggest challenge is that we can't touch super until we are 60, so that's about 15 years away. In that time we hope to FIRE ( in the next 2 years) so really need to put all our cash outside super if we want to meet that goal.
Post by: lush on July 11, 2017, 02:28:06 PM
I also have don't like the unexpected CGT that comes post FY end. I was thinking that moving forward rather than keep topping up the Vanguard funds (VAS / Balanced) that I might consider ARGO or some other LIC as I don'd believe they pass on the CGT and set up your returns especially for retirement. Is this something you have considered?
Post by: lush on July 11, 2017, 02:34:54 PM
Post by: lush on July 11, 2017, 02:37:00 PM
I don't believe you can't do other things as well. Do you have gym membership? Would some equipment be able to replace that?... A bit of lateral thinking can save a lot of money.
Thanks for giving me a better understanding of the savings you made with house / garden changes. Some of those things we have already done and have also undertook a cost benefit analysis of other things like rain water tanks and solar panels - so far it didn't look like a good cost saving measure for return on investment, but will give it another go as things do change. We don't have gym memberships - walking keeps us fit enough. We have gone through all our expenditure for the last 10 years with a fine tooth comb and can only think of the health insurance being a cost we can reduce, but as stated earlier - just a bit concerned doing that - is that something you have looked into?
You could do a case study (see case study thread section) if you want people to help find those savings.
Do you have hospital cover or hospital plus extras? If you have extras, add up what you spent on the gap + the extras premiums and compare to what it would have cost without insurance. We are better off without extras, I think most people are unless you can find the right provider and pay no gap. I shopped around and found I could get save about $175ish a month if I left Bupa's top cover + extras and got top hospital cover elsewhere. More than enough to cover our physio and dental appointments.
You also need to look at the inclusions and think about whether you want the top hospital cover or if next best is ok. We do things that could lead to joint reconstructions, hence we have top cover as one of those done privately is $30k+. I haven't got round to changing yet...
We saved about a third on electricity usage after we had the place rewired (for safety) and LEDs put in. Bizarre.
Thanks for this information. Never thought about the case study...will look into it.Yes and reviewing health insurance inclusions etc to calculate if worth the additional "extras".
Post by: lush on July 11, 2017, 02:38:24 PM
lush - paying tax is generally a good thing. It means you are making money :)
Seriously though, with that level of assets you should consider looking at family trusts and company structures. Splitting the various income returns (dividends, capital gains etc) to different beneficiaries can save you tens of thousands in tax.
Get a good accountant and some good tax advice.
thanks marty - good accounts are hard to find :) Thanks for the info!
Post by: chasingthegoodlife on July 11, 2017, 02:53:42 PM
If you have 15 years before preservation age, and perhaps 30 afterwards, you would need at least a third of your asserts outside super and then two thirds within. Depending on your assett allocation you'd probably want more outside super so you had flexibility in what you sold if you needed to draw down when a particular fund or assett class was performing poorly. Also, your spending needs might not be even accross the lifespan - many people spend less in their 80s as their health limits the desire for travel etc.
But if your current split is more like 80% outside 20% inside, maybe think a bit more about how much of this you are likely to need before your preservation age?
I agreed with marty's advice above - with your lever of income and assetts you would probably benefit from professional advice on how to structure your assetts.
Now I'm curious how everyone else has worked out their inside/outside super balance?
Post by: marty998 on July 11, 2017, 03:48:14 PM
Now I'm curious how everyone else has worked out their inside/outside super balance?
70% in super, 30% outside - but that will only have to fund about five years till I reach 60.
Hard to determine with investment property debt. I have about $250k of net investment assets (property and shares) outside super, and $130k within. Guess that is roughly a 65/35 split.
Early days. Lots of time to grow it.
Post by: itchyfeet on July 12, 2017, 10:59:10 AM
- 25% paid off home
- 25% super
- 50% investments outside super
Will add to super post FIRE from any random surplus income we collect along the way.
We need a big chunk outside super as I'll be waiting 14 years to access super and DW 19 years.
Post by: lush on July 12, 2017, 02:20:14 PM
Post by: misterhorsey on July 12, 2017, 08:37:41 PM
@MisterHorsey and others that mentioned that you have been impacted by the CGT from Vanguard funds.
I also have don't like the unexpected CGT that comes post FY end. I was thinking that moving forward rather than keep topping up the Vanguard funds (VAS / Balanced) that I might consider ARGO or some other LIC as I don'd believe they pass on the CGT and set up your returns especially for retirement. Is this something you have considered?
Following on from this, for anyone who is interested...
TL;DR - capital gains included in fund distributions isn't the whole story.
I got my EOFY tax statement and it informs me that I my share of Capital Gains amounts to $14k, discounted down to $7k - this is from a fund worth almost 300k.
So approximately 2.3% of the total value of the fund has been distributed as capital gains.
'Luckily' I've crystallised losses of around $3.5k from other share boo boos, so that leaves $3.5k as a CGT tax liability.
I wasn't on the top marginal rate but on 37%, so about $1.3k will go to the tax person to pay for roads, infrastructure, detention centres, hospitals, politician salaries, submarines, pensions/welfare - so good stuff and the bad stuff, depending on your political views.
So it's not that bad.
One thing to consider is that I'm not terribly good at buying, selling or rebalancing. In the past I've bought shares that have gone up by 200%, only to watch them deflate right back down so that they are in the red. A prudent calculating dispassionate investor would have sold out part of these positions to crystallise gains, but also perhaps left some in the market. I do still have legacy direct share holdings These days I do take money off the table if a share has reached 100%, or 200%. Basically I recoup my initial investment (the shares pay me back) and I leave the rest in the market.
What the fund does is take care of rebalancing for you. Rebalancing is theoretically the most optimal way to ensure consistently high average returns. With rebalancing comes the crystalisation of capital gains and losses.
My ETFs don't distribute capital gains. But nor are they ever rebalanced by me. I've set them intending to forget them. This isn't optimal.
So having looked at the bigger picture, while I'm not happy about not knowing in advance how much CG I will receive before the EOFY, I'm starting to appreciate that its one of the costs of the fund that is part of optimising overall performance. The other piece of the puzzle is that the fund increased by around 13% or more over the year (it's hard to calculate exactly due to quarterly distributions) so this is quite a decent year.
So ultimately, while the capital gains and the CGT payable on these distributions isn't great, I think it's important to look at the bigger picture and appreciate that they are a cost to optimising a diversified portfolio.
This is a cost that could be avoided/ managed by investors taking a more hands on approach. But I don't think it's an arbitrary drag on your investment.
Happy to hear any other opinions on this of course. I'm no expert.
The other take away from this is that if I know that I'm going to cop a capital gain each year, in the thousands, it gives me an incentive to consider taking a punt on a few speculative shares.
ASL hit a low around 8c not that long ago, and is last trading at $1.70. (I bought in at $1 a while ago, before I was seduced by indexes, and saw my $1 go all the way down and back again.) If you knew you were going to be liable for CGT on a capital gain of $2000, why not pick a few unloved speculative small cap stocks, put $500 on a selection of 4, stick it in the bottom draw for a year. If they fall over then if you crystallise that loss you can offset your gain. If they don't fall over you can reinvest your winnings into your indexes, rinse and repeat.
The tax regime is somewhat underwriting your speculative investment.
Just an idea for those who are into indexes, but like me, don't mind a wee bit of market timing on occasion.
Thoughts?
Post by: dbm on July 12, 2017, 10:02:28 PM
Dividends in my vanguard managed funds were stupidly large this month.. on the order of 6% for my wholesale High Growth Lifestrategy. I guess it was from all the rebalancing they did, removing Australian property etc. Anyway gave me a nice boost to # of units with auto reinvestment even though the total value just dropped straight back to where it was the day afterwards.
On the downside they were significant enough to probably affect my taxes next year.
I'm in the same fund. I think you may find that even though the statement is emailed to you on 1 July 2017, it actually covers the distribution in the previous financial year (up to 30 June 2016). So they won't affect your taxes next year, but will impact your taxes in the financial year just past.
This is my one complaint about vanguard wholesale fund, and retail too probably. The distribution usually includes some capital gains, but they can't figure out the amount of CGT until 30 June (according to the vanguard rep I spoke to), meaning that if you have a range of investments it's impossible to strategically manage them. For example, I have a few direct share investments that are showing a bit of a loss, and if I'm going to have capital gains from a fund it would be good to crystallise those losses, but until I know how much CGT I'm up for, you don't know how much to sell.
I appreciate this is bit of a niche concern for most people.
The simple solution is to sell everything and just put all the proceeds into funds. But unfortunately legacy investment choices can incur capital gains tax implications so it's not so easy to do this.
For the Vanguard wholesale managed funds I do believe they advised you a few days before the end of the year, it was posted on the Forms and Notices on the 27/06/2017. Not much notice, but still 3 days to balance off your books.
Additionally, for each payment they do advise of the fund payment amount, so the correct non-resident WHT is withheld. Just not sure where they publish this.
Someone else mentioned LIC's, they will probably have as much CGT as a single sector MF/ETF, but as they are not a look through entity it is all done through their company tax return, they pay tax on it at 30% and then pay it to the holder as franked dividend. LIC's do have special treatment that they can pass on a tax offset for any gains that were held for more than 12 months, as companies are not eligible to discount any capital gains, but you as an Individual or SMSF can. A disadvantage is that you can't sell another asset to offset the realised gain that occurred inside a LIC like you can with an ETF.
Post by: misterhorsey on July 12, 2017, 11:12:33 PM
Dividends in my vanguard managed funds were stupidly large this month.. on the order of 6% for my wholesale High Growth Lifestrategy. I guess it was from all the rebalancing they did, removing Australian property etc. Anyway gave me a nice boost to # of units with auto reinvestment even though the total value just dropped straight back to where it was the day afterwards.
On the downside they were significant enough to probably affect my taxes next year.
I'm in the same fund. I think you may find that even though the statement is emailed to you on 1 July 2017, it actually covers the distribution in the previous financial year (up to 30 June 2016). So they won't affect your taxes next year, but will impact your taxes in the financial year just past.
This is my one complaint about vanguard wholesale fund, and retail too probably. The distribution usually includes some capital gains, but they can't figure out the amount of CGT until 30 June (according to the vanguard rep I spoke to), meaning that if you have a range of investments it's impossible to strategically manage them. For example, I have a few direct share investments that are showing a bit of a loss, and if I'm going to have capital gains from a fund it would be good to crystallise those losses, but until I know how much CGT I'm up for, you don't know how much to sell.
I appreciate this is bit of a niche concern for most people.
The simple solution is to sell everything and just put all the proceeds into funds. But unfortunately legacy investment choices can incur capital gains tax implications so it's not so easy to do this.
For the Vanguard wholesale managed funds I do believe they advised you a few days before the end of the year, it was posted on the Forms and Notices on the 27/06/2017. Not much notice, but still 3 days to balance off your books.
Additionally, for each payment they do advise of the fund payment amount, so the correct non-resident WHT is withheld. Just not sure where they publish this.
Someone else mentioned LIC's, they will probably have as much CGT as a single sector MF/ETF, but as they are not a look through entity it is all done through their company tax return, they pay tax on it at 30% and then pay it to the holder as franked dividend. LIC's do have special treatment that they can pass on a tax offset for any gains that were held for more than 12 months, as companies are not eligible to discount any capital gains, but you as an Individual or SMSF can. A disadvantage is that you can't sell another asset to offset the realised gain that occurred inside a LIC like you can with an ETF.
Thanks for the tip! Yes you're right. They include a notice in the Forms and Notices section. That would have been handy to have known. 3 days is ample time for a bit of quick selling!
I don't actually recall receiving any email alerting me to this. And it's a also bit disappointing that the Vanguard person I spoke to on the phone didn't alert me to this when I specifically asked them if there was any advance warning of Capital Gains included in any wholesale funds. He advised that they only do the calculation on the 30th of June. But this even rough guestimate would be handy.
But I'll be in a better position next year. MMM forum hive mind to the rescue!
Post by: kivex on July 13, 2017, 05:36:34 AM
Thanks for the tip! Yes you're right. They include a notice in the Forms and Notices section. That would have been handy to have known. 3 days is ample time for a bit of quick selling!
I don't actually recall receiving any email alerting me to this.
I use a web page monitoring service (specifically https://visualping.io) that lets me know when Vanguard posts a new notice to that section of their website.
Post by: lush on July 13, 2017, 02:38:55 PM
Given the level of uncertainty with CGT impacts from Vanguard Managed funds and trying to plan to FIRE we are at a cross roads as to whether we continue to top up our Balanced Fund that (currently around $930k) has about 20% franked distributions or VAS (currently $115k) that has about 50 -70% franked distributions. We are thinking go with VAS due to tax break, because it will be a little more manageable during FIRE. Asset allocation will sway to more risk and less diversification. Overall we have estimated we need $1.3mil in Managed Funds to FIRE meaning VAS would sit at around $300k leading going into FIRE.
Post by: foreveryoung on July 13, 2017, 11:22:46 PM
Sorry if this question has been asked before in this thread but I could really use some help and assistance.
I'm a 20 year old male, currently in university and working part-time.
I'm looking to invest for the future and hopefully FIRE some-time in the future. I've read all about FIRE, finance and Investing generally, and i'm pretty set on investing in Index Funds primarily. I'm eager to get early into the market to really unlock the power of compound interests.
I currently have 10k saved up and looking to make my first plunge in the market. After that i'm hoping to invest 10k every year ( probably in 2 separate 5k partials twice a year to reduce brokerage costs) until I graduate university and hopefully end up with a higher paying job to invest some more.
As of now i'm torn between two options.
Option 1: (VAS, VGS, VGE) - 40%, 40%, 20%
Option 2: (VAS, VTS, VEU) - 40%, 40%, 20%
Any thoughts on this asset allocation?
In terms of AA at the moment my risk level is enough for me to be 100% in stocks. Not looking at including bonds until a bit later down the future. I understand Option 1 is a bit favourable in terms of tax purposes and more convenient, no W8Ben form i've read, however Option 2 seems to cover a bit more of the market. Would love to get some advise.
Am I heading in the right track or am I missing something? Would appreciate someone to put me in the right direction!
Thank you!
Post by: misterhorsey on July 14, 2017, 02:32:20 AM
Sounds good to me. I wish I'd had your insight at that age. You're setting yourself up with a great foundation.
I'd plump for Option 1, as it's easier to manage and I think it actually has more coverage: Aus / All World / Emerging Markets
Option 2 has Aus / US / All World ex US
However, you could also do the Lifestyle Strategy Fund route if you want greater diversification from the get go, automatic rebalancing appeals, you can invest your cash as soon as it's in your hand instead of waiting to build up a lump sum, and you are happy to pay marginally higher fees for the service.
Post by: mw on July 16, 2017, 01:01:56 AM
We have setup for FIRE like this:
- $1M Vanguard LifeStrategy Growth & High Growth (via family trust)
- $400k investment property in Melbourne
+ live in $400k house
No debts and access to 450k line of credit.
We're 36 so aiming to live off dividends and happy to ride out ups and downs in income (don't need stability). We aren't expecting to add much to it for another 5+ years if / when my husband's hobby makes money and I'm not focusing full-time on my daughter.
We have no interest in active investing so Lifestrategy seemed like a good way to get diversification + auto rebalancing. However we've been surprised at the amount of capital gains over the last 2 years. We've been reinvesting the capital gains back in, so it feels like it just increases our taxable income and decreases the amount in the funds with no benefit.
Are there any low-fee alternatives where you get less capital gains (perhaps where redemptions aren't passed on?) but still decent diversification?
Thanks in advance for any advice!
Post by: JACKA on July 16, 2017, 02:28:13 AM
However, you could also do the Lifestyle Strategy Fund route if you want greater diversification from the get go, automatic rebalancing appeals, you can invest your cash as soon as it's in your hand instead of waiting to build up a lump sum, and you are happy to pay marginally higher fees for the service.
Thanks for this Misterhorsey. Im going to be debt free in August and I'm deciding whether to put my $5K tax return into either a
(VAS, VGS, VGE) or (VAS, VTS, VEU) ETF portfolio - OR like you suggested a Lifestyle Strategy Fund like the Vanguard High Growth Index Fund.
I feel like if I went down the ETF portfolio route I'd get sucked into trying to gauge the market and buying low, which I feel would take away from the simplicity and set and forget appeal of long term index investing. The Auto re-balancing appeals to me also but at the same time I don't know how difficult re-balancing is, I've read the whole thread but i'm still confused as to how re-balancing is done and how frequently?
Also, does being able to trickle money into a Retail Fund have an effect similar to Dollar Cost Averaging ?
Thank you for every ones contributions to this thread. It's an amazing resource.
Post by: marty998 on July 16, 2017, 04:38:01 AM
However, you could also do the Lifestyle Strategy Fund route if you want greater diversification from the get go, automatic rebalancing appeals, you can invest your cash as soon as it's in your hand instead of waiting to build up a lump sum, and you are happy to pay marginally higher fees for the service.
Thanks for this Misterhorsey. Im going to be debt free in August and I'm deciding whether to put my $5K tax return into either a
(VAS, VGS, VGE) or (VAS, VTS, VEU) ETF portfolio - OR like you suggested a Lifestyle Strategy Fund like the Vanguard High Growth Index Fund.
I feel like if I went down the ETF portfolio route I'd get sucked into trying to gauge the market and buying low, which I feel would take away from the simplicity and set and forget appeal of long term index investing. The Auto re-balancing appeals to me also but at the same time I don't know how difficult re-balancing is, I've read the whole thread but i'm still confused as to how re-balancing is done and how frequently?
Also, does being able to trickle money into a Retail Fund have an effect similar to Dollar Cost Averaging ?
Thank you for every ones contributions to this thread. It's an amazing resource.
You don't need to rebalance if you've only got $5k in the market. Maybe the previous poster who is early retired with $1m in Vanguard High Growth options should consider rebalancing (perhaps if only just down to the Growth option to take some risk off the table, but not too much).
For $5k, just buy VAS. Your next $5k can go in VTS if you choose.
I take the basic route and just have everything ($120k+) in VAS (with a couple of minnows to add some spark at the margins).
Post by: superannuationfreak on July 16, 2017, 05:29:37 AM
But that needs to be weighed against behavioural costs. If an all-in-one fund will keep you invested/investing where you procrastinate with an ETF then it may be worth it. Note the Wholesale managed funds for International Shares, Australian Shares, etc. tend to be similar costs to the ETFs and can be BPay'ed into also if that makes things easier.
Two other points on rebalancing.
i) As Marty points out, when you're just starting your precise asset allocation is less important than your decision to save and keep fixed costs of investing low. If you put $5 or 10k into VAS or VGS or VAS+VGS they will all likely be fine.
ii) When you have more, % costs and asset allocation matter more. But (historically) there's no need to rebalance more than once per year and if you don't rebalance all the way due to tax and other costs that's fine, it's more about mitigating risks. Ideally, if you have some super, you can often rebalance within super at much lower tax cost.
As for Optionsxpress, I'll take a look at them. I am okay with US and International stocks instead of Aus. Do they also convert money to US? Or do you use an external provider, and transfer money over?
They do convert money to USD at, I seem to recall, reasonable rates. However at the moment I think they only send USD via cheque or back to an account in your name so it's useful to have an exit strategy (e.g. I have a multi-currency account that can take USD). I'll be interested to see if this changes when they take on Schwab systems.
Speaking of which, recently received an email that they're switching to Schwab branding. The best part of that is that once they are Schwab I'll have free trades on Schwab ETFs (and some non-Schwab but they tend to be a bit more esoteric). They'll also provide free account transfers and terminations until April 2018 so, as long as they don't take too long to do the switch, I'll get to see how they operate and switch to IB for free if it seems worthwhile.
Post by: misterhorsey on July 16, 2017, 08:41:45 AM
However, you could also do the Lifestyle Strategy Fund route if you want greater diversification from the get go, automatic rebalancing appeals, you can invest your cash as soon as it's in your hand instead of waiting to build up a lump sum, and you are happy to pay marginally higher fees for the service.
Thanks for this Misterhorsey. Im going to be debt free in August and I'm deciding whether to put my $5K tax return into either a
(VAS, VGS, VGE) or (VAS, VTS, VEU) ETF portfolio - OR like you suggested a Lifestyle Strategy Fund like the Vanguard High Growth Index Fund.
I feel like if I went down the ETF portfolio route I'd get sucked into trying to gauge the market and buying low, which I feel would take away from the simplicity and set and forget appeal of long term index investing. The Auto re-balancing appeals to me also but at the same time I don't know how difficult re-balancing is, I've read the whole thread but i'm still confused as to how re-balancing is done and how frequently?
Also, does being able to trickle money into a Retail Fund have an effect similar to Dollar Cost Averaging ?
Thank you for every ones contributions to this thread. It's an amazing resource.
I agree with others above that $5k alone isn't worth rebalancing, however presumably you'd be keen to add to that amount over time. So I still think that the life strategy fund is worth considering as it sets up a saving/investing habit. And yes, trickling money into a retail fund is equivalent to dollar cost averaging (into a diversified portfolio with a specific, automatically rebalancing asset allocation).
I don't think rebalancing needs to be complex, as mentioned above. You set your asset allocation and each year on a arbitrarily chosen date you sell enough units in the asset class that has increased above it's allocation, and buy enough units in the asset class that has shrunk over the year (or grown proportionally less), to restore them to their original allocations. There would be a small amount of CGT calculations each time you do it, but this shouldn't be too much of an issue if you diligently track your purchases in a spreadsheet.
But behaviourally, it can be challenging to be sufficiently disciplined to save lump sums and then tip it into the market once you've hit a target amount. Some people have no difficulty doing this. But people like me can't help but check the market and feel some desire to time it to optimise their entry point. I'm sure the discipline gets easier the longer you do it though.
It's also nice to ship your cash into investments as soon as you get it, rather than growing a stash that could be tempting to divert to other expenditures. Also, holding onto cash awaiting for ETF purchases can be a bit annoying if you see an ETF price slowly crawl upwards (or great, if an ETF price declines). But sticking it in a fund as soon as you get it discourages you from price watching.
My own portfolio has a significant hangover of legacy investments that have skewed my allocation so that I am nowhere near anything that's ideal. Things still seem to go up though, perhaps not so optimally, but I try not to worry about it too much. I'm edging towards an ideal allocation slowly with each tax year, or each contribution to my fund.
But I envy those who are just starting out, who have a blank slate and the presence of mind to choose an ideal allocation from the beginning, and who recognise their own potential investing Achilles heels. Which is why I like endorsing that approach!
Post by: lush on July 17, 2017, 02:30:44 PM
Hi everyone. My husband, 3yo daughter and I moved back to Australia 2 years ago and are still getting our heads around the Australian system (after living in the UK). Would love some input as everyone seems very well informed and helpful here!
We have setup for FIRE like this:
- $1M Vanguard LifeStrategy Growth & High Growth (via family trust)
- $400k investment property in Melbourne
+ live in $400k house
No debts and access to 450k line of credit.
We're 36 so aiming to live off dividends and happy to ride out ups and downs in income (don't need stability). We aren't expecting to add much to it for another 5+ years if / when my husband's hobby makes money and I'm not focusing full-time on my daughter.
We have no interest in active investing so Lifestrategy seemed like a good way to get diversification + auto rebalancing. However we've been surprised at the amount of capital gains over the last 2 years. We've been reinvesting the capital gains back in, so it feels like it just increases our taxable income and decreases the amount in the funds with no benefit.
Are there any low-fee alternatives where you get less capital gains (perhaps where redemptions aren't passed on?) but still decent diversification?
Thanks in advance for any advice!
We are in a similar set up with approx 900k in Vanguard balanced fund & about $100k in VAS. Yes the CG impact I mentioned in one of my earlier posts - I don't like the surprise factor, so we are thinking of topping up our VAS in order to have at least franked dividends to enable a reduction of tax. I was also considering for a moment taking a margin loan to buy shares to offset the tax implications - but don't want to carry any more debt leading into FIRE. There are others here that have responded to me with other strategies like super, family trusts etc that are worth a read.
Post by: Wadiman on July 17, 2017, 04:03:09 PM
Post by: AussieLad on July 17, 2017, 10:06:06 PM
I'm keen to merge to make cost tracking easier, but wonder if the benefit of having most of our savings in her account (lower income tax bracket) is a financially wiser move...
Have almost 100k, which we are currently deciding whether to invest in ETF's or keeping liquid for possibly purchasing our first PPOR (currently renting).
Post by: GT on July 17, 2017, 10:19:43 PM
A combined account for the two of you for day to day banking requirements and an online one set up in her name may be a better option.
If you're planning on a PPOR in the next year or two, keeping it at cash would be more advantageous than an ETF, however with $100K, you may be able to get into the Vanguard Wholesale funds, so it could be worthwhile, depending on when you'd want to access the cash for you PPOR purchase.
As the lesser earner in our family unit I have cash we haven't allocated to jobs yet (and when it's not all used up supporting extended Mat Leave) sitting in an ING account under my name. Anything else sits on our home loan.
Post by: AussieLad on July 17, 2017, 11:27:11 PM
If you're relying on her bank account for savings (and the interest it generates) then you're likely missing out on better deals available online like ING.
A combined account for the two of you for day to day banking requirements and an online one set up in her name may be a better option.
If you're planning on a PPOR in the next year or two, keeping it at cash would be more advantageous than an ETF, however with $100K, you may be able to get into the Vanguard Wholesale funds, so it could be worthwhile, depending on when you'd want to access the cash for you PPOR purchase.
As the lesser earner in our family unit I have cash we haven't allocated to jobs yet (and when it's not all used up supporting extended Mat Leave) sitting in an ING account under my name. Anything else sits on our home loan.
Thanks for your reply.
That's a valid point, will look into merging a day-to-day account, and setting up a higher interest savings account then the poor 1.9% we are currently getting.
Have read a fair bit into ETF's, though don't know much about the Wholesale Funds.
From a quick look, they have the higher initial buy-in but then also have higher management costs.
What's the difference between them? There must be a benefit to the Wholesale fund I would imagine?
Post by: marty998 on July 18, 2017, 03:14:17 AM
What's the difference between them? There must be a benefit to the Wholesale fund I would imagine?
Comment doesn't necessarily apply to Vanguard but the entire world of Finance is devoted to coming up with complicated names and structures that are impossible to understand, so that they can extract as much money from you as possible without you knowing.
e.g.
- a wholesale fund sounds cheaper than retail but may include investments that are riskier for a normal retail investor.
- add the word "structured" to the name of the fund and you can double you management fee
- add the word "hedge" to the name of the fund and you can double your management fee again plus add a performance fee of 20% of outperformance.
Name your firm after a big mountain (Everest, K2) or some other far away object in the universe (Magellan, Orion, Anteras etc) and you're pretty much a Fund Manager who can charge whatever they like...
Post by: Ozstache on July 18, 2017, 03:15:17 AM
A combined account for the two of you for day to day banking requirements and an online one set up in her name may be a better option.
My wife and I arrange our bank accounts this way.
Post by: misterhorsey on July 18, 2017, 03:32:22 AM
If you're relying on her bank account for savings (and the interest it generates) then you're likely missing out on better deals available online like ING.
A combined account for the two of you for day to day banking requirements and an online one set up in her name may be a better option.
If you're planning on a PPOR in the next year or two, keeping it at cash would be more advantageous than an ETF, however with $100K, you may be able to get into the Vanguard Wholesale funds, so it could be worthwhile, depending on when you'd want to access the cash for you PPOR purchase.
As the lesser earner in our family unit I have cash we haven't allocated to jobs yet (and when it's not all used up supporting extended Mat Leave) sitting in an ING account under my name. Anything else sits on our home loan.
Thanks for your reply.
That's a valid point, will look into merging a day-to-day account, and setting up a higher interest savings account then the poor 1.9% we are currently getting.
Have read a fair bit into ETF's, though don't know much about the Wholesale Funds.
From a quick look, they have the higher initial buy-in but then also have higher management costs.
What's the difference between them? There must be a benefit to the Wholesale fund I would imagine?
I'm a little unclear on whether you are you referring to the price difference between:
- ETFs v Wholesale Funds?
or
- Wholesale Funds v Retail Funds.
In terms of fees it goes, from lower to higher (assuming the fund is comprised of the same asset class/index):
ETF -> Wholesale Fund (Single Index, i.e International Shares) -> Wholesale Fund (Diversified, i.e. mix of different indexes) -> Retail Fund (Single Index) -> Retail Fund (Life Strategy).
I'm assuming that the increasing fees along this scale reflect lower economies of scale, and complexity of the fund structure/greater amounts of admin to service.
Taking the VAS ETF as an example, the fees are ETF 0.14%, Wholesale 0.18%, Retail 0.75%.
Retail does seem quite a bit steeper than the other options, but remember it rachets down once you hit certain thresholds (i.e 0.35% for all amounts over $100k).
But someone else may be able to provide a bit more nuanced insight into what you get for the greater fee.
From my brief time in a Vanguard Retail fund I don't recall many more bells and whistles than the Wholesale fund I am in now. Which leads me to think it's purely economies of scale.
Post by: deborah on July 18, 2017, 03:35:45 AM
My understanding is that if you have a joint account, you can split the interest earnt whichever way makes sense to you in your tax return, so long as you have documented the reason for the distribution. If that is true, there is no need for a separate one-name account.A combined account for the two of you for day to day banking requirements and an online one set up in her name may be a better option.
My wife and I arrange our bank accounts this way.
Post by: Ozstache on July 18, 2017, 04:01:30 AM
My understanding is that if you have a joint account, you can split the interest earnt whichever way makes sense to you in your tax return, so long as you have documented the reason for the distribution. If that is true, there is no need for a separate one-name account.A combined account for the two of you for day to day banking requirements and an online one set up in her name may be a better option.
My wife and I arrange our bank accounts this way.
That is true, however I expect you are far more likely to raise an audit flag with the ATO by modifying the default 50/50 split of interest distribution they expect to see. Best to stay under the ATO audit radar wherever you can IMO and setting up accounts this way is very easy to do.
Post by: deborah on July 18, 2017, 04:17:39 AM
Some time ago, I got a letter from the ATO about this very thing. I rang them up. After lengthy conversation (at first they said what I was doing was wrong), they said it was OK. So, yes, it is a radar item.My understanding is that if you have a joint account, you can split the interest earnt whichever way makes sense to you in your tax return, so long as you have documented the reason for the distribution. If that is true, there is no need for a separate one-name account.A combined account for the two of you for day to day banking requirements and an online one set up in her name may be a better option.
My wife and I arrange our bank accounts this way.
That is true, however I expect you are far more likely to raise an audit flag with the ATO by modifying the default 50/50 split of interest distribution they expect to see. Best to stay under the ATO audit radar wherever you can IMO and setting up accounts this way is very easy to do.
Post by: misterhorsey on July 18, 2017, 08:04:06 AM
Thanks for the tip! Yes you're right. They include a notice in the Forms and Notices section. That would have been handy to have known. 3 days is ample time for a bit of quick selling!
I don't actually recall receiving any email alerting me to this.
I use a web page monitoring service (specifically https://visualping.io) that lets me know when Vanguard posts a new notice to that section of their website.
Thanks for the tip Kivex.
Post by: AussieLad on July 18, 2017, 05:05:31 PM
Taking the VAS ETF as an example, the fees are ETF 0.14%, Wholesale 0.18%, Retail 0.75%.
I guess this is what I was alluding to.
What incentive is there to pay an extra 0.04% (and the higher buy-in) for Wholesale compared to the standard VAS ETF?
Post by: misterhorsey on July 18, 2017, 06:14:24 PM
I'm not sure about the higher buy in, but there's no brokerage on the fund contribution (which is no doubt included in the price anyway).
But if you have a more DIY inclination, are more likely to invest via irregular lump sums (rather than regularly drip feed), are attracted to focused indexes (as opposed to diversified funds), then an ETF way is probably the way to to go.
Oh one last thing, if you are drip feeding into a fund, when it comes time to draw down, if you wanted to take small amounts out as you need, it's probably more administratively straightforward to withdraw small amounts from a fund than if you wanted to sell out of ETFs you 'lump summed' into. Just from a record keeping / capital gains tracking perspective. Spreadsheets are great but they don't come naturally to everyone!
Post by: kivex on July 19, 2017, 01:53:41 AM
The only advantage I can really think of is the fund allows you to drip feed small amounts into the fund. Even though the Wholesale fact sheet states that minimum contributions is $5k a pop, they don't police this and I've regularly put in 3 figure amounts.
The Vanguard rep that I spoke to said that if you wanted to contribute to a new wholesale fund then there is a $5k initial requirement, however after that you can send a minimum of $100 to that fund.
Post by: JuicyCrab on July 19, 2017, 03:40:25 AM
The only advantage I can really think of is the fund allows you to drip feed small amounts into the fund. Even though the Wholesale fact sheet states that minimum contributions is $5k a pop, they don't police this and I've regularly put in 3 figure amounts.
I'm not sure about the higher buy in, but there's no brokerage on the fund contribution (which is no doubt included in the price anyway).
But if you have a more DIY inclination, are more likely to invest via irregular lump sums (rather than regularly drip feed), are attracted to focused indexes (as opposed to diversified funds), then an ETF way is probably the way to to go.
Oh one last thing, if you are drip feeding into a fund, when it comes time to draw down, if you wanted to take small amounts out as you need, it's probably more administratively straightforward to withdraw small amounts from a fund than if you wanted to sell out of ETFs you 'lump summed' into. Just from a record keeping / capital gains tracking perspective. Spreadsheets are great but they don't come naturally to everyone!
I was working through the whole Fund vs ETF dilemma for a while and after running some spreadsheet calcs, the wholesale fund never came out the winner expense wise (and this was when I was using a high brokerage of $19.95/transaction too!).
The ETF option can be completely optimised too by using cheap brokerage, so I recently switched to CMC Markets ($11/trade) to really bring down those transaction costs.
1 purchase every month of $3k-$5k, the brokerage + management fees beats the wholesale fund in an accumulation phase, especially for larger balances.
I believe a wholesale fund would benefit someone in a drawdown phase, but even then if you were heavily invested in Australian shares, you could simply allocate dividends to yourself as cash payments rather than a DRP and bypass any brokerage costs.
Food for thought :)
Post by: FFA on July 19, 2017, 07:15:39 AM
Post by: steveo on July 20, 2017, 04:47:04 AM
Has anyone read this article. I'm interested in how they get their figures. I think the idea is the pension provides for a base level of expenses and Super simply tops up that spending. The amount you need though looks really low.
Post by: Ozstache on July 20, 2017, 05:11:16 AM
http://www.smh.com.au/money/super-and-funds/australia-nears-the-top-in-global-ranking-of-retiree-wellbeing-20170719-gxeb3s.html
Has anyone read this article. I'm interested in how they get their figures. I think the idea is the pension provides for a base level of expenses and Super simply tops up that spending. The amount you need though looks really low.
I reckon the $60k a couple in retirement they state is pretty bang on to be comfortable in Oz. We spend that now with plenty of little luxuries thrown in, so could easily do it over the long haul.
Post by: steveo on July 20, 2017, 06:47:22 AM
http://www.smh.com.au/money/super-and-funds/australia-nears-the-top-in-global-ranking-of-retiree-wellbeing-20170719-gxeb3s.html
Has anyone read this article. I'm interested in how they get their figures. I think the idea is the pension provides for a base level of expenses and Super simply tops up that spending. The amount you need though looks really low.
I reckon the $60k a couple in retirement they state is pretty bang on to be comfortable in Oz. We spend that now with plenty of little luxuries thrown in, so could easily do it over the long haul.
We spend about $40k now with 3 kids. I don't think you need anywhere near $60k. This is based on owning your own home.
Post by: lush on July 21, 2017, 11:50:36 PM
http://www.smh.com.au/money/super-and-funds/australia-nears-the-top-in-global-ranking-of-retiree-wellbeing-20170719-gxeb3s.html
Has anyone read this article. I'm interested in how they get their figures. I think the idea is the pension provides for a base level of expenses and Super simply tops up that spending. The amount you need though looks really low.
I reckon the $60k a couple in retirement they state is pretty bang on to be comfortable in Oz. We spend that now with plenty of little luxuries thrown in, so could easily do it over the long haul.
We spend about $40k now with 3 kids. I don't think you need anywhere near $60k. This is based on owning your own home.
$40k? really? That's fantastic. What does that breakdown look like? We are a couple with no kids and and I know that if we take out repairs and holidays then its 50k. Do you get government payments for your children? Sorry to be so nosy, but am amazed at the 40k figure.
Post by: lush on July 22, 2017, 12:14:27 AM
SMH Article on investment loans :
http://www.smh.com.au/money/investing/investors-falling-foul-of-rules-on-taxdeductible-interest-20170720-gxf3qe.html
Very interesting and then that got me thinking that I have an investment loan tied to an offset account which I have filled to match the loan amount -effectively not paying the interest, however if I remove the funds and have to start paying interest again, my account has assured me that is not breaking any tax laws. He said that I can remove and top up whenever I want with no issues. Is he right? Thanks.
Post by: marty998 on July 22, 2017, 02:12:40 AM
Post by: steveo on July 22, 2017, 07:10:09 PM
http://www.smh.com.au/money/super-and-funds/australia-nears-the-top-in-global-ranking-of-retiree-wellbeing-20170719-gxeb3s.html
Has anyone read this article. I'm interested in how they get their figures. I think the idea is the pension provides for a base level of expenses and Super simply tops up that spending. The amount you need though looks really low.
I reckon the $60k a couple in retirement they state is pretty bang on to be comfortable in Oz. We spend that now with plenty of little luxuries thrown in, so could easily do it over the long haul.
We spend about $40k now with 3 kids. I don't think you need anywhere near $60k. This is based on owning your own home.
$40k? really? That's fantastic. What does that breakdown look like? We are a couple with no kids and and I know that if we take out repairs and holidays then its 50k. Do you get government payments for your children? Sorry to be so nosy, but am amazed at the 40k figure.
I don't have a clue where we spend all our money on. We don't get any payments from the government. We do own our house so we don't pay rent or a mortgage. Sometimes we would go over 40k but it wouldn't be much over and typically because something important breaks. For instance the hot water system or the oven or the washing machine. I just checked our living expenses and they are $40,300 based upon how much we earn less how much we save. The only issue here is sometimes we may have to spend some of our savings. This is really rare and we typically note it down so we know when we've gone over our budget in a year. To be fair this year I haven't noted it down and I know that we've done it but it wouldn't be anymore than $1000.
We spend $200-$300 per week on groceries. Internet access is about $60 per month. $18 per month for one phone. My phone is free from work. We occasionally eat out - it used to be once or twice a year but we've been doing this once per month. We have one car. The kids expenses are the difficult things because they randomly come up.
I'm interested in how you can spend $50k but this is dependent on not paying rent or mortgage. I should add that I tend not to pay for anything like books, TV shows, movies etc. I basically don't pay for digital content but watch and read whatever I want. The Internet has made stuff that people pay a tonne for available for free for everyone else.
Post by: onewayfamily on July 23, 2017, 10:51:26 AM
$40k? really? That's fantastic. What does that breakdown look like? We are a couple with no kids and and I know that if we take out repairs and holidays then its 50k. Do you get government payments for your children? Sorry to be so nosy, but am amazed at the 40k figure.
For what it's worth our spending with 2 young kids before we left Australia was around $37,000 for everything (including full-time childcare x 2) except rent. We also weren't eligible for any government payments since we started working full-time a few years before that.
Post by: JuicyCrab on July 23, 2017, 09:52:35 PM
$40k? really? That's fantastic. What does that breakdown look like? We are a couple with no kids and and I know that if we take out repairs and holidays then its 50k. Do you get government payments for your children? Sorry to be so nosy, but am amazed at the 40k figure.
For what it's worth our spending with 2 young kids before we left Australia was around $37,000 for everything (including full-time childcare x 2) except rent. We also weren't eligible for any government payments since we started working full-time a few years before that.
Hey mate, just wondering after having your little ones how that affected your household budget? We've recently had a little girl and I've been pretty anxious about my financial plans being blown out of the water because of it. Just looking for another Aus MMM parents opinion :)
Cheers
Post by: onewayfamily on July 23, 2017, 10:24:21 PM
Hey mate, just wondering after having your little ones how that affected your household budget? We've recently had a little girl and I've been pretty anxious about my financial plans being blown out of the water because of it. Just looking for another Aus MMM parents opinion :)
Cheers
Honestly kids really aren't that expensive except for childcare. Clothes/Toys - mostly thrift stores, hand-me-downs and gifts; Food - if you keep them healthy and just keep trying to cook what you normally do, it's essentially just an extra 20-30% added on, so nothing serioius, at least until they get a bit older. If you can make do without getting more space wherever you live that's fantastic - we had a spare bedroom already so we've never really had to move just to get extra space for the kids - the two of them have basically always slept in the same room and they got used to it just fine.
The only thorn, like I mentioned, is childcare. If you or your partner want to be a stay at home parent (a more than full-time job) then that's fine and won't cost you any extra other than the lost earnings. But if you're like us, and need at least some childcare, it can be expensive. We've realised it's also a lot better for the kids to learn to socialise properly.
The only other thing that comes to mind that's a lot more expensive, is travel. It's a non-essential but we love travelling and now that we're FIRE'd we feel like we're not living our lives to the fullest if we're not either travelling or planning our next trip. Now every flight is 4 tickets :-( and travel/accomodation is also a lot more complicated than when you're backpacking alone or as a couple.
Post by: Gremlin on July 24, 2017, 12:22:56 AM
Post by: Ozstache on July 24, 2017, 02:36:07 AM
Post by: lush on July 24, 2017, 02:37:26 PM
http://www.smh.com.au/money/super-and-funds/australia-nears-the-top-in-global-ranking-of-retiree-wellbeing-20170719-gxeb3s.html
Has anyone read this article. I'm interested in how they get their figures. I think the idea is the pension provides for a base level of expenses and Super simply tops up that spending. The amount you need though looks really low.
I reckon the $60k a couple in retirement they state is pretty bang on to be comfortable in Oz. We spend that now with plenty of little luxuries thrown in, so could easily do it over the long haul.
We spend about $40k now with 3 kids. I don't think you need anywhere near $60k. This is based on owning your own home.
$40k? really? That's fantastic. What does that breakdown look like? We are a couple with no kids and and I know that if we take out repairs and holidays then its 50k. Do you get government payments for your children? Sorry to be so nosy, but am amazed at the 40k figure.
I don't have a clue where we spend all our money on. We don't get any payments from the government. We do own our house so we don't pay rent or a mortgage. Sometimes we would go over 40k but it wouldn't be much over and typically because something important breaks. For instance the hot water system or the oven or the washing machine. I just checked our living expenses and they are $40,300 based upon how much we earn less how much we save. The only issue here is sometimes we may have to spend some of our savings. This is really rare and we typically note it down so we know when we've gone over our budget in a year. To be fair this year I haven't noted it down and I know that we've done it but it wouldn't be anymore than $1000.
We spend $200-$300 per week on groceries. Internet access is about $60 per month. $18 per month for one phone. My phone is free from work. We occasionally eat out - it used to be once or twice a year but we've been doing this once per month. We have one car. The kids expenses are the difficult things because they randomly come up.
I'm interested in how you can spend $50k but this is dependent on not paying rent or mortgage. I should add that I tend not to pay for anything like books, TV shows, movies etc. I basically don't pay for digital content but watch and read whatever I want. The Internet has made stuff that people pay a tonne for available for free for everyone else.
Thanks for that information.
We don't have a mortgage to pay. I looked at our expenses and it averages out to be $3.5 - per month - not including new appliances / repairs ( this year alone we had to get a new fridge, washing machine, cooktop, hot water system, roof repairs, fireplace repairs, pool renovations and plumbing repairs). We also own a large pool and a large garden. Costs associated with running these alone can add up. We own only a 15 year old car and keep all our living expenses as low as possible. I worked out that without even getting out of bed our monthly costs to keep the lights on (so to speak) is about $1100. I am hesitant to underestimate a realistic figure to FIRE on as the last thing I want to have to do is be forced back into the workforce because of poor planning. I think the only way to reduce our costs significantly would be to downsize, however reluctant to do that since we really love our house and where we live.
Post by: deborah on July 24, 2017, 02:51:40 PM
Post by: steveo on July 24, 2017, 03:56:33 PM
http://www.smh.com.au/money/super-and-funds/australia-nears-the-top-in-global-ranking-of-retiree-wellbeing-20170719-gxeb3s.html
Has anyone read this article. I'm interested in how they get their figures. I think the idea is the pension provides for a base level of expenses and Super simply tops up that spending. The amount you need though looks really low.
I reckon the $60k a couple in retirement they state is pretty bang on to be comfortable in Oz. We spend that now with plenty of little luxuries thrown in, so could easily do it over the long haul.
We spend about $40k now with 3 kids. I don't think you need anywhere near $60k. This is based on owning your own home.
$40k? really? That's fantastic. What does that breakdown look like? We are a couple with no kids and and I know that if we take out repairs and holidays then its 50k. Do you get government payments for your children? Sorry to be so nosy, but am amazed at the 40k figure.
I don't have a clue where we spend all our money on. We don't get any payments from the government. We do own our house so we don't pay rent or a mortgage. Sometimes we would go over 40k but it wouldn't be much over and typically because something important breaks. For instance the hot water system or the oven or the washing machine. I just checked our living expenses and they are $40,300 based upon how much we earn less how much we save. The only issue here is sometimes we may have to spend some of our savings. This is really rare and we typically note it down so we know when we've gone over our budget in a year. To be fair this year I haven't noted it down and I know that we've done it but it wouldn't be anymore than $1000.
We spend $200-$300 per week on groceries. Internet access is about $60 per month. $18 per month for one phone. My phone is free from work. We occasionally eat out - it used to be once or twice a year but we've been doing this once per month. We have one car. The kids expenses are the difficult things because they randomly come up.
I'm interested in how you can spend $50k but this is dependent on not paying rent or mortgage. I should add that I tend not to pay for anything like books, TV shows, movies etc. I basically don't pay for digital content but watch and read whatever I want. The Internet has made stuff that people pay a tonne for available for free for everyone else.
Thanks for that information.
We don't have a mortgage to pay. I looked at our expenses and it averages out to be $3.5 - per month - not including new appliances / repairs ( this year alone we had to get a new fridge, washing machine, cooktop, hot water system, roof repairs, fireplace repairs, pool renovations and plumbing repairs). We also own a large pool and a large garden. Costs associated with running these alone can add up. We own only a 15 year old car and keep all our living expenses as low as possible. I worked out that without even getting out of bed our monthly costs to keep the lights on (so to speak) is about $1100. I am hesitant to underestimate a realistic figure to FIRE on as the last thing I want to have to do is be forced back into the workforce because of poor planning. I think the only way to reduce our costs significantly would be to downsize, however reluctant to do that since we really love our house and where we live.
We live in a small 4 bedroom house in a modern area. All of our running costs are low. We don't have a pool or a large backyard. I estimate our housing costs to be about $700 per month.
I completely agree with you when it comes to estimating your expenses accurately. If you get that wrong you aren't retiring on whatever WR you think you are but something higher and potentially unsustainable.
Don't get me started on things breaking. This year so far it's been the oven and the washing machine. Last year we had the hot water system, I think the TV (it was either last year or the year before), one of the kids laptops and the dishwasher.
Post by: AussieLad on July 24, 2017, 11:17:23 PM
Some extremely useful information on here.
Having a read through peoples opinion on super accounts - seems like the majority are pretty happy with either Sunsuper or Australian Super.
I am currently with REST, seemingly being charged 0.56% for their Core Strategy I landed with my first casual job in year 10... (http://www.rest.com.au/member/products/rest-pension/fees-and-charges-(1)/investment-fees)
Am I right in saying Sunsuper uses Vanguard ETF's for the following (which appear on page 20 of the PDF on Sunsuper's website (https://www.sunsuper.com.au/publications/documents/sunsuper-for-life-guide.pdf)
Aust Shares - Index: 0.08% fee
Intl Shares - Index: 0.09% fee
In which case I would reduce fees by 0.48% on my super if I change?
If that is the case, have I been oblivious to this fact for the beginning of my working life, or have I missed something?
Appreciate any help.
Post by: potm on July 25, 2017, 01:49:37 AM
Hostplus would be the cheapest if you are happy with their percentage.
Some industry funds have been outperforming index options with their default balanced options even with the added fees in recent years.
Post by: marty998 on July 25, 2017, 02:43:15 AM
Cutting your nose to spite your face if you are going to switch on the basis they are a wee bit higher in regards to fees.
Post by: chasingthegoodlife on July 25, 2017, 02:50:30 PM
It seems to me that housing costs are the main difference between HCOL and LCOL areas in OZ (others may disagree), although Perth does seem to have higher prices for many other things compared to the east.
Post by: marty998 on July 25, 2017, 03:37:10 PM
It seems to me that housing costs are the main difference between HCOL and LCOL areas in OZ (others may disagree), although Perth does seem to have higher prices for many other things compared to the east.
I'd rather pay 5c a litre more for petrol, or 20c a loaf extra for bread in Perth than pay $0.5-1m more for housing in Sydney.
Post by: deborah on July 25, 2017, 03:44:45 PM
Deborah - so true. Most other expenses can be wiggled a bit if something else comes up but committing to a large housing expense really raises the bar for FIRE.In general I would agree with you. However, everything in Canberra costs more. Petrol is at least TWENTY CENTS a litre more here than at my parents place EVERY TIME. Eating out costs a lot more than Melbourne (admittedly I was used to Brunswick, which has a lot of the cheap eateries, before I came here). When I have traveled around Australia, remote places really have high prices for everything except houses and the non-tourist services (because people tend to be paid less - unless it's a mining town).
It seems to me that housing costs are the main difference between HCOL and LCOL areas in OZ (others may disagree), although Perth does seem to have higher prices for many other things compared to the east.
Post by: Fresh Bread on July 25, 2017, 06:48:16 PM
A family size takeaway pizza is $25 at my local shops. I can't remember how much smashed avo on toast is, it's been a while. A coffee starts at $3.50. My electrician is $80/hr.
Eta: Petrol... I hear on the radio "cheapest petrol today in Sydney is at blah blah" and it's always 20c cheaper or more than where I am.
Post by: stripey on July 25, 2017, 10:19:49 PM
It seems to me that housing costs are the main difference between HCOL and LCOL areas in OZ (others may disagree), although Perth does seem to have higher prices for many other things compared to the east.
I'd rather pay 5c a litre more for petrol, or 20c a loaf extra for bread in Perth than pay $0.5-1m more for housing in Sydney.
Depends whether wages come into it or not. I'm making $35k more in Sydney than I was in Perth last year. My husband is about the same. So at least for us in the accumulation phase it makes more sense to be in Sydney right now...
(Eating out here in Sydney is notably cheaper 9 times out of 10, not that we do that much. We go a a really fancy cafe and say to each other 'Aha! Perth prices')
Post by: FFA on July 26, 2017, 06:14:51 AM
There's extra admin fee of 0.1% as well for Sunsuper. It's still the cheapest index option if you want to set all your own percentages.Yeah I've been noticing that too, all the default balanced options for Hostplus, Sunsuper, Australian Super seem to have been easily outperforming their index alternatives in the past 1-3 years. Maybe infrastructure investments, poor fixed interest (index) performance, ...? I've been meaning to look into it more closely to try and understand what's causing it. Superannuationfreak might already know? Anyway I think I'll stick with the index approach as switching at times like these usually doesn't work out well!
Hostplus would be the cheapest if you are happy with their percentage.
Some industry funds have been outperforming index options with their default balanced options even with the added fees in recent years.
Post by: BRAFRA on July 26, 2017, 06:52:26 AM
I want to thank you all for sharing your knowledge over the last 66 pages, pretty impressive and educational !
I would like some advise about my situation:
- late 20s
- temporary resident in OZ for close to 1y, should have PR in 1 more year.
- salary $125k so 37% bracket, no medicare levy with the temporary visa.
- should save $55k per year based on the current trend.
- own 1 apartment in my home country ~$100k, ~$70k in savings in my home country, $80k of shares of my previous company locked for 2 more years, around $100k sitting in an ANZ savings account (2.55% pre-tax :/ ).
I plan to buy a house in OZ in ~2 years after moving to Brisbane or Sydney, obviously if I can afford it with the current markets. In the meantime, I would like to invest the $100k from ANZ.
I would like your point of view on the few points below:
- First home super saving scheme $15k/y. I have the feeling I am eligible for the first home buyer thing even if I own a house overseas. Works only if I buy a house. If I don't, no idea what happens to the money. So wait 1 more year before looking at this option.
- No point adding more in the regular super. Too young. May leave the country in a few years and will get hammered with 38% tax if I want to get the $$ before 60+. If I stay, the money can't really be used for the house.
- Don't want to buy a home in a city I don't know "well".
- No benefit in investing in VAS for the franking credits due to my tax bracket.
--> best solution that comes to my mind: invest all in VGS , with the volatility of the AUD being a big risk. Use the $100k to access the wholesale managed funds.
Post by: kiwiozearlyretirement on July 26, 2017, 10:08:05 AM
We have hesta, gesb and sun super.
I used the investment return calculator http://www.moneychimp.com/features/portfolio_performance_calculator.htm
which averages out your additions i.e. assuming people are contributing monthly. But it also works if you have made no contributions. You have to exclude any monies taken to pay for insurances etc to compare apples with apples.
Over the last 5 years I have had the following returns per annum on the growth options
hesta 5.6%
gesb 9.98%
sun super 10.8% per annum (10 months only - since they started the index low fees option ostensibly managed by vanguard - 33% balanced, 33% au 33% international)
comparatively my vanguard ETFs 14% (post tax) over the last 12 months. But these are heavily AU ETFs (VHY/VAS) at 59%
Consequently I have rolled over my hesta (which is supposed to be one of the top performing industry funds according to chant west) to gesb.
I would be interested to see what others experience had been from the various funds.
I never quite trust what the funds report as their returns.
Post by: banksie_82 on July 26, 2017, 07:14:41 PM
If a company pays you $70 in dividends, 100% franked, they are actually paying you $100 : $70/(1-0.3) - with 0.3 being the company tax rate.
The trick is, they are putting $70 into your account and $30 to the tax man. Think of it as PAYG tax, but at a rate of 30% regardless of your marginal rate. Honestly, I don’t know why they don’t just say “$100 with $30 tax withheld”. It would make it simpler for a lot of people to compare the yield of different products.
Come tax time, you tell the tax man that you have earnt $100, but already paid $30 tax on it. If you owe more, or less, than the $30, then the difference will be paid in one direction or the other.
So, BRAFRA, you still get the benefit of franking credits from VAS regardless of your tax rate.
Post by: Arapiles on July 26, 2017, 10:10:02 PM
This is a terrific thread. I had a question that has been covered somewhat but not entirely in the past. Like many, I'm conscious of the small size of the Australian market and have been keen to diversify my shareholdings with a stronger international focus. Of course, there are ETFs like VTS that are listed on the ASX that offer that possibility. I've been also researching direct purchase of shares in listed American companies (rather than the index) on the U.S market. I know that there has been some reduction in international brokerage costs especially by Australian providers like CommSec over the last few years. But the conditions (including minimum holding amounts) still seem overly restrictive and/or expensive. Does anyone have experience with stake.com.au? I'm conscious that it is something of a start-up so there are some risks inherent in joining this first-mover. But it is offering 0% on brokerage which, depending on the amount and regularity of an investment strategy, could lead to significant savings. They seem to be funding their business model through taking a slice on currency exchange.
Cheers
Arapiles
Post by: JamesSyd on July 26, 2017, 10:34:05 PM
Hi all,Stake don't charge you brokerage in a transparent way. They sort of do though via fx conversion. Pretty sure they charge something like 0.8% to convert the money into USD. So it's clever marketing since they can say there's no brokerage
This is a terrific thread. I had a question that has been covered somewhat but not entirely in the past. Like many, I'm conscious of the small size of the Australian market and have been keen to diversify my shareholdings with a stronger international focus. Of course, there are ETFs like VTS that are listed on the ASX that offer that possibility. I've been also researching direct purchase of shares in listed American companies (rather than the index) on the U.S market. I know that there has been some reduction in international brokerage costs especially by Australian providers like CommSec over the last few years. But the conditions (including minimum holding amounts) still seem overly restrictive and/or expensive. Does anyone have experience with stake.com.au? I'm conscious that it is something of a start-up so there are some risks inherent in joining this first-mover. But it is offering 0% on brokerage which, depending on the amount and regularity of an investment strategy, could lead to significant savings. They seem to be funding their business model through taking a slice on currency exchange.
Cheers
Arapiles
Sent from my SM-G925I using Tapatalk
Post by: Arapiles on July 26, 2017, 11:21:59 PM
Post by: JamesSyd on July 27, 2017, 12:46:44 AM
Thanks. I did make note of the fact that they are taking a slice on currency conversion (in the last sentence of my post), which is also openly disclosed on their website. That said - having used both the commercial banks and now stake to exchange AUD into USD - stake compares favourably (though admittedly I'm still using them in the stage prior to move to zero brokerage so the exchange rates quoted might only be more favourable for a limited time as they are still charging brokerage). I'm frankly amazed at the poor conversion rates offered by the major four banks, especially Westpac. I know there are other possibilities for currency conversion outside of the four banks. But I instinctively like the simplicity of the stake model which incorporates both reasonable currency conversion and simple brokerage services on the same platform.My opinion is that their currency conversion isn't reasonable even though it's better than the banks. Wholesale fx markets are basically 0% wide which you can have access to via a broker like IB. downside is that IB isn't as accessible or easy to use for some
Post by: misterhorsey on July 27, 2017, 02:04:30 AM
I'm trying to tidy up some of my legacy investments (i.e. why hold Telstra, BHP, NAB and WBC if I also hold VAS?). I'm also trying to increase my international exposure - but finding it psychologically hard to quit my positions in direct shares (whether they are in losing or winning positions).
For some perspective I thought I'd use the Vanguard tool to do a comparison of VGS (MCSI World ex Aus) and VAS (S&P 300) and the results were rather sobering. So I thought I might share it for those who aren't familiar with this stuff:
https://tool.vanguardinvestments.com.au/mstar/au/fundcompare.htm?site_code=ret##target=fct&selectedFund0=F00000UPZO&selectedFund1=F000002TI7
Just in case the link doesn't work:
Portfolio top 10 holdings - % of assets
VGS - 10.76%
VAS - 45.65
Also, top 10 holdings for VGS are Apple, Microsoft, Amazon, Johnson & Johnson, Facebook, Exxon, JP Morgan, Alphabet (Google) and Nestle
Top 10 holdings for VAS are CBA, WBA, ANZ, NAB, BHP, CSL, Telstra, Wesfarmers, Woolworths, Macquarie
VGS seems rather tech heavy, but they are globally dominant companies - furthermore there is so much more diversification given the top 10 companies only account for 10%. Whereas the only Australian company in the top 10 of VAS that gets me excited is CSL, and the top 10 accounts for half of the entire fund.
Buying unhedged international funds used to make me very nervous given the currency volatility - but I'm starting to terms with the fact that over the long run, currency risk evens out*.
So I'm now coming to the conclusion that being so concentrated in Australia is the real risk - particularly if a significant part of our market is profitable due to the never ending leveraging of residential real estate. I guess I don't feel as confident that the companies making up the Top 10 of VAS (and top half of the fund by value) will be as successful at creating value, driving innovation, and growing profits as much as the companies in the Top 10 of VGS.
Thoughts?
* Currency risk, i.e. Possible bad scenario. You buy VGS when the dollar is at USD 0.60, then the dollar climbs to parity USD 1. The value of your investment declines, which sucks, but to compensate, your dividends get a boost. Then the dollar floats back down to the 'average' eventually . I appreciate there are further complexities here as well that I don't quite understand. Like the way the Australian market and currency is a risk on asset class as viewed by international investors.
Post by: steveo on July 27, 2017, 02:44:57 AM
The sanest portfolio to me is VGS/VAF based upon your risk portfolio. That is basically a sit back and do nothing forever knowing that you've done the absolute best that you can.
Post by: misterhorsey on July 27, 2017, 07:42:37 AM
I agree with you that we can design our 'most rational' portfolio, and then there's the portfolio we can actually live with. The latter may have certain compromises to account for risk profile, practical considerations or legacy issues.
My current allocation is approximately 65 / 30 / 5, Aus equities / International equities / cash. I've done a quick calculation that tells me I can increase international to 40% without too many tears or tax consequences.
I'll probably keep a substantial amount in VAS though. It was a position I built up when I changed from a stock picker to an indexer. So while it may be sub-optimal now, it was a huge improvement on my diversification before. One step at a time I guess.
Unless you start with a blank slate, or are capable of pressing reset on your portfolio without emotion, it can be quite a challenge to renovate your portfolio overnight. I'm find it a challenge to act on present day prices due to a habit of giving too much weight to historical prices, i.e. VGS is expensive compared to Nov '16....
Edit: garbled grammar
Post by: steveo on July 27, 2017, 05:54:40 PM
Ideally I'll get to 1/3 each of ASX (including direct shares and VAS and maybe some LIC's), VGS and VAF outside of super. I have an industry super fund with the high growth option that I just leave alone.
I am pretty good at just sticking to my portfolio and not tinkering with it.
Post by: misterhorsey on July 27, 2017, 06:46:47 PM
I plan to buy a house in OZ in ~2 years after moving to Brisbane or Sydney, obviously if I can afford it with the current markets. In the meantime, I would like to invest the $100k from ANZ.
I thinking investing cash into the stockmarket isn't a great idea if you have a firm plan to buy a house within 2 years. Too much volatility within that time frame to justify the risk to your capital/deposit.
After 2 years if you're lucky the stockmarket has kicked on and house prices have fallen or stabilised = Winner! Perhaps it's not as likely with current valuations, but another scenario is the stockmarket tanks in two years, but house prices have had another spurt - in that scenario would you still be happy to buy or would you wait it out til markets recover?
If the plan to buy a house in 2 years is non-negotiable and is your life's purpose (like most Australians!!) then I'd keep it in cash. But if you are more flexible then and happy to reassess in 2 years then maybe allocating all or part of your savings to equities isn't too bad.
War Story: I kept a large amount of cash as I thought about buying a house from around 2010 to 2014...missed a significant amount of Stockmarket gains, as well as house prices gains in the process, before I gave up on buying a house and went all equities.
My Lesson? The plans you make can sometimes change according to the conditions in the future that you can't predict when you first make those plans.
Post by: Wadiman on July 28, 2017, 08:43:31 PM
A while back I had a quick look at XTBs https://xtbs.com.au/ (https://xtbs.com.au/) and decided that it wasn't going to work well for my ex-super portfolio.
However, now that I have a SMSF I decided to take another look and I'm tempted to purchase a few XTBs with current yield to maturity of circa 3.2-3.4%.
The reason i like the idea is that bonds held to maturity are fairly low risk and in the current low-interest rate environment the yield is about 1.2 - 1.4 percentage points above term deposits or savings accounts. However, I am conscious that if interest rates rise that newer bond issues will offer better returns.
My asset allocation to fixed interest in the SMSF is circa 10% so I was thinking about committing to a 5% holding (made up of two-three bonds from different companies) and hold back another 5% in the cash ETF (AAA) which is currently paying about 2% in distributions and wait a year or two to see if better bond terms are available.
Any thoughts?
Post by: BRAFRA on July 29, 2017, 05:12:00 AM
If you use a broker to purchase VAS ETFs, how will you know the amount of franking credits you receive ? Is it automatically dividend/7x3 ? Or you need to look on the Vanguard website ?
Post by: marty998 on July 29, 2017, 05:29:32 AM
Some will be foreign income, some will be unfranked. A small part will be tax deferred.
It's got nothing to do with you broker. Vanguard (through the share registry Computershare) will send you a tax summary in July each year.
Post by: mjr on July 29, 2017, 05:30:29 AM
Post by: deborah on July 29, 2017, 08:55:09 AM
We now have our own SUBFORUM - The Australian Tax Subforum! - a subforum to "Taxes".
Post by: superannuationfreak on July 29, 2017, 05:20:24 PM
Hi all -
A while back I had a quick look at XTBs https://xtbs.com.au/ (https://xtbs.com.au/) and decided that it wasn't going to work well for my ex-super portfolio.
However, now that I have a SMSF I decided to take another look and I'm tempted to purchase a few XTBs with current yield to maturity of circa 3.2-3.4%.
The reason i like the idea is that bonds held to maturity are fairly low risk and in the current low-interest rate environment the yield is about 1.2 - 1.4 percentage points above term deposits or savings accounts. However, I am conscious that if interest rates rise that newer bond issues will offer better returns.
My asset allocation to fixed interest in the SMSF is circa 10% so I was thinking about committing to a 5% holding (made up of two-three bonds from different companies) and hold back another 5% in the cash ETF (AAA) which is currently paying about 2% in distributions and wait a year or two to see if better bond terms are available.
Any thoughts?
If you have an SMSF exchange traded bonds are not a great deal in my view. Term deposits of up to 12 months (e.g. Ubank and Mebank) are paying 2.7-2.8% p.a. without the interest rate risk or credit risk. Those bonds paying a yield to maturity of 3.2+% today are barely investment grade so not comparable to a government-guaranteed term deposit. If you looked at the banks themselves, for example, a NAB Dec 2021 issue has indicative yield 2.45%.
Post by: Wadiman on July 29, 2017, 07:29:00 PM
Fair points re extra risk - with the bond duration terms I was looking at (around 5 yrs) I agree that there is a fair chance of rate hikes between now and then which would negate the 0.5% yield difference currently on offer between say a Ubank TD and an XTB. Shame a retail investor has no access to the initial wholesale coupon rates for XTBs - that would make the risk/return equation a little different!
Post by: FFA on July 30, 2017, 05:25:32 AM
...
So I'm now coming to the conclusion that being so concentrated in Australia is the real risk - particularly if a significant part of our market is profitable due to the never ending leveraging of residential real estate. I guess I don't feel as confident that the companies making up the Top 10 of VAS (and top half of the fund by value) will be as successful at creating value, driving innovation, and growing profits as much as the companies in the Top 10 of VGS.
Thoughts?
Yes I came to this conclusion about 18-24 months ago and reckon I probably posted about it upthread, but not as much lately. What did I do? Have been gradually shifting my VAS into better diversified options such as MVW, EX20, MVS and some LIC's too. I still have around 55% of my Oz equity investments in VAS, but a decent amount is now in these other products too.
Post by: PDM on July 30, 2017, 09:42:13 PM
As Australian investors I think we're all mindful of how small our economy is relative to the rest of the world, and how concentrated our economy is on a few key sectors - resources and financials. Home bias may not be recommended for most investors, but at least if you're a US investor your home bias still gives you an enormous diversity of businesses to invest in.I 100% agree with this. People have home country bias. The ASX is a bankwater stock exchange dominated by banks, and mining companies and a couple of supermarkets. - with an economy that was all about a mining boom which morphed into a housing boom. I can't help being pessimistic about the ASX top 10 getting hammered in any potential downturn.
Top 10 holdings for VAS are CBA, WBA, ANZ, NAB, BHP, CSL, Telstra, Wesfarmers, Woolworths, Macquarie
Whereas the only Australian company in the top 10 of VAS that gets me excited is CSL, and the top 10 accounts for half of the entire fund.
Another thing to consider is that the 'standard' superannuation fund portfolio typically includes most of the ASX top companies. So your super is likely exposed to companies you're buying in your ETFs.
Often further compounded by being employed in Australia by an Australian company.
Post by: Wadiman on July 31, 2017, 02:08:17 AM
As Australian investors I think we're all mindful of how small our economy is relative to the rest of the world, and how concentrated our economy is on a few key sectors - resources and financials. Home bias may not be recommended for most investors, but at least if you're a US investor your home bias still gives you an enormous diversity of businesses to invest in.I 100% agree with this. People have home country bias. The ASX is a bankwater stock exchange dominated by banks, and mining companies and a couple of supermarkets. - with an economy that was all about a mining boom which morphed into a housing boom. I can't help being pessimistic about the ASX top 10 getting hammered in any potential downturn.
Top 10 holdings for VAS are CBA, WBA, ANZ, NAB, BHP, CSL, Telstra, Wesfarmers, Woolworths, Macquarie
Whereas the only Australian company in the top 10 of VAS that gets me excited is CSL, and the top 10 accounts for half of the entire fund.
Another thing to consider is that the 'standard' superannuation fund portfolio typically includes most of the ASX top companies. So your super is likely exposed to companies you're buying in your ETFs.
Often further compounded by being employed in Australia by an Australian company.
Love that - how accurate!
Post by: marty998 on July 31, 2017, 02:28:19 AM
As Australian investors I think we're all mindful of how small our economy is relative to the rest of the world, and how concentrated our economy is on a few key sectors - resources and financials. Home bias may not be recommended for most investors, but at least if you're a US investor your home bias still gives you an enormous diversity of businesses to invest in.
Top 10 holdings for VAS are CBA, WBA, ANZ, NAB, BHP, CSL, Telstra, Wesfarmers, Woolworths, Macquarie
Whereas the only Australian company in the top 10 of VAS that gets me excited is CSL, and the top 10 accounts for half of the entire fund.
If Westfield had not split into Scentre then it would be between Wesfarmers and Woolworths.
BHP and Rio are probably the greatest cases of mismanagement in Australian corporate history. The only reason why that hasn't made the headlines is because they are still standing.
There are not too many companies that can lay claim to blowing up over 50 billion dollars each... Rio with Alcan and BHP with potash, and then there was that Brazilian tailings dam mine disaster...
Post by: deborah on July 31, 2017, 02:35:06 AM
OK TediAs Australian investors I think we're all mindful of how small our economy is relative to the rest of the world, and how concentrated our economy is on a few key sectors - resources and financials. Home bias may not be recommended for most investors, but at least if you're a US investor your home bias still gives you an enormous diversity of businesses to invest in.
Top 10 holdings for VAS are CBA, WBA, ANZ, NAB, BHP, CSL, Telstra, Wesfarmers, Woolworths, Macquarie
Whereas the only Australian company in the top 10 of VAS that gets me excited is CSL, and the top 10 accounts for half of the entire fund.
If Westfield had not split into Scentre then it would be between Wesfarmers and Woolworths.
BHP and Rio are probably the greatest cases of mismanagement in Australian corporate history. The only reason why that hasn't made the headlines is because they are still standing.
There are not too many companies that can lay claim to blowing up over 50 billion dollars each... Rio with Alcan and BHP with potash, and then there was that Brazilian tailings dam mine disaster...
Post by: misterhorsey on July 31, 2017, 03:24:16 AM
Yes I came to this conclusion about 18-24 months ago and reckon I probably posted about it upthread, but not as much lately. What did I do? Have been gradually shifting my VAS into better diversified options such as MVW, EX20, MVS and some LIC's too. I still have around 55% of my Oz equity investments in VAS, but a decent amount is now in these other products too.
Would love to hear some thoughts on how that's been travelling for you, although perhaps too early to tell really. I dip in and out of this thread so probably missed it the first time round or didn't appreciate it's import. But wondering what strategic or administrative issues you may have come across in creating a more
I think my main aim is raising the issue again was alerting newer investors to certain risks that aren't really front and centre in the index investing literature. Most of the material is tailored to US investors, and Australian Vanguard doesn't, as far as I know, address the concentration of something like VAS. A newbie might think they are doing the best thing by getting into VAS, and sure you could do a lot worse things, but may not appreciate some of the risks of homebias/lack of diversification.
I 100% agree with this. People have home country bias. The ASX is a bankwater stock exchange dominated by banks, and mining companies and a couple of supermarkets. - with an economy that was all about a mining boom which morphed into a housing boom. I can't help being pessimistic about the ASX top 10 getting hammered in any potential downturn.
Another thing to consider is that the 'standard' superannuation fund portfolio typically includes most of the ASX top companies. So your super is likely exposed to companies you're buying in your ETFs.
Often further compounded by being employed in Australia by an Australian company.
Yep.
Without totally dismissing the significant amount of economic activity in Australia provided by the provision of healthcare, services industries, retail etc, i.e. the amount of economic activity just required to keep 22 million people alive and thriving, are we possibly in a fortunate position of being able to allocate a significant amount of our investments offshore and allowing the greater productivity of foreign businesses to effectively pay for our consumption/lifestyle?
If you lived in a developing country, say in South East Asia, then if you derived a large part of your earnings from a US based or World index, it would effective boost your spending power in your poorer home country. Should we adopt a similar approach to living in Australia? I appreciate there's quite a bit of complexity here, but curious about adopting the strategy in principle.
Or am I totally dismissing the fact that the Big 4 Australian Banks have just been churning out profits year in and year out, whereas banks in other jurisdictions have fallen in value or failed completely, and Australian banks and retail will continue to do so? Are we in fact a different case......
I'll start a new thread on this topic if there are enough people interested. Don't wish to hijack the entire thread for this topic, but I'd still love to hear more thoughts and experiences, and strategies in response to countering home bias / managing risk from lack of diversification in your home economy.
Might even flush out some insights from people in other countries that have economies with similar characteristics - Canadians in particular.
Edit: garbled grammer, too fast typing = typos
Post by: FFA on July 31, 2017, 06:41:40 AM
Admin issues was triggering CGT in selling VAS to switch into these others. Retrospectively I wish I did more of this before the market ran up.
Strategic issues include placement in and out of Super. Since I use low cost industry funds I don't have these other ETF's available to me in Super, so I am maximizing them ex Super instead.
Philosophically I'm still cautious of "smart beta" and the proliferation of ETF's in recent years, but I do see the value in a handful i.e. VHY (yield), MVW and EX20 (diversifiers), MVS (if you want some small cap exposure, or else go active in this sector).
Post by: PDM on July 31, 2017, 05:44:39 PM
As Australian investors I think we're all mindful of how small our economy is relative to the rest of the world, and how concentrated our economy is on a few key sectors - resources and financials. Home bias may not be recommended for most investors, but at least if you're a US investor your home bias still gives you an enormous diversity of businesses to invest in.I 100% agree with this. People have home country bias. The ASX is a bankwater stock exchange dominated by banks, and mining companies and a couple of supermarkets. - with an economy that was all about a mining boom which morphed into a housing boom. I can't help being pessimistic about the ASX top 10 getting hammered in any potential downturn.
Top 10 holdings for VAS are CBA, WBA, ANZ, NAB, BHP, CSL, Telstra, Wesfarmers, Woolworths, Macquarie
Whereas the only Australian company in the top 10 of VAS that gets me excited is CSL, and the top 10 accounts for half of the entire fund.
Another thing to consider is that the 'standard' superannuation fund portfolio typically includes most of the ASX top companies. So your super is likely exposed to companies you're buying in your ETFs.
Often further compounded by being employed in Australia by an Australian company.
Love that - how accurate!
Hahaha, unintentional error makes me look like a genius!
Post by: misterhorsey on July 31, 2017, 05:56:16 PM
Post by: JuicyCrab on August 03, 2017, 01:58:25 AM
Yes a bit early to draw any meaningful conclusions, but I believe I've done better than I would've in VAS alone and I'm certainly more comfortable with the portfolio. Not to say VAS is a bad option, it is still my core and I happily suggest it for people who want an easy portfolio (e.g. VAS/VGS 50/50). But if you want to take a step further, blend in some MVW and/or EX20 to improve the diversification of the Oz share exposure.
Admin issues was triggering CGT in selling VAS to switch into these others. Retrospectively I wish I did more of this before the market ran up.
Strategic issues include placement in and out of Super. Since I use low cost industry funds I don't have these other ETF's available to me in Super, so I am maximizing them ex Super instead.
Philosophically I'm still cautious of "smart beta" and the proliferation of ETF's in recent years, but I do see the value in a handful i.e. VHY (yield), MVW and EX20 (diversifiers), MVS (if you want some small cap exposure, or else go active in this sector).
Building off this, what is everyones current split for different equity holdings?
Currently I'm going with:
IOZ (ASX200 ETF) - 60%
IVV (S&P500 ETF) - 30%
VEU (All World ex US ETF) - 10%
I would like to introduce some LIC's at some stage, just waiting for some discount timing WRT their NTA vs Price.
Would love to see what everyone else is doing!
Post by: GT on August 03, 2017, 05:35:43 AM
http://www.abc.net.au/news/2017-08-03/cba-risks-massive-fines-over-law-breaches/8770992
Post by: FFA on August 03, 2017, 05:32:32 PM
Here is mine (overall both in and out of Super) :
VAS/ARG/ Super Oz index = 27.6%
MVW = 12.5%
Ex20 = 5.5%
MVS/FOR/WMI = 6.4%
Other Oz LIC's = 5%
Direct/other = 3.1%
Oz total = 60%
VGS/Super GL index unhedged = 28.2%
Emerging mkt = 4.2%
GL index hedged = 4.8%
Global LIC's = 2.8%
GL total = 40%
Post by: misterhorsey on August 03, 2017, 11:26:32 PM
- Directly held shares
Mix of blue chips, tiny resources, healthcare punts - 21%
- ETFs/LICs
CTN 4.65%
VAS 22.12%
VGS 3.43%
- Vanguard Wholesale High Growth - 42.91%
- Cash 5.25%
When I try and estimate my Australian v Global split, which also takes into account super as well as the fact some Australian companies derive a majority of earnings from OS, it comes to around 64% Australian, 32% Global.
My current plan is to liquidate CTN and most of my directly held shares and redirect it to VGS, but minimising CGT. And try to get to 50/50. Maybe 60/40 in favour of OS.
This is a strategy for the next 40 years, but I do find it hard to implement the decision in the here and now. I guess it's like someone reallocating a portfolio back in 1977, and then enjoying the fruits today. Quite a lot of things can change in that period of time so shouldn't sweat the small stuff. But easier said than done.
Post by: marty998 on August 04, 2017, 07:38:05 AM
This will surely affect not only the CBA share price, but most MF/ETF's in the country.
http://www.abc.net.au/news/2017-08-03/cba-risks-massive-fines-over-law-breaches/8770992
CBA down 4% today. Results release next Wednesday is going to be totally overshadowed by this sorry saga.
Post by: Wadiman on August 05, 2017, 12:13:22 AM
Property-related: 20% (Unlisted property trusts - 12%, peer-to-peer - 8%)
Cash and term-deposits: 14% (cash - 5%, TDs - 9%)
Gold: 6%
Equities/ETFs: 60%
24% MVW
10% VEU
8% VTS
4% DJRE (international property ETF)
5% IEM (emerging markets ETF)
3% TPM
3% NXT
3% SYR
Post by: ynotme on August 17, 2017, 06:09:52 AM
Post by: marty998 on August 17, 2017, 06:12:31 AM
Oh wait, I am through VAS :(
Post by: Rowellen on August 17, 2017, 06:32:28 AM
Hate to be a Telstra shareholder right now... yikes.
Oh wait, I am through VAS :(
I had to Google to see what's going on. Oh dear.
My hubby bought in the T2 float. Whoops. He still has them. And probably will until he dies.
Post by: misterhorsey on August 17, 2017, 10:14:09 PM
When I try and estimate my Australian v Global split, which also takes into account super as well as the fact some Australian companies derive a majority of earnings from OS, it comes to around 64% Australian, 32% Global.
Took the bit between the teethes, and spent the past two days doing a bit of wheeling and dealing and have gone from
- 64% Australian 32% Global
to
- 59% Australian to 36% global.
Traumatic!
(Doesn't add up to 100% due to cash holdings).
But it's good to feel detachment form past prices. No sellers remorse.
Post by: misterhorsey on August 17, 2017, 10:17:49 PM
Hate to be a Telstra shareholder right now... yikes.
Oh wait, I am through VAS :(
VAS would have been reducing it's position as TLS declined from $7 in 2014 to just under $4 today, no?
I guess that's one advantage of holding a index position in a fund, rather than holding directly. The index fund should automatically reallocate it's position to recognise the decline in value.
I had a very small Telstra holding that I ignored while it declined and declined. Even so, dividends over the years made it return approximately 10% per annum for the time I held them (2009 - $3.40 to 2017 - $3.80).
Post by: bigchrisb on August 17, 2017, 11:25:34 PM
Hate to be a Telstra shareholder right now... yikes.
Oh wait, I am through VAS :(
VAS would have been reducing it's position as TLS declined from $7 in 2014 to just under $4 today, no?
I guess that's one advantage of holding a index position in a fund, rather than holding directly. The index fund should automatically reallocate it's position to recognise the decline in value.
I had a very small Telstra holding that I ignored while it declined and declined. Even so, dividends over the years made it return approximately 10% per annum for the time I held them (2009 - $3.40 to 2017 - $3.80).
Not quite. An index fund (at least a cap market weighted one like VAS) does not buy or sell as stock prices go up for down. However, the percentage of the fund in a stock will go up and down based on market values.
Confused yet? Think of it this way. A year ago, say Telstra was 4% of the ASX 300. VAS would hold enough shares to meet this 4% allocation. Say the price has fallen in half relative to the rest of the market, and TLS now makes up 2% of the ASX300. Vanguard hasn't bought or sold shares, but the drop in relative price means that its exposure to Telstra has now fallen to 2% of the fund value. The 4% and 2% are numbers picked for the argument.
This lack of trading with market prices is one of the reasons that cap market funds are so efficient. It means that they don't trade stock, but just sit on the same shares, unless there is a change in the number of shares issued, or the stocks that make up the index. It keeps trading costs and capital gains unrealised (low tax).
By holding VAS, you have less $ in Telstra than you did 12 months ago, but exposure to the same number of shares.
Post by: misterhorsey on August 17, 2017, 11:42:21 PM
But it's very insightful. I guess it's a reminder to me that it's an index. So there's no point thinking of it as a basket of individual shares in companies.
Rather, it's a proxy for a particular economy (or sector, depending on the index). Perhaps it's more useful to let go of thinking of specific companies, but rather, as an aggregated data set that represents the subject of the index.
It's all rather zen.
Post by: potm on August 18, 2017, 04:51:47 AM
VAS tries to mimic the ASX 300. Sometimes companies are removed and added from the list of approximately 300 companies.
No need for Vanguard to sell down Telstra shares, it's reduced value does the job. If it was to fall so badly that it gets removed from the ASX 300 then Vanguard would have to sell it down.
Post by: marty998 on August 18, 2017, 05:02:15 AM
Why can't I find a fund manager who can buy the index but just remove the shit companies.
Seriously it can't be that hard?*
* I may or may not have had way too much to drink tonight. Probably should not be on here ;)
Post by: Rowellen on August 18, 2017, 06:11:49 AM
Yeah that's right, you get the good with the bad.
Why can't I find a fund manager who can buy the index but just remove the shit companies.
Seriously it can't be that hard?*
* I may or may not have had way too much to drink tonight. Probably should not be on here ;)
You must mean the one with the delorian. Make sure you share with us if you ever find him or her.
Post by: superannuationfreak on August 18, 2017, 11:32:27 PM
There's extra admin fee of 0.1% as well for Sunsuper. It's still the cheapest index option if you want to set all your own percentages.Yeah I've been noticing that too, all the default balanced options for Hostplus, Sunsuper, Australian Super seem to have been easily outperforming their index alternatives in the past 1-3 years. Maybe infrastructure investments, poor fixed interest (index) performance, ...? I've been meaning to look into it more closely to try and understand what's causing it. Superannuationfreak might already know? Anyway I think I'll stick with the index approach as switching at times like these usually doesn't work out well!
Hostplus would be the cheapest if you are happy with their percentage.
Some industry funds have been outperforming index options with their default balanced options even with the added fees in recent years.
I can't say with certainty but in my experience, with the funds that have been very strong over the last decade,
- About half of the outperformance has been from asset allocation into illiquid assets (Property and Infrastructure in particular, private equity and hedge funds have had much more mixed outcomes)
- About a third has been outperformance within traded asset classes (I'd say on average this has been all within Australian Shares, particularly from small-mid cap managers - some funds have outperformed within international but I don't think it is consistent among even the best performing funds or easy to figure out which fund will outperform in advance. Over the last year a contributor would have been the EM overweight many funds have, with many Australian small-mid cap managers actually underperforming, but I wouldn't draw conclusions from 1 year)
- About a sixth has come from tactical asset allocation (typically small moves, keep in mind we're talking maybe 0.2-0.5% p.a.) - this again is hard to evaluate in advance from the outside
Post by: TJEH on August 20, 2017, 04:19:06 AM
a) The kids are not liable for the tax and do not have to complete returns (high tax rate as it is unearned income, plus the cost to complete the returns)
and
b) There is the option to transfer the shares to the kids without triggering cgt (if and when the funds are needed, it is likely they'll be on a low tax rate, so transferring the shares to the kids would seem to make sense)
Possible? (without a trust)
Post by: FFA on August 20, 2017, 07:10:59 AM
TJEH, in my case I can see a possibility which is just to buy the shares in my name. We hold a large chunk of cash ex super as part of my AA. So come the time when I want to transfer the shares I'd just use this cash to buy new shares in the kids name, and keep the shares held on their behalf as my own (assuming these are shares I would want to keep, which I guess is likely if I'd chosen them for my kids). This of course may be specific to my case and not possible if you don't have enough cash handy to do so. Otherwise might need to look at trust/company/insurance bond (and bear in mind potential changes to trusts being proposed by Labour).
Post by: Julard on August 21, 2017, 01:08:54 AM
I've got about $40k sitting in cash that I'd like to be doing something more productive. But... I'm hesitant to pop it into more shares because I'd love to think I might buy a house again in four or five years or so. This may well not be realistic at all (house prices here, potentially needy kids, potential job uncertainty) but still, I like to think it's possible.
Wondering if there are any options people might suggest in between the paltry bank interest rate and the roller coaster share market?
Julard
Post by: TJEH on August 21, 2017, 02:15:53 AM
Post by: FFA on August 21, 2017, 05:55:24 AM
Post by: misterhorsey on August 21, 2017, 06:27:32 PM
I've got about $40k sitting in cash that I'd like to be doing something more productive. But... I'm hesitant to pop it into more shares because I'd love to think I might buy a house again in four or five years or so. This may well not be realistic at all (house prices here, potentially needy kids, potential job uncertainty) but still, I like to think it's possible.
Wondering if there are any options people might suggest in between the paltry bank interest rate and the roller coaster share market?
I don't think there is an asset class that combines the capital guarantee of cash and the growth of equities.
If you don't want to lose your capital, because you want to tip it into a house later on, then keep it in cash and pay the premium for that privilege (which is low returns). But also bear in mind that inflation will eat away at it's value and you'll be taxed on the interest you earn, which I'm are you're aware of.
I was in a similar position to you not that long ago. I never did buy a house. In hindsight, what I might have done would have been to split my capital between cash and equities - which is effectively creating your own diversified middle ground between cash and shares. Scratch that itch for higher returns, but keep a substantial amount boring but secure.
The other thing is, what proportion is the $40k of your net worth? That should be a factor in how you develop your strategy.
Post by: deborah on August 21, 2017, 06:50:19 PM
Post by: Fresh Bread on August 21, 2017, 09:47:25 PM
Hi all,
I've got about $40k sitting in cash that I'd like to be doing something more productive. But... I'm hesitant to pop it into more shares because I'd love to think I might buy a house again in four or five years or so. This may well not be realistic at all (house prices here, potentially needy kids, potential job uncertainty) but still, I like to think it's possible.
Wondering if there are any options people might suggest in between the paltry bank interest rate and the roller coaster share market?
Julard
There's always peer to peer lending, depending on your appetite for risk. At the moment through Ratesetter you'd get about 7.8-8% for a three year period and that's fixed. It's hard to get it loaned out quickly though - I'm trying to get 100k in there after an IP sale and it took 2 or 3 days for my first 10k to get loaned out.
Post by: misterhorsey on August 21, 2017, 11:31:45 PM
10k in ING Direct
10K in VAS ETF
10k in RateSetter
10k in Super Home Saving Scheme (only starting from July 2018 - https://www.ato.gov.au/General/New-legislation/In-detail/Super/First-home-super-saving-scheme/)
Post by: Luckyvik on August 22, 2017, 12:11:31 AM
SortedThe home Super saving scheme hasn't been through parliament yet so I wouldn't put any money in there that I want to get out in the next few years.
10k in ING Direct
10K in VAS ETF
10k in RateSetter
10k in Super Home Saving Scheme (only starting from July 2018 - https://www.ato.gov.au/General/New-legislation/In-detail/Super/First-home-super-saving-scheme/)
Sent from my iPhone using Tapatalk
Post by: Fresh Bread on August 22, 2017, 12:11:48 AM
Sorted
10k in ING Direct
10K in VAS ETF
10k in RateSetter
10k in Super Home Saving Scheme (only starting from July 2018 - https://www.ato.gov.au/General/New-legislation/In-detail/Super/First-home-super-saving-scheme/)
You can withdraw your extra contributions to super from July 2018 but you can start putting the voluntary contributions in this fin year. It's for a first home deposit though and Julard says "buy a home again" so they'd have to check eligibility.
Also, Qudos is doing 3.2% on 10k plus on 3 year term deposits. It is very easy to open online.
Post by: Julard on August 22, 2017, 03:01:40 AM
Misterhorsey - it's about 8% so not critical, but not negligible either. All up I've got at least 15% in cash which is more than I'd prefer.
Post by: marty998 on August 22, 2017, 03:08:37 AM
Wouldn't touch the stuff issued by most corporates, but with the banks you can be pretty sure you'll get your $100 per security back on the reset dates.
Post by: Wadiman on August 22, 2017, 03:39:23 PM
Post by: TJEH on August 23, 2017, 06:43:51 AM
My idea was just to use a spreadsheet to keep track of it. It might be a bit messy as you'd need to exclude those shares from your own asset allocation. Also at the end of 10 years there might be a large chunk of shares to buy in your kids name at the prevailing market price (which could be high at that particular time, if you're unlucky). You could do this rateably in line with your own regular contributions (just buy them in your kid's name and re-allocate the shares held on their behalf as now being your own). Anyway, it might be more messy that I initially thought. Insurance bonds might be an option to look at. That will limit the tax on dividends to 30% and they are CGT exempt if held for 10+ years. No admin/tax returns. The downside is the fees are higher, e.g. an extra 0.6% to invest in Vanguard options.
I'm not sure how I would track it either, and over time I may decide not to :)
I have considered insurance bonds in the past, and the simplicity appeals to me.
I looked at the lifeplan option for the returns.
Ref: https://www.australianunity.com.au/wealth/investment-bonds/~/media/lifeplan/performance%20and%20unit%20prices/open/nextgen/lib-pre-month-performance-110817.ashx
Details for the Vanguard Aus Shares Index:
1yr 3.98%
3yr 3.42%
5yr 7.52%
From the above site:
"Returns are: net of taxes, ongoing management costs, performance fees and other operating expenses (if applicable); based on the unit prices for the periods quoted; exclusive of the effect of any policy specific transactions such as contribution fees, transaction costs, stamp duty and management fee rebates;not annualised for periods of less than one year. The investment mix and specific investment holdings may vary on a daily basis."
According to Vanguards VAS factsheet, returns on VAS ETF are:
Ref: https://api.vanguard.com/rs/gre/gls/stable/documents/7639/au
1yr 6.94%
3yr 4.97%
5yr 10.56%
The above is the total (not gross) return. From the fact sheet:
"Returns assume reinvestment of all distributions. Returns for periods longer than 1 year are annualised. ETF gross returns are before management fees and taxes, but after transaction and operational costs. ETF total return is the ETF gross return less management fees. Index returns do not allow for taxes, management, transaction and operational costs"
"Returns assume that an investor purchased units at Net Asset Value (NAV) and does not reflect the transaction costs imposed on the creation and redemptions of ETF units, brokerage or the bid ask spread that investors pay to buy and sell ETF securities on the Australian Securities Exchange."
At a glance, lifeplan does not look great, but no cgt is obviously something to consider, as is no brokerage (good for trickle feed, up to the 125% rule). On the other hand, the ETF also has franking credits.
My brain is too full to digest this after the week at work so far, so will think about it later :)
Post by: misterhorsey on August 23, 2017, 06:46:04 PM
Thanks Freshwater and yes, I did say "again" so I'd not count on any government/super related concessions. I'll have a look at Ratesetter, sounds interesting. I'd probably quail at putting the lot in something like that, but might experiment a bit. Qudos looks promising too, certainly better than my current bank, though I might call them and ask if they could offer something better before I take my money elsewhere. I'm possibly paying the laziness premium right now.
Misterhorsey - it's about 8% so not critical, but not negligible either. All up I've got at least 15% in cash which is more than I'd prefer.
In that case, maybe you should look at your risk and asset allocation across the whole of portfolio? Instead of the $40k in isolation?
On the face of it, I personally agree that 15% in cash is too much cash. But if for example everything else is in riskier assets, and if you've got that future property purchase on your mind, then maybe it's actually not a bad allocation?
The lack of volatility of cash is a feature that is sometimes worth paying for.
Post by: Shaz_Au on August 23, 2017, 10:36:40 PM
Post by: nnls on August 23, 2017, 10:46:10 PM
So who else holds VEU and/or VTS and received an email recently about voting in an upcoming Joint Special Meeting? It looks to me that I can't even see what I would be voting on without logging in to vote... Can anyone shed some light?
here is what I got
Post by: JuicyCrab on August 24, 2017, 06:19:57 AM
Just read this report from Russell Investments titled:
2017 Long-term Investing Report
The 5 big threats to wealth creation for Australians
http://files-au.clickdimensions.com/russellinvestmentscom-axfox/files/r_rpt_asx_report_v2f_web_1707.pdf?_cldee=amFtZXNhcGx1bWJAZ21haWwuY29t
Not sure how I feel about what is presented and if there is an agenda behind the report at all that Russell's would benefit from.
tl;dr:
Exec Summary:
The 2017 Russell Investments/ASX Long-term Investing
Report shows how 5 major threats to long-term wealth
creation could potentially play out for millions of
Australians.
Traditional investment approaches are unlikely to achieve
the returns investors need to achieve their goals, as lower
returns and the potential for increasingly volatile markets
are predicted for core asset classes. So where and how can
investors find optimum returns while mitigating risk?
All the signs point to a future where savvy investors
will increasingly use diversified multi-asset strategies,
designed to efficiently capture new sources of return
opportunities, to help build their long-term wealth.
I feel like the data in the report is suggesting investors to back off equities and local property and invest more into global bonds and global property.
Thoughts?
Post by: misterhorsey on August 24, 2017, 07:38:07 AM
"Making investment decisions based on past performance is a high-risk strategy at the best of times, and we never recommend it. In the current climate, where the strength of investment fundamentals has weakened and new norms are being created1, it is even more important that investors look beyond historical numbers and incorporate new investment insights.
But then they spend the next few pages outlining past performance of various asset classes, then summarise a comparison between them across 10 year and 20 year time periods.
I know they're trying to convince investors to trust the active management of Russell Investments, but it's not really making a convincing case for it.
Post by: itchyfeet on August 24, 2017, 10:28:05 AM
The main take away for me is that I have been so lucky to stumble into buying my first property 21 years ago.
Whilst, I wasn't brave enough to build a big & massively leveraged residential property portfolio, which would have left me rich now, I have been lucky in carrying More leverage than most on my homes for a very long time now.
Being highly leveraged in an asset class that has returned 10.3% pa for 20 years will cover up many other financial errors. In particular, spending and not saving.
I remember reading real estate investing books in the early 90s espousing the merits of leveraged property investment, and property portfolio accumulation. I was sceptical that property prices could keep going up faster than wages back then and today for me it is unfathomable. However, I wish now that I had brashly accumulated property. I'd be FIRED. Oh well, whilst it could be better but I am still ridiculously fortunate.
I reckon the next 20 years will be nothing like the past 20 years....... it's just as likely that I'll be wrong again.
Post by: marty998 on August 24, 2017, 03:34:00 PM
Marty - what bank hybrids are on offer ATM that you are aware of?
http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=HYBRID
See here - full list of Hybrid securities on the ASX
Post by: Wadiman on August 24, 2017, 03:55:08 PM
Post by: Ozstache on August 24, 2017, 04:51:16 PM
I was sceptical that property prices could keep going up faster than wages back then and today for me it is unfathomable.
There are many one-shot factors that have allowed this mathematically unsustainable situation to continue for the last 50 years (eg. dual incomes, longer loan periods, looser lending standards, working women, decreasing interest rates, favourable tax breaks, foreign demand, etc), but I struggle to think of what else could keep this historical blip going on for too much longer.
Post by: Rowellen on August 24, 2017, 05:10:26 PM
Post by: Ozstache on August 24, 2017, 05:33:56 PM
Immigration. That's all I've got.That's one that should already be on the 50 year trick list. We could always crank it up even more I guess and make Dick Smith even crankier!
Post by: Rowellen on August 24, 2017, 05:55:54 PM
Immigration. That's all I've got.That's one that should already be on the 50 year trick list. We could always crank it up even more I guess and make Dick Smith even crankier!
That is true.
Just thought of another. The ever increasing pool of Super.
Post by: Ozstache on August 24, 2017, 06:21:04 PM
Just thought of another. The ever increasing pool of Super.Good point.
Post by: deborah on August 24, 2017, 06:30:13 PM
Post by: misterhorsey on August 24, 2017, 06:46:06 PM
Whilst not much help for forecasting the future, I do like looking back at the past returns.
The main take away for me is that I have been so lucky to stumble into buying my first property 21 years ago.
Whilst, I wasn't brave enough to build a big & massively leveraged residential property portfolio, which would have left me rich now, I have been lucky in carrying More leverage than most on my homes for a very long time now.
Being highly leveraged in an asset class that has returned 10.3% pa for 20 years will cover up many other financial errors. In particular, spending and not saving.
I remember reading real estate investing books in the early 90s espousing the merits of leveraged property investment, and property portfolio accumulation. I was sceptical that property prices could keep going up faster than wages back then and today for me it is unfathomable. However, I wish now that I had brashly accumulated property. I'd be FIRED. Oh well, whilst it could be better but I am still ridiculously fortunate.
I reckon the next 20 years will be nothing like the past 20 years....... it's just as likely that I'll be wrong again.
I missed the property boat. Started FT work in 2000. Did have a property for about 6 years, but bought at the top of a boom in 2003 and sold out before the most recent wave.
Although I wish I had bought property and leveraged up and have a greater net worth by now, I'm not sure that I would actually want to be the person who owns a property portfolio and all that typical entails. I know I would have found it hard to wriggle out of the earning and consumption cycle (i.e I'd have a car and probably 12 guitars).
Missing out on property made me turn to frugality as a means to achieve FIRE. Which I kind of have. In circumstances that I would never have thought possible or desirable previously (a low passive income, a low cost of living.). I might go back to some kind of work at some stage but the freedom is pretty addictive.
So for those who missed out on property it's still possible to FIRE - although you may have to make certain sacrifices, which aren't that hard if you don't think of them as sacrifices.
Post by: itchyfeet on August 25, 2017, 12:19:23 AM
DW and I are still struggling with this. On paper we have a high NW. However, If we move back into our home we have bugger all invested wealth generating cashflow.
We know we must sell, but have no idea where to go instead.
If we finally decide not to move, the house appreciation will be meaningless, and I will have several more years of working ahead of me (and I won't be a happy hubby).
Post by: misterhorsey on August 25, 2017, 01:10:03 AM
But if your main priority is to FIRE, surely if you've done well you have options?
I don't mean this flippantly - but perhaps soften yourself up by reading up on minimalism.
I read this recently. It's pretty kooky and somewhat extreme. But there are valuable lessons in it, even for people who may not want to end up in a 20sqm apt.
https://www.goodreads.com/book/show/30231806-goodbye-things
Post by: itchyfeet on August 25, 2017, 01:57:41 AM
So it's not the size that makes our house valuable, it's the location. It's in a fairly expensive inner city suburb, purchased when I thought retiring at 55 was early retirement. My views on my career have evolved significantly over the past 10 years. 😂 .
We love our house because it allows us to walk to shops, restaurants, bars into the city, to our friends places etc. Giving up things is not really the issue, but giving up the location is. We debtate about moving into an apartment, but we have a dog who enjoys the small backyard and we enjoy our vegetable patch and sitting on the back deck sipping a beer or coffee. We miss being outside now we are living in an apartment in Dubai.
We own another place in Brisbane which we might move to for a trial run after we repatriate. That way we are not committing to buying or selling immediately even if we know the actual house in Brisbane is not really right for us. It was purchased purely as a rental. At least we can get a feel for a Brissy and see if we like it.
Post by: misterhorsey on August 25, 2017, 07:13:08 AM
I am all for minimalism. DW seems to like a bit of clutter of memorabilia around our house though. Sometimes one needs to compromise a little to keep the SO happy. Our house in Sydney is quite small so that keeps the useless stuff under control somewhat.
So it's not the size that makes our house valuable, it's the location. It's in a fairly expensive inner city suburb, purchased when I thought retiring at 55 was early retirement. My views on my career have evolved significantly over the past 10 years. 😂 .
I hear you. I think minimalism is great, but it's also important to find whatever works.
I agree with you on location as well. I'm originally from car driving Western Sydney but now live in Inner City Melbourne, where everything is a bike ride away. It's like living in a village, but 4kms/20min bike ride into the CBD. So no disrespect for car driving enthusiasts, but I prefer walkable locales too.
It is possible to rent a place in the inner city - admittedly it can be a pain finding a place and moving. Although I've moved so much that it has motivated me to adopt a more minimalist life - which pays dividends in being much more flexible and free.
I guess I'm struck by how anchored property ownership can make you towards the particular house that you own. I think it's a natural consequence of owning something and not just being financially invested, but emotionally as well. And it's convenient. And easy to go back to your own place. But there are also downsides to being so attached to a particular house or location that it may not serve you optimally for certain life stages.
I do miss not being able to invest fully into a garden and home, but I'm happy to forgo that if it means I can be mentally free of work. I'm also sharing house at the moment, but as a single person, I actually find that preferable to when I've lived on my own.
Anyway, it does sound like you have a reasonable suite of options. As well as others you may not have considered (i.e renting someplace other than your existing properties).
Post by: itchyfeet on August 25, 2017, 12:07:24 PM
Post by: lush on August 26, 2017, 12:38:35 AM
Post by: mjr on August 26, 2017, 01:51:53 AM
Post by: marty998 on August 26, 2017, 02:29:19 AM
Post by: lush on August 26, 2017, 03:06:16 PM
You should have the tax statement anyway - these were available at the end of July.
Thanks everyone for the info about tax info.
Marty - yes I got the tax statement, and sent it to my accountant, and he reckons only the stuff I need to add to my taxable income is on under " Taxable Income Statement" on the first page. However on the second page there is an amount under 'Net Cash Distributions' that I thought would also be taxable. So I am a bit confused by it all. I also called Vangaurd last week, and they said they can't talk to the tax statement. So no help there.
Post by: marty998 on August 26, 2017, 03:11:32 PM
The point of the tax statement is that what you put in your tax return is different to the cash you receive :)
Post by: Rowellen on August 26, 2017, 03:46:07 PM
Nope...you should ignore the net cash distributions section.
The point of the tax statement is that what you put in your tax return is different to the cash you receive :)
Exactly.
Post by: lush on August 26, 2017, 04:08:08 PM
1) Non Primary Production Income
2) Franked Distributions
3) Net Capital Gain
4) Assessable Foreign Source Income
It's a learning curve :)
Post by: mymatenate on August 30, 2017, 02:09:57 PM
I've been running the numbers and chatting to my farmer friends and it doesn't seem all that bad
For example-
Good, flat arable land suitable for cropping and grazing in fairly reliable rainfall area for $2000 per acre.
Can lease easily for $60 per acre per year
Rates approx $8 per acre per year
Renter pays insurance.
Could buy a couple a hundred acres of flat productive land, without a house, so easy to manage and little in the way of other costs besides maintaining the boundary fences.
say, 200 acres x 2000 = $400,000 capital
200 x 60 = $12000 / year less $1600 rates = $10400
2.6% return
I know 2.6% is quite low, but you would expect the land will rise in value at least alongside inflation (over the long term), so 3% + 2.6% = 5.6%. Or looking at it another way, 2.6% that you can safely "withdraw" and spend.
Thoughts?
Post by: marty998 on August 30, 2017, 03:38:34 PM
Guys. What's your thoughts on investing in Australian farm land?
I've been running the numbers and chatting to my farmer friends and it doesn't seem all that bad in Australia at the moment, compared to other asset classes.
For example-
Good country in relatively reliable rainfall area suitable for cropping/grazing at $2000 / acre.
Can lease easily for $50 per acre per year
Rates approx $8 per acre per year
Renter pays insurance.
Could buy a couple a hundred acres of flat productive land, without a house, so easy to manage and little in the way of other costs besides replacing the boundary fence once every decade or two.
say, 100 acres x 2000 = $200,000 capital
100 x 50 = $5000 year less $800 rates = $4200
2.1% return
I know 2.1% is quite low, but you would expect the land will rise in value at least alongside inflation (over the long term), so 3% + 2.1% = 5.1%. Or looking at it another way, 2.1% that you can safely "withdraw" and spend.
Thoughts?
I would be very surprised if you could buy productive land for only* $2000 an acre.
What part of the country are you looking to buy in?
*As a comparison, it amazes me that people in Sydney are paying $2000 per square metre(!) for land.
Post by: mymatenate on August 30, 2017, 04:06:44 PM
But yes, $2000/acre is achievable. You've got to get a sufficient distance away from the cities so that the land is priced according to it's farming (productive) value rather than other factors like city-dwellers buying it as a lifestyle block/ weekender or whatever. So yep, you can buy productive farmland for as little as $100 an acre further west :-) $2000/acre can be found just over the great divide in the western slopes country
Post by: Ozstache on August 30, 2017, 04:23:11 PM
little in the way of other costs besides maintaining the boundary fences.
Thoughts?
If my maths is correct, 200 acres will have 3.6kms of boundary fencing if square. If you had to replace 5% per year, which I don't think is too unreasonable a maintenance estimate, @ $50 a metre, that's $9K per year eating into your income. Even at 1% that's still $1600 per year.
Post by: deborah on August 30, 2017, 04:29:34 PM
You could get it off your tax. Is there a minimum you need to be a farmer? Like 1000 acres (and why are we using measurements that haven't been used since I was a child?).little in the way of other costs besides maintaining the boundary fences.
Thoughts?
If my maths is correct, 200 acres will have 3.6kms of boundary fencing if square. If you had to replace 5% per year, which I don't think is too unreasonable a maintenance estimate, @ $50 a metre, that's $9K per year eating into your income. Even at 1% that's still $1600 per year.
Post by: bigchrisb on August 30, 2017, 05:43:41 PM
little in the way of other costs besides maintaining the boundary fences.
Thoughts?
If my maths is correct, 200 acres will have 3.6kms of boundary fencing if square. If you had to replace 5% per year, which I don't think is too unreasonable a maintenance estimate, @ $50 a metre, that's $9K per year eating into your income. Even at 1% that's still $1600 per year.
This got me thinking about the costs - if it was right, its going to make farmland a crazy proposition. So I had a look at rural fence costs and found a calculator from the Qld Government. https://publications.qld.gov.au/dataset/agbiz-tools-business-and-finance-farm-operations/resource/1ea38755-0159-4aec-89a4-0c5dd83f24b7 (https://publications.qld.gov.au/dataset/agbiz-tools-business-and-finance-farm-operations/resource/1ea38755-0159-4aec-89a4-0c5dd83f24b7)
Using the defaults on that gets fence costs at approx $2000/km ($2/metre), and then apportions them between the properties ($1/m). Gives a very different number.
However, I'm more interested in the lease structures - I suspect farmland leases are fully net, so that the tenant pays for all outgoings? Is this right Nate?
Post by: Ozstache on August 30, 2017, 05:54:52 PM
Post by: mymatenate on August 30, 2017, 06:07:15 PM
However, I'm more interested in the lease structures - I suspect farmland leases are fully net, so that the tenant pays for all outgoings? Is this right Nate?
Do you mean the tenant, say for instance a crop farmer, pays for all his/her expenses? E.g. fertiliser, seed, sowing, harvesting, etc. If so, yes. The only thing the owner of the land pays is rates and boundary fence maintenance (and the boundary fence costs are supposed to be split with your neighbor, actually, as you mentioned).
Post by: mymatenate on August 30, 2017, 06:09:39 PM
You could get it off your tax. Is there a minimum you need to be a farmer? Like 1000 acres (and why are we using measurements that haven't been used since I was a child?).
Sorry deborah...I probably should have converted to hectares. I spend a lot of time chatting with older cockies and they all operate in acres
Post by: marty998 on August 31, 2017, 04:35:23 AM
Quite a bit of pain for CBA and Telstra shareholders, some upside for BHP, RIO and FMG... not a lot of action otherwise among large caps. Woolies seems to have found its groove again. Also good news for Energy Retailer stocks like AGL (not so good if you're an electricity consumer!)
Market overall has been very flat for quite a bit of time now (I said that earlier up the thread)
Something's gotta give sooner or later. Surely the ASX can't go the entire year cycling between 5650 and 5850?
Post by: Rowellen on August 31, 2017, 05:14:29 AM
Post by: melfire on August 31, 2017, 07:11:43 AM
Great to see some Aussie Mustachian's around! I found the MMM blog a few months ago, managed to binge read everything before moving on to JColins/Afford Anything and have been reading a few MMM recommended books every other week.
I have just finished reading all 69 pages over the last few days.. thank you so much for sharing all of the helpful information. I have a few questions that haven't been covered and would look to get a second opinion on my strategy if anyone is around.
Age: 23
Debt: 19K HECS
ING Savings (F You Money): 10k
Joint Savings: 5k
Super: A dismal 4k
I'm a typical millennial... currently living at home, trying to save and get a head start. I started looking into my finances when I lost my first full time job as the company went into liquidation. A few major wakeup calls from that - missing super alerted me to high fees (I consolidated to REST core strategy); aggressive repayments of HECs lead to minimal emergency savings (I have since stopped making extra repayments, and focussing on saving 70% of my current income into an emergency fund until I reach 15k); and since watching friends/family struggle with overpriced property/mortgages over the last few years, I have started looking for other ways to invest besides the "Aussie dream" of owning property.
Oops. So much for keeping this short.
My questions are:
1. Should I make extra super contributions to make up for the my lost super?
2. Once I hit 15k savings, I plan to save 20k to invest in ETFs (VAS = 50%, VGS 50%) in 2x 10k transactions with Commsec. Continuing to invest quarterly as I can afford. Is this a sound strategy for my current position?
3. I plan to move to London with my S/O in 3-5 years time for 12 months or so (hence the join savings account for the move). Is there anything I should consider in terms of ETFs when living overseas/not earning AUD income? I saw it was mentioned in regards to US, does anyone have any UK specific information?
4. Lastly, I do have some concerns about the property market in Syd/Melb. I can see our population growth won't be slowing down anytime soon, and even though I don't have a crystal ball, I don't expect prices to drop but perhaps stagnate temporarily. I've discussed with S/O and have agreed for the next 5-10 years renting is definitely the better option (we plan to move around due to job changes/looking for a good place to settle long term). While we are happy to rent and invest in ETFs, I can't help but wonder if we are setting ourselves up to fail down the road if we do decide to buy a PPOR. Any tips/insights for things to consider?
I promise that's it. Thanks for reading so far!
Post by: itchyfeet on August 31, 2017, 10:53:26 AM
When I was young (45 now) I was really happy to see the back of my HECS debt, so completely understand you wanting to do likewise.
I also agree not prioritising buying in Sydney or Melbourne right now. It is insanely expensive. Hard to imagine getting good returns on investments. Rent yields are low, and after the capital price growth over the past 7 years i can only conclude that we are at the top of the cycle. Any rises in interest rates will keep a cap on prices for some time I think. But this is just a personal opinion and I don't own a crystal ball.
At 23 I wouldn't worry too much about super, although 40 years of tax free returns are an attraction I suppose.
If you live in London you will still be an Australian tax resident if you are only going for only one year. There is a DTA with the UK, but prob worth getting some advice on tax implications of buying stocks etc from the UK.
Post by: melfire on August 31, 2017, 08:52:23 PM
In regards to super, I guess i'm just worried i've fallen behind the curve due to a few thousand being lost. But as you say, 20-30 years until retirement is still plenty of time to catch up a few small repayments.
Any idea on a good way to search for reputable financial advisors? Or perhaps, things to look out for to make sure I get valuable feedback?
Post by: lush on August 31, 2017, 09:11:11 PM
Post by: mjr on August 31, 2017, 09:16:43 PM
Any idea on a good way to search for reputable financial advisors? Or perhaps, things to look out for to make sure I get valuable feedback?
You've read 69 pages of this thread and JLCollins and you're looking for a financial adviser ? I would have said that the general advice from these fora is to stay away from them.
If you must find one, get one that charges a fee-for-service,not on-going assets-under-management. That fee is likely to be several thousand dollars, mind you.
Post by: melfire on August 31, 2017, 09:19:47 PM
Post by: banksie_82 on August 31, 2017, 09:38:04 PM
There is a problem with the general population of Australia, in that they think super is the only way to save for retirement, and if you have a low super balance when you turn 65 then you’re screwed. You see this reinforced a lot in the media and by people’s reaction to changes in the superannuation laws.
I could be wrong, but you seem to have this mindset, at least to some degree.
People on this forum think of super a little differently. For us, at least for amounts over and above compulsory contributions, it’s simply a way to save on tax. The trade-off is not being allowed to touch it (and it’s gains) until you’re in your 60s. Hopefully for us, that is many, many years after retirement has already begun.
Even for people who retire at 65, there is no reason that all of their nest egg needs to be in super… it’s just nice if it was, for tax reasons.
Different people will have different opinions on if it’s worth adding extra to super, and certainly it is different for each personal circumstance. The general consensus is – the higher your marginal tax rate, and the closer you are to your 60’s then the more worthwhile it is.
So, yes, you have missed out on some super payments… that sucks. But what to do with new savings should be a decision based on what is optimal for that dollar, not trying to right old wrongs that you now can’t do anything about.
As to your other questions:
Why do you plan to save $20k before investing in ETF’s? I’d buy a parcel every time I had $5k spare if I was you. To me, that’s a sweet spot of keeping brokerage as a % fairly low, but not having too much money sitting on the sidelines.
I don’t know about non-resident tax rules, or specifics for the UK. I lived over there for 2 years when I was 18-19. But at the time I was blissfully ignorant of share investing, foreign income and tax, and… well… anything financial expect earning enough money to buy my next pint.
With respect to property, I’d say the top has to be close, and if prices don’t drop then they must surely flatline for a while. But, and this is a big but, I’ve been saying that for the last few years and yet prices keep rising. So don’t listen to me.
Finally, you’re looking for a tax accountant that can help with international residency.
Post by: mjr on August 31, 2017, 09:45:05 PM
Post by: PDM on August 31, 2017, 09:50:36 PM
Hi all,
Great to see some Aussie Mustachian's around! I found the MMM blog a few months ago, managed to binge read everything before moving on to JColins/Afford Anything and have been reading a few MMM recommended books every other week.
I have just finished reading all 69 pages over the last few days.. thank you so much for sharing all of the helpful information. I have a few questions that haven't been covered and would look to get a second opinion on my strategy if anyone is around.
Age: 23
Debt: 19K HECS
ING Savings (F You Money): 10k
Joint Savings: 5k
Super: A dismal 4k
My questions are:
1. Should I make extra super contributions to make up for the my lost super?
2. Once I hit 15k savings, I plan to save 20k to invest in ETFs (VAS = 50%, VGS 50%) in 2x 10k transactions with Commsec. Continuing to invest quarterly as I can afford. Is this a sound strategy for my current position?
3. I plan to move to London with my S/O in 3-5 years time for 12 months or so (hence the join savings account for the move). Is there anything I should consider in terms of ETFs when living overseas/not earning AUD income? I saw it was mentioned in regards to US, does anyone have any UK specific information?
4. Lastly, I do have some concerns about the property market in Syd/Melb. I can see our population growth won't be slowing down anytime soon, and even though I don't have a crystal ball, I don't expect prices to drop but perhaps stagnate temporarily. I've discussed with S/O and have agreed for the next 5-10 years renting is definitely the better option (we plan to move around due to job changes/looking for a good place to settle long term). While we are happy to rent and invest in ETFs, I can't help but wonder if we are setting ourselves up to fail down the road if we do decide to buy a PPOR. Any tips/insights for things to consider?
I promise that's it. Thanks for reading so far!
Hey,
A few thoughts:
1) Do you need a $15k emergency fund? I read somewhere (maybe MMM) maybe greaterfool.ca that this is kind of unnecessary in this day and age with debt being cheap and freely available. I.e you could get a credit card tomorrow - wrack up $5k of debt, then transfer that to a second card on 18months interest free basis.
Not saying having some cash is a bad thing - just make sure its at least in a high interest account trying to keep up with inflation.
It'd help with providing general advice if we knew how much you earn?
2) I like VGS but has been a bit volatile lately with Trump, North Korea, AUD changes. But those are short term things. Old adage - time in the market, not timing the market. Personally I don't like VAS but that is my anti ASX sentiment. Personally, in line with 1) above, I'd lower the emergency fund and put more into ETFs. They are fairly simple to sell (i.e very liquid) much like actual cash. However much higher potential for return.
3) No idea. US is a bit wacky with their double taxing deal. I think Australia as agreements with the UK that you only pay tax once.
4) My wife and I are in the rent + invest in ETFs camp. Brisbane not Mel/Syd. My tip here is to consider that you're building a diverse wealth base and have amazing flexibility. Unlike someone who has bought a house and has a single asset and is exposed entirely to the property market. Create a spreadsheet that tracks your net worth (super, investments, cash etc). It really helps with convincing yourself you're not missing out by getting a mega mortgage.
At some future point, you'll be able to buy a house with the value of ETFs or keep renting and live of the return. Maybe FIRE where ever you like - not in a house you bought near your work. Or travel the world.
You are setting yourselves up for down the road - just not to fail. Being debt free is awesome. Being a debt slave to a massive mortgage is not.
The biggest test is going to BBQ after BBQ where the only topic of conversation is property. Or having to pretend a friend has made a great decision to buy what you think is a massively over priced property.
I wish I'd started FIRE at 23!
Other unsolicited advice:
Make sure your SO is on the same journey and understand things.
Write a budget.
Track your Savings rate.
Still spend some money on yourself. Treat yo' self
Don't pay of HECs sooner than required.
Live, laugh, love
Dance like noone is watching. (ok those last two were a joke).
Post by: misterhorsey on August 31, 2017, 10:23:11 PM
Hi All, in trying to reach FIRE we are cutting back everywhere. We are now looking at our private health insurance ( just a couple no kids) and just want basic hospital cover. Any recommendations from this clever crowd? Thanks
Everyone's circumstances are different so I'd suggest looking at the non-commission comparison sites:
http://www.privatehealth.gov.au/dynamic/search
If you keep an eye on Ozbargain they tend to share the occasional incentivised switch by companies like iSelect. If you don't mind giving up your contact details for a bit of communication it's an expensive way to earn a $200 gift voucher.
For what its worth, I've been with Frank and NIB. But only paid very basic private hospital because I was earning enough to have to pay the surcharge, and buying basic private was cheaper than the Medicare Surcharge. But do read the terms and conditions carefully if you actually plan on relying on the insurance. I went with these insurers assuming I'd still go public if something bad happened. I have been in a shared public ward for a minor op. It's not like a private cabin in a cruise ship but there are worse experiences.
I've since left private insurance as I won't be earning anything for a bit. As you may know you have to pay a loading if you don't get it before the age of 30. They do give you 3 years off without resetting your loading, but its not well publicised.
The value of buying private health insurance if you don't earn above the threshold where the surcharge kicks in is debatable.
Here's an article about some of the maths involved in paying insurance, and what's advantageous in certain circumstances.
https://www.choice.com.au/money/insurance/health/articles/how-to-pay-the-lifetime-health-cover-loading-and-save
Post by: misterhorsey on August 31, 2017, 10:25:59 PM
In regards to super, I guess i'm just worried i've fallen behind the curve due to a few thousand being lost. But as you say, 20-30 years until retirement is still plenty of time to catch up a few small repayments.
You needn't worry about being behind the curve. Thinking about this stuff and planning ahead at the age of 23 puts you well ahead of the curve. Most people don't ever think about this stuff and then when they do, it's later in life.
I didn't even start earning a full time salary until 25. Aargh!
Post by: mjr on August 31, 2017, 11:24:44 PM
Also, it depends on what makes you happy of course, but a PPOR was much more of a priority for me. I know that property can be iffy as an investment vehicle compared to shares and I certainly did't over-invest in my house, but the security of place to live and no-one can make me move is worth $$$ to me.
Post by: itchyfeet on September 01, 2017, 02:04:29 AM
Back in 2004 we had made a killing on property between 1995 and 2004, so we took out a massive mortgage and bought a nice place on Sydney's northern beaches.
That place was worth less than what we paid for it for the next 5 years, and when we sold it in 2010 it was worth only 10% more than what we purchased it for, a gain of about 1.5% per year, or a real loss of about 1.5% per year.
Buying property at the top of a cycle is a bad idea.
If you are patient, and invest in stocks while you bide your time, you will see property prices stall and maybe even retreat a little. This will happen soon enough. Either this year or next..
When this stalling happens keep waiting. Your stocks will go up in value as money moves from property to stocks. Interest rates will rise, and more money will move out of property. Keep waiting.
After a few years, or several years you will note that auction clearance rates will start rising for the first time in years, and the number of people at open house will start increasing.
This is the time to revisit whether you really want to own a home in Sydney.
By this time you will have a solid deposit, and will be less at risk of mortgage stress if interest rates rise after you buy.
It is a time for exercising patience.
Post by: superannuationfreak on September 01, 2017, 05:21:44 AM
3. I plan to move to London with my S/O in 3-5 years time for 12 months or so (hence the join savings account for the move). Is there anything I should consider in terms of ETFs when living overseas/not earning AUD income? I saw it was mentioned in regards to US, does anyone have any UK specific information?
4. Lastly, I do have some concerns about the property market in Syd/Melb. I can see our population growth won't be slowing down anytime soon, and even though I don't have a crystal ball, I don't expect prices to drop but perhaps stagnate temporarily. I've discussed with S/O and have agreed for the next 5-10 years renting is definitely the better option (we plan to move around due to job changes/looking for a good place to settle long term). While we are happy to rent and invest in ETFs, I can't help but wonder if we are setting ourselves up to fail down the road if we do decide to buy a PPOR. Any tips/insights for things to consider?
3. I'm not a tax so seek advice/do your own research if unsure. My understanding is that the UK taxes funds/ETFs punitively if they do not have "reporting status" or something like that. Most Australian funds do not, however Vanguard's US-domiciled ETFs did have reporting status when I checked HMRC's spreadsheet. When I was considering living in the US or UK I thus focused on Vanguard US-domiciled ETFs.
There are some Vanguard US-domiciled ETFs you can buy on the ASX (in particular, VTS and VEU) - at the time I thought those would be OK although I ended up buying Vanguard ETFs using a US broker anyway.
4. If I planned to travel I wouldn't be buying property in Melbourne or Sydney. If I planned to move back to Australia and buy property within 5 years I would build my deposit largely in AUD cash, if I was looking longer-term it would depend how risk-averse I was (i.e. how willing I was to wait longer to buy property if the share market wasn't cooperating when I planned to buy)
Post by: Wadiman on September 01, 2017, 04:05:07 PM
Peering into my imaginary crystal ball I would say that for a 23 year old there will be better times in the next 20 years to buy a home in Sydney or Melbourne than today.
Back in 2004 we had made a killing on property between 1995 and 2004, so we took out a massive mortgage and bought a nice place on Sydney's northern beaches.
That place was worth less than what we paid for it for the next 5 years, and when we sold it in 2010 it was worth only 10% more than what we purchased it for, a gain of about 1.5% per year, or a real loss of about 1.5% per year.
Buying property at the top of a cycle is a bad idea.
If you are patient, and invest in stocks while you bide your time, you will see property prices stall and maybe even retreat a little. This will happen soon enough. Either this year or next..
When this stalling happens keep waiting. Your stocks will go up in value as money moves from property to stocks. Interest rates will rise, and more money will move out of property. Keep waiting.
After a few years, or several years you will note that auction clearance rates will start rising for the first time in years, and the number of people at open house will start increasing.
This is the time to revisit whether you really want to own a home in Sydney.
By this time you will have a solid deposit, and will be less at risk of mortgage stress if interest rates rise after you buy.
It is a time for exercising patience.
Great advice there IF!
Post by: lush on September 01, 2017, 06:38:24 PM
Hi All, in trying to reach FIRE we are cutting back everywhere. We are now looking at our private health insurance ( just a couple no kids) and just want basic hospital cover. Any recommendations from this clever crowd? Thanks
Everyone's circumstances are different so I'd suggest looking at the non-commission comparison sites:
http://www.privatehealth.gov.au/dynamic/search
If you keep an eye on Ozbargain they tend to share the occasional incentivised switch by companies like iSelect. If you don't mind giving up your contact details for a bit of communication it's an expensive way to earn a $200 gift voucher.
For what its worth, I've been with Frank and NIB. But only paid very basic private hospital because I was earning enough to have to pay the surcharge, and buying basic private was cheaper than the Medicare Surcharge. But do read the terms and conditions carefully if you actually plan on relying on the insurance. I went with these insurers assuming I'd still go public if something bad happened. I have been in a shared public ward for a minor op. It's not like a private cabin in a cruise ship but there are worse experiences.
I've since left private insurance as I won't be earning anything for a bit. As you may know you have to pay a loading if you don't get it before the age of 30. They do give you 3 years off without resetting your loading, but its not well publicised.
The value of buying private health insurance if you don't earn above the threshold where the surcharge kicks in is debatable.
Here's an article about some of the maths involved in paying insurance, and what's advantageous in certain circumstances.
https://www.choice.com.au/money/insurance/health/articles/how-to-pay-the-lifetime-health-cover-loading-and-save
Thanks MisterHorsey! Has really opened my eyes as to what is not publicised!
Post by: niknah on September 01, 2017, 10:41:36 PM
VAS mytax prefill? Last year the statements came around 20th of july it hadn't prefilled by then so I entered it by hand on the 20th this was the last info I was waiting for.
Does anyone know if it does prefill into Mytax?
thanks. Koala.
I just had mytax prefill the VAS distributions and they were not correct. They had added the unfranked dividends into the franked dividends number. Best check with the annual statement, don't presume the prefill will be correct.
Post by: GT on September 01, 2017, 11:02:39 PM
My questions are:
1. Should I make extra super contributions to make up for the my lost super?
2. Once I hit 15k savings, I plan to save 20k to invest in ETFs (VAS = 50%, VGS 50%) in 2x 10k transactions with Commsec. Continuing to invest quarterly as I can afford. Is this a sound strategy for my current position?
3. I plan to move to London with my S/O in 3-5 years time for 12 months or so (hence the join savings account for the move). Is there anything I should consider in terms of ETFs when living overseas/not earning AUD income? I saw it was mentioned in regards to US, does anyone have any UK specific information?
4. Lastly, I do have some concerns about the property market in Syd/Melb. I can see our population growth won't be slowing down anytime soon, and even though I don't have a crystal ball, I don't expect prices to drop but perhaps stagnate temporarily. I've discussed with S/O and have agreed for the next 5-10 years renting is definitely the better option (we plan to move around due to job changes/looking for a good place to settle long term). While we are happy to rent and invest in ETFs, I can't help but wonder if we are setting ourselves up to fail down the road if we do decide to buy a PPOR. Any tips/insights for things to consider?
Hi melfire.
It would have already been covered in your 69 pages of reading as we originally nutted it out in this thread, but here it is again, the investment order for Australians. https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333550/#msg1333550
As you've not provided your annual income (which is perfectly fine), Point 4 in the investment order may be relevant to your Q1. I may be taking advantage of this option in June of next year if I continue #daddydaycare through til then, as I'd definately be under the cutoff.
Post by: Wadiman on September 02, 2017, 03:45:52 PM
Very interesting P2P concept for Aus property
Post by: deborah on September 02, 2017, 04:17:13 PM
Anyone looked at https://www.brickx.com/ (https://www.brickx.com/)?It was written up in Fairfax a little while ago http://www.smh.com.au/money/investing/brickx-offers-fractional-ownership-of-residential-property-for-investors-20160911-gre0eg.html - like a lot of journalism these days, it is little more than an ad.
Very interesting P2P concept for Aus property
Post by: Luckyvik on September 02, 2017, 09:54:14 PM
Seems to me the fees are high.Anyone looked at https://www.brickx.com/ (https://www.brickx.com/)?It was written up in Fairfax a little while ago http://www.smh.com.au/money/investing/brickx-offers-fractional-ownership-of-residential-property-for-investors-20160911-gre0eg.html - like a lot of journalism these days, it is little more than an ad.
Very interesting P2P concept for Aus property
Sent from my iPhone using Tapatalk
Post by: marty998 on September 03, 2017, 03:24:43 AM
Seems to me the fees are high.Anyone looked at https://www.brickx.com/ (https://www.brickx.com/)?It was written up in Fairfax a little while ago http://www.smh.com.au/money/investing/brickx-offers-fractional-ownership-of-residential-property-for-investors-20160911-gre0eg.html - like a lot of journalism these days, it is little more than an ad.
Very interesting P2P concept for Aus property
Sent from my iPhone using Tapatalk
Yeah very high fees. The only people who will make money out of this are the promoters.
Post by: misterhorsey on September 03, 2017, 10:00:56 PM
The value of buying private health insurance if you don't earn above the threshold where the surcharge kicks in is debatable.
Here's an article about some of the maths involved in paying insurance, and what's advantageous in certain circumstances.
https://www.choice.com.au/money/insurance/health/articles/how-to-pay-the-lifetime-health-cover-loading-and-save
Thanks MisterHorsey! Has really opened my eyes as to what is not publicised!
No worries. Even Failfax press recently did an article on some of the hidden surprises of private health insurance.
http://www.smh.com.au/money/planning/is-private-health-insurance-worth-it-20170831-gy7uvq.html
Post by: marty998 on September 04, 2017, 03:04:31 PM
The value of buying private health insurance if you don't earn above the threshold where the surcharge kicks in is debatable.
Here's an article about some of the maths involved in paying insurance, and what's advantageous in certain circumstances.
https://www.choice.com.au/money/insurance/health/articles/how-to-pay-the-lifetime-health-cover-loading-and-save
Thanks MisterHorsey! Has really opened my eyes as to what is not publicised!
No worries. Even Failfax press recently did an article on some of the hidden surprises of private health insurance.
http://www.smh.com.au/money/planning/is-private-health-insurance-worth-it-20170831-gy7uvq.html
Appreciate your contributions misterhorsey, but that's a silly swipe that doesn't belong here.
Post by: NotSure on September 04, 2017, 10:18:28 PM
I've my wife's super in AustralianSuper and it's super simple.
Post by: PDM on September 04, 2017, 11:26:15 PM
The value of buying private health insurance if you don't earn above the threshold where the surcharge kicks in is debatable.
Here's an article about some of the maths involved in paying insurance, and what's advantageous in certain circumstances.
https://www.choice.com.au/money/insurance/health/articles/how-to-pay-the-lifetime-health-cover-loading-and-save
Thanks MisterHorsey! Has really opened my eyes as to what is not publicised!
No worries. Even Failfax press recently did an article on some of the hidden surprises of private health insurance.
http://www.smh.com.au/money/planning/is-private-health-insurance-worth-it-20170831-gy7uvq.html
Appreciate your contributions misterhorsey, but that's a silly swipe that doesn't belong here.
I would say it is fair. Mainstream media has 100% captured by the realestate industry and the average newspaper is little more than an excuse to publish all the realestate content. Fairfax Media is basically Domian Property and little else with all journalistic content skewed to supporting it.
Former SHM reader can't stand it now.
Same applies to News Limited and Realestate.com. Property firms with formerly reliable and trustworthy newspapers.
Post by: gsp on September 04, 2017, 11:29:38 PM
Thank you all for sharing your financial wisdom.
I have 300k in Super. I want to SMSF with 200k on property and 100K on Vanguard ETF.
1. Which one is better Vanguard ETF or Super fund for that 100k ?
2.If Vanguard ETF then is hedged or unhedged better ?
Post by: steveo on September 05, 2017, 02:10:43 AM
Hi All
Thank you all for sharing your financial wisdom.
I have 300k in Super. I want to SMSF with 200k on property and 100K on Vanguard ETF.
1. Which one is better Vanguard ETF or Super fund for that 100k ?
2.If Vanguard ETF then is hedged or unhedged better ?
Maybe I'm not understanding the question correctly so I'll play it back to you. Do you want to get a SMSF ? If so then my understanding is that you could buy a Vanguard ETF within your super fund. You can also get a variety of super funds (not a SMSF) and invest in whatever options are available within those super funds. I think some super funds do offer up Vanguard ETF options.
Post by: mymatenate on September 05, 2017, 04:04:55 AM
Guys - what's your thoughts on investing in Australian farm land?
I've been running the numbers and chatting to my farmer friends and it doesn't seem all that bad
For example-
Good, flat arable land suitable for cropping and grazing in fairly reliable rainfall area for $2000 per acre.
Can lease easily for $60 per acre per year
Rates approx $8 per acre per year
Renter pays insurance.
Could buy a couple a hundred acres of flat productive land, without a house, so easy to manage and little in the way of other costs besides maintaining the boundary fences.
say, 200 acres x 2000 = $400,000 capital
200 x 60 = $12000 / year less $1600 rates = $10400
2.6% return
I know 2.6% is quite low, but you would expect the land will rise in value at least alongside inflation (over the long term), so 3% + 2.6% = 5.6%. Or looking at it another way, 2.6% that you can safely "withdraw" and spend.
Thoughts?
Post by: marty998 on September 05, 2017, 05:13:10 AM
Hi All
Thank you all for sharing your financial wisdom.
I have 300k in Super. I want to SMSF with 200k on property and 100K on Vanguard ETF.
1. Which one is better Vanguard ETF or Super fund for that 100k ?
2.If Vanguard ETF then is hedged or unhedged better ?
It doesn't sound to me like you currently have the financial knowledge and capacity to run a SMSF.
$200k is not going to get you far in terms of buying a property when you can only gear to max 70%, and need to set aside funds for stamps and legals, as well as having a buffer in place.
Have you got a plan or an idea of what sort of property to buy? Have you talked to your accountant or advisor about it?
Post by: bigchrisb on September 05, 2017, 06:52:20 PM
However, if you look at other illiquid assets with inflation hedged income streams, are you any better or worse? The obvious comparisons would be commercial property, where 5-10 year lease terms are not uncommon, along with net leases (tenant pays costs). Rent reviews are usually either a fixed rate or CPI. Those sorts of assets are usually running 4-8% yield.
I'd also suggest that the dividend from equities usually increases as fast or faster than inflation, but again with a higher starting point (5.5% gross for AU equities or 3% for world equities, using VGS as a quick metric). I'd be asking what I'm getting for having my money tied up in an illiquid asset, and if its better or worse than my alternates.
It sounds like you have done well from farmland so far, and are comfortable with it. I don't know enough about what the risks of this type of asset are - do you lose your tenant with extended drought? Are you exposed to soft commodities prices with farmers wanting to lease the land? Are you able to contest the land between multiple parties to create competition, or are you stuck leasing to the neighbor? What happens in the event of fire/flood/disaster? I don't know the answer to those questions, and the risk may well be low. But I suspect its not zero, and I'd want to be adequately compensated for my risks, along with a return on my capital at least equal to the risk free rate.
But, if you are comfortable with the returns, your idea of spending the income as a swr on this land seems reasonable, as long as you are provisioning for any long term costs, such as fencing.
Thanks for bringing it up too - I'd like to see more asset classes discussed on here than just stocks, bonds and resi property.
I just wanted to bump my post on farmland investing once and see if anyone wanted to discuss it further. I answered the questions which were asked (page 69) but no one has followed up. Before we depart the topic if anyone has any other thoughts to share, say even why they don't think it sounds like a good investment. I'm happy to answer any further questions...
Post by: nora on September 05, 2017, 08:19:15 PM
Hi All, in trying to reach FIRE we are cutting back everywhere. We are now looking at our private health insurance ( just a couple no kids) and just want basic hospital cover. Any recommendations from this clever crowd? Thanks
HIF was the cheapest when I looked into this a few years back. Only got it to avoid mls. Otherwise would have just stuck with public.
Post by: misterhorsey on September 05, 2017, 08:33:44 PM
The value of buying private health insurance if you don't earn above the threshold where the surcharge kicks in is debatable.
Here's an article about some of the maths involved in paying insurance, and what's advantageous in certain circumstances.
https://www.choice.com.au/money/insurance/health/articles/how-to-pay-the-lifetime-health-cover-loading-and-save
Thanks MisterHorsey! Has really opened my eyes as to what is not publicised!
No worries. Even Failfax press recently did an article on some of the hidden surprises of private health insurance.
http://www.smh.com.au/money/planning/is-private-health-insurance-worth-it-20170831-gy7uvq.html
Appreciate your contributions misterhorsey, but that's a silly swipe that doesn't belong here.
It was a 'swipe', yes. And it was 'silly', indeed.
But it's not without reason.
The aforementioned news publishing company misjudged the disrupted advent of the interwebs very badly - as many incumbent news orgs did across the world - and as a result is struggling. The Sydney Morning Herald was my beloved quality broadsheet when I was growing up. I'm afraid it is no more. The Age in my adopted home seemed to be marginally better, but I wouldn't say that anymore.
A vibrant democracy needs a robust press to critique power and keep it accountable, to provide a public record, to report the news but also provide a forum for critical and often uncomfortable debate. I don't believe Fairfax Media Limited are providing it. There are a few bright sparks remaining that I admire (Ross Gittins, John Silvester, Ruby Hamad, Nicole Pederson McKinnon in particular are worth a read). However, it seems to me that the online versions pander to celebrity gossip click bait, middle class status anxieties (private schools, fine dining), diet and nutrition neuroses, Apple product launches and of course Real Estate - home renos and all manner of real estate investment pumping. It's like Buzz Feed for anxious, aspirational, materialistic, high consumption bourgeoisie. I did have a friend who worked on their online section - they do actively court clickthroughs on the online version, which at time was run separately from the print version. So maybe us online readers who aren't willing to pay for anything are to blame?
Either way, it's not the fault of the journos, but management. You can't provide quality and comprehensive news coverage, opinion and analysis if you keep on sacking everyone.
I don't necessarily endorse MEAA's strategy, but their campaign page on Fairfax cuts is an interesting take on the decline of some once venerable mastheads.
https://www.meaa.org/campaigns/fair-go-fairfax/
I don't know what a sustainable commercial strategy is to provide decent quality coverage of local and national events. There are better out there that come to mind (The Guardian (Aus + UK), Washington Post) and there are worse (Daily Mail), but it's sad to see once quality print journalism in Australia engage in a race to the bottom. It's not going to work.
Thanks for the opportunity to explain myself. Anyway, totally off topic. I shall say no more.
Post by: nora on September 05, 2017, 11:25:20 PM
Anyone with SunSuper, how do you check performance of your investments on their website, can't find anything. :(
I've my wife's super in AustralianSuper and it's super simple.
Sunsupers is in a pdf file somewhere on their site
Post by: marty998 on September 06, 2017, 04:36:30 AM
The value of buying private health insurance if you don't earn above the threshold where the surcharge kicks in is debatable.
Here's an article about some of the maths involved in paying insurance, and what's advantageous in certain circumstances.
https://www.choice.com.au/money/insurance/health/articles/how-to-pay-the-lifetime-health-cover-loading-and-save
Thanks MisterHorsey! Has really opened my eyes as to what is not publicised!
No worries. Even Failfax press recently did an article on some of the hidden surprises of private health insurance.
http://www.smh.com.au/money/planning/is-private-health-insurance-worth-it-20170831-gy7uvq.html
Appreciate your contributions misterhorsey, but that's a silly swipe that doesn't belong here.
It was a 'swipe', yes. And it was 'silly', indeed.
But it's not without reason.
The aforementioned news publishing company misjudged the disrupted advent of the interwebs very badly - as many incumbent news orgs did across the world - and as a result is struggling. The Sydney Morning Herald was my beloved quality broadsheet when I was growing up. I'm afraid it is no more. The Age in my adopted home seemed to be marginally better, but I wouldn't say that anymore.
A vibrant democracy needs a robust press to critique power and keep it accountable, to provide a public record, to report the news but also provide a forum for critical and often uncomfortable debate. I don't believe Fairfax Media Limited are providing it. There are a few bright sparks remaining that I admire (Ross Gittins, John Silvester, Ruby Hamad, Nicole Pederson McKinnon in particular are worth a read). However, it seems to me that the online versions pander to celebrity gossip click bait, middle class status anxieties (private schools, fine dining), diet and nutrition neuroses, Apple product launches and of course Real Estate - home renos and all manner of real estate investment pumping. It's like Buzz Feed for anxious, aspirational, materialistic, high consumption bourgeoisie. I did have a friend who worked on their online section - they do actively court clickthroughs on the online version, which at time was run separately from the print version. So maybe us online readers who aren't willing to pay for anything are to blame?
Either way, it's not the fault of the journos, but management. You can't provide quality and comprehensive news coverage, opinion and analysis if you keep on sacking everyone.
I don't necessarily endorse MEAA's strategy, but their campaign page on Fairfax cuts is an interesting take on the decline of some once venerable mastheads.
https://www.meaa.org/campaigns/fair-go-fairfax/
I don't know what a sustainable commercial strategy is to provide decent quality coverage of local and national events. There are better out there that come to mind (The Guardian (Aus + UK), Washington Post) and there are worse (Daily Mail), but it's sad to see once quality print journalism in Australia engage in a race to the bottom. It's not going to work.
Thanks for the opportunity to explain myself. Anyway, totally off topic. I shall say no more.
No no, that's ok... I thought you were saying it in the context of how those rabid conservatives like to describe anything that isn't to the right of Cory Bernardi.
I agree with the sentiments, I too am upset by what has happened to the SMH. There's simply not enough content anymore :(
In addition to those you mentioned I used to always read Hugh Mackay, Alan Ramsay (in his day), Michael West and Adele Horin. And the double spread of letters pages. News Review was a good 20 pages long, now cut to a pamphlet. The sports section is gutted, along with Good Weekend. Adele Ferguson seems to be keeping the business section going (what would she do without CBA?)
Fail is probably right... kodak moment might be an apt way to describe it :(
Post by: mjr on September 06, 2017, 11:22:28 AM
For the record, I don't agree with cheap shots like failfax or fauxfacts and I think news.com.au and co are mindless drivel.
Post by: mymatenate on September 06, 2017, 02:19:44 PM
What you have described is an illiquid asset with a low yield income stream that should increase with inflation. Its probably reasonably uncorrelated with equities or bonds.
However, if you look at other illiquid assets with inflation hedged income streams, are you any better or worse? The obvious comparisons would be commercial property, where 5-10 year lease terms are not uncommon, along with net leases (tenant pays costs). Rent reviews are usually either a fixed rate or CPI. Those sorts of assets are usually running 4-8% yield.
I'd also suggest that the dividend from equities usually increases as fast or faster than inflation, but again with a higher starting point (5.5% gross for AU equities or 3% for world equities, using VGS as a quick metric). I'd be asking what I'm getting for having my money tied up in an illiquid asset, and if its better or worse than my alternates.
It sounds like you have done well from farmland so far, and are comfortable with it. I don't know enough about what the risks of this type of asset are - do you lose your tenant with extended drought? Are you exposed to soft commodities prices with farmers wanting to lease the land? Are you able to contest the land between multiple parties to create competition, or are you stuck leasing to the neighbor? What happens in the event of fire/flood/disaster? I don't know the answer to those questions, and the risk may well be low. But I suspect its not zero, and I'd want to be adequately compensated for my risks, along with a return on my capital at least equal to the risk free rate.
But, if you are comfortable with the returns, your idea of spending the income as a swr on this land seems reasonable, as long as you are provisioning for any long term costs, such as fencing.
Thanks for bringing it up too - I'd like to see more asset classes discussed on here than just stocks, bonds and resi property.I just wanted to bump my post on farmland investing once and see if anyone wanted to discuss it further. I answered the questions which were asked (page 69) but no one has followed up. Before we depart the topic if anyone has any other thoughts to share, say even why they don't think it sounds like a good investment. I'm happy to answer any further questions...
Thanks for the thoughtful reply, Chris!
Yes you are right, an extended drought could certainly affect your ability to find a tenant. Prolonged low commodity prices will affect the leasing rates. In many cases you are not restricted to just a neighbor for leasing - In some of the areas I am familiar with, farmers quite commonly farm land all over town. Or you sometimes will see a grazier from another area, perhaps further west, want to lease a "finishing block", i.e. to grow say lucerne and then run their sheep to fatten them for market.
You've given me some food for thought. With such a modest yield, it's a fair point to question whether one is being adequately compensated for the risks.
Post by: mustachepungoeshere on September 06, 2017, 02:30:28 PM
The value of buying private health insurance if you don't earn above the threshold where the surcharge kicks in is debatable.
Here's an article about some of the maths involved in paying insurance, and what's advantageous in certain circumstances.
https://www.choice.com.au/money/insurance/health/articles/how-to-pay-the-lifetime-health-cover-loading-and-save
Thanks MisterHorsey! Has really opened my eyes as to what is not publicised!
No worries. Even Failfax press recently did an article on some of the hidden surprises of private health insurance.
http://www.smh.com.au/money/planning/is-private-health-insurance-worth-it-20170831-gy7uvq.html
Appreciate your contributions misterhorsey, but that's a silly swipe that doesn't belong here.
It was a 'swipe', yes. And it was 'silly', indeed.
But it's not without reason.
The aforementioned news publishing company misjudged the disrupted advent of the interwebs very badly - as many incumbent news orgs did across the world - and as a result is struggling. The Sydney Morning Herald was my beloved quality broadsheet when I was growing up. I'm afraid it is no more. The Age in my adopted home seemed to be marginally better, but I wouldn't say that anymore.
A vibrant democracy needs a robust press to critique power and keep it accountable, to provide a public record, to report the news but also provide a forum for critical and often uncomfortable debate. I don't believe Fairfax Media Limited are providing it. There are a few bright sparks remaining that I admire (Ross Gittins, John Silvester, Ruby Hamad, Nicole Pederson McKinnon in particular are worth a read). However, it seems to me that the online versions pander to celebrity gossip click bait, middle class status anxieties (private schools, fine dining), diet and nutrition neuroses, Apple product launches and of course Real Estate - home renos and all manner of real estate investment pumping. It's like Buzz Feed for anxious, aspirational, materialistic, high consumption bourgeoisie. I did have a friend who worked on their online section - they do actively court clickthroughs on the online version, which at time was run separately from the print version. So maybe us online readers who aren't willing to pay for anything are to blame?
Either way, it's not the fault of the journos, but management. You can't provide quality and comprehensive news coverage, opinion and analysis if you keep on sacking everyone.
I don't necessarily endorse MEAA's strategy, but their campaign page on Fairfax cuts is an interesting take on the decline of some once venerable mastheads.
https://www.meaa.org/campaigns/fair-go-fairfax/
I don't know what a sustainable commercial strategy is to provide decent quality coverage of local and national events. There are better out there that come to mind (The Guardian (Aus + UK), Washington Post) and there are worse (Daily Mail), but it's sad to see once quality print journalism in Australia engage in a race to the bottom. It's not going to work.
Thanks for the opportunity to explain myself. Anyway, totally off topic. I shall say no more.
No no, that's ok... I thought you were saying it in the context of how those rabid conservatives like to describe anything that isn't to the right of Cory Bernardi.
I agree with the sentiments, I too am upset by what has happened to the SMH. There's simply not enough content anymore :(
In addition to those you mentioned I used to always read Hugh Mackay, Alan Ramsay (in his day), Michael West and Adele Horin. And the double spread of letters pages. News Review was a good 20 pages long, now cut to a pamphlet. The sports section is gutted, along with Good Weekend. Adele Ferguson seems to be keeping the business section going (what would she do without CBA?)
Fail is probably right... kodak moment might be an apt way to describe it :(
My response to this is simple: pay for your content. Subscribe.
If you want journalism that is better than the clickbait you get on other sites, the money has to come from somewhere, and the rivers of gold from advertising dried up long ago.
Post by: lush on September 10, 2017, 06:00:39 PM
Vanguard do not want to answer this question. Which does not make much sense to me at all. Shouldn’t they be able to identify this? And my accountant also is reluctant to speak on behalf of Vanguard and has asked me to ask them. It’s all a bit crazy.
I need this information to determine if I was dependent on these funds to live off what that would have been, rather than the re-investing the distributions.
Thanks!
Post by: Rowellen on September 10, 2017, 07:21:06 PM
I have been trying to work out my first tax statement from Vanguard. At the moment I am re-investing all distributions and hope to be able to continue this for at least 2 more years…. so don’t really know what the amount would have been if the funds had gone straight into my bank account. In other words, is this information available on the tax statement? Is it Net Cash Distributions?
Vanguard do not want to answer this question. Which does not make much sense to me at all. Shouldn’t they be able to identify this? And my accountant also is reluctant to speak on behalf of Vanguard and has asked me to ask them. It’s all a bit crazy.
I need this information to determine if I was dependent on these funds to live off what that would have been, rather than the re-investing the distributions.
Thanks!
Generally net cash distributions would be cash received/reinvested. I don't have a Vanguard statement in front of me to check but I see a lot of tax statements in my work and this is usually the case.
Post by: Rowellen on September 10, 2017, 07:22:14 PM
Post by: marty998 on September 11, 2017, 05:48:56 AM
Post by: Ozstache on September 11, 2017, 03:59:33 PM
I have been trying to work out my first tax statement from Vanguard. At the moment I am re-investing all distributions and hope to be able to continue this for at least 2 more years…. so don’t really know what the amount would have been if the funds had gone straight into my bank account. In other words, is this information available on the tax statement? Is it Net Cash Distributions?
I just checked mine and the Net Cash Distributions amount is within 1 share value of the amounts I have recorded as DRP purchases for last tax year, so yes. This is within tolerance because there is rarely, if ever, the exact amount in a dividend payment to buy an exact number of DRP shares, so there is a kitty of up to 1 share value that is yet to be reinvested at any given time.
Post by: lush on September 11, 2017, 09:34:31 PM
Post by: yleeinvest on September 13, 2017, 12:13:41 AM
People of Aussie, need your help getting this American with a better understanding of investing in Australia for FIRE. I am leaning away from investing in real estate because I feel the housing market will decrease in value in the near future. In my opinion it is a matter of time before the highs of the housing market reverses.
Thanks in advance
Post by: MajorTom on September 13, 2017, 04:58:39 AM
Now that I'm in Aussie this plan I had is obsolete esp with 401k and Roth IRA being replaced with a SUPER that cant be touched until 65.
Anyone born after 1960 can access their super at 60.
Post by: yleeinvest on September 13, 2017, 05:08:59 AM
Now that I'm in Aussie this plan I had is obsolete esp with 401k and Roth IRA being replaced with a SUPER that cant be touched until 65.
Anyone born after 1960 can access their super at 60.
There is a heavy penalty involved if you access it before 65 right?
Post by: Ozstache on September 13, 2017, 05:33:11 AM
Now that I'm in Aussie this plan I had is obsolete esp with 401k and Roth IRA being replaced with a SUPER that cant be touched until 65.
Anyone born after 1960 can access their super at 60.
There is a heavy penalty involved if you access it before 65 right?
No, as long as you have reached preservation age (60) and are retired, there is no penalty for accessing your super. See https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/getting-your-super (https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/getting-your-super) for more details.
Post by: marty998 on September 13, 2017, 05:41:35 AM
VAS has held up really well through the CBA plunge from $80+ down, considering that Bank is over 10% of the market.
Again, shows the benefits of diversification, happier to be holding the market as opposed to too much in single stocks.
Post by: cakie on September 13, 2017, 02:16:15 PM
Also, if you leave the country permanently, you can take your super with you...Now that I'm in Aussie this plan I had is obsolete esp with 401k and Roth IRA being replaced with a SUPER that cant be touched until 65.
Anyone born after 1960 can access their super at 60.
There is a heavy penalty involved if you access it before 65 right?
No, as long as you have reached preservation age (60) and are retired, there is no penalty for accessing your super. See https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/getting-your-super (https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/getting-your-super) for more details.
Post by: itchyfeet on September 13, 2017, 09:57:29 PM
CBA is bouncing back, might have been a bit of a short squeeze at $73.
VAS has held up really well through the CBA plunge from $80+ down, considering that Bank is over 10% of the market.
Again, shows the benefits of diversification, happier to be holding the market as opposed to too much in single stocks.
I just wish the ASX 200 would hurry up and crack 5,800 and get on it's merry way upwards from there.
Post by: bigchrisb on September 13, 2017, 10:23:38 PM
CBA is bouncing back, might have been a bit of a short squeeze at $73.
VAS has held up really well through the CBA plunge from $80+ down, considering that Bank is over 10% of the market.
Again, shows the benefits of diversification, happier to be holding the market as opposed to too much in single stocks.
I just wish the ASX 200 would hurry up and crack 5,800 and get on it's merry way upwards from there.
Why? I want earnings to grow (and am somewhat indifferent as to them being paid out as dividends or re-invested), but personally I'm quite happy with prices tracking sideways or indeed declining. Rising stock prices just mean I get less for my money, either from new funds being deployed or from re-investment.
I'd be quite content if things just tracked sideways, with a 4.35% net (6.2% gross) dividend yield, increasing with real GDP (say 2.5% real). Or, look at earnings ratios, with about 6.3% earnings (PE of 15.3), again likely to increase with real GDP. That's 8.7% above inflation pre tax - which I'd be more than happy to take in perpetuity!
Post by: marty998 on September 14, 2017, 05:49:01 AM
CBA is bouncing back, might have been a bit of a short squeeze at $73.
VAS has held up really well through the CBA plunge from $80+ down, considering that Bank is over 10% of the market.
Again, shows the benefits of diversification, happier to be holding the market as opposed to too much in single stocks.
I just wish the ASX 200 would hurry up and crack 5,800 and get on it's merry way upwards from there.
I'm happy for it to stay low while I still accumulate!
Dropped another $25k on VAS today 340 @ $73.99
Have a feeling a huge distribution is coming soon in October too...all the big fat juicy dividends from ANZ, WBC, NAB and MQG from the start of July, then BHP, RIO, FMG, AMP, SUN, WOW, WES and TLS from Aug/Sep, rounding it off with CBA at the end of September.
Should be a over $1 a unit when it finally goes ex.
Post by: potm on September 14, 2017, 09:44:16 PM
We're nearly at 10 years since the peak of the ASX and we're no where close to it. Baring a large property crash and recession, I think we can expect some decent returns in the next 10 to 20 years.
There will be a lot of worries and panics along the way but the rapidly rising middle class in developing countries provides a massive tailwind for growth.
Post by: one piece at a time on September 14, 2017, 09:55:37 PM
CBA is bouncing back, might have been a bit of a short squeeze at $73.
VAS has held up really well through the CBA plunge from $80+ down, considering that Bank is over 10% of the market.
Again, shows the benefits of diversification, happier to be holding the market as opposed to too much in single stocks.
I just wish the ASX 200 would hurry up and crack 5,800 and get on it's merry way upwards from there.
I'm happy for it to stay low while I still accumulate!
Dropped another $25k on VAS today 340 @ $73.99
Have a feeling a huge distribution is coming soon in October too...all the big fat juicy dividends from ANZ, WBC, NAB and MQG from the start of July, then BHP, RIO, FMG, AMP, SUN, WOW, WES and TLS from Aug/Sep, rounding it off with CBA at the end of September.
Should be a over $1 a unit when it finally goes ex.
You could probably make a good estimate on the dividend by tracking ARG, AFI, MLT etc. They all invest in pretty much the same stuff. Shouldn't take long to download 10 years of data and get a correlation going.
Post by: bigchrisb on September 14, 2017, 11:05:42 PM
You could probably make a good estimate on the dividend by tracking ARG, AFI, MLT etc. They all invest in pretty much the same stuff. Shouldn't take long to download 10 years of data and get a correlation going.
Except VAS is structured as a trust, so distributes all income each period, where as the LICs are companies, with their dividends determined by their board. The LICs tend to smooth income over time, where as the ETFs are more volatile tracking actual underlying distributions.
Post by: one piece at a time on September 17, 2017, 03:49:57 PM
Post by: marty998 on September 18, 2017, 02:47:49 AM
_____________
In other news, I hear the big banks have been cutting fixed rates again to investors. Trying to cash in and generate a positive vibe for a spring auction season which appears to be spluttering to shuddering halt
Post by: lush on September 18, 2017, 08:45:40 PM
My queston is I own VAS and wondering if this will be taken into account for the September distributions, or just that little bit too late. I just threw some more into VAS yesterday in the hope that the dividends will flow on. Thanks
Post by: Rowellen on September 18, 2017, 08:58:09 PM
Today in the SMH Markets Live page this : "There will be $15.5 billion worth of dividend cheques in the mail this month from ASX 200 companies, Morgan Stanley analysts estimate, with a third of the bounty to be paid on a single day: the 29th of September."
I have no idea about your question but I can't help but wonder how much will be paid via direct credit as opposed to by cheques in the mail. Or is smh stuck in 1995?
Sorry bad joke. I'll go now.
Post by: bigchrisb on September 18, 2017, 09:16:29 PM
Post by: mjr on September 21, 2017, 02:08:07 PM
I've found a difference in the 2 amounts. Specifically with "Other net foreign source income".
On my tax statements, 20E and 20M are the same.
On the pre-fill, 20M is different, specially by the amount of the foreign income tax offset, 20O.
The pre-fill makes more sense to me and as this is what Vanguard has reported to the ATO is what I will be submitting. But where do Vanguard get off supplying tax statements that are different to what they tell the ATO ?
Anyone else notice this ?
Post by: oysters on September 24, 2017, 12:58:26 AM
I'm currently with UniSuper, which is a relatively good fund, and the fees aren't too high. They don't give pure index fund options but the options aren't too bad and they perform well.
I'm considering a job change, to SA Gov. My understanding is that SA Gov employees can't choose their super fund, and must go with one of the existing funds, like Statewide Super, or Triple S.
The performance of these funds, looks a bit mediocre, and the fees are scary-ish, especially compared to normal index funds.
I see it mentioned though that they are under different tax rules to other Super funds, being "untaxed". Any idea what this means, and the effect in reality? Does it mean that the normal 15% tax on inputs into the fund don't apply? If so, does anyone think that would make up for the funds otherwise being not all that great?
Not that I'd have a choice, and this isn't going to to really affect my decision to change jobs, but peace of mind would be great, haha.
Post by: Luckyvik on September 24, 2017, 04:59:44 PM
Super question:Sounds like it might be a Defined Benefit fund where you get a defined benefit at retirement age worked out by a formula (google defined benefit Super) these have to be at least equal to the super guarantee rate of 9.5%.
I'm currently with UniSuper, which is a relatively good fund, and the fees aren't too high. They don't give pure index fund options but the options aren't too bad and they perform well.
I'm considering a job change, to SA Gov. My understanding is that SA Gov employees can't choose their super fund, and must go with one of the existing funds, like Statewide Super, or Triple S.
The performance of these funds, looks a bit mediocre, and the fees are scary-ish, especially compared to normal index funds.
I see it mentioned though that they are under different tax rules to other Super funds, being "untaxed". Any idea what this means, and the effect in reality? Does it mean that the normal 15% tax on inputs into the fund don't apply? If so, does anyone think that would make up for the funds otherwise being not all that great?
Not that I'd have a choice, and this isn't going to to really affect my decision to change jobs, but peace of mind would be great, haha.
Untaxed means the money going in doesn't get taxed at 15% going so that extra money is growing for you but you pay a higher % of tax when you take the money out at retirement. You might have to wait to get your contract before knowing for sure and the HR person should be able to provide more info.
Sent from my iPhone using Tapatalk
Post by: alsoknownasDean on September 28, 2017, 09:55:59 PM
I filled out my tax return on myTax a month ago, but have been waiting for the pre-fill for VAS and VAP to become available before submitting it.
I've found a difference in the 2 amounts. Specifically with "Other net foreign source income".
On my tax statements, 20E and 20M are the same.
On the pre-fill, 20M is different, specially by the amount of the foreign income tax offset, 20O.
The pre-fill makes more sense to me and as this is what Vanguard has reported to the ATO is what I will be submitting. But where do Vanguard get off supplying tax statements that are different to what they tell the ATO ?
Anyone else notice this ?
I still haven't even received my tax statement for my VAS holdings (which I did sell during the year, but I did receive a distribution in the FY). No idea why I haven't received it yet.
Might have to contact Computershare and ask what's up.
Post by: Chris AU on September 28, 2017, 11:17:25 PM
I filled out my tax return on myTax a month ago, but have been waiting for the pre-fill for VAS and VAP to become available before submitting it.
I've found a difference in the 2 amounts. Specifically with "Other net foreign source income".
On my tax statements, 20E and 20M are the same.
On the pre-fill, 20M is different, specially by the amount of the foreign income tax offset, 20O.
The pre-fill makes more sense to me and as this is what Vanguard has reported to the ATO is what I will be submitting. But where do Vanguard get off supplying tax statements that are different to what they tell the ATO ?
Anyone else notice this ?
Yes, I had the same issues for VAS & VGS as mjr. Also 13C Franked Distributions were slightly different for VAS. Noted that previous year it was the same as the statements, so this year I changed it to be the same as the statements. No idea if this is correct...
Post by: lush on September 28, 2017, 11:26:28 PM
I filled out my tax return on myTax a month ago, but have been waiting for the pre-fill for VAS and VAP to become available before submitting it.
I've found a difference in the 2 amounts. Specifically with "Other net foreign source income".
On my tax statements, 20E and 20M are the same.
On the pre-fill, 20M is different, specially by the amount of the foreign income tax offset, 20O.
The pre-fill makes more sense to me and as this is what Vanguard has reported to the ATO is what I will be submitting. But where do Vanguard get off supplying tax statements that are different to what they tell the ATO ?
Anyone else notice this ?
I still haven't even received my tax statement for my VAS holdings (which I did sell during the year, but I did receive a distribution in the FY). No idea why I haven't received it yet.
Might have to contact Computershare and ask what's up.
Me too. Still waiting for Vanguard to submit statements to ATO..... Tick Tock.....
Post by: 361742 on September 29, 2017, 02:23:10 AM
I'm currently 21 years old, and I have a fair bit of cash just sitting around in 3ish% savings accounts. Recently ING changed the interested and it's given me another reason to quit being lazy and properly invest my money.
I have around 280k, split up in the following:
205k high intresting savings
65k bitcoin (been pretty lucky with crypto, as I threw a bit of my income into them for a few months).
5k day traded altcoins
5k day traded shares
I'm planning to move most of my savings into index funds, split:
45% VAS
45% VGS
10% VGE
I'm on the fence around the cryptos. On one hand they have been great in terms of return, however i'm pretty damn sure it's a bubble so I would not be surprised if I lost most/all of it, but at my age i feel the risk might be worth it.
Would love to hear people's option of my index fund split & thoughts about crypto - anyone else have some?
Post by: marty998 on September 29, 2017, 02:42:51 AM
Works out to be $2,100 for me, reinvested to be an additional 28 shares or so.
Hip Hip!
Post by: FFA on September 29, 2017, 06:53:19 AM
Hey everyone. This will be my first post on this awesome thread (i've read almost all the posts - plenty of great info).Split looks good to me. The main concern I have is on VAS due to concentration. I like to blend in some diversifiers, MVW and EX20 are my preferred (an example might be 30 VAS / 15 MVW instead of 45 VAS).
I'm currently 21 years old, and I have a fair bit of cash just sitting around in 3ish% savings accounts. Recently ING changed the interested and it's given me another reason to quit being lazy and properly invest my money.
I have around 280k, split up in the following:
205k high intresting savings
65k bitcoin (been pretty lucky with crypto, as I threw a bit of my income into them for a few months).
5k day traded altcoins
5k day traded shares
I'm planning to move most of my savings into index funds, split:
45% VAS
45% VGS
10% VGE
I'm on the fence around the cryptos. On one hand they have been great in terms of return, however i'm pretty damn sure it's a bubble so I would not be surprised if I lost most/all of it, but at my age i feel the risk might be worth it.
Would love to hear people's option of my index fund split & thoughts about crypto - anyone else have some?
Chris AU, yes I noticed the same on VAS pre-fill and also adjusted in line with the statement. Regarding, 20E/20M I enter the same amount in both there.
Post by: mjr on September 29, 2017, 02:21:45 PM
Post by: bigchrisb on September 29, 2017, 03:02:29 PM
Post by: cakie on September 29, 2017, 03:21:51 PM
Hey everyone. This will be my first post on this awesome thread (i've read almost all the posts - plenty of great info).I think you've got the right idea. With crypto, treat it like any other risky commodity. I would work out what % you are comfortable holding eg 5%, 10% and stick with that. I would personally focus on buy and hold purchases, not day trading...
I'm currently 21 years old, and I have a fair bit of cash just sitting around in 3ish% savings accounts. Recently ING changed the interested and it's given me another reason to quit being lazy and properly invest my money.
I have around 280k, split up in the following:
205k high intresting savings
65k bitcoin (been pretty lucky with crypto, as I threw a bit of my income into them for a few months).
5k day traded altcoins
5k day traded shares
I'm planning to move most of my savings into index funds, split:
45% VAS
45% VGS
10% VGE
I'm on the fence around the cryptos. On one hand they have been great in terms of return, however i'm pretty damn sure it's a bubble so I would not be surprised if I lost most/all of it, but at my age i feel the risk might be worth it.
Would love to hear people's option of my index fund split & thoughts about crypto - anyone else have some?
When I have some extra cash I will buy (and use) a little bit of crypto, but just bought a house, nothing spare atm
Also, +1 on splitting VAS with others like MVW
Post by: lush on September 29, 2017, 07:34:51 PM
Yay! VAS estimated distribution $1.11 per share!
Works out to be $2,100 for me, reinvested to be an additional 28 shares or so.
Hip Hip!
Hi Marty, can you advise where you get this information from? I am an investor in the VAS Wholesale fund. I have tried looking around the Vanguard site, but no luck. Thanks.
Post by: marty998 on September 29, 2017, 07:39:04 PM
Yay! VAS estimated distribution $1.11 per share!
Works out to be $2,100 for me, reinvested to be an additional 28 shares or so.
Hip Hip!
Hi Marty, can you advise where you get this information from? I am an investor in the VAS Wholesale fund. I have tried looking around the Vanguard site, but no luck. Thanks.
This is the ASX announcement for the ETF. They'll put out a revised distribution notice on Tuesday (the estimate is always revised, materially in some cases).
Not sure about the managed fund, you'll just have to wait.
Post by: lush on September 29, 2017, 07:44:50 PM
Yay! VAS estimated distribution $1.11 per share!
Works out to be $2,100 for me, reinvested to be an additional 28 shares or so.
Hip Hip!
Hi Marty, can you advise where you get this information from? I am an investor in the VAS Wholesale fund. I have tried looking around the Vanguard site, but no luck. Thanks.
This is the ASX announcement for the ETF. They'll put out a revised distribution notice on Tuesday (the estimate is always revised, materially in some cases).
Not sure about the managed fund, you'll just have to wait.
Thanks Marty.
Post by: BattlaP on September 29, 2017, 10:52:53 PM
There’s money to be made in the volatility there but the hook/line/sinker way that people swallow the concepts make it wide open for scam artists and I think there’s a lot of that around this year because of bitcoin’s rise in perceived value.
I’m not going to make any predictions about their future, but in their current state I find them offensive and a little bit ridiculous. Sorry to opinionate this financial forum but these things shouldn’t be glossed over.
Post by: FFA on September 30, 2017, 12:01:57 AM
I got on to Computershare yesterday and had them kick off an investigation as to why the difference. The CSR reckoned that the statement was the source of truth, which is good to know, but as they're telling the ATO something different I'll let them work out what the story is before submitting it.Yes that's my understanding the statement is what matters ultimately and pre-fills should be checked. There can be errors and managed fund data seems to be an area where it happens most often.
Post by: 361742 on October 02, 2017, 12:00:21 AM
Split looks good to me. The main concern I have is on VAS due to concentration. I like to blend in some diversifiers, MVW and EX20 are my preferred (an example might be 30 VAS / 15 MVW instead of 45 VAS).
Chris AU, yes I noticed the same on VAS pre-fill and also adjusted in line with the statement. Regarding, 20E/20M I enter the same amount in both there.
My main reason for the high % on VAS was that there are tax credits on the dividends, and that managing dividends from overseas stocks is a bit of hassle. I'll look into the other funds, thanks for the info!
I think you've got the right idea. With crypto, treat it like any other risky commodity. I would work out what % you are comfortable holding eg 5%, 10% and stick with that. I would personally focus on buy and hold purchases, not day trading...
When I have some extra cash I will buy (and use) a little bit of crypto, but just bought a house, nothing spare atm
Also, +1 on splitting VAS with others like MVW
Yea, that's my main decision at the moment, how much BTC to hold. I just hold BTC, don't trade it (longer term investment), but I enjoy messing around with trading altcoins and have made decent profit (which is probably from the market going up as a whole vs me being a good trader). I don't intend to purchase any more crypto.
Cryptos are one of the few things in this world where I draw a personal moral line. There’s surely hypocrisy there in me holding index funds full of arms and oil companies, but the amount of power consumed by the way in which cryptos currently function (particularly bitcoin) is totally disgusting. Not only that but, like it or not, their primary use is currently for criminals of all the worst sort. My last addendum is the totally childish attitude of the people who ‘hodl’ them, with the rollercoaster memes and the rubbing losses in people’s faces and the complete obliviousness to any possibility of reasoned discussion and the glee with which they anticipate the ‘inevitable’ crash of fiat.
There’s money to be made in the volatility there but the hook/line/sinker way that people swallow the concepts make it wide open for scam artists and I think there’s a lot of that around this year because of bitcoin’s rise in perceived value.
I’m not going to make any predictions about their future, but in their current state I find them offensive and a little bit ridiculous. Sorry to opinionate this financial forum but these things shouldn’t be glossed over.
I do agree with some of your points, the crypto community is pretty immature as whole but I'll be honest ,I don't really look into the ethics of my investments. My understanding was that a lot of the power is renewable (since bitcoin is mostly mined where power is cheap, i.e. near hydro plants etc) but it's still a massive waste.
I disagree with your thoughts on the primary use, whileit certainly used to be the case. I think the current primary 'use' is definitely as an investment which has caused the massive rises in prices (which I don't think are sustainable). It can't keep going up forever, and the prices vs utility of BTC right now is through the roof. People promote it as a replacement for money, but no where accepts it, there are too many limitations (plus the fact it takes 10-30 mins for a TX even with high fee of $1-5).
Post by: bigchrisb on October 02, 2017, 05:59:36 PM
Yay! VAS estimated distribution $1.11 per share!
Works out to be $2,100 for me, reinvested to be an additional 28 shares or so.
Hip Hip!
Updated distribution announcement today, revised down to $1.0088. I don't understand how Vanguard Australia get this so wrong so consistently. It's not like there is anything that has paid in the last three days that wasn't announced and ex-div for a long time.
Post by: Notch on October 03, 2017, 02:01:37 AM
Yay! VAS estimated distribution $1.11 per share!
Works out to be $2,100 for me, reinvested to be an additional 28 shares or so.
Hip Hip!
Updated distribution announcement today, revised down to $1.0088. I don't understand how Vanguard Australia get this so wrong so consistently. It's not like there is anything that has paid in the last three days that wasn't announced and ex-div for a long time.
The first announcement was on 9:14 AM on September 29th. My understanding is that people buy ("create") units up until close of business on the last trading day. Any extra units bought dilute the already accumulated dividends the trust is passing on.
Post by: bigchrisb on October 03, 2017, 05:11:12 PM
The first announcement was on 9:14 AM on September 29th. My understanding is that people buy ("create") units up until close of business on the last trading day. Any extra units bought dilute the already accumulated dividends the trust is passing on.
I wonder how much drag this causes for "passive" buy and hold investors? If its 10% of distributions (as was the case for this distribution), then its close to 50 basis points pre-tax. I wonder if this is being exacerbated by more people practicing dividend stripping? I wonder how to get a good answer on it - my experience is that calling Vanguard tends to get the same responses that they have already written as text. Perhaps this makes a stronger argument for closed end funds?
Doesn't seem to be such an issue in the US cross listed funds. An artifact of our franking system, or is it just because the sheer size of the US funds is so big that traders can't really move the needle?
Post by: FFA on October 03, 2017, 08:06:01 PM
I've noticed HVST parking in VAS to strip the div in the past. Not sure if they were doing it this time though, but it must've been tempting since it was a big quarter.The first announcement was on 9:14 AM on September 29th. My understanding is that people buy ("create") units up until close of business on the last trading day. Any extra units bought dilute the already accumulated dividends the trust is passing on.
I wonder how much drag this causes for "passive" buy and hold investors? If its 10% of distributions (as was the case for this distribution), then its close to 50 basis points pre-tax. I wonder if this is being exacerbated by more people practicing dividend stripping? I wonder how to get a good answer on it - my experience is that calling Vanguard tends to get the same responses that they have already written as text. Perhaps this makes a stronger argument for closed end funds?
Doesn't seem to be such an issue in the US cross listed funds. An artifact of our franking system, or is it just because the sheer size of the US funds is so big that traders can't really move the needle?
There's no free lunches so while these short-termers pinch some of the distribution, they are paying for it too (as in it was already in the NAV price paid in late Sep). And less distribution also means less fall in NAV on the ex date. So for long-term investors, any loss of distribution is offset by a capital gain (or higher price). However that doesn't take into account the franking credits.
Post by: marty998 on October 04, 2017, 06:01:31 AM
Yay! VAS estimated distribution $1.11 per share!
Works out to be $2,100 for me, reinvested to be an additional 28 shares or so.
Hip Hip!
Updated distribution announcement today, revised down to $1.0088. I don't understand how Vanguard Australia get this so wrong so consistently. It's not like there is anything that has paid in the last three days that wasn't announced and ex-div for a long time.
The first announcement was on 9:14 AM on September 29th. My understanding is that people buy ("create") units up until close of business on the last trading day. Any extra units bought dilute the already accumulated dividends the trust is passing on.
The fund is too big to grow 10% in a day. Several hundred million would have to go in, and the number of completed trades suggests nowhere near that amount is bought and sold daily.
I don't have an answer, to be out by the margins they are every quarter suggests something is broken internally in Vanguard.
Doesn't inspire confidence, but since I still get paid a decent yield and the fund carries on I don't think about it too much.
Perhaps I should worry.
Post by: FFA on October 04, 2017, 06:20:43 AM
Post by: lush on October 04, 2017, 04:32:27 PM
Can anyone tell me what they think of the returns for the wholesale managed funds for VAS & Balanced - were good this quarter? I can never tell from my distributions if they are good. So new to this world of distributions and working it all out. Thanks!
Post by: misterhorsey on October 05, 2017, 05:30:46 AM
Firstly, it's interesting to track quarterly returns but it's not terribly useful. Investments like these are best left to do their thing and looked at over long periods of time. Then you get a meaningful view of their performance.
But in terms of evaluating whether performance is 'good', well consider that:
- VAS should track the S&P 200, so the quarterly instalment should align with the performance of that basket of shares.
- The Balanced Managed Fund quarterly instalment should align with the performance of the individual funds that comprise the Balanced fund.
So determining whether performance is 'good' is whether or not they accurately track the index (re: VAS) or in the case of the Balanced Managed Fund, whether the performance accurately tracks the individual indexes that each of the individual funds is based on (good luck trying to figure that out quickly!). One hopes that they do what they say they do. I think this is the most important way of evaluating performance.
Another way of evaluating whether performance is good this quarter is by comparing the performance with other asset classes: individual shares, other managed funds, property, alpacas, etc etc. You can do this - but why bother. It will just make you feel temporarily bad or smug. And that won't last.
I'm not sure that this is entirely helpful, but I'll mention it in the interests of provoking someone else with a better brain than mine to provide a bettered more learn'd answer!
Post by: lush on October 05, 2017, 08:14:56 PM
It does depend on what you mean by 'good'. It is relative.
Firstly, it's interesting to track quarterly returns but it's not terribly useful. Investments like these are best left to do their thing and looked at over long periods of time. Then you get a meaningful view of their performance.
But in terms of evaluating whether performance is 'good', well consider that:
- VAS should track the S&P 200, so the quarterly instalment should align with the performance of that basket of shares.
- The Balanced Managed Fund quarterly instalment should align with the performance of the individual funds that comprise the Balanced fund.
So determining whether performance is 'good' is whether or not they accurately track the index (re: VAS) or in the case of the Balanced Managed Fund, whether the performance accurately tracks the individual indexes that each of the individual funds is based on (good luck trying to figure that out quickly!). One hopes that they do what they say they do. I think this is the most important way of evaluating performance.
Another way of evaluating whether performance is good this quarter is by comparing the performance with other asset classes: individual shares, other managed funds, property, alpacas, etc etc. You can do this - but why bother. It will just make you feel temporarily bad or smug. And that won't last.
I'm not sure that this is entirely helpful, but I'll mention it in the interests of provoking someone else with a better brain than mine to provide a bettered more learn'd answer!
So much sensible logic!!! Yes it is helpful. I know I should just stick to my long term plan and just “forget” how the funds are going. However it’s really hard not to “track” to get a feeling if things are growing or moving forward. But as you have suggested this will only bring upon short term depression or highs. Think I will try to breathe a bit and let time do its thing. Cheers.
Post by: MrThatsDifferent on October 06, 2017, 05:28:04 PM
Thoughts?
Post by: Rowellen on October 06, 2017, 06:30:33 PM
Post by: MrThatsDifferent on October 06, 2017, 07:43:58 PM
Interesting article. I have many clients who do this. Some are now in their 80s and are drawing down capital. Their balances didn't start over 1m though. Also many spend much more than 70k. I have no idea how but some spend over 250k a year then wonder why their capital is dropping lol. I wonder if "Mark" realises he doesn't have to pull the money out of his SMSF. He could just commute the excess to accumulation. It would mean an actuarial certificate would be required and also a reduction in the tax refund.
He argues this can only be done in a SMSF. I have my super in AusSuper and a Vanguard account, can I achieve the same in those vehicles?
Post by: superannuationfreak on October 06, 2017, 09:14:15 PM
Curious to see what you think, especially BigChris: this article suggests that a SMSF focused on Australian shares with franking credits and $1 million invested will generate $70k to live off for life, without touching the principal: https://www.superguide.com.au/smsfs/can-1-million-can-last-longer-than-you
Thoughts?
I'll take this one from two perspectives.
Firstly, the rational investor perspective. Dividends are not a magic pudding, when they're paid out the price (on average) falls by the dividend amount. Dividend cuts during persistent downturns are also not uncommon. The benefits are largely psychological and at a withdrawal rate that high (let's say 5% + franking credits) there's meaningful sequence of returns risk in a large downturn consistent with historical downturns (i.e. if you keep spending at that rate during a protracted downturn your money will not outlast your expected lifespan).
From a behavioural perspective, however, if you have (or almost enough and are willing and able to be flexible enough in your spending) then your biggest risks are behavioural. Any reasonable plan (including, off the top of my head say, 50-100% stocks) which is consistently followed will be fine in most states of the world. So if you take psychological comfort from just spending dividends, because that's what you've always done/planned, to the extent that you're able to stick to that plan, you'll likely be better off than if you tried more rational total return investing but were unable to stick to it (e.g. going to cash 'at the bottom'). There's definitely still sequence of returns risk, there's large risks from only being in one country's equities but the behavioural benefits may outweigh those for some individuals.
Even for those investors, taking that approach to extremes is even more risky, i.e. focusing on the very highest dividend stocks or dividend 'harvesting'. E.g. in a year where the ETF HVST has distributed almost 15% in dividends to a 0% tax rate investor after franking credits the total returns (after fees, including dividends and franking credits) have been below -3% where the return of the ASX200 has been over +9% (before franking credits, but involving only modest fees). Be too dividend focused and your capital will erode without you needing to spend it.
https://www.betashares.com.au/fund/australian-dividend-harvester-fund/#performance
https://www.blackrock.com/au/individual/products/251852/ishares-core-s-and-p-asx-200-etf
Post by: MrThatsDifferent on October 07, 2017, 06:27:43 AM
Post by: mjr on October 07, 2017, 03:46:19 PM
From that point on, the argument collapses back to safe withdrawal rates allowing a sum to last 30 years.
Post by: Luckyvik on October 07, 2017, 04:21:20 PM
The article regarding Mark was from 2011, back then it wasn't as common to have 'direct investment' options where you can hold shares through a commercial super fund such as ING directly.
Sent from my iPhone using Tapatalk
Post by: mjr on October 07, 2017, 04:49:58 PM
Post by: MrThatsDifferent on October 07, 2017, 05:02:01 PM
You don't need to hold direct shares in a fund, distributions from a fund are equivalent to dividends for this discussion. So the question is did funds pay distributions waaay back in 2011 (they did).
Dumb questions, are distributions the same as gains?
Post by: MrThatsDifferent on October 07, 2017, 05:04:51 PM
The article regarding Mark was from 2011, back then it wasn't as common to have 'direct investment' options where you can hold shares through a commercial super fund such as ING directly.
Sent from my iPhone using Tapatalk
The original article was written in 2011, but the revisited it in 2017 and checked in with Mark to see if he still thinks the same. He responds to questions in the comments.
Post by: Fresh Bread on October 07, 2017, 05:08:21 PM
I can't see it but did he mention whether he's held his capital value as hoped? Or has his high dividend stock not had the growth as superannuation freak has discussed?
Post by: mjr on October 07, 2017, 05:11:23 PM
Dumb questions, are distributions the same as gains?
See superfreak's post from yesterday. Distributions and capital gains together form the total return from a managed fund investment. Distributions are paid out in cash and don't require you to explicitly sell units. The bulk of distributions from managed funds come from the dividends from shares held in the fund (depending on the asset allocation of the fund, of course).
Post by: MrThatsDifferent on October 07, 2017, 05:14:35 PM
Dumb questions, are distributions the same as gains?
See superfreak's post from yesterday. Distributions and capital gains together form the total return from a managed fund investment. Distributions are paid out in cash and don't require you to explicitly sell units. The bulk of distributions from managed funds come from the dividends from shares held in the fund (depending on the asset allocation of the fund, of course).
Thanks. Yeah, just reread this: With this strategy, Mark stated that his SMSF portfolio generates about 15% total return, comprised of 7% income and about 8% average growth.
Post by: MrThatsDifferent on October 07, 2017, 05:27:09 PM
Post by: superannuationfreak on October 07, 2017, 06:09:46 PM
So, are you saying that the SMSF path isn’t necessary? He’s able to get 7% of his stash yearly, without disturbing the principal. I’d like to do the same. Apologies, I’m quite slow with all of this. A SMSF seems to be a bit complex, I’d be happy to leave everything in Aus Super, Vanguard and a HISA.
Sorry if I was a bit hypothetical, I took it as more of a hypothetical question. That high a withdrawal rate is risky. Just because Mark hasn't experienced the risk doesn't mean there isn't risk (even with the GFC markets have recovered strongly, much better than historical worst case scenarios, earnings and dividends even more so). I would not recommend it, even if you had the 100% conviction in the strategy that Mark has (and your questions suggest you don't - if you were close to 100% shares while no longer earning an income from employment, next time your shares drop 20-30% would that really have zero effect on your behaviour?)
Could you do something like this in AustralianSuper? It would either be as much work as an SMSF (picking stocks using Member Direct) or you'd lose some of the psychological benefits (you'd be redeeming units which have had dividends reinvested, although mathematics says at 0% tax there's basically no difference between reinvesting the dividends and then redeeming units vs taking dividends).
Also, on returns, if Mark has kept up 8% growth and 7% dividends after franking credits over 10 years including the GFC then he's a brilliant investor. HostPlus (picking an example, not suggesting any indication of future performance) has had one of the strongest long-term track records in Australian Shares and had a compound rate of 6% p.a. over the 10 years to June 2017. That included franking credits but was taxed (at 10-15% super rates) and had fees. Even adding on an extra 2% p.a. to account for that, if you can consistently invest at 15% p.a. when professionals are earning 8% p.a. then maybe a 7% withdrawal rate isn't so crazy. I can't do that and I would guess, if measured properly, neither can Mark.
Post by: mjr on October 07, 2017, 06:45:34 PM
So, if I retire and pull out $18k of distributions, then that would be tax free right? What if I pulled out $35k and contributed $17k of that to my super? How would that help my taxes if my distributions from a non-super Vanguard account was my only income and I’m under 60yo?
Not sure what you mean by "pull out". Your managed fund will give you an amount of distributions which will depend on how much you have invested. You don't choose how much to "pull out" as distributions. You can only choose how many units to sell if you want to "pull out" funds and such funds will be subject to capital gains tax.
If you receive $18k in distributions or capital gains, then that's under the tax-free threshold and you'll pay no tax if that's your only income.
If you pulled out $35k and contributed $17k to super, then that $17k will incur 15% tax as opposed to the 19% tax (plus Medicare levy) that you'd incur if you didn't seek the personal contribution tax deduction.
Post by: MrThatsDifferent on October 08, 2017, 12:04:14 AM
So, if I retire and pull out $18k of distributions, then that would be tax free right? What if I pulled out $35k and contributed $17k of that to my super? How would that help my taxes if my distributions from a non-super Vanguard account was my only income and I’m under 60yo?
Not sure what you mean by "pull out". Your managed fund will give you an amount of distributions which will depend on how much you have invested. You don't choose how much to "pull out" as distributions. You can only choose how many units to sell if you want to "pull out" funds and such funds will be subject to capital gains tax.
If you receive $18k in distributions or capital gains, then that's under the tax-free threshold and you'll pay no tax if that's your only income.
If you pulled out $35k and contributed $17k to super, then that $17k will incur 15% tax as opposed to the 19% tax (plus Medicare levy) that you'd incur if you didn't seek the personal contribution tax deduction.
Thanks MJR. If you get a lower tax rate, why wouldn’t an early retiree cash out the extra $25k and put in super, seems like you get a 4% tax benefit. It seems like if I can shift money from Vanguard into the super from 50-60, that money will be tax free at 60. I’m trying to figure out how to access the most money while paying the least in taxes, legally of course. I’m thinking I should have a fair chunk of cash reserves that I can add to the $18k distributions. So much to figure out!
Post by: BattlaP on October 08, 2017, 12:17:27 AM
Post by: marty998 on October 08, 2017, 12:55:30 AM
Has anyone found out from Vanguard when their auto-fill info for the managed funds will get submitted? I want to do my tax return and it's still not reporting anything from them automatically. Annoyance.
Has anyone found out from Vanguard when their auto-fill info for the managed funds will get submitted? I want to do my tax return and it's still not reporting anything from them automatically. Annoyance.
You don't have to wait (seem to recall having this conversation before :) apologies if I'm giving the same answer)
Post by: Fresh Bread on October 08, 2017, 01:06:53 AM
Maybe if we move more towards a 50/50 Aussie/International split (we are currently 40/60) then I could switch our retirement 'withdrawal rate' income to being actual fund distributions and go from an assumption of 3.5% to 4% or maybe even 5% including franking credits.
Do these sums make sense: Vanguard fund income over the last 10 yrs was roughly 5% Aussie / 3% International. So if I have my funds invested 50/50, the income would average at 4%. But then I need to add franking credits: 5% + 2% = 7% so would my income average at 5% of total investment?
We have other sources of income so are ok with fluctuations in the fund distributions. If the fund income drops away we'd still have plenty, just maybe cut back travel or whatever.
Post by: mjr on October 08, 2017, 01:59:54 PM
Has anyone found out from Vanguard when their auto-fill info for the managed funds will get submitted? I want to do my tax return and it's still not reporting anything from them automatically. Annoyance.
Mine appeared weeks ago. With an error in the pre-fill as well which is still not resolved. Just use your tax statement.
Post by: marty998 on October 08, 2017, 02:30:50 PM
I'm getting to the nitty gritty of how we actually draw income in retirement since it might happen next year. I've always just assumed a 3.5% WR because I've only ever really looked at total growth and thought that was reasonable, but today I've been thinking further about Mark and his dividends.
Maybe if we move more towards a 50/50 Aussie/International split (we are currently 40/60) then I could switch our retirement 'withdrawal rate' income to being actual fund distributions and go from an assumption of 3.5% to 4% or maybe even 5% including franking credits.
Do these sums make sense: Vanguard fund income over the last 10 yrs was roughly 5% Aussie / 3% International. So if I have my funds invested 50/50, the income would average at 4%. But then I need to add franking credits: 5% + 2% = 7% so would my income average at 5% of total investment?
We have other sources of income so are ok with fluctuations in the fund distributions. If the fund income drops away we'd still have plenty, just maybe cut back travel or whatever.
Your franking credit refund will depend on your tax rate, which will depend on your total income distributions.
E.g. if you derive $20,000 distributions from international shares, and $30,000 from domestic shares, then your income is $50k + the franking credits. Puts you well into the 34.5% marginal tax rate, which means you don't get a franking refund (you owe 4.5% on the Aus income).
Hard to know for sure without your full income details (you don't have to post that obviously if you don't want to).
Post by: Fresh Bread on October 08, 2017, 04:11:05 PM
Hey, we did sign the contract in July in the end (I think it was you that pointed out the benefit of the delay?) I've put the amount for the potential CGT bill in a 2.85% esaver so that's a nice little bonus I didn't expect.
Post by: lush on October 08, 2017, 11:28:50 PM
Has anyone found out from Vanguard when their auto-fill info for the managed funds will get submitted? I want to do my tax return and it's still not reporting anything from them automatically. Annoyance.
I called them and they said they have moved it to the end of Oct! So dosen't leave much time to to meet the ATO deadline.
For those of you wondering why I am waiting, when I plugged in the numbers on mytax, I have a threshold of CGT affect and try as I might I am in a loop of hell that won't seem to fix itself. So I have decided to wait to see if the pre-fill might fix the problem. I don't have the time to talk to the ATO about this right now.
Post by: MrThatsDifferent on October 09, 2017, 01:00:34 AM
I'm getting to the nitty gritty of how we actually draw income in retirement since it might happen next year. I've always just assumed a 3.5% WR because I've only ever really looked at total growth and thought that was reasonable, but today I've been thinking further about Mark and his dividends.
Maybe if we move more towards a 50/50 Aussie/International split (we are currently 40/60) then I could switch our retirement 'withdrawal rate' income to being actual fund distributions and go from an assumption of 3.5% to 4% or maybe even 5% including franking credits.
Do these sums make sense: Vanguard fund income over the last 10 yrs was roughly 5% Aussie / 3% International. So if I have my funds invested 50/50, the income would average at 4%. But then I need to add franking credits: 5% + 2% = 7% so would my income average at 5% of total investment?
We have other sources of income so are ok with fluctuations in the fund distributions. If the fund income drops away we'd still have plenty, just maybe cut back travel or whatever.
Your franking credit refund will depend on your tax rate, which will depend on your total income distributions.
E.g. if you derive $20,000 distributions from international shares, and $30,000 from domestic shares, then your income is $50k + the franking credits. Puts you well into the 34.5% marginal tax rate, which means you don't get a franking refund (you owe 4.5% on the Aus income).
Hard to know for sure without your full income details (you don't have to post that obviously if you don't want to).
What then, if anything, can we do to lower taxes? Invest those distributions into super?
Post by: marty998 on October 09, 2017, 01:17:13 AM
I'm getting to the nitty gritty of how we actually draw income in retirement since it might happen next year. I've always just assumed a 3.5% WR because I've only ever really looked at total growth and thought that was reasonable, but today I've been thinking further about Mark and his dividends.
Maybe if we move more towards a 50/50 Aussie/International split (we are currently 40/60) then I could switch our retirement 'withdrawal rate' income to being actual fund distributions and go from an assumption of 3.5% to 4% or maybe even 5% including franking credits.
Do these sums make sense: Vanguard fund income over the last 10 yrs was roughly 5% Aussie / 3% International. So if I have my funds invested 50/50, the income would average at 4%. But then I need to add franking credits: 5% + 2% = 7% so would my income average at 5% of total investment?
We have other sources of income so are ok with fluctuations in the fund distributions. If the fund income drops away we'd still have plenty, just maybe cut back travel or whatever.
Your franking credit refund will depend on your tax rate, which will depend on your total income distributions.
E.g. if you derive $20,000 distributions from international shares, and $30,000 from domestic shares, then your income is $50k + the franking credits. Puts you well into the 34.5% marginal tax rate, which means you don't get a franking refund (you owe 4.5% on the Aus income).
Hard to know for sure without your full income details (you don't have to post that obviously if you don't want to).
What then, if anything, can we do to lower taxes? Invest those distributions into super?
Split income as much as you can - via companies, trusts, or just generally holding equal balances.
The cheeky answer is that if you really want to pay less tax then you can simply earn less.
Seriously though... I can't imagine you are that unhappy about paying 4.5% tax are you?
Post by: MrThatsDifferent on October 09, 2017, 02:16:48 AM
Post by: mjr on October 12, 2017, 11:22:51 PM
Post by: marty998 on October 15, 2017, 12:18:43 AM
Have friends that have made an absolute motza on Argosy, Mustang and A2 Milk in the past few weeks.
Even had a buy order on Mustang at 10c but it jumped to 11, then 12, then 14, now 17.5c...
Difficult to keep calm and stay the course on VAS. A $2000 dividend reinvestment this week will soothe the soul.
Post by: ynotme on October 18, 2017, 02:50:17 AM
I'm trying to resist trading as well. Everyone seems to be making a killing in lithium stocks. It always feels like a market top when you hear about everyone starting to trade. However since the ASX hasn't done much, it sure doesn't feel like a bull market in Oz.
Post by: FFA on October 18, 2017, 05:31:02 AM
Post by: misterhorsey on October 18, 2017, 10:18:02 PM
I'm trying to resist trading as well. Everyone seems to be making a killing in lithium stocks. It always feels like a market top when you hear about everyone starting to trade. However since the ASX hasn't done much, it sure doesn't feel like a bull market in Oz.
I am trying so hard to resist the urge to pile into the small and micro cap end of the market.
Have friends that have made an absolute motza on Argosy, Mustang and A2 Milk in the past few weeks.
Even had a buy order on Mustang at 10c but it jumped to 11, then 12, then 14, now 17.5c...
I was thinking about buying some LYC at 10c on the basis that it might go up, but if it just goes down back to 1c then there's some capital losses to offset against my gains for the year. Sort of like a speculative trade kind of underwritten by the ATO.
However, I have been so indoctrinated into indexing, and I love the relative boredom, that I didn't....this time.
It's since been hanging around 20c. Oh well.
Post by: GT on October 19, 2017, 09:19:35 PM
Probs time I flipped it out and into Host Plus or SunSuper and picked up the Vanguard options available in their Super.
Post by: Shaz_Au on October 29, 2017, 09:40:42 PM
Apologies for the silly questions, I think I had a similar problem last year.
I have several Vanguard ETF holdings (VAS, VAF, VEU, VTS). I've been waiting for the tax summaries before heading to my accountant to complete my tax return. Have you received your summaries this year? When and how did you get them?
I contacted vanguard via email last week and they advised me to go to the share registrar (Computershare). I logged into Computershare and went to Statements & Documents but there are no summaries available to download. I can see the dividend payment summaries, etc for each holding. Computershare does offer the purchase of a tax pack for $50 but I think that is just one of their "value-add" products...
Any help would be appreciated.
Cheers,
Shaz
Post by: Primm on October 29, 2017, 10:30:19 PM
Hi All,
Apologies for the silly questions, I think I had a similar problem last year.
I have several Vanguard ETF holdings (VAS, VAF, VEU, VTS). I've been waiting for the tax summaries before heading to my accountant to complete my tax return. Have you received your summaries this year? When and how did you get them?
I contacted vanguard via email last week and they advised me to go to the share registrar (Computershare). I logged into Computershare and went to Statements & Documents but there are no summaries available to download. I can see the dividend payment summaries, etc for each holding. Computershare does offer the purchase of a tax pack for $50 but I think that is just one of their "value-add" products...
Any help would be appreciated.
Cheers,
Shaz
When you look at the dividend payment summaries page, the one dated 21/7/17 is "Issuer Annual Tax Statement". This one downloads automatically without you having to pay.
It's not the most obvious.
Post by: Anatidae V on October 29, 2017, 10:36:30 PM
Thanks Shaz_Au and Primm, I had the same question!Hi All,
Apologies for the silly questions, I think I had a similar problem last year.
I have several Vanguard ETF holdings (VAS, VAF, VEU, VTS). I've been waiting for the tax summaries before heading to my accountant to complete my tax return. Have you received your summaries this year? When and how did you get them?
I contacted vanguard via email last week and they advised me to go to the share registrar (Computershare). I logged into Computershare and went to Statements & Documents but there are no summaries available to download. I can see the dividend payment summaries, etc for each holding. Computershare does offer the purchase of a tax pack for $50 but I think that is just one of their "value-add" products...
Any help would be appreciated.
Cheers,
Shaz
When you look at the dividend payment summaries page, the one dated 21/7/17 is "Issuer Annual Tax Statement". This one downloads automatically without you having to pay.
It's not the most obvious.
Post by: Primm on October 29, 2017, 10:38:36 PM
Post by: Shaz_Au on October 29, 2017, 11:17:02 PM
That has resolved the issue for VAS and VAF but not the others VEU and VTS and WPL, any further ideas? Thanks
Post by: dbm on October 30, 2017, 12:31:20 AM
Thanks for the help Primm and thanks to AV for not making me feel like I'm the only one!
That has resolved the issue for VAS and VAF but not the others VEU and VTS and WPL, any further ideas? Thanks
You won't receive a tax statement for WPL, you can just use the dividend statements. For VTS and VEU, they are USA domiciled funds, so probably won't issue tax statements (apart from the 1042-s after the end of the US tax year), and are generally treated as foreign income and foreign income tax credits on your tax return.
Just remember, if you haven't provided computershare (or whoever) with a W8 form, and tax was withheld at 30%, you can only claim tax withheld at 15%...
Post by: JuicyCrab on October 30, 2017, 06:53:31 PM
For those investing part of their portfolio in bonds as a defensive asset, which ETF's are you using for both local and global exposure? Is there much risk between going for a government/treasury bond compared to a corporate bond ETF?
Seeking some diversification into the future so I'm not 100% in equities (which I currently am).
Cheers
Juicy Crab
Post by: marty998 on October 31, 2017, 04:22:00 AM
Hey guys,
For those investing part of their portfolio in bonds as a defensive asset, which ETF's are you using for both local and global exposure? Is there much risk between going for a government/treasury bond compared to a corporate bond ETF?
Seeking some diversification into the future so I'm not 100% in equities (which I currently am).
Cheers
Juicy Crab
Sorry this is not a helpful answer but my mortgage offset account is a pretty good (tax-free) proxy for a risk free return.
The risk for government bonds is obviously less, but for corporate bonds I don't think they are paying enough of a coupon premium to justify the additional risk at the moment.
Low interest rates are leading to bonds returning diddly squat.
Post by: Llewellyn2006 on October 31, 2017, 05:03:21 AM
Hey guys,
For those investing part of their portfolio in bonds as a defensive asset, which ETF's are you using for both local and global exposure? Is there much risk between going for a government/treasury bond compared to a corporate bond ETF?
Seeking some diversification into the future so I'm not 100% in equities (which I currently am).
Cheers
Juicy Crab
I'm looking at the Russell Govt Bond ETF (RGB) to add a bit of diversity to my portfolio but haven't made up my mind yet. The return so far seems pretty good, at least for 3 years or more at around 3-4%.
Post by: itchyfeet on October 31, 2017, 12:38:05 PM
Hey guys,
For those investing part of their portfolio in bonds as a defensive asset, which ETF's are you using for both local and global exposure? Is there much risk between going for a government/treasury bond compared to a corporate bond ETF?
Seeking some diversification into the future so I'm not 100% in equities (which I currently am).
Cheers
Juicy Crab
Sorry this is not a helpful answer but my mortgage offset account is a pretty good (tax-free) proxy for a risk free return.
The risk for government bonds is obviously less, but for corporate bonds I don't think they are paying enough of a coupon premium to justify the additional risk at the moment.
Low interest rates are leading to bonds returning diddly squat.
Not sure I am quite aligned with the logic here.
Putting cash in your offset account reduces debt, interest expense and risk. However, for me Paying down debt is making a decision to deleverage to reduce risk, which is slightly different to picking less risky investments. You are still exposed to the same risky asset that you borrowed money for originally, but now it's financed with less debt so it's not quite as risky as a risky asset financed with some level of leverage.
I am guessing that your logic goes "if the risk free return I'll get on bonds is less than the interest expense of debt (taxes considered) then why bother." I do understand this and I agree, why bother!! Borrowing money to buy a low risk asset doesn't make sense. If you are borrowing money you are making a decision to take on risk ie: you are not looking to invest risk free.
Maybe it's from too many years working in finance but the way I look at things is that I will finance my investments with a mixture of debt and my stash (equity) with the aim of achieving equity/stash returns (above my personal WACC). The cost of debt must be less than the returns I am chasing from stocks. Much less, to justify the risk.
One day I will want to pursue a safer path, but for today I continue to carry more than $1million in debt and I don't invest in risk free assets.
Post by: mjr on October 31, 2017, 03:44:42 PM
Post by: Primm on October 31, 2017, 11:36:40 PM
Will the All Ords touch 6000 today?
Yes, apparently!
All Ordinaries 6,005.500
Post by: marty998 on November 01, 2017, 01:50:30 AM
Hey guys,
For those investing part of their portfolio in bonds as a defensive asset, which ETF's are you using for both local and global exposure? Is there much risk between going for a government/treasury bond compared to a corporate bond ETF?
Seeking some diversification into the future so I'm not 100% in equities (which I currently am).
Cheers
Juicy Crab
Sorry this is not a helpful answer but my mortgage offset account is a pretty good (tax-free) proxy for a risk free return.
The risk for government bonds is obviously less, but for corporate bonds I don't think they are paying enough of a coupon premium to justify the additional risk at the moment.
Low interest rates are leading to bonds returning diddly squat.
Not sure I am quite aligned with the logic here.
Putting cash in your offset account reduces debt, interest expense and risk. However, for me Paying down debt is making a decision to deleverage to reduce risk, which is slightly different to picking less risky investments. You are still exposed to the same risky asset that you borrowed money for originally, but now it's financed with less debt so it's not quite as risky as a risky asset financed with some level of leverage.
I am guessing that your logic goes "if the risk free return I'll get on bonds is less than the interest expense of debt (taxes considered) then why bother." I do understand this and I agree, why bother!! Borrowing money to buy a low risk asset doesn't make sense. If you are borrowing money you are making a decision to take on risk ie: you are not looking to invest risk free.
Maybe it's from too many years working in finance but the way I look at things is that I will finance my investments with a mixture of debt and my stash (equity) with the aim of achieving equity/stash returns (above my personal WACC). The cost of debt must be less than the returns I am chasing from stocks. Much less, to justify the risk.
One day I will want to pursue a safer path, but for today I continue to carry more than $1million in debt and I don't invest in risk free assets.
I follow your line of thinking here. For me it's a little more basic - parking money in an offset is simply just that - I get a guaranteed return of 4.5% tax free until I figure out what to do with it (buy more shares or buy more properties).
The conclusion is why buy bonds for this interim holding time period when a dollar saved in interest is worth more than a dollar earned in interest. I guess it's not quite a fair matchup - the comparison should be between cash in a bank account vs cash in an offset.
Post by: itchyfeet on November 01, 2017, 08:08:28 AM
Post by: Grogounet on November 01, 2017, 11:34:34 PM
I am trying so hard to resist the urge to pile into the small and micro cap end of the market.
Have friends that have made an absolute motza on Argosy, Mustang and A2 Milk in the past few weeks.
Even had a buy order on Mustang at 10c but it jumped to 11, then 12, then 14, now 17.5c...
Difficult to keep calm and stay the course on VAS. A $2000 dividend reinvestment this week will soothe the soul.
Why wouldn't you want to keep say 5% of your portfolio for this exercise?
little risk and frustration gone
Post by: middo on November 02, 2017, 12:17:29 AM
I thought I would post a question here that I have. I have outlaid some of this in my journal, but I do have a specific question about the order of investment I should be following. Note that I will appreciate any advice that is well meaning!
Firstly, both I and my wife work, approximate salaries $105,000 before tax p.a. each.
Our assets are:
We have 5 properties in total:
Hobby farm (home) Value: $370 000. Overdraft owing: $78 600
Rental Property 1 Value: $600 000. Mortgage owing: $425 000
Rental Property 2 Value: $400 000. Mortgage owing: $151 000
Holiday unit in Perth Value: 250 000 Mortgage owing: $219 000
Vacant block of land Value: $125 000 No mortgage
Only one of these works for us with the Australian taxation system, as Rental property 2 was an inheritance and the mortgage was taken out to cover the cost of boarding school for our youngest, and the "Holiday unit" is our weekend retreat when visiting our kids. That may change next year when one of the kids rents it and we get to claim interest as deductions.
Superannuation: Me $170,000
Wife: $150,000
We currently do not contribute anything to super (9.5% SG only)
We are paying down the line of credit on the home at the rate of $1700 per fortnight. We are planning on selling the vacant lot and paying off or severely reducing the mortgage on property 2.
I have avoided paying extra into super over the years for a couple of reasons:
- I saw the superannuation scandals of Westpac and others in the late '80's and have a fear of mismanagement wiping out my savings like it did for some of my fathers friends.
- I am always cautious of anything that locks me in. A couple of years ago I could have accessed my super in 2025. Now that date is 2030. Will it change again?
- I spent the money. Facepunch me.
We hope to pay off the line of credit over the next 14 months, and then redevelop property #2. It is a double block, and about $500,000 of extra value should be able to be created with a couple of spec homes built on the site. Units are not possible due to council rules.
So, considering the likelihood of future loans and expenses to demolish an almost derelict home, and build two new ones, and the time lag in getting the capital returns on this investment, should we start (now) ramping up our super contributions to at least the $25,000 salary-sacrifice level? We would get about a $6000 benefit a year, BUT, we would have $18,000 less to reduce our debt NOW, and fund our redevelopment.
Do I understand it correctly? What should we do? - I spent the money. Facepunch me.
Post by: Notch on November 02, 2017, 01:01:24 AM
Do I understand it correctly? What should we do?
Your question might get a better, more complex answer from someone else smarter than me, but I would recommend maximising your super contributions.
At $105,000, your marginal tax rate is 39%. If you salary sacrifice an extra 14% of your income to hit the limit, your take-home pay will drop $9000, but you will end up with an extra $12,500 in super. That difference of $3500, on $9000 'invested', is an instant 38.9% return on your money. It would take you 5 years at a 7% growth rate to make that elsewhere -- that's huuuge! The tax breaks are too good to pass up, especially when you earn as much as you do.
Post by: marty998 on November 02, 2017, 04:00:59 AM
I am trying so hard to resist the urge to pile into the small and micro cap end of the market.
Have friends that have made an absolute motza on Argosy, Mustang and A2 Milk in the past few weeks.
Even had a buy order on Mustang at 10c but it jumped to 11, then 12, then 14, now 17.5c...
Difficult to keep calm and stay the course on VAS. A $2000 dividend reinvestment this week will soothe the soul.
Why wouldn't you want to keep say 5% of your portfolio for this exercise?
little risk and frustration gone
Well thank god I didn't . Quite a bit of shenanigans going on with MUS :)
Post by: Grogounet on November 02, 2017, 04:06:23 AM
Do I understand it correctly? What should we do?
Your question might get a better, more complex result from someone else smarter than me, but I would recommend maximising your super contributions.
At $105,000, your marginal tax rate is 39%. If you salary sacrifice an extra 14% of your income to hit the limit, your take-home pay will drop $9000, but you will end up with an extra $12,500 in super. That difference of $3500, on $9000 'invested', is an instant 38.9% return on your money. It would take you 5 years at a 7% growth rate to make that elsewhere -- that's huuuge! The tax breaks are too good to pass up, especially when you earn as much as you do.
+ 1
Post by: marty998 on November 02, 2017, 05:23:17 AM
Do I understand it correctly? What should we do?
Your question might get a better, more complex result from someone else smarter than me, but I would recommend maximising your super contributions.
At $105,000, your marginal tax rate is 39%. If you salary sacrifice an extra 14% of your income to hit the limit, your take-home pay will drop $9000, but you will end up with an extra $12,500 in super. That difference of $3500, on $9000 'invested', is an instant 38.9% return on your money. It would take you 5 years at a 7% growth rate to make that elsewhere -- that's huuuge! The tax breaks are too good to pass up, especially when you earn as much as you do.
+ 1
I agree with this too. It's basically the best legal tax rort going around.
Post by: PDM on November 02, 2017, 05:31:09 AM
Our assets are:
We have 5 properties in total:
Hobby farm (home) Value: $370 000. Overdraft owing: $78 600
Rental Property 1 Value: $600 000. Mortgage owing: $425 000
Rental Property 2 Value: $400 000. Mortgage owing: $151 000
Holiday unit in Perth Value: 250 000 Mortgage owing: $219 000
Vacant block of land Value: $125 000 No mortgage
We hope to pay off the line of credit over the next 14 months, and then redevelop property #2. It is a double block, and about $500,000 of extra value should be able to be created with a couple of spec homes built on the site. Units are not possible due to council rules.
Do I understand it correctly? What should we do?
Wow. So much property. I would say you could benefit from diversifying your assets. Are your valuations current? WA market has taken a beating and some brave punters are calling the bottom but who knows?
In terms of redeveloping property #2 how much additional debt and risk would you have to take on to make that happen? Are you comfortable with more property debt?
Overall you're not in such a bad position from a networth perspective with $573k of assets excluding super. The problem is it's all properties in WA.
You mentioned rental property 1 works for you in the tax system. So negatively geared i.e making a loss. Do you foresee it being positively geared any time soon? Any potential for good capital gains to make it worthwhile? Do you see potential for good rental growth in Perth?
Maybe sell the block, the holiday unit and one of the rental houses (personally I'd sell both). Pay off as much debt as possible, own your own home, dump as much as allowed into super and then look at ETFs.
Post by: middo on November 02, 2017, 05:50:53 AM
Our assets are:
We have 5 properties in total:
Hobby farm (home) Value: $370 000. Overdraft owing: $78 600
Rental Property 1 Value: $600 000. Mortgage owing: $425 000
Rental Property 2 Value: $400 000. Mortgage owing: $151 000
Holiday unit in Perth Value: 250 000 Mortgage owing: $219 000
Vacant block of land Value: $125 000 No mortgage
We hope to pay off the line of credit over the next 14 months, and then redevelop property #2. It is a double block, and about $500,000 of extra value should be able to be created with a couple of spec homes built on the site. Units are not possible due to council rules.
Do I understand it correctly? What should we do?
Wow. So much property. I would say you could benefit from diversifying your assets. Are your valuations current? WA market has taken a beating and some brave punters are calling the bottom but who knows?
In terms of redeveloping property #2 how much additional debt and risk would you have to take on to make that happen? Are you comfortable with more property debt?
Overall you're not in such a bad position from a networth perspective with $573k of assets excluding super. The problem is it's all properties in WA.
You mentioned rental property 1 works for you in the tax system. So negatively geared i.e making a loss. Do you foresee it being positively geared any time soon? Any potential for good capital gains to make it worthwhile? Do you see potential for good rental growth in Perth?
Maybe sell the block, the holiday unit and one of the rental houses (personally I'd sell both). Pay off as much debt as possible, own your own home, dump as much as allowed into super and then look at ETFs.
Yes, too much property. Some of it is inheritance, some of it is due to my wife's belief in it's safety. However, she has seen recently that it is not necessarily a great investment longer term.
Property #2 is not in the WA market (in Melbourne), and has a very neglected house on it, which makes any sale of the property into a "how much does it cost to remove the asbestos house" equation for any buyers. Instead, we are capable of moving there for 12 months or more, removing said house and redeveloping two on the two blocks. I am sure that there are at least 500,000 in gains to be made, but I have erred on conservative estimates of house prices and sales. As a rental, even if we did not sell, they would both be positively geared. We would expect to sell both properties and invest the profit into index funds.
The rental that is negatively geared is in a long term growth area and is worth more than the value I place on it, But I am using purchased value for it. It would sell today for at least 750,000, but the rental returns would look even worse then... I use the cost I paid at the moment as the market is low. It will recover. WA is growing again, just not at boom levels.
Thanks for the suggestions and point of view. If I was starting out again I know I would do things very differently now. My kids are being advised very differently in money matters than I ever was.
Post by: chasingthegoodlife on November 02, 2017, 02:13:45 PM
I think the mood on this board can be somewhat pro-equities and suspicious of holding property for capital gains, which is not at all surprising when so many Americans have been underwater or seen their home drop in value during the GFC. However, there have undoubtedly been strong returns for IPs in Australia’s high demand cities over the last few decades and I’m not sure anyone here is qualified to pick the ‘top’, so I’d evaluate each property on its own risk/return potential rather than a simple ‘less property more equities’ approach. (Although if I were you I would be adjusting my asset allocation in that direction). A few thoughts:
You say the figures you are using are the purchase price rather than current value. Before you make any big decisions about your portfolio, I’d hit up local agents for current values and base your decision on these.
Also sound out an experienced local agent, the council planning department and builders about the redevelopment you are considering and make sure the assumptions you are using are correct.
Then, factor in the sales cost and CGT implications of each sale.
Another thing to consider is your timeline for starting to draw down on your stash and what you want your asset allocation and inside/outside super to look like at that time. For me, I will not buy any more property now as I’m getting closer to FI and would probably want to convert to equities at that time for ease of draw down. If you want to stop working in 10 years and want to have $XX in super at that time, what do you need to start contributing now to make that happen?
Just my 2c of course, good luck with your decision.
Post by: PDM on November 02, 2017, 05:02:42 PM
I'm pretty negative on property though, but I'm fairly young and feel very hard done and view the current market as a massive bubble which will end poorly.
Post by: middo on November 02, 2017, 07:08:29 PM
In terms of the redevelopment in Melbourne, surely the easiest/best return for effort is to get a DA for two houses (if required) and sell it to a developer? You might get a lower return than building, but you get it with much less stress and risk and a lot quicker.
I'm pretty negative on property though, but I'm fairly young and feel very hard done and view the current market as a massive bubble which will end poorly.
We have thought of that, but there is also some personal interest in developing the block. As an inheritance, it has a little more value than purely $, but the "stress" of building is something that my wife and I would enjoy, probably a lot more than the average.
Post by: marty998 on November 06, 2017, 04:57:06 AM
No real nasties but nothing to get excited about. Points towards an economy that will simply grind on rather than power ahead.
Final dividend of 94c, payable on 22 December. Not a bad yield play - pay 30 bucks for $1.88 in dividends a year.
Post by: Llewellyn2006 on November 06, 2017, 05:24:42 AM
Pretty flat result from Westpac today. $8.062bn cash profit, driven mostly by a reduction in bad debts/impairment charges.
No real nasties but nothing to get excited about. Points towards an economy that will simply grind on rather than power ahead.
Final dividend of 94c, payable on 22 December. Not a bad yield play - pay 30 bucks for $1.88 in dividends a year.
At my average buy price the yield on my WBC shares is between 7 - 8%. Absolute proof that it's been better value to have money in the banks shares than in the bank itself.
Post by: mjr on November 06, 2017, 02:31:46 PM
Post by: Llewellyn2006 on November 06, 2017, 04:26:38 PM
I have no idea why WBC was sold down yesterday. Results were fine - it's a stodgy conservative big bank, it performed as one would expect.
Me either - no pleasant or nasty surprises. Maybe the market was disappointed with the dividend staying the same as the last couple of years but that might actually be a good idea considering the challenges that will face the banks once interest rates start rising. NAB had the same reaction when they released their results - markets are a fickle thing sometimes.
Post by: oysters on November 06, 2017, 11:07:09 PM
Ups and Downs
Post by: Little Aussie Battler on November 07, 2017, 12:19:24 AM
(said every chump - like me - hiding on the sidelines)
Post by: marty998 on November 07, 2017, 02:43:46 AM
The interesting thing is that 6000 jobs is probably 1-2 years natural staff turnover. Surely they can let people naturally die off and then re-organise internal teams, rather than flagging cuts of that magnitude...
Post by: Little Aussie Battler on November 07, 2017, 02:21:39 PM
Post by: steveo on November 07, 2017, 04:29:26 PM
Because unfortunately you rarely lose the people you are happy to see leave, so to get both the structure and the talent that you want you need to pay redundancies.
I'm not sure how well this works out though anyway. I work in a competing organisation to NAB and we had a massive amount of redundancies in my team about 2 years ago. The new team is struggling a lot more than the old one.
Post by: Ozstache on November 07, 2017, 04:37:27 PM
Post by: Little Aussie Battler on November 07, 2017, 04:39:53 PM
Post by: steveo on November 07, 2017, 04:56:08 PM
In my experience, dead wood generally know that they are on a good thing and are resistant to enticements such as redundancy packages, because they know they'll struggle to get another real job, and therefore stay on regardless.
In my team you didn't get a choice. The issue is that dead wood was more about who got along with the right people. Then a whole bunch more people were employed and that is really the issue. It's hard getting good talent. I work now for a great programme manager but he refuses to take a permanent job due to the pay differential between his contract rate and the perm rate. Then other people are employed but they aren't very good.
Post by: Fresh Bread on November 07, 2017, 08:46:38 PM
In my experience, dead wood generally know that they are on a good thing and are resistant to enticements such as redundancy packages, because they know they'll struggle to get another real job, and therefore stay on regardless.
In my team you didn't get a choice. The issue is that dead wood was more about who got along with the right people. Then a whole bunch more people were employed and that is really the issue. It's hard getting good talent. I work now for a great programme manager but he refuses to take a permanent job due to the pay differential between his contract rate and the perm rate. Then other people are employed but they aren't very good.
One of the benefits of FU money, a stache and not living hand to mouth. My hubby works on a contract basis and no one at work can understand why he doesn't want a permanent job. He gets paid 25% more, he never takes sick, he takes lengthy holidays between contracts. It doesn't really feel any more precarious than a perm job since all the firms he's worked at are constantly restructuring and retrenching people. It's like having long service leave every year.
Post by: rasics82 on November 08, 2017, 08:02:13 PM
What do you think about margin lending? Anyone into it?
I have roughly 100k invested in the usual suspects, 50%VAS, 50%VGS
The idea would be (if approved):
100k invested + 100k borrowed , LVR 50%
or more conservative
100k invested + 50k borrowed, LVR 33%
I will keep the LVR below 50% to reduce the risk of margin calls as well.
Main reason are:
1) Give a boost to my portfolio.
2) Tax benefit, I'm usually floating around the 87k threshold, with some claims I might be able to stay in the lower bracket (is it worth it?)
3) diversify a bit more, maybe adding VGE or EX20 or some LICs.
Leveraged.com.au seems the cheapest and more flexible platform, I can keep my online broker (CMC).
Commsec is a bit more expensive and I need to move my holdings to their platform.
I haven't considered other banks atm.
Post by: PDM on November 08, 2017, 08:24:03 PM
So you'd need your ETFs to return that to break even? Googling up historic returns on VAS:
http://performance.morningstar.com/funds/etf/total-returns.action?t=VAS®ion=aus
YTD - 10%, 1 year - 19%, 3 year 7.35%
Would you pay interest monthly?
Maybe I'm just a simple man but it all seems a bit complicated. I prefer an old fashioned approach of saving cash and buying ETFs - and owning them outright.
Post by: deborah on November 08, 2017, 08:38:43 PM
Post by: rasics82 on November 08, 2017, 09:19:35 PM
I don't know much about margin lending, but that website indicates a rate of 7.05%?
So you'd need your ETFs to return that to break even? Googling up historic returns on VAS:
http://performance.morningstar.com/funds/etf/total-returns.action?t=VAS®ion=aus
YTD - 10%, 1 year - 19%, 3 year 7.35%
Would you pay interest monthly?
Maybe I'm just a simple man but it all seems a bit complicated. I prefer an old fashioned approach of saving cash and buying ETFs - and owning them outright.
They have a "direct investment loan" option at 5.50%, not sure what's the real different with a margin loan. I would go for that one.
Commsec offer you the possibility of paying the interest of a whole year in one go , just before EOFY. Problably they all do the same, so every year will be a big discount on my tax, and you don't repay the principal (my understanding).
Without considering the capital gain, as I won't sell for a while, I need to evaluate if negative gearing my investment with a margin loan is actually an advantage in my specific situation or the "simple man method" :) it's still the best way.
Post by: rasics82 on November 08, 2017, 09:28:22 PM
The ASX put out a study a few years ago, and that showed that people with margin loans were about as well off as people who had never taken out loans to invest, and had started with the same amount before the loan. It's a great way to get your fingers burnt though - as a number of people found out during the GFC!
I know, that's why I was looking for a relatively conservative approach with LVR <50%. to avoid margin calls.
The market situations seems not the best one as well, if I decide to do it, I will wait for some kind of correction.
Post by: deborah on November 08, 2017, 09:41:43 PM
But why? If even the ASX says you're just as well off in the end if you never take out a loan, why bother? You have a lot of extra risk for NO extra return.The ASX put out a study a few years ago, and that showed that people with margin loans were about as well off as people who had never taken out loans to invest, and had started with the same amount before the loan. It's a great way to get your fingers burnt though - as a number of people found out during the GFC!
I know, that's why I was looking for a relatively conservative approach with LVR <50%. to avoid margin calls.
The market situations seems not the best one as well, if I decide to do it, I will wait for some kind of correction.
Post by: Primm on November 09, 2017, 12:12:28 AM
Gotta love "free" money.
Post by: FFA on November 09, 2017, 01:22:46 AM
I might be in the way of doing something "not so smart" and I need guidance...
I agree with your opening statement ;) ... Short cuts can end up being long cuts. I'm not saying never do it, and know some in this community have done it successfully, just question the timing now. If you want to diversify, sell some VAS/VGS and buy the EX20/LIC's. Margin loan not required.
Post by: bigchrisb on November 09, 2017, 02:11:18 AM
I've used margin loans for 10 years and overall have been successful. I had two margin call wipe outs along the way. However I'm currently trying to wind down the leverage, partly because my risk tolerance and life situation has changed, but largely because I'm not seeing the attraction. I was hearing up in a falling rates environment and panicked stock market. We currently have rates likely to rise rather than fall, and the market has run hard. The usual market timing comments, but it would hardly seem the time.
If you do go for margin lending:
Negotiate. My current margin loan rate is 4.15% from one of the major banks. ( approx 500k balance)
Keep leverage very mild. I thought I was being conservative and learned the hard way.
Don't do it for a tax deduction!
I'm sure I'll buy with debt again, but probably not until well into the next crisis
Post by: marty998 on November 09, 2017, 03:35:56 AM
Why start margin now?
I've used margin loans for 10 years and overall have been successful. I had two margin call wipe outs along the way. However I'm currently trying to wind down the leverage, partly because my risk tolerance and life situation has changed, but largely because I'm not seeing the attraction. I was hearing up in a falling rates environment and panicked stock market. We currently have rates likely to rise rather than fall, and the market has run hard. The usual market timing comments, but it would hardly seem the time.
If you do go for margin lending:
Negotiate. My current margin loan rate is 4.15% from one of the major banks. ( approx 500k balance)
Keep leverage very mild. I thought I was being conservative and learned the hard way.
Don't do it for a tax deduction!
I'm sure I'll buy with debt again, but probably not until well into the next crisis
This is the post I was just about to write.
I will also add 50% gearing is not conservative (from personal experience). You will lose the lot in bear markets with 50% gearing.
Post by: Notch on November 09, 2017, 05:21:52 AM
Hi all, I haven't been posting for a while but I might be in the way of doing something "not so smart" and I need guidance...
What do you think about margin lending? Anyone into it?
I’ve used margin to buy VHY, using the dividends to more than cover the interest. It was fun to make such large purchases and I never ran into any trouble but once the debt got above $100k it got a bit intimidating. So I decided to get rid of it and am just about to finish paying it off.
To quote Buffet, ‘Stay away from debt. If you’re smart you don’t need it. If you’re dumb you got no business using it.’
Post by: rasics82 on November 11, 2017, 07:12:54 PM
Why start margin now?
I've used margin loans for 10 years and overall have been successful. I had two margin call wipe outs along the way. However I'm currently trying to wind down the leverage, partly because my risk tolerance and life situation has changed, but largely because I'm not seeing the attraction. I was hearing up in a falling rates environment and panicked stock market. We currently have rates likely to rise rather than fall, and the market has run hard. The usual market timing comments, but it would hardly seem the time.
If you do go for margin lending:
Negotiate. My current margin loan rate is 4.15% from one of the major banks. ( approx 500k balance)
Keep leverage very mild. I thought I was being conservative and learned the hard way.
Don't do it for a tax deduction!
I'm sure I'll buy with debt again, but probably not until well into the next crisis
This is the post I was just about to write.
I will also add 50% gearing is not conservative (from personal experience). You will lose the lot in bear markets with 50% gearing.
Thanks everyone, this is probably the answer I was looking for. It seems when I have "brilliant ideas" (sarcastic) I'm either a decade too late or XX years too early.
I would have consider a LVR of 50% a pretty safe call with index funds, but I haven't experienced a "good" bear market yet, so probably is better to listen to the most experienced.
To quote Buffet, ‘Stay away from debt. If you’re smart you don’t need it. If you’re dumb you got no business using it.’
I know the quote, better to keep it in mind :-)
I think also I'll be able to diversify more without selling anything, so I'll stick with the simple man approach atm, I might reconsider lending money in the future if the conditions are different.
Post by: Llewellyn2006 on November 13, 2017, 01:12:32 AM
Why start margin now?
I've used margin loans for 10 years and overall have been successful. I had two margin call wipe outs along the way. However I'm currently trying to wind down the leverage, partly because my risk tolerance and life situation has changed, but largely because I'm not seeing the attraction. I was hearing up in a falling rates environment and panicked stock market. We currently have rates likely to rise rather than fall, and the market has run hard. The usual market timing comments, but it would hardly seem the time.
If you do go for margin lending:
Negotiate. My current margin loan rate is 4.15% from one of the major banks. ( approx 500k balance)
Keep leverage very mild. I thought I was being conservative and learned the hard way.
Don't do it for a tax deduction!
I'm sure I'll buy with debt again, but probably not until well into the next crisis
This is the post I was just about to write.
I will also add 50% gearing is not conservative (from personal experience). You will lose the lot in bear markets with 50% gearing.
Thanks everyone, this is probably the answer I was looking for. It seems when I have "brilliant ideas" (sarcastic) I'm either a decade too late or XX years too early.
I would have consider a LVR of 50% a pretty safe call with index funds, but I haven't experienced a "good" bear market yet, so probably is better to listen to the most experienced.To quote Buffet, ‘Stay away from debt. If you’re smart you don’t need it. If you’re dumb you got no business using it.’
I know the quote, better to keep it in mind :-)
I think also I'll be able to diversify more without selling anything, so I'll stick with the simple man approach atm, I might reconsider lending money in the future if the conditions are different.
I recently thought about whether it would be worth borrowing some money to invest if there happened to be a significant correction and any good opportunities presented themselves. But the more I thought about it I realised that all I would be doing is borrowing money to satisfy a short-term itch to buy and I'd spend the next however many years paying off the loan and the interest. I decided it was better to stick to my plan of just investing a certain amount every few months. No money wasted as dead interest payments and I get the benefits of not basically trying to time the market, which is what a margin loan would have been.
Post by: mjr on November 14, 2017, 01:18:54 AM
http://www.news.com.au/finance/economy/australian-economy/australias-economy-is-built-on-shaky-foundations-and-its-about-to-collapse/news-story/d924ef058941e0df3b8e4896e38db882 (http://www.news.com.au/finance/economy/australian-economy/australias-economy-is-built-on-shaky-foundations-and-its-about-to-collapse/news-story/d924ef058941e0df3b8e4896e38db882)
What is this bloke on ? I'm the first one to agree that Australia is complacent and needs to pull its socks up to flourish in the global economy, but I've never read such a dump of cherry-picked statistics and down in the mouth perspective as this so-called entrepreneur.
Post by: Notch on November 14, 2017, 01:50:35 AM
I'm the first one to agree that Australia is complacent and needs to pull its socks up to flourish in the global economy, but I've never read such a dump of cherry-picked statistics and down in the mouth perspective as this so-called entrepreneur.
The article didn't seem that bad to me. I actually found it quite interesting haha.
Post by: Notch on November 14, 2017, 02:49:17 PM
http://www.debtdeflation.com/blogs/2017/11/14/australias-economy-is-a-house-of-cards/ (http://www.debtdeflation.com/blogs/2017/11/14/australias-economy-is-a-house-of-cards/)
Post by: TimCinel on November 18, 2017, 04:00:17 AM
What is this bloke on ? I'm the first one to agree that Australia is complacent and needs to pull its socks up to flourish in the global economy, but I've never read such a dump of cherry-picked statistics and down in the mouth perspective as this so-called entrepreneur.
It's a persuasive piece, it's supposed to be biased ;) I think we need more people with public profiles like Matt Barrie and Dick Smith pouring a bucket of cold water over this sleepwalking country. I think Australia's more than complacent, I think it's arrogant.
Which parts did you think were particularly unfair?
Shame about the Zerohedge references. They don't really add to the credibility, but even their (cherry picked and highly editorialised) data are usually accurate.
More bear food from a so-called former Treasurer and former Prime Minister:
Market euphoria could be setting up a Minksy moment, Paul Keating says (http://www.afr.com/markets/market-euphoria-could-be-setting-up-a-minksy-moment-paul-keating-says-20171117-gzno9n)
Post by: marty998 on November 18, 2017, 04:59:34 PM
I'd expect prices to start coming off soon... Imagine an average punter who spent $1.0m on a Sydney shack (along with $50k stamp duty.
If prices go backwards by 10% they'll be down $200k easy (including negative gear over say 2 years) Takes a long time for anyone to save that amount of money and if they can't wear the holding costs then it could get ugly very fast.
Prices don't have to fall very far at all in % terms to have a big impact now.
Post by: PDM on November 18, 2017, 05:07:31 PM
I'm of the view that anything I read on news.com.au is utter rubbish, but I look at it on the train.
http://www.news.com.au/finance/economy/australian-economy/australias-economy-is-built-on-shaky-foundations-and-its-about-to-collapse/news-story/d924ef058941e0df3b8e4896e38db882 (http://www.news.com.au/finance/economy/australian-economy/australias-economy-is-built-on-shaky-foundations-and-its-about-to-collapse/news-story/d924ef058941e0df3b8e4896e38db882)
What is this bloke on ? I'm the first one to agree that Australia is complacent and needs to pull its socks up to flourish in the global economy, but I've never read such a dump of cherry-picked statistics and down in the mouth perspective as this so-called entrepreneur.
He hits all the major points on why the Australian economy is dodgy. Sounds like he has been reading macrobuisness.com.au. I would question his motives though and how “freelancing” and a gif economy will offer alternatives or change?
Yes massive housing affordability problems but is job insecurity through freelancing going to help?
Post by: pistolpete on November 21, 2017, 09:54:35 PM
Post by: PDM on November 22, 2017, 05:15:04 PM
Just to give you peeps a heads up Vanguard have just launched new ETFs just like the unlisted diversified balanced growth and high growth fund which are now listed in the asx! Check their website out! Happy days
I had a bit of a look. Sort of very similar to what most Super funds offer but outside of super. Still a bit too much ASX exposure in there for my liking.
Post by: oysters on November 22, 2017, 06:22:57 PM
Here's their plan for the High Growth version
"E High Growth Composite Index comprises of (weight/index): 36% S&P/ASX300
Index, 26.5% MSCI World ex-Australia Index (with net dividends reinvested) in
Australian dollars, 16% MSCI World ex-Australia Index (with net dividends
reinvested) hedged to Australian dollars, 6.5% MSCI World ex-Australia Small Cap
Index (with net dividends reinvested) in Australian dollars, 5% MSCI Emerging
Markets Index (with net dividends reinvested) in Australian dollars, 3% Bloomberg
Barclays AusBond Composite 0+ Yr Index, 7% Bloomberg Barclays Global Aggregate
Float Adjusted Index hedged to Australian dollars."
Its interesting that they have MSCI World ex-Australia Small Cap in there. But they don't offer that seperately as an ETF...I don't think anyone does in Aus? I wish they did, the main small-cap options available are only US based, eg IDR S&P Smallcap 600...a good option with a very low 0.07 MER currently.
I agree the Australian weighting on this is a bit too strong, I would have expected that to be more like ~20% and the small cap and emerging markets to be stronger.
Sure simplifies things though... tax, rebalancing, everything, very simple.
Impossible to calculate the average MER of similar funds as some of these options aren't available as seperate ETFs, though .27 is relatively low especially giving the benefits.
Post by: oysters on November 22, 2017, 07:43:11 PM
https://www.vanguardinvestments.com.au/au/portal/articles/insights/mediacentre/new-vanguard-etfs.jsp
There are only a few online news articles on it so far, mostly just terrible copy and paste journalism from the press release offering no actual external insights.
SMSF Super has a couple of points at the bottom of theirs though, which is what I thought of (though I wasn't thinking SMSF):
https://www.smsfadviser.com/news/16095-vanguard-launches-new-suite-of-diversified-etfs
“The Diversified Index ETFs meet all of these criteria, and with a single trade on the ASX provide access to expert portfolio management and automatic rebalancing,” he said.
“While SMSFs by their nature tend to be more self-directed, we see the potential for these diversified ETFs to be used as the index core of a portfolio allowing trustees the freedom to research and select other specific investments, weather that be individual securities, active funds or physical property.”
If one doesn't like the weighting of say the amount of Australian exposure, and say like me would prefer much more small-cap, its easy to have a portfolio of say 80% VDHG and 20% IDR. While keeping portfolio very simple, and lowering overall MER a bit further.
I'm a little dissapointed that there is 10% non-equity in there. That makes it a little hard to have a very aggressive (ie 100%) equity exposure early on, with a pure adjusting glide path just prior to retirement, and a pure glidepath afterwards. But its not the end of the world.
Post by: dbm on November 22, 2017, 08:17:35 PM
The ASX put out a study a few years ago, and that showed that people with margin loans were about as well off as people who had never taken out loans to invest, and had started with the same amount before the loan. It's a great way to get your fingers burnt though - as a number of people found out during the GFC!
Have you got a source for this, as I can only find balanced or pro-margin lending articles on the asx website?
Post by: FFA on November 22, 2017, 08:34:51 PM
Post by: one piece at a time on November 27, 2017, 03:23:25 PM
I'm looking to buy some shares in the listed fund called VAE. The volume of trade seems pretty low but being Asian I guess I could just buy "at market" in the afternoon and it should be pretty fair value. I'm only buying in $15k lots once a month for 6 months or so (a little new savings and some reallocation from cash). First trade will be after I get paid in December. This is to get some more Asian exposure to go with my ARG and VEU holdings.
Anything wrong with my plan? Should I consider buying in $10k lots twice a month instead (I'd have to reduce sooner as the cash would dry up quicker).
Post by: oysters on November 27, 2017, 04:40:10 PM
New Question!
I'm looking to buy some shares in the listed fund called VAE. The volume of trade seems pretty low but being Asian I guess I could just buy "at market" in the afternoon and it should be pretty fair value. I'm only buying in $15k lots once a month for 6 months or so (a little new savings and some reallocation from cash). First trade will be after I get paid in December. This is to get some more Asian exposure to go with my ARG and VEU holdings.
Anything wrong with my plan? Should I consider buying in $10k lots twice a month instead (I'd have to reduce sooner as the cash would dry up quicker).
I don't hold VAE but its in my plan to aquire sometime in the next couple of years. I think its a good idea, just hopefully the MER will come down a bit over time as people buy into it. Given all the talk about how the world economy is shifting to Asia it (still) makes sense long term to hold this specifically as opposed to just part of a world index.
Post by: FFA on November 28, 2017, 04:11:39 PM
If VAE is like VGE then yes you need to be a bit careful/patient on execution as the bid/offer can be quite wide. It's much different to VAS, VGS, VTS, VEU.
Just also to note you have VEU which has some embedded emerging markets exposure in it too.
Post by: actionjackson on November 28, 2017, 07:56:00 PM
I'm on highest marginal rate of tax, want to better understand if there would be any benefit to salary sacrificing into super, rather than just pushing my savings into my investment accounts after tax. I'll reach the point where I can FIRE in about 6-7Y, but a chunk of that ~30% will be in super, and I'll have a long time before I can access it.
Post by: mjr on November 28, 2017, 10:22:44 PM
It's not a lot of money, but you should definitely take advantage of whatever is on offer and get what tax-advantaged funds you can into super.
Your real question should be how much non-concessional contributions you should be making.
Edit: These numbers assume that you're not getting hit by Division 293, but even that doesn't change my recommendation.
Post by: marty998 on November 29, 2017, 01:21:08 AM
Can anyone direct me to a post/thread explaining strategy in Oz with regard to intended FIRE age, and balancing amount in Super funds between then and preservation age?
Topic has come up a few times before but is an individual/personal consideration which needs to take into account your age, spending needs, kids, other income sources etc.
Logically outside of super you only need enough to get you to preservation age, and then Super needs to be 25x spending, and even then as you run down super you may qualify for age pension benefits.
This is before you even consider the ability to downsize your house.
Lots of options, lots of variables.
Post by: nora on November 29, 2017, 04:58:16 AM
Can anyone direct me to a post/thread explaining strategy in Oz with regard to intended FIRE age, and balancing amount in Super funds between then and preservation age?
There is a calculator which might help you.
http://www.aussiefirebug.com/australian-financial-independence-calculator/
Post by: nora on November 29, 2017, 05:06:41 AM
On the highest marginal rate, you're paying at least $17,100 p.a. into super via the SGC and you can therefore salary sacrifice at most $7,900 p.a. You'll save at most $2,370 in tax.
For self employed people there won't be any super guarantee so can pay the whole 25000 yourself. I guess this makes it a bigger tax savings but you lose the money until preservation age, and the div 293 tax as you mention makes it all a bit sad. Div 293 tax is coming in earlier this year too at an income of $250000. A good problem to have though, paying more tax.
Post by: oysters on November 29, 2017, 05:16:24 AM
On the highest marginal rate, you're paying at least $17,100 p.a. into super via the SGC and you can therefore salary sacrifice at most $7,900 p.a. You'll save at most $2,370 in tax.
For self employed people there won't be any super guarantee so can pay the whole 25000 yourself. I guess this makes it a bigger tax savings but you lose the money until preservation age, and the div 293 tax as you mention makes it all a bit sad. Div 293 tax is coming in earlier this year too at an income of $250000. A good problem to have though, paying more tax.
Yeah, I wish I had this problem...
... If I did I'd FIRE from where I am (just about near scratch after years of "Science") in about 4-5 years.
Post by: actionjackson on November 29, 2017, 07:39:47 PM
Can anyone direct me to a post/thread explaining strategy in Oz with regard to intended FIRE age, and balancing amount in Super funds between then and preservation age?
There is a calculator which might help you.
http://www.aussiefirebug.com/australian-financial-independence-calculator/
Awesome! This is perfect - thanks. I expected it would be asked a lot, hence the calculator. Appreciate the link.
For $2300 a year saving, I'd rather not have it tied up in Super. I don't trust the government not to move the preservation age again to keep people in the workforce given the aging population issue.
Post by: mjr on November 29, 2017, 08:03:11 PM
For $2300 a year saving, I'd rather not have it tied up in Super. I don't trust the government not to move the preservation age again to keep people in the workforce given the aging population issue.
I understand this completely and didn't focus on super myself until my late 40s. However, 2 things to keep in mind:
- Unbelievably, the Government is doing all they can to stop you putting money into super. Paying up to the concessional cap every year now that it's so low is an opportunity lost every year that you don't do it
- Compound interest and the resulting income stream at preservation age being tax free
Post by: oysters on December 04, 2017, 05:25:50 PM
Interesting article in there on TIPS. Does anyone on here have any TIPS? Interesting mention of the Sydney Airport 2030 one which guarantees inflation plus ~2.8%pa (from memory).
Post by: DrowsyBee on December 11, 2017, 06:24:28 PM
For $2300 a year saving, I'd rather not have it tied up in Super. I don't trust the government not to move the preservation age again to keep people in the workforce given the aging population issue.
I understand this completely and didn't focus on super myself until my late 40s. However, 2 things to keep in mind:
- Unbelievably, the Government is doing all they can to stop you putting money into super. Paying up to the concessional cap every year now that it's so low is an opportunity lost every year that you don't do it
- Compound interest and the resulting income stream at preservation age being tax free
I have always been in the boat of being distrustful of super. But i'm living very comfortably while salary sacrificing 5.5%.
As a first home buyer in a year, though, i'm thinking of starting to pour a lot more in:
http://budget.gov.au/2017-18/content/glossies/factsheets/html/HA_14.htm
First Home Buyer Super Saver Scheme passed the Senate recently. Has anyone had a good look through it? Enjoy the lower taxed super benefits to save for a deposit a bit quicker.
I've only been looking into it this morning.
Post by: Abundant life on December 11, 2017, 09:34:54 PM
I was reading Scott Pape, the Barefoot investor's opinion of it, to quote:For $2300 a year saving, I'd rather not have it tied up in Super. I don't trust the government not to move the preservation age again to keep people in the workforce given the aging population issue.
I understand this completely and didn't focus on super myself until my late 40s. However, 2 things to keep in mind:
- Unbelievably, the Government is doing all they can to stop you putting money into super. Paying up to the concessional cap every year now that it's so low is an opportunity lost every year that you don't do it
- Compound interest and the resulting income stream at preservation age being tax free
I have always been in the boat of being distrustful of super. But i'm living very comfortably while salary sacrificing 5.5%.
As a first home buyer in a year, though, i'm thinking of starting to pour a lot more in:
http://budget.gov.au/2017-18/content/glossies/factsheets/html/HA_14.htm
First Home Buyer Super Saver Scheme passed the Senate recently. Has anyone had a good look through it? Enjoy the lower taxed super benefits to save for a deposit a bit quicker.
I've only been looking into it this morning.
'First home buyers can now divert extra money into their super (maxed at $15,000 per year), and then draw it out as a deposit on their first home. The maximum they can save is $30,000 per person ($60,000 a couple).
For someone earning $65,000 a year, after three years of using the First Home Super Saver Scheme they’ll have $6,314 more than if they’d saved via a standard bank account.
So I’d certainly use the First Home Super Saver Scheme if I knew I was going to buy a home in a couple of years and I’d already saved up a big deposit. For an average-earning couple it’s an extra $12,628. I wouldn’t kick it down a drainpipe if I was walking along the street and saw it. Do it.'
Although he did not recommend it for someone with a 10 year horizon:
' ... I honestly wouldn’t bother. There’s ‘legislative risk’ to doing something 10 years out (i.e. Krusty the Clown could be our PM in 2027).'
Post by: DrowsyBee on December 11, 2017, 10:04:54 PM
That being said, I'm locked into a development which will be completed in about 12 months, so I'm thinking it is a good opportunity for me to lock away even more savings and reach the finish line sooner.
I'm still kind of in disbelief because its public policy that is benefiting me for once. Is this how boomers have felt for the last 40 years?
Post by: deborah on December 11, 2017, 10:10:46 PM
Post by: Abundant life on December 11, 2017, 11:32:58 PM
Took us four years to save our deposit working full time and two part-time jobs each. Didn't eat out or holiday for that time. Moved outside of metropolitan area where we could afford housing and built the smallest home (the only one we could afford). Then spent 1.75hr commute each way, ah, the good old days!
Within 6 months of moving in, the market tanked and house prices fell markedly, about a third IIRC. We just had to work our way through it, but it was years before the prices recovered and eventually increased.
Post by: Rowellen on December 12, 2017, 02:52:01 PM
Not for 40 years, but each time something was benefiting me I couldn't believe it. Some of the things that have benefited me I have really strong opinions against, but, if our legislators are so stupid as to offer amazing benefits, I am going to take them up, even if I also complain to them that the benefit is ridiculous.
I'm still in shock about the superannuation changes from 2006. In particular making everything tax free and removing reporting requirements for over 60's. They have now made the first steps to reversing this madness. I expect by the time I reach 60, pensions will be fully taxable again. In the meantime, the benefits are fantastic if you can get them.
Post by: deborah on December 12, 2017, 03:35:04 PM
That is one of the benefits I was thinking of. A major perception problem is that most younger people think that all boomers have all the advantages (ie. they have taken advantage of them). Many have not taken advantage of the benefits - it is mainly the rich. For example, last week I was at a funeral of a boomer relative who had never accessed her superannuation. I was surprised that, when the topic of superannuation came up, only a couple of the boomers around the room have ANY superannuation. It came late and most of these people had businesses (such as an electrician who worked for himself and didn't have to put in superannuation, so didn't). Those who had had superannuation, had such small amounts that they had used the $10,000 or whatever to reduce their mortgage when they retired. It would be interesting to find out what percentage of boomers have significant enough levels of superannuation that the tax free pensions are actually giving them anything (I guess that means a superannuation amount of more than about $20,000/.04 (approximate tax free threshold / percentage they need to withdraw to actually be taking advantage of the tax break) = $500,000)Not for 40 years, but each time something was benefiting me I couldn't believe it. Some of the things that have benefited me I have really strong opinions against, but, if our legislators are so stupid as to offer amazing benefits, I am going to take them up, even if I also complain to them that the benefit is ridiculous.
I'm still in shock about the superannuation changes from 2006. In particular making everything tax free and removing reporting requirements for over 60's. They have now made the first steps to reversing this madness. I expect by the time I reach 60, pensions will be fully taxable again. In the meantime, the benefits are fantastic if you can get them.
Post by: Rowellen on December 12, 2017, 07:33:09 PM
Post by: oysters on December 15, 2017, 06:32:54 PM
Did some calculations and at my current salary will be paid off four years from now. I can't wait. Did further calculations and the extra money (put into investments prior to FIRE) generally gives me a 15% reduction in SWR failure potential for my plans, or I could retire a couple of years earlier for similar risk. Sweeeeeeeet.
It really is quite amazing how much affect reductions in "spending" have on potential FIRE portfolio success.
Post by: PDM on December 15, 2017, 08:47:00 PM
ATO finally sorted out my HECS-HELP Benefit today, including fixing up all their mistakes and missing payments since 2009. My HECS debt is now down to 19000, woohoo! It was almost 30k at its highest.
Did some calculations and at my current salary will be paid off four years from now. I can't wait. Did further calculations and the extra money (put into investments prior to FIRE) generally gives me a 15% reduction in SWR failure potential for my plans, or I could retire a couple of years earlier for similar risk. Sweeeeeeeet.
It really is quite amazing how much affect reductions in "spending" have on potential FIRE portfolio success.
Awesome news. There is nothing better than your first full pay cheque without HECS.
Post by: oysters on December 16, 2017, 02:43:32 AM
[/quote]
Awesome news. There is nothing better than your first full pay cheque without HECS.
[/quote]
I'm definitely looking forward to the day!
I'll be watching it carefully over the next couple of years so that I can put the last grand or two in prior to the indexing date in June and then tell my employer to stop taking it out for the following financial year.
Post by: BattlaP on December 16, 2017, 04:02:16 AM
Feels good man, it's worth the opportunity cost to have the complete peace of mind of debt freedom.
Post by: asosharp on December 18, 2017, 01:41:45 AM
Instead of putting all my money in a HISA, I decided that I would invest especially since the interest rate for HISAs keep going down. I came across the concept of ETFs and LICs which sound good for the long term as it's almost set and forget and with any other money I can put it into other investments like property or individual stocks.
My thought was that I would put maybe about $20 - 60k into an ETF or LIC. I have read this - https://www.bogleheads.org/wiki/Investing_in_Australia#VAS_vs_LICs - but as these people are John Bogle fans I don't know if they are biased towards Vanguard.
In regards to the paragraph there:
"The most common LICs for people looking for an alternative to Vanguard Australian Shares Index ETF (VAS) are Australian Foundation Investment Co.Ltd (AFI), Argo Investments (ARG) and Milton Corporation Limited (MLT). These don't generally trade at a deep discount to NTA, so if you can't get them at a fair discount to NTA then stick with VAS. "
1) Is it actually good advice - to put it into VAS if you can't get LIC's at a fair discount?
2) What do they mean by a 'fair discount'? How would you know if it is discounted? Does that mean the share price has dropped and that's why it's a fair discount?
3) It also says:
"Australian companies on average tend to return more to shareholders in the form of dividends than their US counterparts. For example the VAS (ASX300 index tracker) has tended to yield around 5%, whereas VTS (US S&P500 index-tracker) has tended to yield around 2%."
- I thought the ASX was the ASX 200 not the ASX 300? Is this a typo?
- I've read on Mr Money Moustache that holding foreign ETFs are good but why is that so if the yield is less than the Australian one?
4) One thing that worries me about the long term future is the direction money is headed in the wake of cryptocurrencies, the blockchain, etc. The ASX comprises mostly of banks and mining. So once the digital change hits, does that mean Australian ETFs and LICs would be a really bad invesment in the long term? I am in my 30's and can only imagine the changes that would happen in the next 30 - 60 years when I could still be alive and would need to withdraw from the ETF or LIC for my retirement.
Post by: PDM on December 18, 2017, 01:49:15 AM
Post by: Llewellyn2006 on December 18, 2017, 04:59:43 AM
Post by: JuicyCrab on December 18, 2017, 05:01:28 AM
I need some help with my personal investments as I'm a bit confused. I came across Mr Money Moustache and was fascinated by it but of course a lot of it is not Aussie so I was surprised when I found this link (on another forum!).Part 4 of your question had me concerned a little too, however I think if cryptos really did replace fiat it could really turn the market upset down globally, not just locally.
Instead of putting all my money in a HISA, I decided that I would invest especially since the interest rate for HISAs keep going down. I came across the concept of ETFs and LICs which sound good for the long term as it's almost set and forget and with any other money I can put it into other investments like property or individual stocks.
My thought was that I would put maybe about $20 - 60k into an ETF or LIC. I have read this - https://www.bogleheads.org/wiki/Investing_in_Australia#VAS_vs_LICs - but as these people are John Bogle fans I don't know if they are biased towards Vanguard.
In regards to the paragraph there:
"The most common LICs for people looking for an alternative to Vanguard Australian Shares Index ETF (VAS) are Australian Foundation Investment Co.Ltd (AFI), Argo Investments (ARG) and Milton Corporation Limited (MLT). These don't generally trade at a deep discount to NTA, so if you can't get them at a fair discount to NTA then stick with VAS. "
1) Is it actually good advice - to put it into VAS if you can't get LIC's at a fair discount?
2) What do they mean by a 'fair discount'? How would you know if it is discounted? Does that mean the share price has dropped and that's why it's a fair discount?
3) It also says:
"Australian companies on average tend to return more to shareholders in the form of dividends than their US counterparts. For example the VAS (ASX300 index tracker) has tended to yield around 5%, whereas VTS (US S&P500 index-tracker) has tended to yield around 2%."
- I thought the ASX was the ASX 200 not the ASX 300? Is this a typo?
- I've read on Mr Money Moustache that holding foreign ETFs are good but why is that so if the yield is less than the Australian one?
4) One thing that worries me about the long term future is the direction money is headed in the wake of cryptocurrencies, the blockchain, etc. The ASX comprises mostly of banks and mining. So once the digital change hits, does that mean Australian ETFs and LICs would be a really bad invesment in the long term? I am in my 30's and can only imagine the changes that would happen in the next 30 - 60 years when I could still be alive and would need to withdraw from the ETF or LIC for my retirement.
That is until banks develop their own digital currency products to compete in that space. They are savages and won't let a bit of block chain code hurt their profits...
Sent from my SM-G930F using Tapatalk
Post by: middo on December 18, 2017, 06:20:46 PM
1. As an investment they have no inheret earnings. They are fundamentally like gold in this sense.
2. They are obviously currently in a bubble. They will crash sometime. Investung now is purely gambling.
3. Block chain is one step away frim a major hack making them wirthless. This is a fundamental concern I have with them. Currencies value is perceived worth, and these have no country to support them when they crash.
Post by: deborah on December 18, 2017, 06:25:53 PM
Quote
In my opinion, Bitcoin fails every investment test. If you buy government bonds, you receive a guaranteed income plus principal repayment at the end of the term. If you buy shares you can make a decision based on the financial statements and profitability of the company. If you buy real estate there should be a nexus between the land value, the cost of improvements, and any potential rental income. In other words, you are making the decision on concrete information.
Bitcoin works on the greater fool theory: a fool buys today in the hope of on-selling to a greater fool tomorrow. It's more like the allegory of the box of strawberries sold from person to person at ever-increasing prices. Finally, the buyer who had paid $100 for a box of strawberries that had cost only $5 a few buyers ago, stopped the cycle by opening the box. To his dismay he found the strawberries were rotten! When he complained, the response was, "but these strawberries were meant to be sold – they were never meant to be eaten". Each buyer had bought with one aim – to resell for a higher price to a fool who still believed in the impossible dream. At least your Bitcoins can't rot. They never really existed.
Post by: asosharp on December 18, 2017, 09:17:42 PM
Last night I came across the Vanguard diversified range which is basically an ETF comprising of many of their wholesale funds. The MER is 0.27% but there's no track record yet as it hasn't even been a month since it was launched.
However I found some PDF which says how you can recreate the diversified model if you just bought individual fund. If you followed the alternative model the portfolio weighted MER would be something like 0.10%.
In the long term when it comes to fees, is it better to have a MER of 0.27% of just 1 fund, or a portfolio weighted average of 0.10% per fund?
Post by: Adram on December 19, 2017, 01:38:54 AM
Also, holding only one ETF has some value, given that you would not need to rebalance unless you held other investments, your tax return preparation would be simpler, and you would likely save on transaction costs.
Post by: Notch on December 19, 2017, 04:12:50 AM
In the long term when it comes to fees, is it better to have a MER of 0.27% of just 1 fund, or a portfolio weighted average of 0.10% per fund?
I'm kind of doing this; I'm copying the Vanguard Diversifed High Growth Index Fund asset allocation using Vanguard's wholesale funds.
Advantages:
- Let the experts pick the asset allocation
"Vanguard's Investment Strategy Group, a global team of researchers and analysts, set the asset allocation of the Australian diversified funds as part of a robust framework used by Vanguard globally. These investment experts analyse issues such as concentration risk and currency exposure, and incorporate output from comprehensive modelling generated by Vanguard's proprietary forecasting engine, the Vanguard Capital Markets Model."
- Using separate funds lets me hold the highest-yielding component (Australian shares) within super, saving tax.
- The wholesale funds have basically the same MER as the ETFs and similar buy/sell spreads as Commsec brokerage.
- I don't have to deal with Commsec or Computershare. Use BPay to purchase and get a summary tax statement once a year.
- Possibly less unwanted capital gains distributions because as an individual you're not forced to sell to rebalance your allocations; you can just top-up the fund performing worst.
- The funds pay out distributions a few days earlier than the ETFs ;)
Disadvantages:
- Can't buy/sell at intraday high/lows - have to take the end of day unit price.
- Need a minimum of $100,000 to invest to access wholesale funds (doesn't have to be all in one fund).
Post by: chasingthegoodlife on December 19, 2017, 01:04:08 PM
A quote from an article I read a while back and can no longer remember the source ‘Bitcoin is a solution without a problem’.
Ignoring its use to transact illegal goods like child pornography online, as Deborah points out above Bitcoin’s primary use is being traded to a ‘greater fool’ for a (hopefully) increasing amount of traditional currency.
For everyday use it is dramatically less convenient and less secure than trad currency and we are still living in a time where a decent portion of the population can’t use internet banking.
I may have to eat my hat one day but I can’t see it happening.
Post by: oysters on December 19, 2017, 02:30:39 PM
In the long term when it comes to fees, is it better to have a MER of 0.27% of just 1 fund, or a portfolio weighted average of 0.10% per fund?
I'm kind of doing this; I'm copying the Vanguard Diversifed High Growth Index Fund asset allocation using Vanguard's wholesale funds.
Advantages:
- Let the experts pick the asset allocation
"Vanguard's Investment Strategy Group, a global team of researchers and analysts, set the asset allocation of the Australian diversified funds as part of a robust framework used by Vanguard globally. These investment experts analyse issues such as concentration risk and currency exposure, and incorporate output from comprehensive modelling generated by Vanguard's proprietary forecasting engine, the Vanguard Capital Markets Model."
- Using separate funds lets me hold the highest-yielding component (Australian shares) within super, saving tax.
- The wholesale funds have basically the same MER as the ETFs and similar buy/sell spreads as Commsec brokerage.
- I don't have to deal with Commsec or Computershare. Use BPay to purchase and get a summary tax statement once a year.
- Possibly less unwanted capital gains distributions because as an individual you're not forced to sell to rebalance your allocations; you can just top-up the fund performing worst.
- The funds pay out distributions a few days earlier than the ETFs ;)
Disadvantages:
- Can't buy/sell at interday high/lows - have to take the end of day unit price.
- Need a minimum of $100,000 to invest to access wholesale funds (doesn't have to be all in one fund).
The another disadvantage of going with the diversified ETFs that I see (eg the high growth one), is that even the high growth one holds Bonds. If you are a long way off from retirement, and aiming to use glidepath ratios for bond allocations (eg, aquire bonds up to a small percentage in the final couple of years prior to retirement, then spend them down in the first few years or so until you are back to 0% bonds) you can't do it; your allocation is set. One could always just hold one or two additional equity ETFs to weight more towards growth (eg some S&P small cap or Emerging markets).
I like your approach of holding your Aus equities in Super for tax advantages.
Post by: oysters on December 19, 2017, 02:34:09 PM
As a cricket fan I'm getting hammered by Magellan Investment ads.
Then I checked them out. Holy doodle, some high fees for not much.
I suppose its much better than sports betting ads
Post by: Notch on December 19, 2017, 03:06:56 PM
In the long term when it comes to fees, is it better to have a MER of 0.27% of just 1 fund, or a portfolio weighted average of 0.10% per fund?
I'm kind of doing this; I'm copying the Vanguard Diversifed High Growth Index Fund asset allocation using Vanguard's wholesale funds.
...
The another disadvantage of going with the diversified ETFs that I see (eg the high growth one), is that even the high growth one holds Bonds. If you are a long way off from retirement, and aiming to use glidepath ratios for bond allocations (eg, aquire bonds up to a small percentage in the final couple of years prior to retirement, then spend them down in the first few years or so until you are back to 0% bonds) you can't do it; your allocation is set. One could always just hold one or two additional equity ETFs to weight more towards growth (eg some S&P small cap or Emerging markets).
I like your approach of holding your Aus equities in Super for tax advantages.
Ah yes, I forgot to mention that benefit. You're spot on. I'm holding cash instead of the bond allocation at the moment as I'm looking to buy a house soon. And I won't get into the bond allocation until my future mortgage is paid off. No point buying bonds at 2% interest while having a home loan at 4%.
Post by: oysters on December 19, 2017, 03:52:20 PM
In the long term when it comes to fees, is it better to have a MER of 0.27% of just 1 fund, or a portfolio weighted average of 0.10% per fund?
I'm kind of doing this; I'm copying the Vanguard Diversifed High Growth Index Fund asset allocation using Vanguard's wholesale funds.
...
The another disadvantage of going with the diversified ETFs that I see (eg the high growth one), is that even the high growth one holds Bonds. If you are a long way off from retirement, and aiming to use glidepath ratios for bond allocations (eg, aquire bonds up to a small percentage in the final couple of years prior to retirement, then spend them down in the first few years or so until you are back to 0% bonds) you can't do it; your allocation is set. One could always just hold one or two additional equity ETFs to weight more towards growth (eg some S&P small cap or Emerging markets).
I like your approach of holding your Aus equities in Super for tax advantages.
Ah yes, I forgot to mention that benefit. You're spot on. I'm holding cash instead of the bond allocation at the moment as I'm looking to buy a house soon. And I won't get into the bond allocation until my future mortgage is paid off. No point buying bonds at 2% interest while having a home loan at 4%.
Concur
Post by: stashgrower on December 20, 2017, 06:16:13 AM
Post by: Notch on December 20, 2017, 04:31:17 PM
Can capital gains losses from shares be offset against capital gains in the Vanguard mutual funds? What I mean is, does it count as one giant investment pot or two separate lines that balance separately?
If you're talking about assets you personally hold, ie. shares, funds, houses, bars of gold, then a capital loss in any asset can offset a capital gain in any other asset.
Post by: asosharp on December 21, 2017, 07:12:32 AM
In the long term when it comes to fees, is it better to have a MER of 0.27% of just 1 fund, or a portfolio weighted average of 0.10% per fund?
I'm kind of doing this; I'm copying the Vanguard Diversifed High Growth Index Fund asset allocation using Vanguard's wholesale funds.
...
The another disadvantage of going with the diversified ETFs that I see (eg the high growth one), is that even the high growth one holds Bonds. If you are a long way off from retirement, and aiming to use glidepath ratios for bond allocations (eg, aquire bonds up to a small percentage in the final couple of years prior to retirement, then spend them down in the first few years or so until you are back to 0% bonds) you can't do it; your allocation is set. One could always just hold one or two additional equity ETFs to weight more towards growth (eg some S&P small cap or Emerging markets).
I like your approach of holding your Aus equities in Super for tax advantages.
Ah yes, I forgot to mention that benefit. You're spot on. I'm holding cash instead of the bond allocation at the moment as I'm looking to buy a house soon. And I won't get into the bond allocation until my future mortgage is paid off. No point buying bonds at 2% interest while having a home loan at 4%.
Mmm... it kind of sounds like the all in one fund may not be the best option based on the portfolio weighted MER and I suppose the overall control of it all. I'll have to check the PDF if it was only for their wholesale funds or whether it included the retail ones.
Just out of curiosity, are there actually any benefits of holding ETF or LIC outside of super? That was my original intention.
Post by: Llewellyn2006 on December 21, 2017, 04:42:06 PM
In the long term when it comes to fees, is it better to have a MER of 0.27% of just 1 fund, or a portfolio weighted average of 0.10% per fund?
I'm kind of doing this; I'm copying the Vanguard Diversifed High Growth Index Fund asset allocation using Vanguard's wholesale funds.
...
The another disadvantage of going with the diversified ETFs that I see (eg the high growth one), is that even the high growth one holds Bonds. If you are a long way off from retirement, and aiming to use glidepath ratios for bond allocations (eg, aquire bonds up to a small percentage in the final couple of years prior to retirement, then spend them down in the first few years or so until you are back to 0% bonds) you can't do it; your allocation is set. One could always just hold one or two additional equity ETFs to weight more towards growth (eg some S&P small cap or Emerging markets).
I like your approach of holding your Aus equities in Super for tax advantages.
Ah yes, I forgot to mention that benefit. You're spot on. I'm holding cash instead of the bond allocation at the moment as I'm looking to buy a house soon. And I won't get into the bond allocation until my future mortgage is paid off. No point buying bonds at 2% interest while having a home loan at 4%.
Mmm... it kind of sounds like the all in one fund may not be the best option based on the portfolio weighted MER and I suppose the overall control of it all. I'll have to check the PDF if it was only for their wholesale funds or whether it included the retail ones.
Just out of curiosity, are there actually any benefits of holding ETF or LIC outside of super? That was my original intention.
I have both LIC's and ETF's outside of super because I'll need income between when I cut down my workload and being able to access my super. And I don't want to tie everything up in super because I don't trust governments of any colour not to tinker with it a bit more before I need to get my hands on it.
Post by: stashgrower on December 23, 2017, 01:44:29 AM
asosharp, I think the idea around here is to have investments ex-super if you retire early and need the income before reaching preservation age for super.
Post by: sirdeets on December 24, 2017, 07:22:10 PM
Doing some backtesting it looks like on ex-div shares do drop more than the dividend sometimes, but when you factor in the franking credits, you come out ahead, if doing large chunks to minimise brokerage.
Info here about the $5k franking credits rule where you don't have to hold for 45 days - quite generous. https://www.ato.gov.au/Forms/You-and-your-shares-2013-14/?page=11
(CC: Bigchris,potm)
Post by: bigchrisb on December 25, 2017, 03:22:28 PM
Post by: 11ducks on December 26, 2017, 01:55:02 AM
Hey guys, looking for advice please?
I've tried to search but no luck - how often do you invest, for a particular trading fee? FYI I'm buying Australian LIC's (AFI/ARGO), and considering branching into more diverse Aus-based LICs (PAF, PAI, MFF) in the future. I don't have a lot but am hoping to regularly contribute.
So, if it costs $30 to make a trade, should I invest every time I have $1000, or wait for $5000 or $10000 lots? For reference, I'll be saving about $650/month going forward, so I'll have around $2000/quarter to invest, or $8000k annually. How periodically should I dump my cash in? Any ballpark figure would really help, thanks!!!
Post by: PDM on December 26, 2017, 02:04:15 AM
Also, $30 is expensive you can get a lot cheaper (even a big bank like CBA is $19.95) with others cheaper.
I've previously bought share parcels of $2000 for speculative stocks. With our Vanguard purchase we have bought $25k lots.
You might look into managed funds that you can BPAY into?
Post by: Llewellyn2006 on December 26, 2017, 02:12:50 AM
Hey guys, looking for advice please?
I've tried to search but no luck - how often do you invest, for a particular trading fee? FYI I'm buying Australian LIC's (AFI/ARGO), and considering branching into more diverse Aus-based LICs (PAF, PAI, MFF) in the future. I don't have a lot but am hoping to regularly contribute.
So, if it costs $30 to make a trade, should I invest every time I have $1000, or wait for $5000 or $10000 lots? For reference, I'll be saving about $650/month going forward, so I'll have around $2000/quarter to invest, or $8000k annually. How periodically should I dump my cash in? Any ballpark figure would really help, thanks!!!
My rule of thumb is $2,000 per parcel. At $29.95 a trade that's 1.5% which I can live with.
Post by: Notch on December 26, 2017, 06:22:28 PM
Hey guys, looking for advice please?
I've tried to search but no luck - how often do you invest, for a particular trading fee? FYI I'm buying Australian LIC's (AFI/ARGO), and considering branching into more diverse Aus-based LICs (PAF, PAI, MFF) in the future. I don't have a lot but am hoping to regularly contribute.
So, if it costs $30 to make a trade, should I invest every time I have $1000, or wait for $5000 or $10000 lots? For reference, I'll be saving about $650/month going forward, so I'll have around $2000/quarter to invest, or $8000k annually. How periodically should I dump my cash in? Any ballpark figure would really help, thanks!!!
My brokerage was $20 at Commsec and I assumed a return on the shares of 7% per year (0.58% per month). Therefore, it was worth buying when I had at least $20 / 0.0058 = $3429 ready. Otherwise, I would wait a month.
Post by: 11ducks on December 26, 2017, 06:33:16 PM
Post by: JuicyCrab on December 26, 2017, 07:12:02 PM
Hey guys, looking for advice please?
I've tried to search but no luck - how often do you invest, for a particular trading fee? FYI I'm buying Australian LIC's (AFI/ARGO), and considering branching into more diverse Aus-based LICs (PAF, PAI, MFF) in the future. I don't have a lot but am hoping to regularly contribute.
So, if it costs $30 to make a trade, should I invest every time I have $1000, or wait for $5000 or $10000 lots? For reference, I'll be saving about $650/month going forward, so I'll have around $2000/quarter to invest, or $8000k annually. How periodically should I dump my cash in? Any ballpark figure would really help, thanks!!!
As others have said there is no hard and fast rule, just know the smaller each parcel is relative to your brokerage the more it eats into returns in the long run if you are dollar cost averaging your purchases.
When I was with commsec ($20/trade) I limited it to 0.5% of parcel size, so about $4000 per purchase was the sweet spot.
Now I'm using CMC markets ($11/trade) that number is now down to $2000 per purchase which personally I like as it allows me to invest more often and lock in my money to investments rather than have it sitting in its tempting cash form :).
Hope this helps.
Post by: sirdeets on December 28, 2017, 04:39:37 AM
It is amazing. Via sharesight you log into your broker (mine is NAB), it automatically brings in all your buy/sell transactions - and all the dividends... and you can go in and one click anything that's part of a DRP.
Anyway, they have a 50% off 1 year memberships at the moment for new members, try out the free acc and send an email to them if you want the code (not sure I should share publicly here).
I'm on the pro plan which can benchmark against an index.
Post by: itchyfeet on December 28, 2017, 04:46:25 AM
Post by: oysters on December 28, 2017, 06:25:39 AM
So based on the advice from FFA a while back I've been using sharesight to track my portfolio.
It is amazing. Via sharesight you log into your broker (mine is NAB), it automatically brings in all your buy/sell transactions - and all the dividends... and you can go in and one click anything that's part of a DRP.
Anyway, they have a 50% off 1 year memberships at the moment for new members, try out the free acc and send an email to them if you want the code (not sure I should share publicly here).
I'm on the pro plan which can benchmark against an index.
When it says on the pricing page, say, "20 holdings". Does that mean 20 different ETFs with parcels bought at unlimited times? Or is that 20 different trading events? If its the former then the Free or Starter plans is probably useful for most people with a bogleheads style diversified ETF portfolio.
What's benchmarking? Is that useful if you are holding individual stocks?
Post by: sirdeets on December 28, 2017, 07:54:58 AM
By benchmarking I can compare my portfolio to just investing in VAS. It will show the total return including dividends + franking credits.
For tax time it gives you a summary of capital gains, income, everything.
Post by: Wadiman on December 28, 2017, 03:44:03 PM
INCOME STREAM & 'BUCKETING'
As i've had some free head space at the moment I've started taking a closer look at optimal arrangements for an income stream once I reach preservation age.
Here's my rough plan and I'd be keen for feedback:
I'll be using a three 'bucket' approach for holding funds in my self managed super fund -
Bucket 3 will comprise a diversified portfolio of ETFs and direct equities; all dividends will be credited to bucket 1 (cash) - roughly 60% of portfolio value will be in this bucket and I expect about 3% in distributions (that takes me most of the way to my planned 4% SWR). Rebalancing will be done annually and if the total growth in this bucket exceeds 5% the balance will go to Bucket 1. Note that I do not have any high yield or a major focus on fully franked dividends as the Aus portion of holdings is about 40% and the main ETF I use for Aus shares is MVW which currently has a yield of about 3.3% at 60% franking (I chose MVW as it avoids a significant holding in banks which I believe are set for massive disruption over the coming years).
Bucket 2 will contain a portfolio of direct corporate bonds. These will be held to maturity and the coupon payments will be paid to Bucket 1. This bucket will hold about 30% of the total portfolio and should generate about 4% yield.
Bucket 1 will comprise high interest savings accounts and perhaps term deposits (depending on rates at the time). This bucket will hold about 10% of the total portfolio. If the total value of this bucket exceeds 4 years of income then the balance will go towards replenishing Buckets 3 or 2.
I have a FIRE plan to bridge the gap for a four year period between finishing up at work and reaching preservation age which will mainly involve cash holdings.
Thoughts?
Post by: marty998 on December 29, 2017, 10:48:15 PM
Snip!
So if bucket 3 grows 5% you'll send the excess to bucket 1 but if bucket 1 has more than 4 years expenses then it goes back to bucket 3?
Infinite recursive loop....
I'm not one of those who believes the banks will be disrupted... they are big and bad enough to look after themselves. If anything, future interest rate rises will actually be good for the banks, so I'm happy to hold VAS for a while yet.
Speaking of VAS, estimated distribution is 68c to be paid in mid Jan.
Post by: oysters on December 29, 2017, 11:11:47 PM
Not sure the point of term deposits really. You lose a huge amount of liquidity vs ETFs, with barely more growth than a high interest savings account. TD's aren't what they used to be, certainly not at Moustachian levels of annual expenses.
(I'm nowhere near FIRE and my personal judgements will be different to yours!)
:-)
Post by: Llewellyn2006 on December 29, 2017, 11:21:47 PM
Not sure the point of term deposits really. You lose a huge amount of liquidity vs ETFs, with barely more growth than a high interest savings account. TD's aren't what they used to be, certainly not at Moustachian levels of annual expenses.
I agree with you about term deposits. I've got some money in a 3 month one that matures at the end of January. It's earning 2% but that was better than the measly 1% it was getting by sitting in a normal bank account. But I set it up before someone here tipped me off about the RAMS account that was paying 3% (1.35% base + 1.65% bonus if no withdrawals in the month, since cut to 1.45% but still works out to 2.8%). So now all my excess money will go into RAMS (at call if i need it and protected by the govt guarantee) so guess where a chunk of the proceeds of my term deposit will be going.
Post by: Wadiman on December 30, 2017, 01:18:31 AM
Marty - yeah - I see what you mean re the loop - i guess that i'll make the call what goes where bucket-wise each year on rebalancing. Understand your position on banks and VAS but am happy with my call re MVW.
Eucalyptus and Llewellyn - agree re TDs - that's the way things are now but the rates may change quite a bit in the future - I'll decide where best to park the funds but the high interest savers of course are far better for accessing funds. Speaking of these products Ubank's Usaver Ultra looks good ATM - 2.87%.
Post by: krustyburger on December 30, 2017, 02:15:07 AM
Speaking of VAS, estimated distribution is 68c to be paid in mid Jan.
I've got a parcel to buy in Jan, does anyone worry about ex dividend dates? I usually forget about them completely. I've heard prices rise then dip but I've never taken much notice.
Post by: steveo on December 30, 2017, 02:34:16 AM
Speaking of VAS, estimated distribution is 68c to be paid in mid Jan.
I've got a parcel to buy in Jan, does anyone worry about ex dividend dates? I usually forget about them completely. I've heard prices rise then dip but I've never taken much notice.
I always just buy when I have the money.
Post by: marty998 on December 30, 2017, 03:25:36 AM
Speaking of VAS, estimated distribution is 68c to be paid in mid Jan.
I've got a parcel to buy in Jan, does anyone worry about ex dividend dates? I usually forget about them completely. I've heard prices rise then dip but I've never taken much notice.
I always just buy when I have the money.
The rise and dip doesn't really apply to index funds. The divs it collects from every share on market is built into the unit price.
Telstra used to be quite predictable when all the SMSFs rotated into it in January and July, and sold out in March and September. Doesn't happen anymore because you are losing much more capital these days on TLS.
I too now just buy when I have the money. Not a bad calendar year return from VAS: ~$3 of dividends and ~$6 of capital for a return of above 12%*.
Would happily take that every year.
*I'm sure someone can find the actual figures
Post by: krustyburger on December 30, 2017, 03:40:48 AM
Speaking of VAS, estimated distribution is 68c to be paid in mid Jan.
I've got a parcel to buy in Jan, does anyone worry about ex dividend dates? I usually forget about them completely. I've heard prices rise then dip but I've never taken much notice.
I always just buy when I have the money.
The rise and dip doesn't really apply to index funds. The divs it collects from every share on market is built into the unit price.
Telstra used to be quite predictable when all the SMSFs rotated into it in January and July, and sold out in March and September. Doesn't happen anymore because you are losing much more capital these days on TLS.
I too now just buy when I have the money. Not a bad calendar year return from VAS: ~$3 of dividends and ~$6 of capital for a return of above 12%*.
Would happily take that every year.
*I'm sure someone can find the actual figures
cool, thanks for clearing that up
I bought my first lot of VAS in feb, sounds about right
Post by: mjr on December 30, 2017, 06:02:38 PM
Post by: krustyburger on January 01, 2018, 05:56:45 AM
Being on the top tax rate, I usually buy ex-div. The most extreme opposite case would be to buy just before ex-div when the share price is loaded up with the pending dividend, which is then paid out and I lose half of it in tax. I'd rather that money go into more shares than to the ATO.
Good point.
I'm not in the top tax bracket, also with the amounts I'll be buying it probably won't make much difference. I'm still thinking about what to get, the new diversified vanguard etfs look nice and easy, I might start buying one of them and forget about adding to my VAS and VGS
Post by: oysters on January 01, 2018, 03:43:41 PM
Being on the top tax rate, I usually buy ex-div. The most extreme opposite case would be to buy just before ex-div when the share price is loaded up with the pending dividend, which is then paid out and I lose half of it in tax. I'd rather that money go into more shares than to the ATO.
Good point.
I'm not in the top tax bracket, also with the amounts I'll be buying it probably won't make much difference. I'm still thinking about what to get, the new diversified vanguard etfs look nice and easy, I might start buying one of them and forget about adding to my VAS and VGS
Aren't you a Postdoc? I'm sure you can handle a DIY complicated portfolio rather than paying a slightly higher MER for it ;-)
Post by: krustyburger on January 01, 2018, 05:31:35 PM
Being on the top tax rate, I usually buy ex-div. The most extreme opposite case would be to buy just before ex-div when the share price is loaded up with the pending dividend, which is then paid out and I lose half of it in tax. I'd rather that money go into more shares than to the ATO.
Good point.
I'm not in the top tax bracket, also with the amounts I'll be buying it probably won't make much difference. I'm still thinking about what to get, the new diversified vanguard etfs look nice and easy, I might start buying one of them and forget about adding to my VAS and VGS
Aren't you a Postdoc? I'm sure you can handle a DIY complicated portfolio rather than paying a slightly higher MER for it ;-)
Yep I'm on the postdoc/academia hamster wheel. True it isn't that complicated but I'm pretty lazy. I'll have to think about it but it's possible with the amounts I'm purchasing that the brokerage outweighs the MER if I were to buy a similar number of etfs. I also like the idea of being a bit more diversified than just VAS and VGS, I also hold two LICs that I might add more to.
Post by: PDM on January 01, 2018, 06:37:04 PM
Being on the top tax rate, I usually buy ex-div. The most extreme opposite case would be to buy just before ex-div when the share price is loaded up with the pending dividend, which is then paid out and I lose half of it in tax. I'd rather that money go into more shares than to the ATO.
Good point.
I'm not in the top tax bracket, also with the amounts I'll be buying it probably won't make much difference. I'm still thinking about what to get, the new diversified vanguard etfs look nice and easy, I might start buying one of them and forget about adding to my VAS and VGS
Aren't you a Postdoc? I'm sure you can handle a DIY complicated portfolio rather than paying a slightly higher MER for it ;-)
Yep I'm on the postdoc/academia hamster wheel. True it isn't that complicated but I'm pretty lazy. I'll have to think about it but it's possible with the amounts I'm purchasing that the brokerage outweighs the MER if I were to buy a similar number of etfs. I also like the idea of being a bit more diversified than just VAS and VGS, I also hold two LICs that I might add more to.
Also keep in mind that VAS may be very similar to your superannuation fund's investments - depending on which option or plan you're on. You're likely to be doubling up on a fair few stocks in the ASX. Just something to be wary of with diversifying.
I like VGE and VEQ for non ASX exposure in addition to VGS.
Post by: Chris AU on January 02, 2018, 08:01:54 PM
Post by: PDM on January 03, 2018, 03:23:04 AM
Any thoughts on this new book?: http://www.johnderavin.com/
Seems like a waste of $39.95 + $9.95 for a book that has compiled what is mostly information freely available on the internet.
From the description large portions seem to be what government websites provide? How to make a will, get government support etc.
The rest doesn't seem ground breaking. "Strategies"...
Post by: lush on January 03, 2018, 05:07:17 PM
Post by: misterhorsey on January 03, 2018, 06:21:43 PM
Also, do you mean the market performed poorly? Or VAS performed poorly in replicating the market?
I do think it's pointless to follow quarterly returns too closely. There's too much variability across the financial year. But I thought I'd do a quick calculation for VAS for the past October to December Quarter 2017 as your disappointment at the last quarter piqued my curiosity.
Price
VAS closing price on 2nd Oct - $72.91
VAS closing price on 29 Dec - $77.81
On price, a gain of $4.90, or 6.7%. Pretty solid result.
Distribution
A distribution of 68.0989 cents per unit. Assuming we go off the 29 Dec closing price of $77.81, then that's a yield of 0.8%.
(Or a yield of 0.93% if you want to be cheeky and go off the 2 Oct closing price)
Total Return
6.7% capital growth + .08% income is a total return of 7.6% for one quarter.
Remembering that distributions and growth are quite variable across quarters. But I think that's pretty decent.
If every quarter was like this we'd be looking at a 30.4% return for the year. Which has happened in the past.
Benchmark
Comparing the performance of VAS to the benchmark ASX300
2 Oct - 5,655.476
29 Dec - 6,023.304
A gain of 367.828 points, or 6.5%. This does not include dividends. But assuming the ASX 300 has an average yield of about 3-4% per annum, then this suggests you can tack on about 1 per cent to allow for dividends, which makes a total return of 7.5%.
Which is what VAS returned for the same period.
Summary?
So I think both the market performed quite well, and VAS did really well in tracking the market. I've never tracked this data before and it's comforting to know that VAS is so well aligned. It's one thing to go off official Vanguard reports, it's nice to know that double checking their reports gives the same results.
Also, the Cents Per Unit for VAS at 0.8% for the quarter theoretically equates to about 3.2% per annum, which is what you'd expect for the ASX 300. Whether or not that's a good thing depends on your circumstances. Some people want big dividends, others would prefer to avoid the tax consequences.
So I think it's important to recognise that it's actually a pretty good result.
There will be quarters where performance will be strongly negative. Where unemployment increases, people start taking public transport more frequently, abandoning pets, stop going to restaurants and the economy contracts and you'll see a real decline in the market and dividends will come under pressure. But I think it's just as important to remain sanguine in these circumstances as it is now.
Hope this helps with the hurt!
Post by: mjr on January 03, 2018, 06:56:11 PM
If anyone wants to get down in the mouth on low dividends without doing any analysis or big-picture thinking, there's the VAP quarterly dividend of 15c or 0.2%.
Post by: misterhorsey on January 03, 2018, 07:01:25 PM
Post by: mjr on January 03, 2018, 07:05:19 PM
Post by: lush on January 03, 2018, 11:17:52 PM
FYI - I was more disappointed with the Wholesale Balanced Fund distribution where I have the majority of my money invested - but I completely understand the ups and downs of it all. For me it's about the CPU as I am looking at it based on the potential to live off so I can retire early. I am about 2 years off, but wonder with these sorts of results if that is realistic, hence why I was a little dis-heartened, mainly because I had just worked so hard over the last year to put a large chunk of funds into VAS in Dec. Also double whammy of a low CPU coupled with higher re-investment prices (I have my funds automatically reinvesting). Thanks again guys! I just better get back to the hard work part and not worry too much. Cheers.
Post by: mjr on January 04, 2018, 12:32:58 AM
4% dividends is quite conveniently the same as a 4% withdrawal rate. If VAS is your sole investment, then you can more or less plan to take the 4% dividends as your income stream and let the capital appreciation handle growth and inflation.
Post by: marty998 on January 04, 2018, 03:56:46 AM
Now. Gimme my reinvested shares!
Post by: lush on January 04, 2018, 12:44:19 PM
The ASX300/VAS fairly reliably pays ~4% dividends p.a. It doesn't reliably pay 1% dividends/quarter. You'll need a buffer of at least a year to smooth out the cash flow. Of course, depending on your asset allocation, you'd probably have more than that in cash anyway.
4% dividends is quite conveniently the same as a 4% withdrawal rate. If VAS is your sole investment, then you can more or less plan to take the 4% dividends as your income stream and let the capital appreciation handle growth and inflation.
Mjr - thanks again for the information. Currently my main investment is Vanguard Wholesale Balanced Fund – and the distribution for that was 0.6003…VAS makes up 20% of the Balanced Fund portfolio. However I want to increase that to about 40% - so I opened a VAS wholesale fund and hope to get to that 40% in the next couple of years. Overall I have come to the conclusion that yes I need some good cash reserves to get through each year if I want to retire early.
Post by: banksie_82 on January 04, 2018, 05:42:01 PM
They usually only pay twice a year, but they are consistent and are generally slightly higher yielding than the broader market.
Post by: Jimmy9 on January 04, 2018, 05:57:52 PM
Just looking for opinions on where to park a bit of coin short term.
After recently selling our property and renting while we look for another to build on we're looking for somewhere to make a bit more than the whopping 2.55% we're currently getting.
We're looking to invest about a quarter of our funds for a one to two year time frame.
Currently thinking the vanguard wholesale growth fund or the ETF equivalent with possibly a fixed interest ETF aswell.
Could possibly do more than a quarter but it'd need to be pretty safe and liquid as that'd be the funds for when the right property pops up.
So basically after a 'what would you do...' if you had a fairly sizeable chunk of cash sitting in a HISA while actively looking for a property that may take a day or a year to find then have construction time on top. Would you opt for the safety/liquidity of a HISA or the opportunity/risk of an investment?
Cheers 🙂
Post by: misterhorsey on January 04, 2018, 06:39:37 PM
I'm actually in a similar boat in that I'm looking at trying to get income from VAS, VGS as well as a Wholesale High Growth Fund to put food on the table and keep keeping the lights on.
Except that I went semi-FIREd without actually figuring it all out properly! Although it may be a prolonged sabbatical, with a return to some kind of work in the future.
I may do a case study of my situation when I get around to it. I probably need some advice from the ever helpful MMM hive mind to refine my strategy.
But one observation that I have noted since quitting work and I think worth sharing is that once you stop earning active income, you can become even more resourceful and imaginative in your frugality than you would have imagined - without necessarily impacting on your quality of life. I've discovered that it's far more enjoyable to live frugally, but have your own time and freedom to do whatever you want, than it is to work 9-5 and be able to buy whatever you want.
I think we all know this as we are all on this forum. But I mention it again because once you have the frugal habit down pat and you've forecast a reasonable amount of income to cover yourself, you may surprise yourself with how little of it you consume. And those savings, in turn, continue to grow your stash.
It's possible that I'm looking at the numbers more than most FIREd, as my quitting was somewhat unexpected and there was a sense of uneasiness about the pay checks ceasing. I may also be frugal with a capital F compared to others (no car, no kids, share housing).
I finished up work in April 2017, and before I did some sums and forecast a certain amount of passive income to cover according to the 4% rule. Due to my own frugal habits and (unexpected) increasing market returns, I'm currently living on around 54% of my theoretical passive income. When I pulled the plug I actually thought I would be living on around 75% -85% of theoretical passive income. I may consume more with a bit of travel in 2018, and my spending may get closer to 4%, but I'm pleasantly surprised by how much buffer I have. I certainly wasn't counting on it when I finished up with work.
Of course, if the market had sunk post Trump, I could well be exceeding my theoretical passive income. I was lucky I guess - which is actually the first time for me to be a beneficiary of overall market uplift.
So yes, keep working, saving. And maybe quit a little before you think you can actually afford to!!
Anyway, I meant to reply to post this link to the ASX 300 should you wish to do your own analysis each quarter.
https://us.spindices.com/indices/equity/sp-asx-300
although it seems that the Vanguard report is pretty accurate so perhaps let them do it.
Post by: misterhorsey on January 04, 2018, 06:59:10 PM
So basically after a 'what would you do...' if you had a fairly sizeable chunk of cash sitting in a HISA while actively looking for a property that may take a day or a year to find then have construction time on top. Would you opt for the safety/liquidity of a HISA or the opportunity/risk of an investment?
For me the potential upside of investing the cash doesn't compensate for the potential decline in your investment as well as the uncertainty.
But I see you are only wanting to put 1/4 of your cash into investments. I guess that's a way of hedging your bets.
In a worse case scenario, if your investment declined, you could get a mortgage for a larger amount and then pay it off once your investment recovers (assuming it does).
I'd model this on a spreadsheet to see how comfortable you would be with a worst case scenario as well as figure out whether the best case scenario is worth the risk and uncertainty. Sometimes it's quite sobering to do the numbers. It fleshes out an idea and can make your mind up for you.
Post by: Llewellyn2006 on January 04, 2018, 07:28:37 PM
G'day, my apologies if this is the wrong thread to post my question but just after a bit of advice....
Just looking for opinions on where to park a bit of coin short term.
After recently selling our property and renting while we look for another to build on we're looking for somewhere to make a bit more than the whopping 2.55% we're currently getting.
We're looking to invest about a quarter of our funds for a one to two year time frame.
Currently thinking the vanguard wholesale growth fund or the ETF equivalent with possibly a fixed interest ETF aswell.
Could possibly do more than a quarter but it'd need to be pretty safe and liquid as that'd be the funds for when the right property pops up.
So basically after a 'what would you do...' if you had a fairly sizeable chunk of cash sitting in a HISA while actively looking for a property that may take a day or a year to find then have construction time on top. Would you opt for the safety/liquidity of a HISA or the opportunity/risk of an investment?
Cheers 🙂
With that sort of timeframe I'd just keep it in something like a RAMS account (currently paying 2.8% providing no withdrawals in the month and that you deposit at least $200 a month). You're covered by the govt guarantee up to $250k. The LIC's like Argo and AFIC have a slightly better yield but they only pay out twice a year so you might miss out if you only keep your money in there for the short term and you have the risk of a fall in the share price while you're in there.
Post by: Jimmy9 on January 04, 2018, 10:59:25 PM
I thought I was being overly cautious by only using a quarter of it in reasonably low risk investments. I was thinking I'd hate to look back in a year or two and just see a wasted opportunity but I guess there's no risk in playing it safe.
Hypothetically what would be your answer if my post was worded like this....
'You've been given the use of $250k for a timeframe of 2 years, at the end of the 2 years you have to give it back in full so whatever you make on it is yours but if you make a loss you need to make it up out of your own pocket. What would you do? 😁
Post by: Llewellyn2006 on January 05, 2018, 12:01:31 AM
Cheers for the input guys...
I thought I was being overly cautious by only using a quarter of it in reasonably low risk investments. I was thinking I'd hate to look back in a year or two and just see a wasted opportunity but I guess there's no risk in playing it safe.
Hypothetically what would be your answer if my post was worded like this....
'You've been given the use of $250k for a timeframe of 2 years, at the end of the 2 years you have to give it back in full so whatever you make on it is yours but if you make a loss you need to make it up out of your own pocket. What would you do? 😁
I'd do exactly the same as I suggested above. IMO any investment in the stock market should have a 4 or 5 year minimum timeframe. Even with an LIC the value of your original capital can go down. Even if the money is in a boring old account earning between 2 and 3 per cent it will be compounding with a very high degree of certainty that you'll have more money by the time you withdraw it than you did in the beginning.
Post by: mjr on January 05, 2018, 12:06:50 AM
Post by: marty998 on January 05, 2018, 12:22:09 AM
Reasonably safe if you believe that Governments and major companies will still be paying their bills in a couple of years time.
Post by: lush on January 05, 2018, 12:55:28 AM
Hey Lush
I'm actually in a similar boat in that I'm looking at trying to get income from VAS, VGS as well as a Wholesale High Growth Fund to put food on the table and keep keeping the lights on.
.
Hi Misterhorsey - thanks for the insight into your early retirement phase and how you are managing things. I hope you do the case study! I know there would be a lot of people interested in your case and learnings so far. I am glad you have had some luck in the upturn in the market. I take your point about being more frugal and maybe starting retirement a bit earlier, you certainly have me dreaming a little :)
Post by: Jimmy9 on January 05, 2018, 02:08:06 AM
Must say I'm a little disappointed I wasn't spoon fed with an answer of 'put your coin in XYZ fund, go have a beer, come back in a couple of years and it will have eclipsed the other 3/4 in the savings account' 😋 ....maybe I'll dip the toe with a smaller percentage just so I feel like I'm doing something productive
Post by: Fresh Bread on January 06, 2018, 12:46:12 AM
Post by: Llewellyn2006 on January 06, 2018, 04:12:24 PM
Citibank still has 3% for a 6 month TD for balances of 250k or more. We parked our reno/building money there because we need low risk on that pot. Opening a Citibank account is a pain, fyi - while I was sat there filling out the third or fourth form I was wishing I'd left the money at 2.75% in our CUA online account.
Anything to do with banking with Citibank is a pain. I had a client that used to bank with them and even the smallest change needed several forms filled in and the whole exercise just became one giant PITA. There are plenty of places where you can open an account online in a few minutes.
Post by: oysters on January 06, 2018, 05:05:39 PM
Citibank still has 3% for a 6 month TD for balances of 250k or more. We parked our reno/building money there because we need low risk on that pot. Opening a Citibank account is a pain, fyi - while I was sat there filling out the third or fourth form I was wishing I'd left the money at 2.75% in our CUA online account.
Anything to do with banking with Citibank is a pain. I had a client that used to bank with them and even the smallest change needed several forms filled in and the whole exercise just became one giant PITA. There are plenty of places where you can open an account online in a few minutes.
Agree. I was using them a few years ago living in Japan, as it was the cheapest way I could access my Australian cash there. However now a few years later I've tried to get my last remaining ~$80 and close the account and cancel the cards and so far been unsuccessful! Grrr. I'm not a stupid person. Grrr. Be so much easier if I could just walk into a Branch.
Post by: deborah on January 06, 2018, 05:15:59 PM
Post by: oysters on January 06, 2018, 05:57:06 PM
I have been using an almost branchless bank for many years, and their service is excellent. Banks that have been set up that way tend to be much better than those who have evolved into being branchless in my opinion.
Yes, I've used several and they've been great. Unfortunately in this case its a PITA. Could just be my personal situation trying to get access and closing, with this particular bank. I'll try again this week...
Mind you, CBA in all honesty absolutely rocks in an online and App based environment. I haven't seen anything better yet, comparing to work colleagues and family with different banks. They have branches... ;-)
Post by: Llewellyn2006 on January 07, 2018, 12:04:01 AM
Yes, I've used several and they've been great. Unfortunately in this case its a PITA. Could just be my personal situation trying to get access and closing, with this particular bank. I'll try again this week...
Mind you, CBA in all honesty absolutely rocks in an online and App based environment. I haven't seen anything better yet, comparing to work colleagues and family with different banks. They have branches... ;-)
I use all the big four websites for my clients and the CBA is so far ahead of the others that it's not funny. The other 3 should just licence their own version of the CBA site and dump their own sites because by and large they're shite.
Post by: Abundant life on January 07, 2018, 08:09:47 PM
Quote
Mind you, CBA in all honesty absolutely rocks in an online and App based environment. I haven't seen anything better yet, comparing to work colleagues and family with different banks. They have branches... ;-)
I find the CBA online a PITA, mainly because I have POA for my elderly relatives who still have passbooks. Yes I can see the balances but I'm not able to transfer out of them, necessitating physically withdrawing $xxxx in cash and depositing it in St George across the road.
Another online bank with a good interest rate and not so many hoops to jump through is ME Bank. OH recently opened one. To get the bonus interest taking you to 2.95% you have to open an everyday account and just use pay pass once a week, but you don't have to deposit any particular amount per month. The bonus interest is good up to $250,000.
https://www.mebank.com.au/lps/osa/high-online-savings-account/?cid=OSAC0167&keyword_k=me%20bank%20online%20savings%20account&gclid=EAIaIQobChMI9ueutbDH2AIVEyUrCh1QtA9qEAAYASAAEgKZqfD_BwE&gclsrc=aw.ds (https://www.mebank.com.au/lps/osa/high-online-savings-account/?cid=OSAC0167&keyword_k=me%20bank%20online%20savings%20account&gclid=EAIaIQobChMI9ueutbDH2AIVEyUrCh1QtA9qEAAYASAAEgKZqfD_BwE&gclsrc=aw.ds)
Also sometimes St George gives a 3% introductory rate on their maxi saver online account for 3 months. We used this in between selling and buying. When the 3 months is up you can negotiate a good interest rate for the next three months (that is a PITA too), but at least they have a 'gold service hotline' for you. I think the more money in there the better interest rate you can negotiate.
Post by: asosharp on January 08, 2018, 07:26:28 AM
I was trying to figure out where the best places to invest in Perth are. I came across some websites recommending Boomtown (doesn't work on the computer very well), DSR Data (but you have to pay from $129+ and I have no idea if it works and there's no free version), Microburbs (last updated in 2016), myrealestate.com.au (last updated in 2016).
Post by: Rob_S on January 08, 2018, 07:00:45 PM
Post by: Llewellyn2006 on January 08, 2018, 10:26:49 PM
Does anyone here know much about property investing?
I was trying to figure out where the best places to invest in Perth are. I came across some websites recommending Boomtown (doesn't work on the computer very well), DSR Data (but you have to pay from $129+ and I have no idea if it works and there's no free version), Microburbs (last updated in 2016), myrealestate.com.au (last updated in 2016).
As far as I know it's still a tenant's market here with plenty of empty properties and correspondingly falling rents (may have stopped falling but they are still 30-40% below their peak of a few years ago). TBH I think there's better value elsewhere if you really must have a rental property. Just for the record I'm no fan of owning rental properties.
Post by: asosharp on January 09, 2018, 05:16:20 AM
Does anyone here know much about property investing?
I was trying to figure out where the best places to invest in Perth are. I came across some websites recommending Boomtown (doesn't work on the computer very well), DSR Data (but you have to pay from $129+ and I have no idea if it works and there's no free version), Microburbs (last updated in 2016), myrealestate.com.au (last updated in 2016).
As far as I know it's still a tenant's market here with plenty of empty properties and correspondingly falling rents (may have stopped falling but they are still 30-40% below their peak of a few years ago). TBH I think there's better value elsewhere if you really must have a rental property. Just for the record I'm no fan of owning rental properties.
I actually get a feeling here that people are diversified but mostly shares/ETF all the way.
In other news, I forwarded my mum an article about retirees and that they should hold shares and not property when they are retired. It was a Q&A with Noel Whittaker. I also think some of you may be interested in it.
http://www.smh.com.au/money/ask-an-expert/the-downside-to-investing-in-property-for-retirees-20160819-gqwoqh.html
Q. I refer to your recent article concerning the difficulty facing retirees as interest rates fall. Why would you not recommend property? It is still not hard to find a 6.5 per cent yield, let's say 5 per cent after expenses, probably less risky than shares and your capital base should appreciate with inflation or better.
The problem with property for retirees is increasing maintenance, as the property ages, and vacancies if it is hard to find a tenant. Also, the biggest disadvantage is that property is a lumpy asset and if you need money you would normally have to sell the entire property, which may take months. Also you would incur capital gains tax if it has grown in value.
A good share portfolio has none of these disadvantages as you are never liable for direct expenses, vacancies are non-existent, and you can sell a portion of your holding at short notice. The ability to sell in small parcels enables retirees in many cases to eliminate capital gains tax or at least minimise it. If you own a property, you can't sell the back bedroom.
Post by: oysters on January 09, 2018, 07:23:23 PM
Reading down their thread, brings up Investment Bonds again for me. Its something I've been thinking about doing instead of this terrible ASG portfolio my ex manipulated into getting for our daughter. It performs terribly (the agent actually told me I should make sure that there is always at least $2000 in it otherwise with fees it could go backwards over the ~16 year period I was talking about...). Now that she has started school I might be able to draw it all out and put it in an investment bond instead.
Anyone know of good summary places to review investment bonds?
Post by: deborah on January 09, 2018, 08:42:20 PM
Quote
I've rarely been impressed with the performance of insurance bonds, even after taking into account their 30 per cent tax on their income. It could be that top fund managers are attracted to where the glamour and salaries are high, such as investment trusts and superannuation funds.
Post by: oysters on January 09, 2018, 10:16:55 PM
There was an interesting post by George Cochrane recently about insurance bonds (aka investment bonds) http://www.canberratimes.com.au/money/ask-an-expert/how-to-invest-for-your-grandchildren-20180109-h0fg9y.html (http://www.canberratimes.com.au/money/ask-an-expert/how-to-invest-for-your-grandchildren-20180109-h0fg9y.html) ...QuoteI've rarely been impressed with the performance of insurance bonds, even after taking into account their 30 per cent tax on their income. It could be that top fund managers are attracted to where the glamour and salaries are high, such as investment trusts and superannuation funds.
Thanks Deborah.
Yes the fees seem fairly high unfortunately. Probably better for me to just start putting it into my ETFs when I can withdraw it, and taking careful note of units and purchase date for my daughter.
I'm slowly starting to teach her about money and the concept of saving and interest. In a few years maybe I'll be able to start teaching her about all this. She starts school in a couple of weeks.
Post by: oysters on January 09, 2018, 10:19:23 PM
http://www.abc.net.au/news/2018-01-10/housing-weakness-set-to-worsen-tips-morgan-stanley/9317422
Anyone know of a similar forecasting index to the MSHAUS one mentioned in the article, but for non residential property?
Yes, cue market timing of REITs ;-)
Post by: asosharp on January 10, 2018, 03:35:54 AM
There was an interesting post by George Cochrane recently about insurance bonds (aka investment bonds) http://www.canberratimes.com.au/money/ask-an-expert/how-to-invest-for-your-grandchildren-20180109-h0fg9y.html (http://www.canberratimes.com.au/money/ask-an-expert/how-to-invest-for-your-grandchildren-20180109-h0fg9y.html) ...QuoteI've rarely been impressed with the performance of insurance bonds, even after taking into account their 30 per cent tax on their income. It could be that top fund managers are attracted to where the glamour and salaries are high, such as investment trusts and superannuation funds.
Thanks Deborah.
Yes the fees seem fairly high unfortunately. Probably better for me to just start putting it into my ETFs when I can withdraw it, and taking careful note of units and purchase date for my daughter.
I'm slowly starting to teach her about money and the concept of saving and interest. In a few years maybe I'll be able to start teaching her about all this. She starts school in a couple of weeks.
I think there's a bit in the Barefoot Investor about children and I think he recommends ETFs and LICs. He doesn't recommend bonds unless you're in a higher tax income bracket but from what I've been reading bonds are not that great as the rates on those are almost like putting your cash into a HISA.
Post by: bigchrisb on January 10, 2018, 02:09:55 PM
This article on Residential property prices is interesting:
http://www.abc.net.au/news/2018-01-10/housing-weakness-set-to-worsen-tips-morgan-stanley/9317422
Anyone know of a similar forecasting index to the MSHAUS one mentioned in the article, but for non residential property?
Yes, cue market timing of REITs ;-)
The PCA (property council of Australia) publishes some sentiment data. See http://research.propertycouncil.com.au/research-and-data/anz-property-council-survey to have a look.
Post by: pistolpete on January 10, 2018, 07:49:51 PM
Reading jl Collins and following his principles looks easy but implementing them to Aust markets is a bit different due to the etf lic offerings.
I was thinking maybe vas, vgs and cash I addition to some lics purchased as discount to nta such as argo, bki, aui , mir or qve for mid small caps and pmc for international dividend yields taking advantage of the company structure of these lics and the fully franked divs and dividend smoothing over etf trust structures?!!
Thoughts.
Post by: MrThatsDifferent on January 10, 2018, 09:40:05 PM
Just wondering on how would you go about setting up an ivestmebt plan for a mid 20's person looking to invest for the very long term 30 year plus trying to make it as simple as possible?
Reading jl Collins and following his principles looks easy but implementing them to Aust markets is a bit different due to the etf lic offerings.
I was thinking maybe vas, vgs and cash I addition to some lics purchased as discount to nta such as argo, bki, aui , mir or qve for mid small caps and pmc for international dividend yields taking advantage of the company structure of these lics and the fully franked divs and dividend smoothing over etf trust structures?!!
Thoughts.
As easy as possible? Vanguard life strategy fund and automate regular deposits from each pay, don’t touch, sit back and watch it grow. Also, consolidate all supers into an industry super fund, like Aus super, download the app, watch it grow. That’s probably as simple as it could get.
Post by: pistolpete on January 10, 2018, 11:25:25 PM
Post by: oysters on January 13, 2018, 07:40:13 PM
Understand that the life strategy is auto rebalanced from vanguard but on draw down phase what if I wanted to rebalanced different classes which ever is stronger or weaker (I can't) and the lic holding I believe are a bit better due to the fully franked divs and company structure only thing with these is the trading to premium of nta where etfs then seem more favourable. I guess that's why I mentioned having the best of both worlds etfs if lics are trading at substantial premiums! I guess there has to be a compromise somewhere!
Yeah, then you want to DIY with ETFs. I'm sure if you've got this far, and are thinking about how to best rebalance, you can figure out and handle it :-)
Be careful on adjusting based on whatever is stronger/weaker. Choose an asset allocation and stick to it if possible. Otherwise, this is akin to stock picking and will end up seeing you over-rebalancing, and, selling low and buying high. Basically, stock picking but with ETFs.
Look up Kitces. He has some interesting analyses on adjusting Asset allocations intelligently with "glide path ratios". Also on how to adjust allocations and SWRs (slightly) based on CAPE ratios.
Post by: ynotme on January 15, 2018, 02:01:09 AM
I've been thinking about diversifying my portfolio into REITs and infrastructure as I've heard they smooth out a bear market. However i've also read that it's not the best time to buy these sectors as interest rates rise since they usually have a lot of debt. I don't need income at the moment as I'm still working but have limited property market exposure so wondering if REITs may be worth buying.
Can I ask if you all have a specific allocation to these sectors outside the whole of market ETFs? And if so, your experiences with them.
I'd prefer to keep things simple and stick with a small number of ETFs so don't want to buy sectors unless there is a good reason to.
I'd appreciate any of your thoughts!
Post by: Wadiman on January 15, 2018, 02:16:50 AM
I have about a 10% allocation to REIT ETFs - VAP (6%) and DJRE (4% - global REIT).
I have these for diversification purposes as in some years they have performed quite differently to other sectors.
7 year total returns (including GFC) have been 13.8% for VAP and 3 year return (since inception) for DJRE is about 5%. However, you may want to consider longer term trends - refer here: http://insights.vanguard.com.au/static/asset-class/app.html
Post by: oysters on January 15, 2018, 04:53:05 AM
TIPS that focus on infrastructure might be an option also in small amounts. I think there is a Sydney airport one. Single asset though...
Eg try this calculator:
https://portfoliocharts.com/portfolio/financial-independence/
Actually Tyler's calculators, which seem to give the most options for Australians, generally suggest that diversified ETF portfolios are definitely the way to go, and more critical for Australians that Americans if one wants to get a SWR above 4%.
(Note his calculators don't include franking credits for Australians)
Post by: marty998 on January 15, 2018, 04:57:52 AM
Hi all
I've been thinking about diversifying my portfolio into REITs and infrastructure as I've heard they smooth out a bear market. However i've also read that it's not the best time to buy these sectors as interest rates rise since they usually have a lot of debt. I don't need income at the moment as I'm still working but have limited property market exposure so wondering if REITs may be worth buying.
Can I ask if you all have a specific allocation to these sectors outside the whole of market ETFs? And if so, your experiences with them.
I'd prefer to keep things simple and stick with a small number of ETFs so don't want to buy sectors unless there is a good reason to.
I'd appreciate any of your thoughts!
I have problems with REITS... it was one of the (multiple) ways I got burned in the GFC.
When you buy real estate you buy bricks and mortar. When you buy a REIT, you buy bricks and mortar with probably a little bit of financial engineering on top.
There's simply more things that can go wrong.
I will never again touch a REIT that uses commercial mortgage backed securities as their primary source of funding. If normal banks would lend to them and they have to source more exotic loans from non-traditional lenders, why would I take a punt and invest in them?
Infra is a whole 'nother kettle of fish. Usually the domain of big super funds with the patience to hold forever. They have done very well the past few years - low inflation, utilities with virtually guaranteed rates of return, low interest rates - almost the perfect conditions.
Don't know if that will continue, but I suppose the name of the game is to find an asset / fund manager who simply will keep the lights on and not do anything stupid to fuck it up.
Post by: ynotme on January 15, 2018, 01:39:32 PM
With REITs, VAP seems a good choice and I also liked MVA which caps exposure to any single REIT to 10%. It does have a higher fee, 0.35% vs 0.23% for VAP.
I did find a global infrastructure etf listed on the ASX, VanEck's IFRA, which has Transurban as one of the top holdings. It has got a higher fee at 0.52% and is hedged.
Anyway will read more and play with Tyler's portfolio tool. No hurry to make a decision.
Post by: bigchrisb on January 15, 2018, 02:43:10 PM
However, this has been a benefit of timing - I only really started pumping money in during the early-mid stages of the GFC, and bought a number of REITS after they had imploded. Look at the 10 year returns of the surviving REITS to get a picture of what returns have been like for those who held at the start of the GFC. GPT, -2.4%p.a. GMG, -3.5% p.a. and don't even mention the survivorship bias - anyone hold Centro at the time?
I also got a sense of which of the REITS were well run - most of the REITS were part of my client base when I had my business.
I still have an overweight exposure to REITS, with them being about 24% of my direct holdings (excluding index/LICs). However, I've been seeing less value here of late, and have been letting these just sit there.
I also chose not to use indexes for REITS, as the fees are high, and the index is small. 8 securities gets you 86% of the index (SCG, WFD, GMG, SGP, DXS, GPT, VCX, MGR). Why pay Vanguard 0.23% (or more to other providers) if you can replicate the same holdings easily?
On infrastructure, I've occasionally looked at Argo Listed Infrastructure, a LIC with global holdings. I got interested recently looking at the discount to NTA - you can currently buy $1.15 of assets for $1 with them. However, I then look at the management costs (1.2%) and say no way.
Post by: Abundant life on January 15, 2018, 03:10:20 PM
Quote
anyone hold Centro at the time?Ugh, I remember clearly wanting to sell, but OH saying, no they will come back up again, yeah right! For a long time our holding was $79 and wasn't worth selling. It did morph into Federation Centres, then Vicinity Centres and my holding gradually climbed to $1200 when I sold. From memory I think our original holding plus DR was $9000+, definitely a learning experience.
Post by: ynotme on January 15, 2018, 03:59:29 PM
Without knowing the sector well, I may just keep market cap exposure for now.
Post by: Liesel on January 15, 2018, 09:16:53 PM
I have an 18 year old son who is just starting university this year. He will be living at home, working part time and saving for the next three years, a combination of casual shiftwork and army reserve, and saving $200-$300 per week depending on shifts. From reading MMM I think this money should be going into some sort of Vanguard index fund, with dividends reinvested and regular contributions. Which is the best option for him, with a low amount to start with ($1000)? which has the lowest fees?
My 16 year old is also working casual shifts and wants to open an investment account to deposit his earnings. I'd appreciate any advice whether he can open a Vanguard index fund as per the above to make contributions through the year.
Thanks in advance.
Post by: Notch on January 15, 2018, 11:52:06 PM
Hi, I'm new to the forum. I have a question for Australians, please, re Vanguard.
I have an 18 year old son who is just starting university this year. He will be living at home, working part time and saving for the next three years, a combination of casual shiftwork and army reserve, and saving $200-$300 per week depending on shifts. From reading MMM I think this money should be going into some sort of Vanguard index fund, with dividends reinvested and regular contributions. Which is the best option for him, with a low amount to start with ($1000)? which has the lowest fees?
My 16 year old is also working casual shifts and wants to open an investment account to deposit his earnings. I'd appreciate any advice whether he can open a Vanguard index fund as per the above to make contributions through the year.
Thanks in advance.
Welcome to the forums, and good work for getting your kids so interested in investing!
I’d start with a Vanguard retail fund because they’re so simple to set-up and contribute to. Australian Shares or Diversified High Growth funds would be fine.
Post by: marty998 on January 16, 2018, 02:19:56 AM
For the 16 year old, be careful of punitive marginal tax rates. Minors get the first $416 of investment income tax free and then after that get taxed quite heavily (at 66%, reducing to 49% after about $1000 of income). The idea is to discourage parents from putting assets in the name of their kids and getting the benefits of more tax free thresholds and reduced marginal rates.....
Post by: BattlaP on January 16, 2018, 03:35:01 AM
Post by: FFA on January 16, 2018, 03:42:56 AM
Saving $200-300/week means you could be buying $1k parcels each month. $10 brokerage is 1% but the retail fees are much higher than ETF's (e.g. VAS 0.14% versus Retail 0.75%). You would already be in front with ETF's by the second year, and then gaining 0.61% p.a. from then on... Or invest $3k quarterly and you can reduce to 0.5% or less on the brokerage (e.g. using NABTrade). I favour the ETF route if you don't mind doing executing a trade every now and then.
Post by: Liesel on January 16, 2018, 03:39:50 PM
Agree - the Vanguard retail fund would be best (not the ETF, as brokerage will eat away chunk everytime you go to buy).
For the 16 year old, be careful of punitive marginal tax rates. Minors get the first $416 of investment income tax free and then after that get taxed quite heavily (at 66%, reducing to 49% after about $1000 of income). The idea is to discourage parents from putting assets in the name of their kids and getting the benefits of more tax free thresholds and reduced marginal rates.....
Ah I didn't know that - back in my day we were paid cash in hand for teenager jobs! Does the heavy tax also apply to actual on-the-books declared wages earned by the 16 year old (he works casual shifts at a fast food franchise)?
For the 18 year old, it looks as though from everyone's advice that he should save up parcels of $1000 at a time and put that in Vanguard ETF with the lowest brokerage fee we can find.
Post by: bob999 on January 20, 2018, 08:51:08 PM
Hi, I'm new to the forum. I have a question for Australians, please, re Vanguard.
I have an 18 year old son who is just starting university this year. He will be living at home, working part time and saving for the next three years, a combination of casual shiftwork and army reserve, and saving $200-$300 per week depending on shifts. From reading MMM I think this money should be going into some sort of Vanguard index fund, with dividends reinvested and regular contributions. Which is the best option for him, with a low amount to start with ($1000)? which has the lowest fees?
My 16 year old is also working casual shifts and wants to open an investment account to deposit his earnings. I'd appreciate any advice whether he can open a Vanguard index fund as per the above to make contributions through the year.
Thanks in advance.
I know a lot of people would recommend the Vanguard Retail fund but I would stay away from it. Reason being the 0.9% management fee. Vanguard are a great company and I invest through them (wholesale fund) but their retail fund in Australia is just way too expensive.
Consider investing through another robo platform or app such as Acorn. They are (from memory) around 0.25%.
Post by: Red_Gold on January 23, 2018, 02:10:47 AM
Hi, I'm new to the forum. I have a question for Australians, please, re Vanguard.
I have an 18 year old son who is just starting university this year. He will be living at home, working part time and saving for the next three years, a combination of casual shiftwork and army reserve, and saving $200-$300 per week depending on shifts. From reading MMM I think this money should be going into some sort of Vanguard index fund, with dividends reinvested and regular contributions. Which is the best option for him, with a low amount to start with ($1000)? which has the lowest fees?
My 16 year old is also working casual shifts and wants to open an investment account to deposit his earnings. I'd appreciate any advice whether he can open a Vanguard index fund as per the above to make contributions through the year.
Thanks in advance.
I got sons of same ages and here is what we have done for the 18 year old. Set up high interest Ubank account, if they deposit $200 per month they are eligible for bonus rate which is reasonable enough in this low rate environment. Then, once their savings reached over 5000 I instructed him to buy VGS through NABtrade. I regret not signing him up with SelfWealth for cheaper trades. Once he received paperwork we set up dividend reinvestment plan. When his savings reach over 5k again he will buy more VGS or VAS.
I looked at Acorns and Stockspots and their fees are too high imo. I have retail Vanguard High Growth fund from time before ETFs were available on the market and consider selling it and purchasing ETFs instead. In the long run I should be ahead due to lower management fees of ETFs even considering brokerage. Also switched to SelfWealth because of their $9.5 flat brokerage fee.
Our kids are young and there is no rush to jump into the market. Let the money grow untaxed in the high interest account then buy Vanguard ETFs in larger parcels with the lowest fee you can find. Untaxed because kids are unlikely to earn over 18k and so won't pay any tax on their earnings. And unless you invest large sums of money in their names, their dividend income won't reach $416 for a very very long time. 5k of VGS just brought us $22 in dividends, so not an issue at all.
Post by: misterhorsey on January 23, 2018, 04:57:22 PM
I know a lot of people would recommend the Vanguard Retail fund but I would stay away from it. Reason being the 0.9% management fee. Vanguard are a great company and I invest through them (wholesale fund) but their retail fund in Australia is just way too expensive.
Yes the retail funds start off high, but the management fee has a sliding scale. Taking the Retail High Growth Life Strategy Fund, it's 0.9% on the first $50k, then 0.6% for the next $50k and then 0.35% for amounts over $100k. The 0.9% is a bit high I'd agree, and it still averages out as a higher fee, but it may suit some investors who don't qualify for a wholesale fund, and it's a rather painless way of getting your toe in the water.
For those just getting into investing, it may be better to be invested with a slightly less optimal fee, then not invested. Just remember to review occasionally!
It's worth repeating as well that although the Vanguard Wholesale fund has a published $500k minimum initial investment, they don't necessarily enforce it. But speak to them first.
Post by: Notch on January 23, 2018, 05:55:32 PM
I know a lot of people would recommend the Vanguard Retail fund but I would stay away from it. Reason being the 0.9% management fee. Vanguard are a great company and I invest through them (wholesale fund) but their retail fund in Australia is just way too expensive.
Yes the retail funds start off high, but the management fee has a sliding scale. Taking the Retail High Growth Life Strategy Fund, it's 0.9% on the first $50k, then 0.6% for the next $50k and then 0.35% for amounts over $100k. The 0.9% is a bit high I'd agree, and it still averages out as a higher fee, but it may suit some investors who don't qualify for a wholesale fund, and it's a rather painless way of getting your toe in the water.
For those just getting into investing, it may be better to be invested with a slightly less optimal fee, then not invested. Just remember to review occasionally!
It's worth repeating as well that although the Vanguard Wholesale fund has a published $500k minimum initial investment, they don't necessarily enforce it. But speak to them first.
They definitely don’t enforce it. $100k is the minimum. Source: called them and invested $100k last month.
Post by: hm520 on January 23, 2018, 08:23:14 PM
I'm sure this is a question that's been previously answered but I'm unable to find it within this thread (and I've read a fair bit of it).
Currently wondering about the major differences between a VAS + VGS vs VAS + VEU + VTS portfolio. The first is a lot more convenient and has less brokerage although seems to not have done was well in the last few years based on "historical returns".
As VTS and VEU are both US domiciled, are there any negative implications associated with this? Dividend reinvestment isn't an issue. This would be my investment for hte next >20 years, so tax considerations would be important.
Regards
Post by: FFA on January 24, 2018, 05:49:43 AM
The key diff is VGS has no emerging markets, whereas VEU does about 20% I believe. So a proper comparison is VGS/VGE vs VTS/VEU. Now you have similar complexity / # of funds... Or you can go without emerging markets.
Also no DRP's on VTS/VEU as you mentioned that's not an issue for you though.
VGS fee is a bit higher but hopefully will come down over time towards VTS/VEU. The real, after tax gap is probably less too as others have explained VEU will have some withholding taxes internally that will not get credited, whereas VGS picks up all the foreign tax credit offsets.
personally I'd choose VGS (and VGE if you want emerging markets).
Post by: kaetana on January 24, 2018, 07:44:41 AM
I know a lot of people would recommend the Vanguard Retail fund but I would stay away from it. Reason being the 0.9% management fee. Vanguard are a great company and I invest through them (wholesale fund) but their retail fund in Australia is just way too expensive.
Yes the retail funds start off high, but the management fee has a sliding scale. Taking the Retail High Growth Life Strategy Fund, it's 0.9% on the first $50k, then 0.6% for the next $50k and then 0.35% for amounts over $100k. The 0.9% is a bit high I'd agree, and it still averages out as a higher fee, but it may suit some investors who don't qualify for a wholesale fund, and it's a rather painless way of getting your toe in the water.
For those just getting into investing, it may be better to be invested with a slightly less optimal fee, then not invested. Just remember to review occasionally!
It's worth repeating as well that although the Vanguard Wholesale fund has a published $500k minimum initial investment, they don't necessarily enforce it. But speak to them first.
They definitely don’t enforce it. $100k is the minimum. Source: called them and invested $100k last month.
+1. I held off for a long time because I thought I needed the $500k, but I called them a few months ago and just asked if $100k would be enough to get the wholesale rates and they said yes, certainly. Sent through the application and it was set up pretty quickly. No wheedling or hassle at all.
Post by: BRAFRA on January 25, 2018, 08:21:21 PM
Simple scenario as an example:
the AUD drops 10% compared to all other currencies in 1 day. Will there be a ~10% increase of VGS ?
Post by: mjr on January 25, 2018, 10:39:23 PM
Post by: PDM on January 25, 2018, 10:57:30 PM
If the Australian dollar becomes weaker, the impact will be positive on VGS ?
Simple scenario as an example:
the AUD drops 10% compared to all other currencies in 1 day. Will there be a ~10% increase of VGS ?
There is definitely an impact. I've noticed days where it tracks movements almost exactly. But other times it seems to not impact. Lately VGS has been doing well while the AUD is rising against the USD.
Post by: MrThatsDifferent on January 26, 2018, 01:06:53 PM
Post by: Llewellyn2006 on January 26, 2018, 02:32:45 PM
Hey all, apologies in advance for the dumb question: I’m considering buying property for the first time and have been reading about keeping money in an offset account. Currently, I pay money into my investment account after each fortnightly pay so I don’t really keep any money in savings. If I save the money in the offset account it’s not making me money in the investment account. What’s the strategy for this or does it make more sense to grow the money in the investment account and then pay a lump sum later to reduce the mortgage? Or, should I not even care about paying down the mortgage?
The "pay off/don't pay off" the mortgage is the subject of endless debate on here so it really comes down to personal choice. But the thinking behind putting money in an offset account is that the amount in the offset account is deducted from the total mortgage and interest is charged on what's left. Effectively you will be getting a return of whatever your mortgage interest rate is on the funds in the offset account. For example, if your mortgage is $500k and you have $100k in an offset account, you only pay interest on $400k but you won't earn any physical interest on the $100k in the offset.
If you can earn a better % than your mortgage interest rate by investing the money you would have in the offset account, then you should probably do that, otherwise it's more beneficial in the offset account.
Post by: deborah on January 26, 2018, 10:31:16 PM
Post by: marty998 on January 27, 2018, 03:07:22 AM
Agree - the Vanguard retail fund would be best (not the ETF, as brokerage will eat away chunk everytime you go to buy).
For the 16 year old, be careful of punitive marginal tax rates. Minors get the first $416 of investment income tax free and then after that get taxed quite heavily (at 66%, reducing to 49% after about $1000 of income). The idea is to discourage parents from putting assets in the name of their kids and getting the benefits of more tax free thresholds and reduced marginal rates.....
Ah I didn't know that - back in my day we were paid cash in hand for teenager jobs! Does the heavy tax also apply to actual on-the-books declared wages earned by the 16 year old (he works casual shifts at a fast food franchise)?
For the 18 year old, it looks as though from everyone's advice that he should save up parcels of $1000 at a time and put that in Vanguard ETF with the lowest brokerage fee we can find.
@Liesel sorry for the late reply.
Earned income from wages is taxed at normal rates (first $18,200 tax free etc). It's only investment income that is treated differently. But the ATO will scrutinise scenarios where you'd employed your kid in the family business paying them $50 an hour for example :)
Post by: MrThatsDifferent on January 27, 2018, 05:12:53 PM
Anyways, would you dip into your investment account or go 5%? Our other option is to buy in a year and save up more but we’ve found an ideal, unique place that we have a shot at and hate to pass it up if we can grab it.
Post by: PDM on January 27, 2018, 05:20:56 PM
Post by: Llewellyn2006 on January 27, 2018, 05:27:07 PM
I know, I know all the reasons to not pay the mortgage down aggressively but I feel like Aus is a bit different. I want to retire in 5 years and want this paid off while I have income coming in.
Anyways, would you dip into your investment account or go 5%? Our other option is to buy in a year and save up more but we’ve found an ideal, unique place that we have a shot at and hate to pass it up if we can grab it.
Without wanting to reignite the whole pay off/don't pay off debate I think the highlighted part is really important and I agree because the US and Australian markets ARE different - we can't deduct mortgage interest on our PPR from taxable income over here which would be an incentive to pay the minimum amount and claim maximum interest.
Anyway, back to your question. I think if the property is what you're really after and you can do it with a 5% deposit while still investing money in something else then go for it, although I think taking advantage of an offset account is worth considering too. Maybe a mix of both? Good luck.
Post by: middo on January 27, 2018, 06:00:54 PM
Ok, would love to hear your thoughts: I’m looking at buying a property in Sydney for $620k, but hadn’t planned this. I’ve been putting all my money in Vanguard. I’m not sure if I could pull all of it out and do the 20% deposit, some and do the 10% or nothing and do the 5%? I’d love to leave my money in Vanguard and then keep adding small amounts and then attack the mortgage. I know, I know all the reasons to not pay the mortgage down aggressively but I feel like Aus is a bit different. I want to retire in 5 years and want this paid off while I have income coming in.
Anyways, would you dip into your investment account or go 5%? Our other option is to buy in a year and save up more but we’ve found an ideal, unique place that we have a shot at and hate to pass it up if we can grab it.
Is this as an investment or for living in? Personally I would say go for it if it is to be your home. As an investment I would say the long term growth of property prices in Australia does not match the long term growth of shares. Sydney is probably going nowhere for a long time as well. I would stay in the vanguard instead. Just the opinion of someone who invested in property and is now slowly trying to reduce the amount we have.
Post by: BRAFRA on January 27, 2018, 07:54:43 PM
Better buy the equivalent of VGS in EUR to avoid the ~0.6% of commission from money exchange via online platforms ?
I found an offer with a big dog for 0.2% annual fee compared to 0.18% with Vanguard.
I won't miss franking credits as VGS excludes Aussie shares, correct ?
This investment will obviously be exposed to the evolution of the EUR / AUD exchange rate.
Post by: MrThatsDifferent on January 27, 2018, 10:40:06 PM
$620 - is it an apartment? The Sydney apartment market is looking a bit shakey based on everything I've read. It also looks like across the board prices have flattened (https://www.macrobusiness.com.au/2018/01/corelogic-weekly-australian-house-price-update-falls-coast-coast/) sign up for free trial. Sydney is also coming off some crazy growth.
Yes, $620k for a 1 bed, 1 bath, no car within a 25 min bike ride to the cbd.
Post by: MrThatsDifferent on January 27, 2018, 10:43:57 PM
I know, I know all the reasons to not pay the mortgage down aggressively but I feel like Aus is a bit different. I want to retire in 5 years and want this paid off while I have income coming in.
Anyways, would you dip into your investment account or go 5%? Our other option is to buy in a year and save up more but we’ve found an ideal, unique place that we have a shot at and hate to pass it up if we can grab it.
Without wanting to reignite the whole pay off/don't pay off debate I think the highlighted part is really important and I agree because the US and Australian markets ARE different - we can't deduct mortgage interest on our PPR from taxable income over here which would be an incentive to pay the minimum amount and claim maximum interest.
Anyway, back to your question. I think if the property is what you're really after and you can do it with a 5% deposit while still investing money in something else then go for it, although I think taking advantage of an offset account is worth considering too. Maybe a mix of both? Good luck.
Well, my thinking is, we are on good salaries. We could pay this down to around $150k in 5 years and live in it until then, with our money sitting in an offset. I’ll add $500 a fortnight to Vanguard. Once we pay it down, we rent it out as an investment property while we geo-arbitrage overseas. It will then Provide a steady flow of income and I’ll invest money back in Vanguard and live off the rest.
Post by: MrThatsDifferent on January 27, 2018, 10:45:09 PM
Ok, would love to hear your thoughts: I’m looking at buying a property in Sydney for $620k, but hadn’t planned this. I’ve been putting all my money in Vanguard. I’m not sure if I could pull all of it out and do the 20% deposit, some and do the 10% or nothing and do the 5%? I’d love to leave my money in Vanguard and then keep adding small amounts and then attack the mortgage. I know, I know all the reasons to not pay the mortgage down aggressively but I feel like Aus is a bit different. I want to retire in 5 years and want this paid off while I have income coming in.
Anyways, would you dip into your investment account or go 5%? Our other option is to buy in a year and save up more but we’ve found an ideal, unique place that we have a shot at and hate to pass it up if we can grab it.
Is this as an investment or for living in? Personally I would say go for it if it is to be your home. As an investment I would say the long term growth of property prices in Australia does not match the long term growth of shares. Sydney is probably going nowhere for a long time as well. I would stay in the vanguard instead. Just the opinion of someone who invested in property and is now slowly trying to reduce the amount we have.
Yes, live in, then rent out after 4-5 years.
Post by: PDM on January 27, 2018, 11:25:28 PM
$620 - is it an apartment? The Sydney apartment market is looking a bit shakey based on everything I've read. It also looks like across the board prices have flattened (https://www.macrobusiness.com.au/2018/01/corelogic-weekly-australian-house-price-update-falls-coast-coast/) sign up for free trial. Sydney is also coming off some crazy growth.
Yes, $620k for a 1 bed, 1 bath, no car within a 25 min bike ride to the cbd.
I know it is Sydney but wowsers! For a 1 bedder, no car. That seems nuts.
Apartments prices will lead any downturn in prices. I realise it isn't that much of an issue if you plan to live in but you don't want to be paying off more that it is worth. So many new apartments being built/have been built in the last few years. Not to mention the Chinese dollar leaving the market...yikes.
Have you lived in a one bedder? The smallest I'd live in with my wife is two bedrooms...and even then.
Post by: hm520 on January 28, 2018, 12:18:53 AM
Yeah the VTS/VEU US domicile creates a bit more regulatory risk (assuming you're an Australian resident). Often mentioned is US estate taxes. I don't think it's an issue for Australian residents due to the tax treaty but do your own research, and it's always subject to change. VGS is Oz domicile so avoids that.
The key diff is VGS has no emerging markets, whereas VEU does about 20% I believe. So a proper comparison is VGS/VGE vs VTS/VEU. Now you have similar complexity / # of funds... Or you can go without emerging markets.
Also no DRP's on VTS/VEU as you mentioned that's not an issue for you though.
VGS fee is a bit higher but hopefully will come down over time towards VTS/VEU. The real, after tax gap is probably less too as others have explained VEU will have some withholding taxes internally that will not get credited, whereas VGS picks up all the foreign tax credit offsets.
personally I'd choose VGS (and VGE if you want emerging markets).
Thanks for your reply.
It's a tricky question. I guess inherently I'm biased towards the US market (for no particular reason) and personally feel a heavier weighting towards it will lead to more growth.
Even with regular purchasing, a 'set-and-forget' DRP is appealing.
Post by: deborah on January 28, 2018, 12:45:30 AM
- when you sell them, you need to work out when you bought every single one of them and work out your CGT separately for each parcel.
- it makes you lazy about rebalancing your portfolio, and the portfolio drifts out of alignment with your goals since some investments have more dividends than others, so you automatically buy more shares in those.
- you always leave some of your dividend in the account (not a lot, but some), as you are only going to buy whole shares.
Post by: MrThatsDifferent on January 28, 2018, 02:21:31 AM
$620 - is it an apartment? The Sydney apartment market is looking a bit shakey based on everything I've read. It also looks like across the board prices have flattened (https://www.macrobusiness.com.au/2018/01/corelogic-weekly-australian-house-price-update-falls-coast-coast/) sign up for free trial. Sydney is also coming off some crazy growth.
Yes, $620k for a 1 bed, 1 bath, no car within a 25 min bike ride to the cbd.
I know it is Sydney but wowsers! For a 1 bedder, no car. That seems nuts.
Apartments prices will lead any downturn in prices. I realise it isn't that much of an issue if you plan to live in but you don't want to be paying off more that it is worth. So many new apartments being built/have been built in the last few years. Not to mention the Chinese dollar leaving the market...yikes.
Have you lived in a one bedder? The smallest I'd live in with my wife is two bedrooms...and even then.
Yes, it is nuts. It’s the best deal we can find. We are dreading the idea of a 1 bedroom. We did it when we first met. Will be tough to go backwards but we can pay it off.
Can we claim the interest on our taxes and how does it work if a couple? We split the interest and claim half each.
Post by: deborah on January 28, 2018, 02:28:30 AM
Post by: PDM on January 28, 2018, 03:09:06 AM
Post by: BRAFRA on January 28, 2018, 08:06:11 AM
No - unless it is an investment unit. Your PPOR is CGT free and you also cannot claim the interest.Claim the interest ?
Post by: itchyfeet on January 28, 2018, 08:16:30 AM
The Sydney market is crazy.
Prices are dropping. Since the peak back in June last year my place has dropped in value by $100,000 or so, say 5%. I do think that prices will continue to retreat through 2018.
Post by: MrThatsDifferent on January 28, 2018, 01:02:23 PM
The Sydney market is crazy.
Prices are dropping. Since the peak back in June last year my place has dropped in value by $100,000 or so, say 5%. I do think that prices will continue to retreat through 2018.
Yes, this is kinda my gut sense and why I’m thinking we might be better off just waiting for 18 months? Here’s what’s crazy: we currently pay a lot in rent. We could move to a 2 bedder for $600/week, but if we buy the 1 bedder, our mortgage would be around $600/week, so paying the same for less, although we’ll own it. Decisions! Decisions!
Post by: marty998 on January 28, 2018, 01:11:41 PM
The Sydney market is crazy.
Prices are dropping. Since the peak back in June last year my place has dropped in value by $100,000 or so, say 5%. I do think that prices will continue to retreat through 2018.
Yes, this is kinda my gut sense and why I’m thinking we might be better off just waiting for 18 months? Here’s what’s crazy: we currently pay a lot in rent. We could move to a 2 bedder for $600/week, but if we buy the 1 bedder, our mortgage would be around $600/week, so paying the same for less, although we’ll own it. Decisions! Decisions!
Mine has held up in value, though I'm in the outer suburbs. But yes I do expect prices to come back a little bit through this year, especially if interest rates go up.
Which suburb are you looking to buy in?
Post by: MrThatsDifferent on January 28, 2018, 01:24:55 PM
The Sydney market is crazy.
Prices are dropping. Since the peak back in June last year my place has dropped in value by $100,000 or so, say 5%. I do think that prices will continue to retreat through 2018.
Yes, this is kinda my gut sense and why I’m thinking we might be better off just waiting for 18 months? Here’s what’s crazy: we currently pay a lot in rent. We could move to a 2 bedder for $600/week, but if we buy the 1 bedder, our mortgage would be around $600/week, so paying the same for less, although we’ll own it. Decisions! Decisions!
Mine has held up in value, though I'm in the outer suburbs. But yes I do expect prices to come back a little bit through this year, especially if interest rates go up.
Which suburb are you looking to buy in?
Roseberry, Moore Park and Alexandria. I looked at a lot of homes and there didn’t seem to be much interest. I think lots of people are waiting to see what happens and if our worst case is renting something slightly smaller, having an extra $10k not going to rent and investing, we’re still ok.
Post by: PDM on January 28, 2018, 02:02:29 PM
That there is your classic rent money is dead money fallacy. What would an equivalent 2 bedder cost to buy? A lot more than $600/week. And don't forget all the other costs of ownership renters don't pay - body corporate, repairs etc.The Sydney market is crazy.
Prices are dropping. Since the peak back in June last year my place has dropped in value by $100,000 or so, say 5%. I do think that prices will continue to retreat through 2018.
Yes, this is kinda my gut sense and why I’m thinking we might be better off just waiting for 18 months? Here’s what’s crazy: we currently pay a lot in rent. We could move to a 2 bedder for $600/week, but if we buy the 1 bedder, our mortgage would be around $600/week, so paying the same for less, although we’ll own it. Decisions! Decisions!
Renting gives you a flexibility that owning doesn't.
Post by: sully1985 on January 28, 2018, 05:13:39 PM
The Sydney market is crazy.
Prices are dropping. Since the peak back in June last year my place has dropped in value by $100,000 or so, say 5%. I do think that prices will continue to retreat through 2018.
Yes, this is kinda my gut sense and why I’m thinking we might be better off just waiting for 18 months? Here’s what’s crazy: we currently pay a lot in rent. We could move to a 2 bedder for $600/week, but if we buy the 1 bedder, our mortgage would be around $600/week, so paying the same for less, although we’ll own it. Decisions! Decisions!
Mine has held up in value, though I'm in the outer suburbs. But yes I do expect prices to come back a little bit through this year, especially if interest rates go up.
Which suburb are you looking to buy in?
Roseberry, Moore Park and Alexandria. I looked at a lot of homes and there didn’t seem to be much interest. I think lots of people are waiting to see what happens and if our worst case is renting something slightly smaller, having an extra $10k not going to rent and investing, we’re still ok.
FYI I live in the Rosebery/Zetland area and seriously, I would not buy anything (apartment-wise) in that area, I'm living in a 2 bed place that was built around 7-8 years ago and it's not aging well (Meriton). Thank God I don't own the place.
Post by: MrThatsDifferent on January 28, 2018, 10:55:48 PM
That there is your classic rent money is dead money fallacy. What would an equivalent 2 bedder cost to buy? A lot more than $600/week. And don't forget all the other costs of ownership renters don't pay - body corporate, repairs etc.The Sydney market is crazy.
Prices are dropping. Since the peak back in June last year my place has dropped in value by $100,000 or so, say 5%. I do think that prices will continue to retreat through 2018.
Yes, this is kinda my gut sense and why I’m thinking we might be better off just waiting for 18 months? Here’s what’s crazy: we currently pay a lot in rent. We could move to a 2 bedder for $600/week, but if we buy the 1 bedder, our mortgage would be around $600/week, so paying the same for less, although we’ll own it. Decisions! Decisions!
Renting gives you a flexibility that owning doesn't.
This has been my thinking to date. I’m not sure if I’m experiencing FOMO or what?
Post by: MrThatsDifferent on January 28, 2018, 10:59:14 PM
The Sydney market is crazy.
Prices are dropping. Since the peak back in June last year my place has dropped in value by $100,000 or so, say 5%. I do think that prices will continue to retreat through 2018.
Yes, this is kinda my gut sense and why I’m thinking we might be better off just waiting for 18 months? Here’s what’s crazy: we currently pay a lot in rent. We could move to a 2 bedder for $600/week, but if we buy the 1 bedder, our mortgage would be around $600/week, so paying the same for less, although we’ll own it. Decisions! Decisions!
Mine has held up in value, though I'm in the outer suburbs. But yes I do expect prices to come back a little bit through this year, especially if interest rates go up.
Which suburb are you looking to buy in?
Roseberry, Moore Park and Alexandria. I looked at a lot of homes and there didn’t seem to be much interest. I think lots of people are waiting to see what happens and if our worst case is renting something slightly smaller, having an extra $10k not going to rent and investing, we’re still ok.
FYI I live in the Rosebery/Zetland area and seriously, I would not buy anything (apartment-wise) in that area, I'm living in a 2 bed place that was built around 7-8 years ago and it's not aging well (Meriton). Thank God I don't own the place.
Funny you say that, we looked at the place and they just had some water damage fixed. Do you not like the area?
Post by: marty998 on January 29, 2018, 12:05:56 AM
The Sydney market is crazy.
Prices are dropping. Since the peak back in June last year my place has dropped in value by $100,000 or so, say 5%. I do think that prices will continue to retreat through 2018.
Yes, this is kinda my gut sense and why I’m thinking we might be better off just waiting for 18 months? Here’s what’s crazy: we currently pay a lot in rent. We could move to a 2 bedder for $600/week, but if we buy the 1 bedder, our mortgage would be around $600/week, so paying the same for less, although we’ll own it. Decisions! Decisions!
Mine has held up in value, though I'm in the outer suburbs. But yes I do expect prices to come back a little bit through this year, especially if interest rates go up.
Which suburb are you looking to buy in?
Roseberry, Moore Park and Alexandria. I looked at a lot of homes and there didn’t seem to be much interest. I think lots of people are waiting to see what happens and if our worst case is renting something slightly smaller, having an extra $10k not going to rent and investing, we’re still ok.
FYI I live in the Rosebery/Zetland area and seriously, I would not buy anything (apartment-wise) in that area, I'm living in a 2 bed place that was built around 7-8 years ago and it's not aging well (Meriton). Thank God I don't own the place.
Funny you say that, we looked at the place and they just had some water damage fixed. Do you not like the area?
I would not go anywhere near Alexandria/Zetland either. For the same reasons - crappy construction and mega strata fees. And down the track do you really think you'll be able to rent it with all the supply going up? There's literally 10's of thousands of identical shoeboxes going up in that whole corridor bounded by the CBD, Airport, Southern Cross Drive and the Eastern Suburbs/Illawarra Railway line between Wolli Creek and the city.
Renters will do exceptionally well with all the negotiating power.
I'd look around Edgecliff / Waverley if I were going to spend $600k on a 1 bedder. Much more likely to hold value.
Post by: MrThatsDifferent on January 29, 2018, 12:30:36 AM
Post by: Fresh Bread on January 29, 2018, 02:23:03 AM
$650k gets you a one bedder in the Manly area and the price would hold I reckon?
Post by: Luckyvik on January 29, 2018, 02:27:56 AM
When we apartment shopping in 2007/8 we looked at the Victoria Park area and the buildings looked very shoddy even when they were only a few years old. The cladding looked bad and there were water issues.I second Manly or an area with older buildings with lower strata 800-1000/quarter max ie no lift, no pool. Lower north shore, inner west, inner east centennial park etc.
$650k gets you a one bedder in the Manly area and the price would hold I reckon?
Sent from my iPhone using Tapatalk
Post by: MrThatsDifferent on January 29, 2018, 04:43:25 AM
Post by: sully1985 on January 29, 2018, 07:24:38 PM
The Sydney market is crazy.
Prices are dropping. Since the peak back in June last year my place has dropped in value by $100,000 or so, say 5%. I do think that prices will continue to retreat through 2018.
Yes, this is kinda my gut sense and why I’m thinking we might be better off just waiting for 18 months? Here’s what’s crazy: we currently pay a lot in rent. We could move to a 2 bedder for $600/week, but if we buy the 1 bedder, our mortgage would be around $600/week, so paying the same for less, although we’ll own it. Decisions! Decisions!
Mine has held up in value, though I'm in the outer suburbs. But yes I do expect prices to come back a little bit through this year, especially if interest rates go up.
Which suburb are you looking to buy in?
Roseberry, Moore Park and Alexandria. I looked at a lot of homes and there didn’t seem to be much interest. I think lots of people are waiting to see what happens and if our worst case is renting something slightly smaller, having an extra $10k not going to rent and investing, we’re still ok.
FYI I live in the Rosebery/Zetland area and seriously, I would not buy anything (apartment-wise) in that area, I'm living in a 2 bed place that was built around 7-8 years ago and it's not aging well (Meriton). Thank God I don't own the place.
Funny you say that, we looked at the place and they just had some water damage fixed. Do you not like the area?
I would not go anywhere near Alexandria/Zetland either. For the same reasons - crappy construction and mega strata fees. And down the track do you really think you'll be able to rent it with all the supply going up? There's literally 10's of thousands of identical shoeboxes going up in that whole corridor bounded by the CBD, Airport, Southern Cross Drive and the Eastern Suburbs/Illawarra Railway line between Wolli Creek and the city.
Renters will do exceptionally well with all the negotiating power.
I'd look around Edgecliff / Waverley if I were going to spend $600k on a 1 bedder. Much more likely to hold value.
MrThatsDifferent - I have no issue with the area, lots of services and close to the CBD and Airport (although the occasional fly-over/by can be annoying - depends on the wind direction though), but I wouldn't want to live there and drive, lots of apartments going up and no real investment in the infrastructure.
marty998 - Nail on the head (shame the tradies can't seem to do that)... I'd also add that I have some friends who live down in Matraville, and even though it's close to the airport they hardly hear anything (no direct flight path), so might be worth looking around there?
Suppose it all depends on plans in the future (and all that Jazz), I certainly wouldn't be looking to buy in Sydney at the moment but that's just my 2 cents.
Post by: Fresh Bread on January 30, 2018, 12:13:35 AM
http://www.smh.com.au/money/investing/market-momentum-has-never-been-higher-but-the-risk-of-a-crash-is-high-20180129-h0pumd.html
The author talks about how you don't achieve average returns unless you stay in the market, but then talks about selling. He says he intends to sell at the start of the crash, but doesn't say what happens next - would he buy in again at the bottom a day later? Who the fuck's got time for these shenanigans? I'll just stick with the average.
Post by: FFA on January 30, 2018, 01:52:54 AM
That said he has a point in that markets are quite high. So people should pay attention if portfolios need a rebalance. Those still making regular contributions might want to slow them down and build up more cash to get your asset allocation back to where it is desired.
Post by: itchyfeet on January 30, 2018, 05:55:33 AM
What will trigger this quiet selling deep in the night? A 1% selloff, 5%, 10%? In which country?
Trading when the markets are closed is generally a bad idea. What happens if the market drops 80% at the opening. Placing your sell order in the depths of the night means you have no control. Maybe you wouldn’t sell if you knew most of your wealth was already gone. Yes, You could put a limit on the trade, but how do you set that Limit (1% lower, 10% lower)?
When do you buy back in?
If you are going to trigger massive amounts of CGT, shouldn’t this be a consideration?
I think better advice is to Just stick to your investment plan.
Stay the course and rebalance periodically. Forget timing the market. If you don’t like the risk of a security don’t buy in the first place.
Choose an asset mix that let’s you turn your Computer off and get a proper night’s sleep.
Post by: Abundant life on February 02, 2018, 07:56:04 PM
I decided to sell a large parcel of shares in IOO ETF. I use Direct Shares' market depth to track the prices and quantities of buy and sell orders, plus the cost and amount of the last ten trades to get a feel for the way the market is trading at that time.
I put in my sell order for a certain price, and I can see it in line with the other sell orders. There seems to be someone selling over 6000 shares for a certain price and I wanted to get ahead of them and sell today as the total number of shares traded is usually about 11,000 to 15,000 per day, and it will take a while to sell 6000+ shares.
But some strange things (to me) seem to be happening. 6000 shares is worth about .75 million A$ - that's a lot! Then suddenly there is another 6000+ order ahead of me. These large amounts seem to jump in and out of the selling line. I know people can submit and cancel orders, but is someone playing silly buggers?
Also the speed at which they sell is not constant, so there might be up to 10 minutes without any trades. Then there will be a sale of 1 share? Who would sell or buy one share when the cost to trade would be prohibitive, or is this a way the ASX keeps things moving?
And I can't understand why trading takes place outside of trading hours. Suddenly after 4pm the shares jump in price? Also one would think yesterday's closing price would be today's opening price?
Post by: deborah on February 02, 2018, 08:20:40 PM
Post by: mjr on February 02, 2018, 08:24:48 PM
Post by: Abundant life on February 02, 2018, 09:13:55 PM
Post by: mjr on February 02, 2018, 09:30:26 PM
Post by: Stewart on February 03, 2018, 01:06:32 PM
I just read this entire thread (took me 2 months).
As a 50 year old touring musician with minimal investing experience, I really appreciate the knowledge and insight provided here!
SK
Post by: Little Aussie Battler on February 04, 2018, 09:20:36 PM
Post by: hm520 on February 04, 2018, 10:14:43 PM
Anyone buying today?
I would be but am in the process of transferring between brokers. Not a huge urgency for me though. Glad someone could take advantage of it!
Post by: Llewellyn2006 on February 04, 2018, 10:17:05 PM
Anyone buying today?
Bought some WAM Capital the other day. Only wish I'd waited because I could have got more for my money. Could be the start of some good buying opportunities if the correction really is starting. Poor old Wesfarmers copped a thumping (yep, I've got 'em)
Post by: MrThatsDifferent on February 05, 2018, 01:22:15 AM
Post by: itchyfeet on February 05, 2018, 01:36:13 AM
Not sure what to do, need some advice: thinking about buying a place next year. Is is better so save the cash in a HISA or keeping investing in Vanguard and pull out the deposit next year?
Are you feeling lucky?..... don’t answer this.
How would you feel if the ASX dropped 20% between now and when you want to draw down the cash?
Is the home deposit a big portion of your stash?
Are you certain you will need the cash next year?
I think, if it was me I would go with the HISA and know that I will have the cash when I want it.
It’s annoying taking a less risky position and get the low return that matches the risk you are taking, but sometimes it needs to be done.
Post by: MrThatsDifferent on February 05, 2018, 02:26:37 AM
Not sure what to do, need some advice: thinking about buying a place next year. Is is better so save the cash in a HISA or keeping investing in Vanguard and pull out the deposit next year?
Are you feeling lucky?..... don’t answer this.
How would you feel if the ASX dropped 20% between now and when you want to draw down the cash?
Is the home deposit a big portion of your stash?
Are you certain you will need the cash next year?
I think, if it was me I would go with the HISA and know that I will have the cash when I want it.
It’s annoying taking a less risky position and get the low return that matches the risk you are taking, but sometimes it needs to be done.
Thanks for that. That’s what I was thinking.
Post by: mjr on February 05, 2018, 04:31:06 AM
Anyone buying today?
Nope. Will wait and see what the US does overnight and then I might think about it.
Post by: marty998 on February 05, 2018, 05:24:45 AM
Thanks Deborah and mjr, you learn something everyday! Seems a bit underhanded and manipulative in a 'free-market'.
As mjr said, those big bid and offer orders are the market maker. It gives you a pointer to the actual NAV of the ETF (hint: it's smack bang in the middle of the spread). A bot is usually working to move those orders in line with the index being tracked through the day, so you are always getting a reasonably accurate price.
Anyone buying today?
I dropped $10k on VAS just after lunch. Figure the market is probably in for some pain over the next three months, but I can always buy again then too.
CBA results on Wednesday will provide the market with some direction, however the underlying result (broker consensus $5.1-$5.2bn) might get lost in the noise of AUSTRAC and other regulatory problems.
A cut to the divvy if provisions are made for regulatory penalties could be a pointer to further falls, coupled with both TLS and WES also flagging impairments on parts of their businesses.
Shaping up to be a difficult start to reporting season...
Post by: MrThatsDifferent on February 05, 2018, 12:15:33 PM
Anyone buying today?
Nope. Will wait and see what the US does overnight and then I might think about it.
I thought we were supposed to buy when the market dipped? That’s when you get the bargains?
Post by: mjr on February 05, 2018, 12:46:18 PM
Post by: marty998 on February 05, 2018, 01:23:30 PM
Post by: misterhorsey on February 05, 2018, 01:37:42 PM
Anyone buying today?
Nope. Will wait and see what the US does overnight and then I might think about it.
I thought we were supposed to buy when the market dipped? That’s when you get the bargains?
I'd rephrase that slightly. Intentionally buying the dips is a fools errand. The ASX dropped approximately 1.6% yesterday, and following Wall St's drop of 3.6% (Dow Jones), 2.6% (S&P) overnight it will probably get hammered again today. Buying the dip, particularly the first dip of many, won't feel so great if this is the start of a proper correction (say a 10-30% drop). Of course, no-one knows if it will be or won't be.
I prefer to take the approach of thinking - If there's dips or even big falls, it's not a time to worry. Hold steady as it will recover... eventually. It's certainly not a time to sell. But if you do have spare cash lying around, it's not the worst time to buy more as you can pick up some bargains, relative to the most recent price, knowing that if may fall even further after your bought your 'bargain'.
Lastly - bargains are relative. Even if the ASX drops by 5% to 10% over the next few days, we are up around 10% from the past year (not including dividends). The US Market is up more bigly, and arguably has greater to fall.
Stay chill everyone!
Post by: misterhorsey on February 05, 2018, 04:25:49 PM
SP ASX 200 down 2.7% as at 10.18am. My own portfolio down about 3.4% (as it includes VGS). All I can say is LOLs!
Post by: actionjackson on February 05, 2018, 05:12:10 PM
Post by: steveo on February 05, 2018, 05:51:42 PM
WOAH!
SP ASX 200 down 2.7% as at 10.18am. My own portfolio down about 3.4% (as it includes VGS). All I can say is LOLs!
It's going to hit me as well but I honestly expect this and I'm not stressing. Markets don't keep going up non-stop.
Post by: misterhorsey on February 05, 2018, 06:01:17 PM
I don't have any significant active income at the moment, but if it is the beginning of a steep decline, and blue chips start showing50% losses, that's probably when I'll feel a bit tempted to reduce my emergency stash and buy me some index.
Post by: steveo on February 05, 2018, 06:44:57 PM
I'm not stressed either. It's interesting to see all that paper profit vaporize, and fun to not feel any concern about it. These are just bumps.
I don't have any significant active income at the moment, but if it is the beginning of a steep decline, and blue chips start showing50% losses, that's probably when I'll feel a bit tempted to reduce my emergency stash and buy me some index.
I invest all the spare money I get. I won't change my behaviour at all even though a 50% drop would make it tempting to take out another loan on the mortgage and invest more into the market. I won't do that though even if it is tempting.
In some ways I want it to drop. I have about 3 years to becoming FI and it has to drop now or soon after I retire. I think now would be preferable to in 5 years time but either way the market is going to do what it is going to do.
Heaps of people at my work have invested in Bitcoin. They would be feeling worse.
Post by: misterhorsey on February 05, 2018, 07:06:27 PM
I invest all the spare money I get. I won't change my behaviour at all even though a 50% drop would make it tempting to take out another loan on the mortgage and invest more into the market. I won't do that though even if it is tempting.
In some ways I want it to drop. I have about 3 years to becoming FI and it has to drop now or soon after I retire. I think now would be preferable to in 5 years time but either way the market is going to do what it is going to do.
Heaps of people at my work have invested in Bitcoin. They would be feeling worse.
Ouch, your bitcoiners must be feeling it - assuming they bought relatively recently.
I'm now down 4.63%, with the broader market 3.6% Still no stress.
I recall there was a period around 2009-2010 when the ASX when through days of jumping up and falling down around 2-3% per day. I think I had a lot invested in individual stocks, which get whiplash in the ups and downs. Now most of my holdings are in indexes i just feel like I'm going to go out with the tide, but I'll come back into shore with everyone else.
Post by: limeandpepper on February 05, 2018, 10:11:00 PM
I don't have any significant active income at the moment, but if it is the beginning of a steep decline, and blue chips start showing50% losses, that's probably when I'll feel a bit tempted to reduce my emergency stash and buy me some index.
I don't have any significant active income right now either, just came back from a sabbatical and also moving interstate in late March so can't properly look for a job till then. I would love to have nice chunks of ongoing cash to throw into the market now. I'm already a bit tempted to take money out from my emergency stash to buy some ETFs too but I'll wait a bit. I have about 2 years of living expenses in cash and if shares drop even more I can probably afford to throw 1 year's worth at the market and hope that I'll definitely get a job within a year?
Post by: 11ducks on February 06, 2018, 12:45:14 AM
Aargh, I bought shares 5 days ago, settlement today - only to watch prices take a dive! I know it doesn't matter in the long game, but I only have a few grand to invest, twice a year or so, and it was a little sad to see it drop directly after I purchased it (Nooo! my tiny net worth is even tinier! :)
Post by: turboslob on February 06, 2018, 01:32:27 AM
Aargh, I bought shares 5 days ago, settlement today - only to watch prices take a dive! I know it doesn't matter in the long game, but I only have a few grand to invest, twice a year or so, and it was a little sad to see it drop directly after I purchased it (Nooo! my tiny net worth is even tinier! :)
I did a bunch too recently. I’m going to see what happens in the next few days, and add a bit more in while it’s down.
Post by: Little Aussie Battler on February 06, 2018, 01:46:52 AM
Luckily I kept some cash aside, and will be buying again tomorrow (I would have bought today, but ran out of time before the market closed).
Post by: mustachepungoeshere on February 06, 2018, 01:56:40 AM
Moved some money around today, will see how the market opens tomorrow.
Post by: actionjackson on February 06, 2018, 02:27:50 AM
I'd love feedback on the assumptions and methods I used - more info where I posted it over on r/ausfinance
There is a link to the google spreadsheet with all the data.
https://www.reddit.com/r/AusFinance/comments/7vm632/timing_the_market_using_25y_of_asx300_data_aka/
Post by: limeandpepper on February 06, 2018, 02:52:15 AM
Post by: potm on February 06, 2018, 03:18:02 AM
Talk here sounds like we’ve dropped 20%.
What will it be like if we actually get a 20% drop?
Post by: limeandpepper on February 06, 2018, 03:28:35 AM
What will it be like if we actually get a 20% drop?
Shop for shares like it's going out of style. :D
(If I have the money that is. Please let me have the money to do it!)
Post by: marty998 on February 06, 2018, 03:48:57 AM
Guys, we’ve hardly moved down at all after a big run up.
Talk here sounds like we’ve dropped 20%.
What will it be like if we actually get a 20% drop?
20% drop will get us back to 5000 points, which is about where I mortgage my ass and go all in. At the very least I'll rebalance my super into all ASX & maybe a little international if the conditions are right.
Post by: potm on February 06, 2018, 05:23:25 AM
Just giving a little perspective before everyone rushes out to spend all their spare cash on shares.
I have always tended to buy too early in these events. Although there are other times where it bounces back quickly.
I'm pretty happy for prices to get cheaper so I can make some purchases, having decreased my leverage for the past year or so. At the time time, I'm still over 100% invested so don't mind if prices bounce back again either.
Reporting season is the best time for a crash I think. Cheap prices plus updated information is the best time for buying.
Post by: limeandpepper on February 06, 2018, 06:00:15 AM
Post by: chasingthegoodlife on February 06, 2018, 12:52:15 PM
Post by: misterhorsey on February 06, 2018, 04:19:53 PM
Or maybe I can start a lemonade stand?
Index investing is, thankfully, so boring that little falls and jumps like this is what keeps it interesting!
Post by: bigchrisb on February 06, 2018, 06:11:31 PM
We were at this level back in December, no one was rushing to buy then.
Just giving a little perspective before everyone rushes out to spend all their spare cash on shares.
I have always tended to buy too early in these events. Although there are other times where it bounces back quickly.
I'm pretty happy for prices to get cheaper so I can make some purchases, having decreased my leverage for the past year or so. At the time time, I'm still over 100% invested so don't mind if prices bounce back again either.
Reporting season is the best time for a crash I think. Cheap prices plus updated information is the best time for buying.
I'm in the same camp. A few percent in a day looks violent, but mostly because the last six months has been a slow increase. Look at the movement in the last couple of days on a 5 or 10 year chart and it looks like noise - and small noise at that. I'm leaving things sit as they are. Another 10-15% fall and I'd start deploying some extra cash.
However, like Potm, I'm effectively over 100% stocks at the moment due to leverage, so when I say deploy cash, its really borrow more to invest.
Post by: itchyfeet on February 06, 2018, 08:16:33 PM
We were at this level back in December, no one was rushing to buy then.
Just giving a little perspective before everyone rushes out to spend all their spare cash on shares.
I have always tended to buy too early in these events. Although there are other times where it bounces back quickly.
I'm pretty happy for prices to get cheaper so I can make some purchases, having decreased my leverage for the past year or so. At the time time, I'm still over 100% invested so don't mind if prices bounce back again either.
Reporting season is the best time for a crash I think. Cheap prices plus updated information is the best time for buying.
I'm in the same camp. A few percent in a day looks violent, but mostly because the last six months has been a slow increase. Look at the movement in the last couple of days on a 5 or 10 year chart and it looks like noise - and small noise at that. I'm leaving things sit as they are. Another 10-15% fall and I'd start deploying some extra cash.
However, like Potm, I'm effectively over 100% stocks at the moment due to leverage, so when I say deploy cash, its really borrow more to invest.
I am in exactly the same boat. I was working on deleveraging a little before this blip, and will continue down that path unless something dramatic happens.
Post by: Gremlin on February 06, 2018, 08:30:50 PM
Post by: actionjackson on February 07, 2018, 05:15:38 PM
I’m surprised at the number of people who are leveraged into shares on this thread. Would’ve thought it might not align to principles. Not my thing but interesting nevertheless...
Yeah, my father would have retired more than 5 years ago if he wasn't leveraged in 2008. He lost his entire portfolio on a margin call.
Post by: itchyfeet on February 07, 2018, 06:47:05 PM
I’m surprised at the number of people who are leveraged into shares on this thread. Would’ve thought it might not align to principles. Not my thing but interesting nevertheless...
Yeah, my father would have retired more than 5 years ago if he wasn't leveraged in 2008. He lost his entire portfolio on a margin call.
The debt I borrowed was for property, and not shares. But this is leverage none the less, although not subject to margin calls. I don’t see my position as overly risky. Sure, more risky than no debt, but not scary risky for me anyhow.
If interest rates skyrocket, and I lost my job, and I had no tenants, then when I run out of cash in my redraw in a few years time I will be forced to sell the properties or to sell some shares. I can live with this risk.
I would, however, like to reduce the amount of debt I am carrying before FIRE. Probably not to zero, but far less than I carry now.
Post by: bigchrisb on February 07, 2018, 07:36:56 PM
Post by: middo on February 07, 2018, 08:17:19 PM
If you have a mortgage on your home, and buy shares rather than pay down the mortgage, you are in the same position of debt and market exposure (but probably a worse tax position) as borrowing to buy shares. I suspect a high proportion of people in this thread are in exactly that position, but don't realise it.
While I understand what you mean, and you are correct, the reality is that you don't get margin calls on your home, but you can on shares. That is why the behaviour may not be totally rational, but safer for the individual.
Post by: marty998 on February 08, 2018, 04:24:31 AM
Purchase $1.83, Sold in Jan 2018 $2.00, collected 9c in divvies, made a reasonable gain on 4000 shares, pocket money really.
In the past year they've expanded from mobile to broadband to energy retailing.
Shares went up to $2.23 earlier this week on a rumours of a takeover bid from TPG. Shares fell heavily today on news of a trading update ahead of results release on 28 Feb.
I sold partly because of the competition in mobile is getting crazy intense, and Amaysim are being undercut by Coles and Kogan.
The other reason I sold is that the business model (debt fuelled acquisitions) reminds me increasingly of a company that I had shares in that crashed and burned in the GFC called Transpacific Industries (TPI).
Too many acquisitions, management too optimistic in integrating the businesses and cross selling, too much spin, not enough substance.
The parallels were there and so I sold AYS last month.
Personally it was a great lesson to have learned at a young age (notwithstanding it cost me a bucket of money). If you want to stock pick you really need to DYOR, and draw from your own experience.
If you have any stocks in your portfolio where debt ratios have expanded, where takeovers have stretched balance sheets, and where cashflow is tightening due to competition or margin contraction then you may want to do the same and sell up before interest rates start to bite and credit markets get spooked.
Stick to your guns and trust your gut. If shit doesn't feel right it is ok to sell up. I'll bet many holders of AYS today will deny the obvious and put it in the bottom draw. I used to be one of those people, glad I've changed.
Post by: krustyburger on February 08, 2018, 05:04:47 AM
I want to provide a reflection/update on several posts I made regarding shares in Amaysim that I bought in February last year. (Yes I'm a naughty stock picking boy).
....
I used to be one of those people, glad I've changed.
Feels like I'm in a Gamblers Anonymous meeting..
In saying that, after watching the jittery market and being paralysed by indecision, I've put a buy order in at a lowish price for more VDHG, I'll probs keep lowering the price though if the market goes down
Post by: Ozlady on February 08, 2018, 10:57:08 PM
I am in acquisition mode atm...
Post by: Llewellyn2006 on February 09, 2018, 12:58:52 AM
I want to provide a reflection/update on several posts I made regarding shares in Amaysim that I bought in February last year. (Yes I'm a naughty stock picking boy). Back then it was a bog standard mobile retailer, chasing the bottom end of the market (cheap light users, great customer service)............
Stick to your guns and trust your gut. If shit doesn't feel right it is ok to sell up.
Good advice. I've had a couple of similar instances when I've sold out of a stock when I thought they'd had a good run but it couldn't last......Telstra and Qantas. I bought into Telstra at $3.67 and by the time they got to around $6.30 my gut feeling was that they were running out of steam and wouldn't get much higher. I sold a parcel at $6.34 and the rest at $6.50. Now they're around $3.50 (I think that's where they were the last time I looked some time ago) and haven't been anywhere near their past highs for years. I bought Qantas at $3.17 and they went up 80% in less than a year. That sort of return was too good to potentially leave on the table so I sold and thought I can live with the CGT consequences. Now they're at $5.09 so I'm comfortable with that.
Gut instinct is worth listening to.
Post by: Llewellyn2006 on February 09, 2018, 01:00:39 AM
Tried to pick up AFIC today at 6.06; but failed...at this price it is below NTA...
I am in acquisition mode atm...
Just gone ex-div as well. I think if you hang on you'll get them. I don't think this correction is finished yet.
Post by: bigchrisb on February 09, 2018, 02:40:03 AM
Sometimes... I thought csl had run too hard when it went from $30 to $55 and sold half my stake to take some profits. It's now at $140...I want to provide a reflection/update on several posts I made regarding shares in Amaysim that I bought in February last year. (Yes I'm a naughty stock picking boy). Back then it was a bog standard mobile retailer, chasing the bottom end of the market (cheap light users, great customer service)............
Stick to your guns and trust your gut. If shit doesn't feel right it is ok to sell up.
Good advice. I've had a couple of similar instances when I've sold out of a stock when I thought they'd had a good run but it couldn't last......Telstra and Qantas. I bought into Telstra at $3.67 and by the time they got to around $6.30 my gut feeling was that they were running out of steam and wouldn't get much higher. I sold a parcel at $6.34 and the rest at $6.50. Now they're around $3.50 (I think that's where they were the last time I looked some time ago) and haven't been anywhere near their past highs for years. I bought Qantas at $3.17 and they went up 80% in less than a year. That sort of return was too good to potentially leave on the table so I sold and thought I can live with the CGT consequences. Now they're at $5.09 so I'm comfortable with that.
Gut instinct is worth listening to.
My calcs don't put afi at a discount at the moment. It was at a premium on 31 Jan. It's moved almost in step with the asx300 since (both down about 3%), except the index hasn't lost a dividend from nta. So it's now at a greater premium to before the feburary wobble.
And yes, the current "crash" talk has been a net fall of 3% on the Australian market over Feb. The US market has moved more, but less so in aud, as our exchange rate has shifted and offset about 5% of the 10% move.
For me, there is still a long way to go before I'll start shifting asset allocation and deploying extra cash.
Post by: centastic on February 09, 2018, 04:54:59 PM
Too many acquisitions, management too optimistic in integrating the businesses and cross selling, too much spin, not enough substance.
The parallels were there and so I sold AYS last month.
I sold mine at a similar time basically because they were "diworsifying" from their core business, and their 28 day billing cycle change pissed off a LOT of people.
So two reasons which were similar to yours in that I just didn't have faith in the decisions management were making.
Post by: chasingthegoodlife on February 09, 2018, 05:46:03 PM
Even though my portfolio is made up entirely of VAS and VGS, it's interesting to understand how y'all are making decisions on how to invest. And it confirms that right now I just don't have the time to do the same :)
Post by: steveo on February 09, 2018, 07:49:04 PM
I really enjoy reading the reflections and commentary here from those who invest in individual shares, specific market sector etfs and so on.
Even though my portfolio is made up entirely of VAS and VGS, it's interesting to understand how y'all are making decisions on how to invest. And it confirms that right now I just don't have the time to do the same :)
I have no interest in picking shares. I figure the end result will probably be in my favour anyway so I don't see any reward for actually taking the time to pick shares.
Post by: Solvent on February 15, 2018, 02:11:45 AM
My target asset allocation has 5% gold. I currently have no exposure. What is the best way to get exposure to the gold price through an Australian brokerage? I want:
- Financial exposure, I've zero interest in holding physical gold
- Unhedged to the AUD
- Low feed
- Exchange traded
Perusing the ASX's list I see relatively few options, mostly quite high-fee. PMGOLD seems to be the best but the link leads to a dead ticker? What's up with that?
Post by: marty998 on February 15, 2018, 03:26:00 AM
The ETF is backed by physical Gold held by HSBC in London. It tracks the gold price, less a management fee of 0.40% p.a, so you don't get perfect exposure and your Gold investment will always be worth less than the gold price.
Post by: centastic on February 16, 2018, 12:31:25 AM
Essentially it is a warrant to have physical gold sent to your home address should you choose to exercise said warrant. They don't keep physical gold in a vault (hence the cheap fee), but instead will make your ingots from incoming gold. It's (currently) guaranteed by the WA Government.
It should appear when you search for it on your online trading interface, either as PMGOLD or PMGOLD-A or something.
Post by: mustachepungoeshere on February 18, 2018, 12:01:00 PM
HAPPY BIRTHDAY!
Enjoy your special day. Can’t wait to celebrate with you.
Post by: marty998 on February 18, 2018, 01:35:31 PM
This is one of @marty998’s regular haunts so...
HAPPY BIRTHDAY!
Enjoy your special day. Can’t wait to celebrate with you.
Thankyou :) I'll try and stop by your office today to say hi, if we're not out for lunch with my team.
Post by: misterhorsey on February 18, 2018, 04:34:58 PM
"Gold has its bugs. They argue that if there is a loss of confidence in the dollar - or even if there isn't - gold is an obvious asset for international investors, including central banks, to scramble into. In practice, of course, central banks have been scrambling in precisely the opposite direction for the better part of a century. Where gold account for nearly 70 percent of central banks' international reserves in 1913, its share today is barely 10 percent. In every year since 1988, central banks have been selling, not buying gold.
Why have they done so is clear. Financial instruments are more convenient for emergency financial transactions. When a currency is under pressure and the central bank is forced to support it, it is simpler just to buy that currency for dollars than to first sell gold in order to obtain the requisite dollars."
- Eichengreen, Barry, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System, p147-148, Oxford University Press, 2011
(I wouldn't recommend the book by the way. zzzzz zzzz zzzz)
It's pretty uncontroversial to say that Gold is probably of marginal interest to most people on this forum. And I personally am a fan of Warren Buffet's view on Gold.
But it's interesting to note that although the investment value of Gold owes its origins to its historical use as a currency reserve, the fact that it no longer forms the basis of currency reserves in the modern global economy has not taken away it's shine for a significant number of investors.
Post by: asosharp on February 18, 2018, 08:15:10 PM
It's pretty uncontroversial to say that Gold is probably of marginal interest to most people on this forum. And I personally am a fan of Warren Buffet's view on Gold.
What's Buffet's view on it? That it's a no go?
Post by: misterhorsey on February 18, 2018, 11:49:13 PM
Page 18, http://www.berkshirehathaway.com/letters/2011ltr.pdf
Finance articles quote him endlessly, but no one gives the actual source.
I'll quote him in full as he has such an amusing turn of phrase:
The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.
This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.
The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.
What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while.
Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.
Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.
Post by: centastic on February 22, 2018, 07:33:45 PM
Buffet is right, but he also (intentionally?) creates a false dichotomy, ie that you have to be either 100% invested in gold OR stocks. Some of the benefit of gold comes not from the expectation that it will increase in value over time, but from its ability to be used to buy said productive assets when they are on special. It's an uncorrelated asset that appreciates less quickly than shares or farmland unless it doesn't.
Post by: englyn on February 22, 2018, 09:56:04 PM
It points out elsewhere on the site that (as we know) the 4% rule is based in the US and gives the option to analyse asset allocation for a short list of other countries including Aus w.r.t safe withdrawal rate.
Does anyone have any comment on how accurate it is overall, and especially on the translation to Aus?
With much trial and error I've got the SWR up to 5% (!!) at 25 year retirement with a portfolio of 20% domestic shares, 35% world, 5% emerging world markets, 20% cash, 10% commodities, 10% REIT.
Where's the catch?
Post by: Ozstache on February 22, 2018, 10:13:27 PM
Where's the catch?
The catch is that at a higher withdrawal rate, your portfolio's chance of survival is lower than it otherwise would be in the event of poor initial sequence of returns.
Post by: englyn on February 22, 2018, 10:34:16 PM
If it's correct, I'm done buying total stock market funds 8-| and need to deploy cash into the other classes.
Post by: Latestarter55 on February 22, 2018, 11:24:04 PM
My wife and I owe $110K on our home value at $1.5M. We have two investment units on interest only loans, which if sold, would provide enough funds to clear our home mortgage along with unit loans. That is $100K+ from one unit which has been owned for four years. The second unit, we may break even, possibly lose a little. At present, we are losing $10K a year after interest payments water rates strata etc from the units.
We have $700K in super combine and we both currently contribute to our max pre tax limits with the intention of continuing to do so.
My question is that I’m leaning toward selling the units, clearing all loans and saving what we currently plough into loans with the view to building a portfolio of incoming producing shares. We have the capacity to save $80K a year. What is your view of this as a strategy ?
And yes....cashing in the house, moving somewhere cheaper and retiring is an option .... it just doesnt suit our current personal situation
Post by: englyn on February 22, 2018, 11:38:11 PM
Post by: mrmoonymartian on February 23, 2018, 01:26:24 AM
I've been having a very interesting time playing around with https://portfoliocharts.com/portfolio/withdrawal-rates/Starting just before the 70's stagflation makes Aus stocks look worse than they are and gold look better than it is. You can change the start date when benchmarking to see how that changes things. Also remember that it ignores all taxes, franking credits and fees... so I wouldn't bet your house on a 5% SWR based on the output.
It points out elsewhere on the site that (as we know) the 4% rule is based in the US and gives the option to analyse asset allocation for a short list of other countries including Aus w.r.t safe withdrawal rate.
Does anyone have any comment on how accurate it is overall, and especially on the translation to Aus?
Post by: marty998 on February 23, 2018, 01:38:21 AM
First post , lets just say I wish I'd found this web site some time ago.
My wife and I owe $110K on our home value at $1.5M. We have two investment units on interest only loans, which if sold, would provide enough funds to clear our home mortgage along with unit loans. That is $100K+ from one unit which has been owned for four years. The second unit, we may break even, possibly lose a little. At present, we are losing $10K a year after interest payments water rates strata etc from the units.
We have $700K in super combine and we both currently contribute to our max pre tax limits with the intention of continuing to do so.
My question is that I’m leaning toward selling the units, clearing all loans and saving what we currently plough into loans with the view to building a portfolio of incoming producing shares. We have the capacity to save $80K a year. What is your view of this as a strategy ?
And yes....cashing in the house, moving somewhere cheaper and retiring is an option .... it just doesnt suit our current personal situation
Need a lot more info to answer this. Where are your units held? Suburb info would be useful to know, especially if there's an oversupply in the area and prices are likely to stagnate.
I'm not a fan of selling up assets, but at 10k negative gear (pre or post tax?) it seems like you have quite low yields.
Keeping the properties will help offset the tax bill from the dividends you'll start to earn as your share portfolios grow.
Post by: Tyler on February 23, 2018, 08:42:52 AM
I've been having a very interesting time playing around with https://portfoliocharts.com/portfolio/withdrawal-rates/
It points out elsewhere on the site that (as we know) the 4% rule is based in the US and gives the option to analyse asset allocation for a short list of other countries including Aus w.r.t safe withdrawal rate.
Does anyone have any comment on how accurate it is overall, and especially on the translation to Aus?
With much trial and error I've got the SWR up to 5% (!!) at 25 year retirement with a portfolio of 20% domestic shares, 35% world, 5% emerging world markets, 20% cash, 10% commodities, 10% REIT.
Where's the catch?
There is no catch. But like any tool you do have to understand the assumptions and limitations. As the author of Portfolio Charts I'm happy to help. :)
This article is a good place to start: Your Home Country Is Inseparable From Your Withdrawal Rate (https://portfoliocharts.com/2017/06/09/your-home-country-is-inseparable-from-your-withdrawal-rate/). I also recommend reading the Withdrawal Rates methodology (https://portfoliocharts.com/withdrawal-rates-methodology/) and FAQ (https://portfoliocharts.com/withdrawal-rates-faq/). They go through some of the details in more depth than I can realistically explain here. And if you have more questions, feel free to contact me via PM and I'll explain anything you need.
Starting just before the 70's stagflation makes Aus stocks look worse than they are and gold look better than it is. You can change the start date when benchmarking to see how that changes things. Also remember that it ignores all taxes, franking credits and fees... so I wouldn't bet your house on a 5% SWR based on the output.
While the database starts in 1970, the calculations start in every possible start year within that database and account for both the best and worst outcomes for any portfolio. Withdrawal rates are calculated from only the worst case regardless of start year.
But you're absolutely right that Aussie stocks took a beating in the 1970's. Losing money (in cumulative inflation-adjusted terms) for 21 years starting in 1970 must have left a mark! Stuff like that is why I think it's really important to look at investment data in multiple countries and not simply rely on US-based analysis. A little global context goes a long way.
Post by: Latestarter55 on February 23, 2018, 02:14:53 PM
Re the questions, the units are in Penrith (western sydney) and coffs harbour. The 10k loss is pre tax. Although MMM would disagree, if we keep the units our capacity to save on top of servicing the loans is very limited. So building a substantial share portfolio under curreent circumstances isn't going to happen unfortunately
Post by: Ozlady on February 23, 2018, 03:02:12 PM
Welcome!
First of all, what are your goals?
Knowing that may help to formulate a useful strategy..eg. do you intend to work and for how long? Your financial target ? Cash flow or Capital gain etc...
Post by: Latestarter55 on February 23, 2018, 04:42:41 PM
I missed a previous question re the return on the units.... about 2.5% each is the answer to that.
The outstanding loans total $650k or there abouts including our house mortgage Clearing those and saving $80K+ a year is something I feel more comfortable with. As I mentioned earlier, it will be ten years on current projections to clear the loans which is not a good situation given a desire to retire in five. Having about $1M in super, $400K+ saved over the next 5 odd years and owning our home which we could sell and down size if required is probably best case scenario as I sit here looking at it.
Post by: Ozlady on February 23, 2018, 07:18:04 PM
If you know how much you need for your annual cash flow for retirement, you would have answered your own question.
Are you willing to carry debt into retirement? For me i am willing to do so ...as firstly, my cash flow net of investment debt is very positive and also i do not like to sell my properties...
I have a feeling once you answer the first question, your cash flow from super is enough to carry you through...
Good luck!
Post by: misterhorsey on February 23, 2018, 10:03:32 PM
haha yes finance types do love to wheel out that old saw as their "final word" on gold.
Buffet is right, but he also (intentionally?) creates a false dichotomy, ie that you have to be either 100% invested in gold OR stocks. Some of the benefit of gold comes not from the expectation that it will increase in value over time, but from its ability to be used to buy said productive assets when they are on special. It's an uncorrelated asset that appreciates less quickly than shares or farmland unless it doesn't.
He does create that comparison to illustrate his point, but I don't think he would regard it as a false dichotomy. Bearing in mind that the passage is from a part of the shareholder letter where he compares 3 different asset classes/investments and highlights the disadvantages of the two he doesn't favour, and the advantages of the one he does.
I think Buffett is backing himself that any business he picks will outperform the relative 'performance' of gold, so it's pointless for him to use gold as a hedge if the equivalent money could be put into a business that will outperform gold.
Buffett is obviously not the average stock picker buying publicly listed shares through an online broker provoked by the latest Motley Fool tips. His standing and wealth means that he is courted by business owners, invited onto Boards, given tours of facilities etc etc. This gives him an inside running and he is ultimately buying significant ownership stakes in listed and privately owned businesses rather than simply shares in a company over which he has little to no influence.
But yes, the average punter on the other hand might be reassured by the historical performance of gold and include it in their asset allocation due to the lack of correlation you point out.
Post by: oysters on February 25, 2018, 04:50:11 PM
I've been having a very interesting time playing around with https://portfoliocharts.com/portfolio/withdrawal-rates/ (https://portfoliocharts.com/portfolio/withdrawal-rates/)Starting just before the 70's stagflation makes Aus stocks look worse than they are and gold look better than it is. You can change the start date when benchmarking to see how that changes things. Also remember that it ignores all taxes, franking credits and fees... so I wouldn't bet your house on a 5% SWR based on the output.
It points out elsewhere on the site that (as we know) the 4% rule is based in the US and gives the option to analyse asset allocation for a short list of other countries including Aus w.r.t safe withdrawal rate.
Does anyone have any comment on how accurate it is overall, and especially on the translation to Aus?
Fees of a few extra funds vs say a one or two fund portfolio have relatively little impact if you carefully rebalance. Also, if you choose your funds carefully.
Franking credits would generally suggest that you should bias your Australian share % up a bit vs what the calculator produces. How much is hard to tell.
Vanguard Australia have an interesting pdf from a few years ago that goes through the pros/cons of Australian assett allocation and applies weightings for each.
[/size]https://static.vgcontent.info/crp/intl/auw/docs/literature/research/role-home-bias-global-asset-allocation-decisions.pdf?20130819%7C151400
Figure 11.
In their scenario they start with a 75/25 aus/int (I assume as this is a pretty common amount of home bias in Aus, which people decide on mostly by gut instinct, etc). But you could do exactly the same analysis just starting with the % Aus that you come up with from Tyler's calculator. Or choose parts of it. I expect that the calculator takes in much of the green "increase your International allocaiton" arrows. The ones I think you should keep would perhaps be:
- Domestic Asset Taxes (eg Franking Credits(sic)) +15% towards Australia
- Other domestic market risk factors (Weaker domestic investor protections increase international allocation) -5% towards Australia
Of course, your superannuation, depending on the fund, might be highly biased towards Australia already. You might also have an Australian investment property (different assett class, but still), have a large home that you could sell down, you have the opportunity to work in Australia if your portfolio is failing (employment opportunities muchly dependent on the economy), etc. So in some respects, your overall safety and livelihood (including things outside your portfolio) is already biased towards the success of Australia. A bit.
:-)
Post by: DrowsyBee on February 25, 2018, 08:35:40 PM
Today it got to $17 after an excruciating couple of years. I cashed out of most of my position and...day trading...never again.
Post by: alhart345 on February 25, 2018, 11:45:44 PM
I am looking for some ideas on how to do this;
1. via Comsec and their international shares partner Pershing
2. direct with Vanguard in the US - is this possible, their website is unclear. They also act as the broker in the purchase (and holding?) of VTS, which is interesting.
3. via some other broker in Australia or elsewhere
I hope some of the folks here are invested this way and could share a little about how they did it.
Thanks.
Al.
Post by: mjr on February 25, 2018, 11:59:21 PM
You can buy from Vanguard US into the same fund with USD but it'll be VTI on the NYSE.
Post by: asosharp on February 26, 2018, 02:52:43 AM
The first one:
http://www.abc.net.au/news/2018-02-14/why-i-decided-to-skip-home-ownership-to-retire-at-35/9378412
http://www.news.com.au/finance/money/investing/does-sydney-mans-plan-to-retire-at-35-make-sense/news-story/ab5f24c3abfc35a14d5dfe0f97c67d58 -- same guy but it includes financial info
http://www.watoday.com.au/money/planning/fire-followers-down-under-seek-early-retirement-20180222-p4z1cn.html -- the only thing with this one is that it talks about buying property for FIRE but it was good reading anyway
Post by: GT on February 26, 2018, 03:13:04 AM
Post by: centastic on February 26, 2018, 04:31:01 AM
In a question for the crowd here, I have returned from overseas to Australia and the exchange rates to AUD from the previous currency (TWD) were less enticing than the USD. Which I accumulated with the intent to, at a later point, convert to AUD (and pick up a little fixed interest along the way). In terms of cooperation, neither the USD/AUD rate nor the aussie stock market are in terms of accumulation, so I am considering another path; leaving about 200k in USD and investing in VTS (the idea is to get the preparatory stages out of the way in order to accumulate in to upcoming declines as they happen).
I am looking for some ideas on how to do this;
1. via Comsec and their international shares partner Pershing
2. direct with Vanguard in the US - is this possible, their website is unclear. They also act as the broker in the purchase (and holding?) of VTS, which is interesting.
3. via some other broker in Australia or elsewhere
I hope some of the folks here are invested this way and could share a little about how they did it.
Thanks.
Al.
Personally I'd just convert to AUD and be done with it.
The main advantage of keeping it in USD is that you have access to more ETFs.
The main advantage of converting it to AUD is that you don't have to do your own tax calculations.
If you buy VTI on the NYSE now (in USD), then wait until the AUDUSD exchange rate is more favourable, cash out and do the exchange to AUD, theoretically it should be exactly the same as doing the exchange first, then buying VTS (in AUD), no matter what the timeline is. VTS should be relatively more expensive if you choose the former and wait for a "favourable" time to do the exchange.
Post by: itchyfeet on February 26, 2018, 11:47:15 AM
Post by: englyn on February 26, 2018, 08:40:01 PM
Post by: chasingthegoodlife on February 27, 2018, 01:29:59 PM
You say you could save $80k a year if the loans were cleared, but later say you can't save a meaningful amount without clearing the loans first. How much are you spending per year servicing the three loans? If it is only e.g. $60k, START INVESTING THE SURPLUS TODAY. Don't wait until you have a perfect strategy, don't wait until you have come to a decision about selling the IPs, certainly do not wait until you have actually sold the unit.
Use this time while you are making a decision about the IPs to choose an investment platform and decide what you will invest in. Contribute what you can. See if there are any mustachian changes you can make to your lifestyle to increase that amount. Analyze your cashflow and get closer to knowing how much you will need in retirement.
Good luck with your goal.
Post by: steveo on February 27, 2018, 06:38:55 PM
My goals .... well, ideally be in a position to retire in 5 years. At present that would require a large shift toward MMM mindset, which I do want to move toward. Our current outgoings are way too high ... and it includes things like a motorbike that hardly gets ridden. I won't dig my hole any deeper, but you get the picture I'm sure.
I missed a previous question re the return on the units.... about 2.5% each is the answer to that.
The outstanding loans total $650k or there abouts including our house mortgage Clearing those and saving $80K+ a year is something I feel more comfortable with. As I mentioned earlier, it will be ten years on current projections to clear the loans which is not a good situation given a desire to retire in five. Having about $1M in super, $400K+ saved over the next 5 odd years and owning our home which we could sell and down size if required is probably best case scenario as I sit here looking at it.
I'd suggest simple frugality and paying off your debts. When you get that all cleared away or even before that you could just sell the house and relocate. We own a house in Sydney and that is our back-up plan. We have 3 kids and we want to let them finish off schooling in Sydney but once we have enough money to get to that point we will probably just quit. We will sell the house if required at any point.
My issue with our approach is that our youngest is 7. The other two are 14 and 16. When we get to 10 years savings outside of Super my wife intends to quit. I will probably go on another couple of years to get closer to a 4% overall WR but I don't care if we don't hit that figure because we can downsize.
Post by: Luckyvik on February 28, 2018, 10:01:37 PM
Sent from my iPhone using Tapatalk
Post by: centastic on March 01, 2018, 04:02:27 PM
Good article to support the case for investing in shares to support retirement plans https://cuffelinks.com.au/predictability-shares-age/
I'd take it one step further: bonds should be generating income to purchase more stocks, which feed your retirement. Not the other way around.
Post by: Latestarter55 on March 01, 2018, 08:13:25 PM
Thanks for your comments. To answer the question, we are paying about $75K servicing the loans ... well not just servicing, but paying down as quick as we can. I figured that without too much effort we should be able to put $80K away per year once they are cleared.
Agree with moving toward more mustachian ways. Walking home yesterday, I was thinking exactly along those lines and said to myself ... what can I do when I get home ... seriously.
The answer was that I had a fridge running in the shed that simply did not need to be. Got home, took out the very limited drink supply in it and turned it off. Plan on selling it.
And yes, we are not beyond a sea/tree change from Sydney. My wife, son and I did a 16 week trip around the western side of Australia last year. Coming back to corporate has done our heads in. It really opened our eyes to the possibilities and removed the fear of leaving our comfort zone. Realistically, if we were practicing as MMM does, we would have enough to retire today should we move.
I am currently talking with work about the possibility of working remotely so that we can try before we buy as such. The next few years are going to interesting.
Post by: simonpickard on March 08, 2018, 01:54:38 AM
First post, been reading for a while.
I'm trying to get my head around what to do first.
I want a simple setup that'll set me up for early retirement.
I've got about 500k in an offset account, 400k left to go on the mortgage.
Do most people pay this off first then look at investing? I keep reading about vanguard. Is that still the best option for a simple investment I can keep paying into monthly?
Any help on how to get started would be most welcome.
Regards,
Simon
Post by: Luckyvik on March 08, 2018, 04:02:42 AM
Hi,
First post, been reading for a while.
I'm trying to get my head around what to do first.
I want a simple setup that'll set me up for early retirement.
I've got about 500k in an offset account, 400k left to go on the mortgage.
Do most people pay this off first then look at investing? I keep reading about vanguard. Is that still the best option for a simple investment I can keep paying into monthly?
Any help on how to get started would be most welcome.
Regards,
Simon
There is about of a 50/50 split on this on the Mustachian forums. Some people think it’s best to fully offset the offset account first, some think investing first is best. Some of us do a bit of both.
Regardless the general concensus is that for Australians Vanguard is the way to go, either EFT’s if Investing less than 100k or the Wholesale fund if 100k or more to minimise fees although some prefer to invest in the retail fund even with less than 100k so that you can BPay small amounts into it.
Either way the general concensus is to salary sacrifice into your super up to the concessional cap first. Search the forum for ‘order of Investing’ then see the Australian post.
Also have a read through this thread. Good luck.
Post by: misterhorsey on March 08, 2018, 04:57:16 AM
There is about of a 50/50 split on this on the Mustachian forums. Some people think it’s best to fully offset the offset account first, some think investing first is best. Some of us do a bit of both.Don't forget some also rent! And don't own any property (http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/)
Regardless the general concensus is that for Australians Vanguard is the way to go, either EFT’s if Investing less than 100k or the Wholesale fund if 100k or more to minimise fees although some prefer to invest in the retail fund even with less than 100k so that you can BPay small amounts into it.Just also noting that although the wholesale funds state a minimum $5k amount for ongoing contributions.....they don't currently enforce it. I've regularly made much smaller payments.
Post by: MrThatsDifferent on March 08, 2018, 01:09:19 PM
There is about of a 50/50 split on this on the Mustachian forums. Some people think it’s best to fully offset the offset account first, some think investing first is best. Some of us do a bit of both.Don't forget some also rent! And don't own any property (http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/)Regardless the general concensus is that for Australians Vanguard is the way to go, either EFT’s if Investing less than 100k or the Wholesale fund if 100k or more to minimise fees although some prefer to invest in the retail fund even with less than 100k so that you can BPay small amounts into it.Just also noting that although the wholesale funds state a minimum $5k amount for ongoing contributions.....they don't currently enforce it. I've regularly made much smaller payments.
This is the bane of our life at the moment, buy or rent in Sydney? This city both the rents and housing costs are extremely high. At the lowest end, $2500/month will either rent you a decent 2 bedder in a 30 min bike ride to the CBD, or buy you a 1 bedder in that same area. A 1 bedder for 2 professional adults is not the most ideal. Otherwise you’re looking at buying in not great areas or further away and commuting 45-1hr on packed trains or busses, again not ideal.
And yet, I keep thinking, with buying, at least you’re retaining some of your cash and it’s not going down the drain completely. With an offset account, you’re keeping even more as you negate interest.
I’m so lost with this decision.
Post by: deborah on March 08, 2018, 02:34:21 PM
Post by: Llewellyn2006 on March 08, 2018, 03:05:04 PM
As East Coast house prices appear to be falling at the moment, if you were timing the market, you might hold off buying for a while.
Wait until interest rates start to rise and some of those people teetering on the edge with mortgages that they can only just afford to pay now start having to sell.
Post by: misterhorsey on March 08, 2018, 03:47:15 PM
And yet, I keep thinking, with buying, at least you’re retaining some of your cash and it’s not going down the drain completely. With an offset account, you’re keeping even more as you negate interest.
There's more than one drain money can go down.
- If interest rates are low, then asset prices get inflated and you pay a price that is more than what the house is valued at.
- If interest rates are normal, then you're still renting, but it's money that you're renting off the bank (albeit, for equity an asset that you hope will appreciate).
I'm currently a bit of a property bear, but only because it doesn't seem to make much sense at the current price:wage ratios. Even at these prices I can see how it might make sense for some if they are sufficiently comfortable - there are intangible benefits to home ownership that renting doesn't offer. But renting gives such great flexibility one shouldn't always dismiss it out of hand.
I've owned before and it didn't work out so well for a variety of reasons. If I changed a few things it probably would have worked out okay, even by just holding it for longer. So I haven't developed a deep aversion from one bad experience.
But every now and then when I get a twinge to think about property I re-read these articles! So I thought I would share.
http://thepowerofthrift.com/to-buy-or-to-rent-that-is-the-question/
http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/
https://jamesaltucher.com/2011/05/why-i-would-rather-shoot-myself-in-the-head-than-own-a-home/
These are all American blog posts, and so some of the assumptions are different (Australian homes are CGT free, but Americans have a limited CGT dedication, but can deduct their mortgage repayments from their tax bill. We have stamp duty, they have ongoing property taxes).
Oh, and this Canadian one, which is probably more comparable with Australia as Vancouver/Toronto are like twins of Sydney/Melbourne re: recent property price appreciation.
https://www.millennial-revolution.com/rent/renting-will-make-you-rich/
But many of the ideas are relatable. The renting life isn't for everyone. But it's a good to have an occasional rejoinder to the prevailing Australian cultural compulsion to buy property.
And lastly, I'm not saying you shouldn't buy, but you should learn about some of the advantages of not buying and if you do buy, go into it with eyes wide open.
Good luck!
Post by: deborah on March 08, 2018, 03:56:18 PM
Post by: simonpickard on March 08, 2018, 09:07:25 PM
Thanks for the info.
I have $100k I can put into this + $1000-$2000 per month from there after.
I'm not too bothered about Super as I've only been a citizen in Oz for about 8 years, my Super balance isn't the greatest (100k).
Which Vanguard fund does everyone use? I just checked their website and there's quite a few.
Regards,
Simon
Post by: deborah on March 09, 2018, 12:17:59 AM
"Regardless the general concensus is that for Australians Vanguard is the way to go, either EFT’s if Investing less than 100k or the Wholesale fund if 100k or more to minimise fees although some prefer to invest in the retail fund even with less than 100k so that you can BPay small amounts into it."If you have a super blance of over 100k, you are better off than most men who are less than 60 - see https://www.superannuation.asn.au/ArticleDocuments/359/1710_Superannuation_account_balances_by_age_and_gender.pdf.aspx?Embed=Y
Thanks for the info.
I have $100k I can put into this + $1000-$2000 per month from there after.
I'm not too bothered about Super as I've only been a citizen in Oz for about 8 years, my Super balance isn't the greatest (100k).
Which Vanguard fund does everyone use? I just checked their website and there's quite a few.
Regards,
Simon
Post by: itchyfeet on March 09, 2018, 04:45:05 AM
It also really depends upon how long you live in a house. At some stage, I heard that on average, Australian houses are sold every 7 years. This is about when (traditionally) they said that it makes sense to buy rather than rent - so most people don't stay in their houses long enough for ownership to be worth while. If you follow MMM in the living-in-walking/riding-distance-from-work, and you change jobs as often as most Australians do, it would be much more sensible to rent.
I think this is a very valid comment.
I am an extreme case, on the bad side, but I bought and sold 5 homes (not Investments props, although owned a couple of those too) over the course of 14 years.
I today shudder at the stamp duty and agent fee waste. I shuddered at the time, but it didn’t stop me. Our 6th home we have now owned 8 years, so we finally beat the average, but will sell when we FIRE and move somewhere cheaper.
In hind sight I prob should have rented in our 20s until I was a bit more stable, although we did benefit from a fast rising market, which today’s buyers won’t enjoy.
For the record
Held for
House 1. 3 years. (Although only lived in it for 1 and rented it out for 2 after I moved in with gf)
House 2. 2 years (gf and I sold house 1 & 2 after we married to buy house 3 closer to city. This was a good move)
House 3. 3 years (we should never have sold from here)
House 4. 2 years (bought a bigger place because we could afford to. Was a mistake).
House 5. 6 years (decided we wanted to live by the beach)
House 6. 8 years (got sick of commuting from the beach to the city and moved back close to the city).
Ooh- Lala 😬 makes me cringe....
Post by: marty998 on March 09, 2018, 04:59:00 AM
For the record
Held for
House 1. 3 years. (Although only lived in it for 1 and rented it out for 2 after I moved in with gf)
House 2. 2 years (gf and I sold house 1 & 2 after we married to buy house 3 closer to city. This was a good move)
House 3. 3 years (we should never have sold from here)
House 4. 2 years (bought a bigger place because we could afford to. Was a mistake).
House 5. 6 years (decided we wanted to live by the beach)
House 6. 8 years (got sick of commuting from the beach to the city and moved back close to the city).
Ooh- Lala 😬 makes me cringe....
Imagine if you were able to keep all of these each time you upgraded. Would be rolling in it now!
Post by: MrThatsDifferent on March 10, 2018, 01:11:15 AM
And yet, I keep thinking, with buying, at least you’re retaining some of your cash and it’s not going down the drain completely. With an offset account, you’re keeping even more as you negate interest.
There's more than one drain money can go down.
- If interest rates are low, then asset prices get inflated and you pay a price that is more than what the house is valued at.
- If interest rates are normal, then you're still renting, but it's money that you're renting off the bank (albeit, for equity an asset that you hope will appreciate).
I'm currently a bit of a property bear, but only because it doesn't seem to make much sense at the current price:wage ratios. Even at these prices I can see how it might make sense for some if they are sufficiently comfortable - there are intangible benefits to home ownership that renting doesn't offer. But renting gives such great flexibility one shouldn't always dismiss it out of hand.
I've owned before and it didn't work out so well for a variety of reasons. If I changed a few things it probably would have worked out okay, even by just holding it for longer. So I haven't developed a deep aversion from one bad experience.
But every now and then when I get a twinge to think about property I re-read these articles! So I thought I would share.
http://thepowerofthrift.com/to-buy-or-to-rent-that-is-the-question/
http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/
https://jamesaltucher.com/2011/05/why-i-would-rather-shoot-myself-in-the-head-than-own-a-home/
These are all American blog posts, and so some of the assumptions are different (Australian homes are CGT free, but Americans have a limited CGT dedication, but can deduct their mortgage repayments from their tax bill. We have stamp duty, they have ongoing property taxes).
Oh, and this Canadian one, which is probably more comparable with Australia as Vancouver/Toronto are like twins of Sydney/Melbourne re: recent property price appreciation.
https://www.millennial-revolution.com/rent/renting-will-make-you-rich/
But many of the ideas are relatable. The renting life isn't for everyone. But it's a good to have an occasional rejoinder to the prevailing Australian cultural compulsion to buy property.
And lastly, I'm not saying you shouldn't buy, but you should learn about some of the advantages of not buying and if you do buy, go into it with eyes wide open.
Good luck!
Thanks. I had read all of those and was fully in the rent forever basket but with the first home buyer bonus and the fact that our rent currently is $40k a year, I keep thinking I’d rather not piss that down the drain. And the fact that the SO won’t invest unless it’s property. My hope was to live in for 5 years, pay off, the rent out.
Yes, keep thinking just hold out until interest rises and people sell. But what do we do, keeping saving in a HISA until we buy? That return is so low. But if I invest then we pay CGT.
I. Hate. This.
Post by: oysters on March 10, 2018, 02:45:17 AM
This is something that's been irking me and my situation...though, the unit I bought I'm renovating cheaply myself and I'll make money off it no matter what-excellent investment property. Which is why I felt comfortable buying it. And I like the place. But, my job is more than a little uncertain right now, so this definitely adds to my anxiety. If I lose my job (contract not renewed...workplace strapped for cash), I can get newstart or parenting payment single. But as I have a mortgage I can't get rent assistance. The Mortgage is the majority of such payments. I'd have to rent it out, then rent myself. Which is ridiculous.
Post by: asosharp on March 10, 2018, 05:29:43 AM
Also renting isn't for everyone. There is some peace of mind gained from owning your own home that you live in.
Post by: asosharp on March 10, 2018, 05:31:13 AM
Post by: middo on March 10, 2018, 05:47:53 AM
Deborah does have a good point about the 7 years, changing jobs, etc. To expand on that... a solid FIRE strategy is of course to either downsize, or move to a cheaper location. I don't need to expand on the concept really, well covered everywhere on MMM forums. This would suggest bias towards renting, unless perhaps the place you buy that is near work, turns out to be an excellent investment property in itself.
This is something that's been irking me and my situation...though, the unit I bought I'm renovating cheaply myself and I'll make money off it no matter what-excellent investment property. Which is why I felt comfortable buying it. And I like the place. But, my job is more than a little uncertain right now, so this definitely adds to my anxiety. If I lose my job (contract not renewed...workplace strapped for cash), I can get newstart or parenting payment single. But as I have a mortgage I can't get rent assistance. The Mortgage is the majority of such payments. I'd have to rent it out, then rent myself. Which is ridiculous.
The fine print. We moved to WA to retrain as teachers, from Vic. Part of the reason was we could move out of home, rent it out and have someone pay our mortgage. Then we rented while on austudy ( outdated I know) and got paid rent assistance. We were advised how to do this by a centerlink officer back when you could talk to a person.
Government policy can affect your financial decisions.
Post by: itchyfeet on March 10, 2018, 09:09:55 AM
For the record
Held for
House 1. 3 years. (Although only lived in it for 1 and rented it out for 2 after I moved in with gf)
House 2. 2 years (gf and I sold house 1 & 2 after we married to buy house 3 closer to city. This was a good move)
House 3. 3 years (we should never have sold from here)
House 4. 2 years (bought a bigger place because we could afford to. Was a mistake).
House 5. 6 years (decided we wanted to live by the beach)
House 6. 8 years (got sick of commuting from the beach to the city and moved back close to the city).
Ooh- Lala 😬 makes me cringe....
Imagine if you were able to keep all of these each time you upgraded. Would be rolling in it now!
Indeed. However, certainly wasn’t possible. There were a couple of points during that time when interest rates went up and we were a bit stretched as it was.
Post by: Wadiman on March 11, 2018, 03:26:54 AM
Also I have a question. Is there any way I can set up some kind of visual chart to show how much money I have in X shares, and the dividends earned from them? I'd like to know so I have an easy visual format of how far away I am from FIRE.
One solution is to do this via excel if you are familiar with spreadsheets?
Post by: oysters on March 11, 2018, 04:01:48 AM
Deborah does have a good point about the 7 years, changing jobs, etc. To expand on that... a solid FIRE strategy is of course to either downsize, or move to a cheaper location. I don't need to expand on the concept really, well covered everywhere on MMM forums. This would suggest bias towards renting, unless perhaps the place you buy that is near work, turns out to be an excellent investment property in itself.
This is something that's been irking me and my situation...though, the unit I bought I'm renovating cheaply myself and I'll make money off it no matter what-excellent investment property. Which is why I felt comfortable buying it. And I like the place. But, my job is more than a little uncertain right now, so this definitely adds to my anxiety. If I lose my job (contract not renewed...workplace strapped for cash), I can get newstart or parenting payment single. But as I have a mortgage I can't get rent assistance. The Mortgage is the majority of such payments. I'd have to rent it out, then rent myself. Which is ridiculous.
The fine print. We moved to WA to retrain as teachers, from Vic. Part of the reason was we could move out of home, rent it out and have someone pay our mortgage. Then we rented while on austudy ( outdated I know) and got paid rent assistance. We were advised how to do this by a centerlink officer back when you could talk to a person.
Government policy can affect your financial decisions.
Agree Middo. Not sure what happened with my post above...the forum has converted the second paragraph to goggle-de-gook!
I said there something like: In my current situation I bought a small unit that I'm doing up in a great investment location. Its also 25mins walk to work (perfect moustachianism). I don't intend to move out any time soon, though, my current work situation is very uncertain. If my contract isn't renewed (workplace is short on cash) then I'll have to go on newstart or parenting payment single. If I stay in my house, with mortgage, I won't be able to afford it; although my mortgage repayments aren't much more than what rent for a similar place would be, I won't be eligible for rent assistance. However if I rent it out, it falls below the assets test, and, taking off costs (interest, council rates, strata fees), I'll be under the income threshold still for reducing my centrelink payments. And I'll get rent assistance for where I rent.
This is kind of stupid. I have to move out. Its disruptive. They could just pay me an equivalent amount for renting my place in rent assistance. The system is basically encouraging property investment. Which if you are aware of and can take advantage of, great. In my case it will quite disruptive to me and my little girl and suck.
^This was all my main worry in buying the place. I knew that I wouldn't be able to afford to stay in it (but wouldn't lose it), if I lost my job for some reason. But, I was very careful, and didn't want to buy a place (at this stage) that wouldn't be a suitable investment property in itself.
Post by: Rob_S on March 11, 2018, 04:52:15 AM
Yes, keep thinking just hold out until interest rises and people sell. But what do we do, keeping saving in a HISA until we buy? That return is so low. But if I invest then we pay CGT.
I. Hate. This.
You and your partner could save for the deposit by salary sacrifice into super to get a better bang for your buck.
Post by: MrThatsDifferent on March 11, 2018, 02:11:03 PM
Yes, keep thinking just hold out until interest rises and people sell. But what do we do, keeping saving in a HISA until we buy? That return is so low. But if I invest then we pay CGT.
I. Hate. This.
You and your partner could save for the deposit by salary sacrifice into super to get a better bang for your buck.
Yeah, but I’m almost at my max so it won’t help me much, the SO it would be good for but if we decide to not buy, then that’s cash we can’t access for something else, like our live around the world plans in 6 years.
Post by: potm on March 14, 2018, 04:32:42 AM
You've probably heard about Labor's proposed policy on dividend franking credits. I'm going to have a discussion on what it means for early retirees and the typical investments suggested in this thread.
The proposed policy change is to disallow excess franking credits to be refunded as cash to investors.
Let's say we have an early retiree who has just quit their job and is living off dividends from a 50/50 VAS and VGS portfolio with a total value of $1 million.
There is no other income. For simplicity we are going to assume VAS yields 4.5% and VGS 2.5%. We will also assume VAS dividends are 100% franked. We will assume VGS has a foreign income tax offset of about 10%. It might be slightly higher, I don't hold it myself. For the purposes of this exercise we will be only looking at the dividend component.
VAS
$22,500 dividend received
$32,143 grossed up
$9,642 franking credit
VGS
$12,500 dividend received
$13,889 grossed up
$1,389 foreign income tax offset
Total income $46,032
Tax payable $7,119
Total offsets $11,031
Tax refund $3,912
The proposed changes would mean the early retiree does not receive the tax refund of $3,912. Please let me know if I've made any errors in my analysis.
This is just a simplified example.
The changes impact most on people who have a high allocation of fully franked dividend income compared to other sources (ie. retirees). It also impacts the people with a modest level of income more. As income rises the higher tax rate makes use of the franking credits more. If you solely had fully franked dividend income, you would need just over $137k of grossed up dividends to utilise all the franking credits. The biggest impact dollar wise will be at $37,000 grossed up dividends.
Post by: Rowellen on March 14, 2018, 05:05:51 AM
Post by: marty998 on March 14, 2018, 05:13:32 AM
I think you're on the money, potm. This has seriously got my knickers in a knot. I work with SMSFs. I can tell you most of my clients are not obscenely wealthy as Shorten would have the masses believe. Most are living of the nestegg they've saved by working hard and living below their means. There are a few with large balances but it's far more typical to see $200k to $700k and apart from their home, this is it. A main part of their strategy is to have franked dividends. It's also a blow to small businesses. A business run through a company pays tax then the owner takes the profit only to be double taxed. Talk about unfair. A real disincentive to saving. Shorten clearly doesn't understand the tax system or the way centrelink works from his comments. I hope he doesn't get in.
Explain the bolded @Rowellen ? The shareholder is not going to be paying any additional tax over and above the corporate tax rate, unless their marginal rate is higher than the corporate tax rate, which is the status quo, so I don't see how it will be "double tax". The tax rate paid will be the corporate tax rate, and this fixes a problem with Labor's Trusts policy.
And besides, you are going to generate a lot of additional fees when everyone comes to you for advice... this will be good for your business :)
Post by: Rowellen on March 14, 2018, 05:15:37 AM
Post by: limeandpepper on March 14, 2018, 05:58:52 AM
Post by: asosharp on March 14, 2018, 06:47:36 AM
Also I have a question. Is there any way I can set up some kind of visual chart to show how much money I have in X shares, and the dividends earned from them? I'd like to know so I have an easy visual format of how far away I am from FIRE.
One solution is to do this via excel if you are familiar with spreadsheets?
I can use Excel but just the basic stuff. No pivots etc.
Post by: Ozlady on March 14, 2018, 03:52:55 PM
I think this Shorten fella is so short term and panders to a particular segment of society with envy of the wealthy..the worrying thing is don't think it is not going to happen as the gap between the 2 parties is very narrow.
I can only speak for myself ..going into retirement soon...i was planning to increase my allocation of funds to LICs but going forward , not so sure..this will certainly impact how i invest...ah well...i might as well hold my monies in offset now..why bother to take the risk for the lower return rate..or buy another property.
This may lead people to pull money out of the stock market..or view the stock market more for capital gains rather than dividends focused more similar to the US market.
And i also foresee with lower franking credits for retirees, more will be reaching out for the aged pension..so it really defeats the purpose isn't it?
Another short term policy the Labour comes out with now ..and don't get me started on that whinny high pitch voice..man..that really turns me off !
Rant over!
Post by: one piece at a time on March 14, 2018, 04:01:14 PM
We've got a thread on it in the Aus tax forum but I think more people will read this thread so will put this here.
You've probably heard about Labor's proposed policy on dividend franking credits. I'm going to have a discussion on what it means for early retirees and the typical investments suggested in this thread.
The proposed policy change is to disallow excess franking credits to be refunded as cash to investors.
Let's say we have an early retiree who has just quit their job and is living off dividends from a 50/50 VAS and VGS portfolio with a total value of $1 million.
There is no other income. For simplicity we are going to assume VAS yields 4.5% and VGS 2.5%. We will also assume VAS dividends are 100% franked. We will assume VGS has a foreign income tax offset of about 10%. It might be slightly higher, I don't hold it myself. For the purposes of this exercise we will be only looking at the dividend component.
VAS
$22,500 dividend received
$32,143 grossed up
$9,642 franking credit
VGS
$12,500 dividend received
$13,889 grossed up
$1,389 foreign income tax offset
Total income $46,032
Tax payable $7,119
Total offsets $11,031
Tax refund $3,912
The proposed changes would mean the early retiree does not receive the tax refund of $3,912. Please let me know if I've made any errors in my analysis.
This is just a simplified example.
The changes impact most on people who have a high allocation of fully franked dividend income compared to other sources (ie. retirees). It also impacts the people with a modest level of income more. As income rises the higher tax rate makes use of the franking credits more. If you solely had fully franked dividend income, you would need just over $137k of grossed up dividends to utilise all the franking credits. The biggest impact dollar wise will be at $37,000 grossed up dividends.
My understanding is that if the shares were held in Super then you'd be exempt from the $7k in the first place, this makes it an $11k turn around when comparing pre and post shorten tax. Obviously to utilize the super tax free status you have to be old enough, and I've yet to find a way make that happen any faster through badassity.
Post by: Ozlady on March 14, 2018, 04:12:09 PM
We've got a thread on it in the Aus tax forum but I think more people will read this thread so will put this here.
You've probably heard about Labor's proposed policy on dividend franking credits. I'm going to have a discussion on what it means for early retirees and the typical investments suggested in this thread.
The proposed policy change is to disallow excess franking credits to be refunded as cash to investors.
Let's say we have an early retiree who has just quit their job and is living off dividends from a 50/50 VAS and VGS portfolio with a total value of $1 million.
There is no other income. For simplicity we are going to assume VAS yields 4.5% and VGS 2.5%. We will also assume VAS dividends are 100% franked. We will assume VGS has a foreign income tax offset of about 10%. It might be slightly higher, I don't hold it myself. For the purposes of this exercise we will be only looking at the dividend component.
VAS
$22,500 dividend received
$32,143 grossed up
$9,642 franking credit
VGS
$12,500 dividend received
$13,889 grossed up
$1,389 foreign income tax offset
Total income $46,032
Tax payable $7,119
Total offsets $11,031
Tax refund $3,912
The proposed changes would mean the early retiree does not receive the tax refund of $3,912. Please let me know if I've made any errors in my analysis.
This is just a simplified example.
The changes impact most on people who have a high allocation of fully franked dividend income compared to other sources (ie. retirees). It also impacts the people with a modest level of income more. As income rises the higher tax rate makes use of the franking credits more. If you solely had fully franked dividend income, you would need just over $137k of grossed up dividends to utilise all the franking credits. The biggest impact dollar wise will be at $37,000 grossed up dividends.
Hi Potm
Can you explain where you got the figures 137K and 37K from ? (last 3 lines...)
Post by: potm on March 14, 2018, 05:59:01 PM
Yes the impact is greater the lower your tax rate is and in super it is 0-15% even at very high levels of income. This is what shorten is selling the policy as, targeting these rich people. I can’t disagree with super benefits being too generous but they should be targeted directly, not a blanket hit on franking credits that effects people with modest levels the hardest.
Another point to note is that apparently APRA funds will have plenty of tax obligations to net out any franking credits so the full benefit is still received. This just shows again how stupid the policy is. It’s not hitting the rich. It’s hitting those who choose to manage their own super and those on low incomes with fully franked dividends.
@Ozlady
$37k is when the tax rate increases above 30% so each additional dollar of dividend income uses more franking credit offset than it generates so at 37k the lost refund would be greatest. $137k is the point where the average overall tax rate is 30% so all franking credits get utilised so there is no lost refund.
Post by: Ozlady on March 14, 2018, 06:57:36 PM
And i assume those of us with SMSF and industry fund, where the tax rate is capped at 15% or 0% at age 60, would be massively hit by having no franking credits regardless of dividend level?
(my head actually hurts when i am typing this ...)
Post by: potm on March 14, 2018, 09:42:37 PM
Post by: middo on March 14, 2018, 10:17:22 PM
Post by: marty998 on March 15, 2018, 01:59:42 AM
Thanks Potm
And i assume those of us with SMSF and industry fund, where the tax rate is capped at 15% or 0% at age 60, would be massively hit by having no franking credits regardless of dividend level?
(my head actually hurts when i am typing this ...)
Retail and Industry funds are much more diversified across International shares, Infrastructure, Fixed Income, Private Equity and Property. Consequently (the funds that are in accumulation mode) will have other tax liabilities that franking credits will be utilised against.
It is the comparatively un-diversified SMSF sector that will see returns suffer, unless they decide to (IMO) do the right thing and diversify themselves into a more appropriate asset allocation.
If they decide to sell en-masse so be it. I'll be ready and waiting to hoover up as many shares as I can. The underlying performance of the companies won't change just because a pissed off retiree has decided to cut their nose to spite their face.
Article published today (I forget where) demonstrated that the Industry Fund sector will see no impact at all to returns, with the biggest drop experienced by SMSFs.
Post by: mjr on March 15, 2018, 04:00:32 AM
Without being rude about this, I would have thought that retiring on an income that assumes that government taxation policies will not change in the future at all is a little short sighted. My father in law did that in the early 80's, only to be caught by the assets test and reduced pension from that. If your retirement plans need certain policies to be in place for the rest of your life, maybe you are not as financially independent as you thought you were?
So, your advice is to work long enough to save so much that you are immune from any possible policy change ?
Most people retire when they get to "that age". For the government of the day to come alone and change the rules on self-funded retirees is just bloody rude.
Post by: mjr on March 15, 2018, 04:03:05 AM
Consequently (the funds that are in accumulation mode)
It is the comparatively un-diversified SMSF sector that will see returns suffer
If they decide to sell en-masse so be it. I'll be ready and waiting to hoover up as many shares as I can.
Yeah, those people managing their own super in pension mode deserve everything they get.
Post by: itchyfeet on March 15, 2018, 04:43:54 AM
I would also contend that the clear message on this forum is that withdrawal rates should be conservative when planning an early retirement. If you are basing your retirement planning on say a 6% dividend yield plus a further 20-30% kicker from dividend imputation credits, then you have strayed into aggressive retirement planning territory.
My personal view is that the tax benefits of superannuation are too great and need reform. Capping the asset base that can be held in Super (or: the 1.6m super cap) and taxing incomes from super above a certain (fairly significant) threshold would achieve this. The tax incentive to invest in Super should remain to encourage everyone to save for their retirement. But the incentive must have a limit.
I also believe the imputation credit system should remain in place. If a company you own pays taxes in Australia, why should you be double taxed once you take after tax profits out of your company?? Owners of companies should not be frozen out of the tax free threshold, and low marginal tax rates.
Post by: mjr on March 15, 2018, 02:57:13 PM
But now Keating's systen has been in place for nearly 30 years. That's a lot of people who've been taxed on Super and are now approaching retirement. Hell of a.mess to try and turn that ship around now.
Keating's system was much more about giving unions access to super funds as we moved away from manufacturing and industry than it was about managing retirement incomes.
Post by: marty998 on March 15, 2018, 03:04:34 PM
Tax-free super for life was always a silly idea. A better system would have been tax-free contributions and earnings (or concessions if not tax-free) but normal taxes apply on withdrawal.
You can't have this because then you'd be taxing the "after tax" contributions you've put in.
Remember the old rebates for "undeducted purchase price of annuities?" It's complex and costly to implement and maintain.
The better thing to do is simply leave a 15% tax on all earnings.
Post by: middo on March 15, 2018, 08:04:34 PM
Without being rude about this, I would have thought that retiring on an income that assumes that government taxation policies will not change in the future at all is a little short sighted. My father in law did that in the early 80's, only to be caught by the assets test and reduced pension from that. If your retirement plans need certain policies to be in place for the rest of your life, maybe you are not as financially independent as you thought you were?
So, your advice is to work long enough to save so much that you are immune from any possible policy change ?
No. My advice is to assume things will change. It has happened in the past and will happen again. Assuming it won't is making yourself vulnerable to the whims of the electorate and the government of the day.
Most people retire when they get to "that age". For the government of the day to come alone and change the rules on self-funded retirees is just bloody rude.
This is a forum for those that retire BEFORE they get to "that age", so I don't really see how that is relevant, However, I do agree with you that tinkering with the super rules is problematic. It is one of the reasons I did not pour larger $ into super earlier in my working life, and regret it a bit now. At least this tinkering is clear and out there before Labor get elected, rather than what happens usually. It is up front with the electorate. There will be losers, as it is designed to raise more revenue. I agree with it. You may not. We get a vote in 15 months time on the future of the country.
Post by: potm on March 15, 2018, 08:14:13 PM
What was Howard thinking. He even opened the flood gates and let you put in as much as you wanted for a bit.
Although I aim to be one of the more well off and benefit from it, I don’t understand why super doesn’t have progressive tax rates like income tax. It should start at 0, go up to 15% at a decent amount and then go to 30% at a much higher amount. That is how you take from the rich Shorten, not a policy that hits people at all levels.
Post by: deborah on March 15, 2018, 08:16:24 PM
Tax-free super for life was always a silly idea. A better system would have been tax-free contributions and earnings (or concessions if not tax-free) but normal taxes apply on withdrawal.But they’re bringing back Keating’s system, and removing one of the changes made by Howard and Costello. Everyone knows that the many changes made by Howard and Costello were unsustainable, and that many of the recent changes have been effectively rolling them back. In fact, if it wasn’t for the Howard and Costello changes, super would have had a lot fewer changes recently, and everyone would be a lot more comfortable with super.
But now Keating's systen has been in place for nearly 30 years. That's a lot of people who've been taxed on Super and are now approaching retirement. Hell of a.mess to try and turn that ship around now.
Keating's system was much more about giving unions access to super funds as we moved away from manufacturing and industry than it was about managing retirement incomes.
Post by: itchyfeet on March 15, 2018, 09:44:09 PM
In the mean time we continue to play the game with our fingers crossed.
Post by: JuicyCrab on March 23, 2018, 02:35:22 AM
I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.
The plan is to move:
- Aus Shares (IOZ) 38.00%
- World ex US (VEU)28.50%
- Emerging Markets (IEM)5.00%
- US shares (Large, Medium, Small Cap. IVV, IJH, IJR) 28.50%
all into
Vanguard Diversified High Growth Index ETF (VDHG) 0.27% p.a
- Vanguard Australian Shares Index Fund (Wholesale) 36.0 %
- Vanguard International Shares Index Fund (Wholesale) 26.5 %
- Vanguard International Shares Index Fund (Hedged) - AUD Class (Wholesale) 16.0 %
- Vanguard International Small Companies Index Fund (Wholesale) 6.5 %
- Vanguard Emerging Markets Shares Index Fund (Wholesale) 5.0 %
- Vanguard Global Aggregate Bond Index Fund (Hedged) 7.0%
- Vanguard Australian Fixed Interest Index Fund (Wholesale) 3.0%
It all seems fairly logical as the vanguard ETF broadly matches what I'm trying to achieve and also has the income/bond component I have been wanting to adopt.
Does this seem like a smart move to cut down on time? Or am I missing some risks here?
Cheers!
Post by: misterhorsey on March 23, 2018, 03:31:55 AM
The only issues I see are:
- CGT liability.
Are you sitting on any capital gains on your old ETFs?
It's a bit painful to realise a capital gain to simply to change investment structure (albeit, a more streamlined easier to manage structure).
You could get around this by buying into the new Vanguard ETF and withdrawing your positions from the old ETFs when you have accumulated losses from somewhere, or if you are planning a low income year in the near future. It does mean double dealing for a bit and it's a bit of a pain. Just depends on how big your tax bill might be to determine whether it's worth it. Someone else might have some clever ideas too.
- Fund route
If you have 100k you can buy the Wholesale Fund. It has a slightly higher .29% fee.
Why would you? Well, you can BPAY your savings into it instead of waiting to accumulate enough to offset the cost of brokerage.
https://www.vanguardinvestments.com.au/adviser/adv/investments/product.html#/fundDetail/wholesale/portId=8134/assetCode=balanced/?overview
The difference between .027% and .29% on $500k is........$100 a year.
Also, buying ETFs on market always does my head in a little bit. I always waste time trying to get a best price.
Post by: marty998 on March 23, 2018, 04:35:20 AM
As we near the end of another quarter, please remember your Vanguard ETFs go ex-distribution on 3rd of April. If you want the distributions, you need to purchase your shares by Thursday.
Alternatively if you want to avoid the taxable income you can purchase your shares/units cheaper after Easter :)
Post by: krustyburger on March 23, 2018, 05:14:19 AM
Hey guys,
I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.
I didn't bother selling any of my other ETFs or LICs, but I also don't have that much invested. I just started buying the vanguard diversified high growth ETF and will continue to do that from now on.
Post by: JuicyCrab on March 23, 2018, 05:54:19 AM
Hey guys,
I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.
I didn't bother selling any of my other ETFs or LICs, but I also don't have that much invested. I just started buying the vanguard diversified high growth ETF and will continue to do that from now on.
Not a bad idea actually!
Luckily I'm at the start of my investment journey, total invested is 100k with a 3k cap gain in there. I think given it's still early days I might do this ^^^ as well, my taxable income is going to be somewhat high this FY anyways.... :/
Thanks for the advice guys!
Post by: marty998 on March 27, 2018, 01:27:27 AM
For me that's a nice tidy earner of about $10k profit (*jumps and clicks heels*). Probably would have done just as well in an index fund over 6 years but at least I have an exit path now from this one.
Hey guys,
I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.
I didn't bother selling any of my other ETFs or LICs, but I also don't have that much invested. I just started buying the vanguard diversified high growth ETF and will continue to do that from now on.
I think there will naturally come a "right time" to sell out and clean up the holdings. You mightn't know now when it will be, but you'll know when the time comes. Nothing ever needs to be rushed.
Post by: asosharp on March 28, 2018, 09:08:42 PM
Hey guys,
I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.
I didn't bother selling any of my other ETFs or LICs, but I also don't have that much invested. I just started buying the vanguard diversified high growth ETF and will continue to do that from now on.
Not a bad idea actually!
Luckily I'm at the start of my investment journey, total invested is 100k with a 3k cap gain in there. I think given it's still early days I might do this ^^^ as well, my taxable income is going to be somewhat high this FY anyways.... :/
Thanks for the advice guys!
I have thought about the VDGR/VDHG but I'm concerned about retirement. Aggressive growth in VDHG means that it's probably not suitable for retirement because by the end of the day you should have more bonds as a rule of thumb for income generation right? So based on this, eventually you will have to sell your VDHG off and put it into something less risky. Wouldn't this trigger a big CGT even when you try to move it across to something more balanced/less risky?
Also what happens if others sell theirs off because they're moving away to less risky investments? How does that affect the fund?
Post by: Llewellyn2006 on March 29, 2018, 12:57:32 AM
Post by: marty998 on March 29, 2018, 05:15:24 AM
Well at least Magellan will be saving some money after tearing up their sponsorship deal with the cricket!
It was price sensitive enough that they posted an ASX announcement.
From what I gather the sponsorship was $20m over 3 years. I am disappointed they terminated the arrangement with Cricket Australia and did not opt to transition the sponsorship to the women's team, who seem to be much more deserving of the reward, recognition and attention.
Post by: MrThatsDifferent on March 30, 2018, 05:47:25 PM
Also, I’m sure this has been discussed but how do Aussies handle the draw down period since we can’t do what Americans can do with accessing retirement earlier (without a major tax hit)?
Post by: misterhorsey on March 30, 2018, 06:20:35 PM
The basic rule that money invested doubles every 10 years is based on the assumption that the investments will see an average growth rate of around 7% per annum.
This is based on the Rule of 72:
https://en.wikipedia.org/wiki/Rule_of_72
So the time period for doubling depends on the actual growth rate of your investments. According to the table in the wiki article, 5% growth will take 14 years to double, whereas a growth rate of 12% amounts to 6 years.
Growth in your investments is typically expressed as a percentage figure. It usually includes a capital growth component (i.e. the price of shares), combined with income (i.e. dividends), less fees and taxes.
So whether you choose to reinvest or spend your dividends will affect your average growth rate over a given period. If you reinvest, your average growth will be higher and doubling will be quicker, but if you spend your dividends you will lower your growth rate and it will take longer to double.
But if spending your dividends means putting food on the table then it's not a bad thing to do, even if it makes it longer for your stash to grow.
Post by: MrThatsDifferent on March 30, 2018, 09:03:21 PM
Not a dumb question (there is no such thing!)
The basic rule that money invested doubles every 10 years is based on the assumption that the investments will see an average growth rate of around 7% per annum.
This is based on the Rule of 72:
https://en.wikipedia.org/wiki/Rule_of_72
So the time period for doubling depends on the actual growth rate of your investments. According to the table in the wiki article, 5% growth will take 14 years to double, whereas a growth rate of 12% amounts to 6 years.
Growth in your investments is typically expressed as a percentage figure. It usually includes a capital growth component (i.e. the price of shares), combined with income (i.e. dividends), less fees and taxes.
So whether you choose to reinvest or spend your dividends will affect your average growth rate over a given period. If you reinvest, your average growth will be higher and doubling will be quicker, but if you spend your dividends you will lower your growth rate and it will take longer to double.
But if spending your dividends means putting food on the table then it's not a bad thing to do, even if it makes it longer for your stash to grow.
Thanks so much misterhorsey for taking the time to answer my question. That makes sense. I thought it might be too good to be true to double the money and pull the dividends. I was hoping to get the franking credits benefits, assuming that still exists.
Post by: potm on March 30, 2018, 10:56:31 PM
Reinvesting the divs is the same as receiving the divs and then buying more shares/units. It makes no difference tax wises.
Post by: MrThatsDifferent on March 31, 2018, 04:05:25 AM
Just in case you were not aware, even if you reinvest the dividends, you still get the benefits of the franking credits.
Reinvesting the divs is the same as receiving the divs and then buyer more shares/units. It makes no difference tax wises.
Oh gotcha, thanks!
Post by: MrThatsDifferent on April 02, 2018, 05:19:34 PM
Post by: steveo on April 02, 2018, 08:15:01 PM
Hey all, stocks are crashing. Is this buy time that everyone has been wishing for? I only have Vanguard total life strategy high growth account. I stopped adding to it to build up cash to buy property but still unsure of that. Do I keep investing or hoard cash? I hate watching my account dwindle, but I know that’s the game. Pep talk please.
Honestly a falling market if you keep buying is a good thing. The problem with the market going up consistently is that you probably retire at a peak. If you just keep investing through the down times I think you likelihood of retirement failure is going to be pretty low.
Post by: itchyfeet on April 02, 2018, 08:25:55 PM
I can only offer a few thoughts:
1. If your investment horizon for buying a house is less than a couple of years then the volatility of stocks probably means it’s not a suitable investment for you at this time.
2. If your investment horizon is more than a couple of years then the best time to invest is today. Time in the market is a more consistently reliable strategy than timing the market. Buy and just forget about it.
That being said, I am in the camp of those that believe that there is a higher probability of interest rates rising in the next few years, rather than staying as they are or decreasing further, and this will be a very very strong headwind to growth in stock prices (and company earnings), and especially residential real estate, in the short to medium term.
But, even though I have this view history tells me that most probably I will be wrong, my crystal ball is not at all reliable, and so I just keep accumulating assets in the confident belief that when I look back 20 or 30 years from now it will look to have been a great decision in hindsight irrespective of the short term noise that may or may not impact prices in the next few years.
In relation to residential real estate in Sydney or Melbourne, if I was a first home buyer I would be careful. I see it as a slightly different situation to stocks as a first home buyer is likely to be 80-90% leveraged, meaning that even a correction of 20% could wipe out 100% or more of the buyers equity, which could become dramatic if a sale is forced (eg: divorce, relocation for work etc). If I was a first home buyer I would still pursue my ambitions of home Ownership, but with interest rates so low today I would want a 25% deposit - just in case I have to sell in the next 5 years.
Post by: steveo on April 02, 2018, 10:16:26 PM
But, even though I have this view history tells me that most probably I will be wrong, my crystal ball is not at all reliable, and so I just keep accumulating assets in the confident belief that when I look back 20 or 30 years from now it will look to have been a great decision in hindsight irrespective of the short term noise that may or may not impact prices in the next few years.
This is how I view the markets. I just keep buying. I know that if I don't have to sell (so keep some bonds/cash if you are getting close to the drawdown phase) then I should end up miles ahead over the long term.
Post by: MrThatsDifferent on April 03, 2018, 04:03:15 AM
Post by: Red_Gold on April 04, 2018, 08:38:19 PM
I am equally uncomfortable having majority of my net worth tied to one country, as great as Australia is. I’ve been reading investment books for years and the message of diversification sunk in deep. However, the prospect of reaching my FIRE goals sooner with dividend investing (ie needing smaller nest egg to generate required income), combined with not needing to sell shares in order to fund my retirement is extremely attractive.
Your two cents on this matter will be appreciated.
Post by: steveo on April 05, 2018, 01:42:46 AM
I invest only in VAS, VGS & VAF outside of super. I split my super into the right combination of international and Aussie indexes available to me. I want to hold all my bonds and cash outside of Super.
I'm not a fan of relying on dividends.
Post by: Red_Gold on April 05, 2018, 03:27:30 AM
@Red_Gold - I have an allocation of 40/40/20 Aussie/International/Bonds. I intend to retire with a cash buffer of 50k as well.
I invest only in VAS, VGS & VAF outside of super. I split my super into the right combination of international and Aussie indexes available to me. I want to hold all my bonds and cash outside of Super.
I'm not a fan of relying on dividends.
Thanks for your reply. Couple of questions: what are your reasons for not taking the dividend route? What is your plan for withdrawing funds in retirement prior to accessing super? Will you live off cash reserve, then sell bonds to replenish it and sell stocks in turn to re balance your portfolio?
Post by: mjr on April 05, 2018, 08:59:58 AM
https://www.betashares.com.au/campaigns/a200_is_coming/?utm_source=website&utm_medium=slider&utm_content=A200
At the very least, I hope this puts some cost pressure on Vanguard.
Post by: steveo on April 05, 2018, 11:35:21 PM
@Red_Gold - I have an allocation of 40/40/20 Aussie/International/Bonds. I intend to retire with a cash buffer of 50k as well.
I invest only in VAS, VGS & VAF outside of super. I split my super into the right combination of international and Aussie indexes available to me. I want to hold all my bonds and cash outside of Super.
I'm not a fan of relying on dividends.
Thanks for your reply. Couple of questions: what are your reasons for not taking the dividend route? What is your plan for withdrawing funds in retirement prior to accessing super? Will you live off cash reserve, then sell bonds to replenish it and sell stocks in turn to re balance your portfolio?
I think focusing on dividends:-
1. Requires too much work. If you choose to pick individual stocks you have to research the stocks.
2. Will suffer from pushing you towards buying assets that may under perform. If you buy individual stocks those stocks may under perform. If you pick an ETF the ETF may under perform.
3. Mightn't work going forward. Dividends have worked great due to tax benefits. If those benefits go (which is already being talked about) then the advantage may disapear.
Basically I think the best option is to just stick to the average because the average will beat 95% of investors.
My draw down strategy is to use firstly cash which includes dividends and interest, then sell bonds and then sell stocks. I don't intend to re-balance but would consider it if I have a tonne of bonds/cash and the market has crashed. So I will probably end up 100% stocks at some point. If stocks do increase significantly I will also probably sell off some stocks to get cash/bonds but again I have no real plan for this.
I also think my cash reserves are listed above at too high a level for me personally and I'm going to go for 20k not 50k. The reason being is that I will have 6 months wages when I quit due to long service leave. I think 6 months wages plus 20k should last me 2 years without drawing down on my portfolio.
Post by: Red_Gold on April 06, 2018, 09:20:57 PM
@Red_Gold - I have an allocation of 40/40/20 Aussie/International/Bonds. I intend to retire with a cash buffer of 50k as well.
I invest only in VAS, VGS & VAF outside of super. I split my super into the right combination of international and Aussie indexes available to me. I want to hold all my bonds and cash outside of Super.
I'm not a fan of relying on dividends.
Thanks for your reply. Couple of questions: what are your reasons for not taking the dividend route? What is your plan for withdrawing funds in retirement prior to accessing super? Will you live off cash reserve, then sell bonds to replenish it and sell stocks in turn to re balance your portfolio?
I think focusing on dividends:-
1. Requires too much work. If you choose to pick individual stocks you have to research the stocks.
2. Will suffer from pushing you towards buying assets that may under perform. If you buy individual stocks those stocks may under perform. If you pick an ETF the ETF may under perform.
3. Mightn't work going forward. Dividends have worked great due to tax benefits. If those benefits go (which is already being talked about) then the advantage may disapear.
Basically I think the best option is to just stick to the average because the average will beat 95% of investors.
My draw down strategy is to use firstly cash which includes dividends and interest, then sell bonds and then sell stocks. I don't intend to re-balance but would consider it if I have a tonne of bonds/cash and the market has crashed. So I will probably end up 100% stocks at some point. If stocks do increase significantly I will also probably sell off some stocks to get cash/bonds but again I have no real plan for this.
I also think my cash reserves are listed above at too high a level for me personally and I'm going to go for 20k not 50k. The reason being is that I will have 6 months wages when I quit due to long service leave. I think 6 months wages plus 20k should last me 2 years without drawing down on my portfolio.
Strong Money Australia focuses on dividend paying LICs with proven track record of matching or outperforming indexes but that's all I know about his approach. It does look like going forward governments policies might affect how Australian companies pay their dividends and the amount they pay, definitely a risk that should be considered.
As for draw down strategy you described, that would live you with 100% in equities while needing to sell portions of it for income. You are ok with selling stocks in bear market? Is there another income stream like rental income coming in or something? Otherwise that approach is way above my own risk tolerance.
Post by: steveo on April 07, 2018, 06:57:49 AM
@Red_Gold - I have an allocation of 40/40/20 Aussie/International/Bonds. I intend to retire with a cash buffer of 50k as well.
I invest only in VAS, VGS & VAF outside of super. I split my super into the right combination of international and Aussie indexes available to me. I want to hold all my bonds and cash outside of Super.
I'm not a fan of relying on dividends.
Thanks for your reply. Couple of questions: what are your reasons for not taking the dividend route? What is your plan for withdrawing funds in retirement prior to accessing super? Will you live off cash reserve, then sell bonds to replenish it and sell stocks in turn to re balance your portfolio?
I think focusing on dividends:-
1. Requires too much work. If you choose to pick individual stocks you have to research the stocks.
2. Will suffer from pushing you towards buying assets that may under perform. If you buy individual stocks those stocks may under perform. If you pick an ETF the ETF may under perform.
3. Mightn't work going forward. Dividends have worked great due to tax benefits. If those benefits go (which is already being talked about) then the advantage may disapear.
Basically I think the best option is to just stick to the average because the average will beat 95% of investors.
My draw down strategy is to use firstly cash which includes dividends and interest, then sell bonds and then sell stocks. I don't intend to re-balance but would consider it if I have a tonne of bonds/cash and the market has crashed. So I will probably end up 100% stocks at some point. If stocks do increase significantly I will also probably sell off some stocks to get cash/bonds but again I have no real plan for this.
I also think my cash reserves are listed above at too high a level for me personally and I'm going to go for 20k not 50k. The reason being is that I will have 6 months wages when I quit due to long service leave. I think 6 months wages plus 20k should last me 2 years without drawing down on my portfolio.
Strong Money Australia focuses on dividend paying LICs with proven track record of matching or outperforming indexes but that's all I know about his approach. It does look like going forward governments policies might affect how Australian companies pay their dividends and the amount they pay, definitely a risk that should be considered.
As for draw down strategy you described, that would live you with 100% in equities while needing to sell portions of it for income. You are ok with selling stocks in bear market? Is there another income stream like rental income coming in or something? Otherwise that approach is way above my own risk tolerance.
I definitely don't want to sell stocks in a downturn however I think that my approach should give me 5-10 years before I have to do that. If there is a bear market at that point I'm okay with it. Ideally there is a raging bull market during that time and then I would probably sell some stocks but not a lot. My understanding is that financially the chances of failure when retired are typically poor returns and selling stocks within the first 5 - 10 years. If you avoid that you should be good.
If you think that is above your risk tolerance I suggest holding more bonds. I don't completely dislike the dividend approach that you have listed above but I still prefer to stick with my approach which I think has a lot more data to validate the approach. The dividend approach may be good but there is a whole bunch of money in AUD assets and that approach mightn't work in the future.
Post by: Red_Gold on April 08, 2018, 01:18:55 AM
@Red_Gold - I have an allocation of 40/40/20 Aussie/International/Bonds. I intend to retire with a cash buffer of 50k as well.
I invest only in VAS, VGS & VAF outside of super. I split my super into the right combination of international and Aussie indexes available to me. I want to hold all my bonds and cash outside of Super.
I'm not a fan of relying on dividends.
Thanks for your reply. Couple of questions: what are your reasons for not taking the dividend route? What is your plan for withdrawing funds in retirement prior to accessing super? Will you live off cash reserve, then sell bonds to replenish it and sell stocks in turn to re balance your portfolio?
I think focusing on dividends:-
1. Requires too much work. If you choose to pick individual stocks you have to research the stocks.
2. Will suffer from pushing you towards buying assets that may under perform. If you buy individual stocks those stocks may under perform. If you pick an ETF the ETF may under perform.
3. Mightn't work going forward. Dividends have worked great due to tax benefits. If those benefits go (which is already being talked about) then the advantage may disapear.
Basically I think the best option is to just stick to the average because the average will beat 95% of investors.
My draw down strategy is to use firstly cash which includes dividends and interest, then sell bonds and then sell stocks. I don't intend to re-balance but would consider it if I have a tonne of bonds/cash and the market has crashed. So I will probably end up 100% stocks at some point. If stocks do increase significantly I will also probably sell off some stocks to get cash/bonds but again I have no real plan for this.
I also think my cash reserves are listed above at too high a level for me personally and I'm going to go for 20k not 50k. The reason being is that I will have 6 months wages when I quit due to long service leave. I think 6 months wages plus 20k should last me 2 years without drawing down on my portfolio.
Strong Money Australia focuses on dividend paying LICs with proven track record of matching or outperforming indexes but that's all I know about his approach. It does look like going forward governments policies might affect how Australian companies pay their dividends and the amount they pay, definitely a risk that should be considered.
As for draw down strategy you described, that would live you with 100% in equities while needing to sell portions of it for income. You are ok with selling stocks in bear market? Is there another income stream like rental income coming in or something? Otherwise that approach is way above my own risk tolerance.
I definitely don't want to sell stocks in a downturn however I think that my approach should give me 5-10 years before I have to do that. If there is a bear market at that point I'm okay with it. Ideally there is a raging bull market during that time and then I would probably sell some stocks but not a lot. My understanding is that financially the chances of failure when retired are typically poor returns and selling stocks within the first 5 - 10 years. If you avoid that you should be good.
If you think that is above your risk tolerance I suggest holding more bonds. I don't completely dislike the dividend approach that you have listed above but I still prefer to stick with my approach which I think has a lot more data to validate the approach. The dividend approach may be good but there is a whole bunch of money in AUD assets and that approach mightn't work in the future.
There is an interesting discussion going on re: Living off dividends? https://forum.mrmoneymustache.com/investor-alley/living-off-dividends-89677/ (https://forum.mrmoneymustache.com/investor-alley/living-off-dividends-89677/)
Covers some points I was interested in when I posted my question here. It appears closed end funds in US are similar to Australian LICs. Of course you can't compare the economies of US and AUS but even in US people who favor investing for dividends are in minority. I will be sticking with VDHG for now, while continuing to educate myself on other routes to FIRE. I will probably switch to a more conservative Vanguard Life Strategy ETF closer to retirement date.
I wasn't aware that selling shares within first 10 years increases the likelihood of failure. I will be taking this into consideration. Thank you for taking time to reply!
Post by: superannuationfreak on April 08, 2018, 04:47:16 AM
I wasn't aware that selling shares within first 10 years increases the likelihood of failure.
Note that it's not specifically selling shares that increases the likelihood of failure. Particularly bad returns in the first few years before or after retirement (if no longer earning/saving) are what will increase the likelihood of failure. In some cases this may mean you're selling shares, but you may well be selling shares to rebalance, to move to a more conservative asset allocation or to take advantage of lower tax rates (when not earning a wage or earning a lower wage) to take capital gains.
It's total returns (after tax and fees) that matter, not whether that is from dividends or capital gains. Globally, dividend-paying shares were hurt plenty during the GFC. The fact that many kept paying dividends didn't make up for the loss in the short term.
Post by: bigchrisb on April 08, 2018, 04:12:07 PM
There is an interesting discussion going on re: Living off dividends? https://forum.mrmoneymustache.com/investor-alley/living-off-dividends-89677/ (https://forum.mrmoneymustache.com/investor-alley/living-off-dividends-89677/)
Covers some points I was interested in when I posted my question here. It appears closed end funds in US are similar to Australian LICs. Of course you can't compare the economies of US and AUS but even in US people who favor investing for dividends are in minority. I will be sticking with VDHG for now, while continuing to educate myself on other routes to FIRE. I will probably switch to a more conservative Vanguard Life Strategy ETF closer to retirement date.
I wasn't aware that selling shares within first 10 years increases the likelihood of failure. I will be taking this into consideration. Thank you for taking time to reply!
Keep in mind that the tax treatment in different countries will impact discussion on dividends vs buybacks as methods of capital returns. Most discussion is focused on the US market, where tax treatment of dividends makes buybacks more tax efficient. In the Australian market, the current franking system changes the picture a bit - if your tax rate is below the company tax rate, dividends are more efficient that buybacks or reinvestment by the company. If your marginal tax rate is below the company rate, it is more tax efficient to pay a dividend. A large part of our market is super funds, on something between 0 and 15% rates, and they are not shy as an institutional block in voicing their views to companies. I suspect this is one of the reasons that Australian payout ratios are so high.
Don't get me started on shorten's proposal to favor pooled super at the cost to those who self manage, but that's a post for another day.
Post by: Red_Gold on April 09, 2018, 05:34:59 PM
I wasn't aware that selling shares within first 10 years increases the likelihood of failure.
Note that it's not specifically selling shares that increases the likelihood of failure. Particularly bad returns in the first few years before or after retirement (if no longer earning/saving) are what will increase the likelihood of failure. In some cases this may mean you're selling shares, but you may well be selling shares to rebalance, to move to a more conservative asset allocation or to take advantage of lower tax rates (when not earning a wage or earning a lower wage) to take capital gains.
It's total returns (after tax and fees) that matter, not whether that is from dividends or capital gains. Globally, dividend-paying shares were hurt plenty during the GFC. The fact that many kept paying dividends didn't make up for the loss in the short term.
I took it to mean selling shares for income in the first 10 years increase chance of failure not selling shares to rebalance your portfolio. Is my understanding incorrect?
I was operating on the principle that 4% withdrawal will come out of dividends/capital growth and the principal amount will remain the same. One might as well sell shares to realize that growth, I am fine with that. But I would be very nervous if I had to touch principal amount in order to fund my retirement, that's the main reason I found dividend based approach appealing. Is my understanding of 4% rule correct? I understand that there will be years when market is down and then one needs to employ various contingency plans like reducing withdrawal rate, finding other sources of income etc. I guess spending chunk of principal would be understandable in those years, especially if leaving inheritance is not a priority. I am aiming for leanfire and don't have a big margin for error hence my reluctance to touch principal.
I suspect dividend proponents would argue that if you rely on dividend income to live and companies keep paying than share values don't matter all that much. As long as you are getting that payout. Like I said before, I like the idea of living off dividends but I am extremely uncomfortable putting my eggs in an all Australian basket and unlike Strong Money Australia I don't have the luxury of building an all Australian dividend paying portfolio of LICs and diversifying into international ETFs after. I am not young and not on high income, I have only one chance to get it right.
Post by: oysters on April 12, 2018, 03:43:20 AM
Betashares coming out with an Australian shares ETF at half the cost of VAS.
https://www.betashares.com.au/campaigns/a200_is_coming/?utm_source=website&utm_medium=slider&utm_content=A200 (https://www.betashares.com.au/campaigns/a200_is_coming/?utm_source=website&utm_medium=slider&utm_content=A200)
At the very least, I hope this puts some cost pressure on Vanguard.
Interesting! ASX 200 at 0.07% MER
vs
Vanguard VAS ASX 300 at 0.14% MER
I think the ASX 200 is 86% of our sharemarket
ASX300 only gives you another 3% of it. Of course, 100 small caps of diversification. But maybe not worth the MER difference? Hmm
Post by: anguyen on April 12, 2018, 06:58:59 PM
If you don't mind me picking your brain, I've opened a Vanguard account purely for the purpose of teaching / gifting it to my daughter.
So it will be a very long term investment here. At the moment I'm splitting 1/1/1 between cash in saving/Vanguard LifeStrategy High Growth Fund/Vanguard Index International Shares Fund.
I do realise that LifeStrategy High Growth Fund actually has Index International Shares Fund in there as well so not sure whether that's the best way to structure it.
Also with this 10-15 years long term solution with about $100/week investment - what would you would do?
Post by: one piece at a time on April 12, 2018, 09:11:17 PM
What an amazing thread Aussie fellows :)
If you don't mind me picking your brain, I've opened a Vanguard account purely for the purpose of teaching / gifting it to my daughter.
So it will be a very long term investment here. At the moment I'm splitting 1/1/1 between cash in saving/Vanguard LifeStrategy High Growth Fund/Vanguard Index International Shares Fund.
I do realise that LifeStrategy High Growth Fund actually has Index International Shares Fund in there as well so not sure whether that's the best way to structure it.
Also with this 10-15 years long term solution with about $100/week investment - what would you would do?
Sounds like you're locking in a high fee structure (due to small amounts) in order to attract tax on earnings (due to minor status of the child). Why use real money for training? Consider https://www.asx.com.au/education/sharemarket-game.htm or similar.
If you want to gift some significant capital to allow lifestyle changes (eg a car, uni w/o part time work, a trip somewhere) then why not do it as a lump sum?
....just some points to consider! YMMV
Post by: middo on April 12, 2018, 09:14:44 PM
What an amazing thread Aussie fellows :)
If you don't mind me picking your brain, I've opened a Vanguard account purely for the purpose of teaching / gifting it to my daughter.
So it will be a very long term investment here. At the moment I'm splitting 1/1/1 between cash in saving/Vanguard LifeStrategy High Growth Fund/Vanguard Index International Shares Fund.
I do realise that LifeStrategy High Growth Fund actually has Index International Shares Fund in there as well so not sure whether that's the best way to structure it.
Also with this 10-15 years long term solution with about $100/week investment - what would you would do?
Sounds like you're locking in a high fee structure (due to small amounts) in order to attract tax on earnings (due to minor status of the child). Why use real money for training? Consider https://www.asx.com.au/education/sharemarket-game.htm or similar.
If you want to gift some significant capital to allow lifestyle changes (eg a car, uni w/o part time work, a trip somewhere) then why not do it as a lump sum?
....just some points to consider! YMMV
I played the sharemarket game many years ago as a student, and have seen it being played currently in the high school I work at. While the aim is to get kids more financially literate, the actual lesson is that to win the game you need to pick the speculative stocks that will have massive capital growth in a short period of time. It is more a form of gambling than investing.
Post by: anguyen on April 12, 2018, 09:20:32 PM
Sounds like you're locking in a high fee structure (due to small amounts) in order to attract tax on earnings (due to minor status of the child). Why use real money for training? Consider https://www.asx.com.au/education/sharemarket-game.htm or similar.
If you want to gift some significant capital to allow lifestyle changes (eg a car, uni w/o part time work, a trip somewhere) then why not do it as a lump sum?
Thanks for your response.
Sorry I wasn't being clear. My child is not even 1 year old yet so that's still far away. I was meaning we allocate $100 each week from now into those accounts, and gradually introduce the concept of investing to our kid and encourage investment thinking (by seeing how small amount week by week - making money work, compounded gain, etc.).
And those account by 10-15 years hopefully can be a meaningful present once my kid is financially responsible enough to know what to do with it.
With the game, surely I'd probably introduce that at some stage, however, like middo mentioned., it involves a lot of stock picking (unless you are buying an index fund) so I'm not quite sure whether it suits a passive investor. Maybe my kid will like it, maybe not - we'll see.
Any feedback on 1/1/1 between cash in saving/Vanguard LifeStrategy High Growth Fund/Vanguard Index International Shares Fund?
Post by: steveo on April 12, 2018, 09:28:13 PM
Post by: misterhorsey on April 13, 2018, 07:16:21 PM
If the exercise is serving dual purposes of investment and education, I think it would be worth giving them a heads up of the advantages of this kind of diversification, by exposing them to it.
Not that you can actually see the yearly rebalancing. But you could augment it with this chart:
http://insights.vanguard.com.au/VolatilityIndexChart/ui/retail.html
https://static.vgcontent.info/crp/intl/auw/docs/resources/2017-index-chart-brochure.pdf?20180301|083814
which shows the difference performance of assets, and the value of spreading it across these assets, over a long period of time.
Post by: one piece at a time on April 15, 2018, 03:39:40 PM
Thanks for your response.
Sorry I wasn't being clear. My child is not even 1 year old yet so that's still far away. I was meaning we allocate $100 each week from now into those accounts, and gradually introduce the concept of investing to our kid and encourage investment thinking (by seeing how small amount week by week - making money work, compounded gain, etc.).
And those account by 10-15 years hopefully can be a meaningful present once my kid is financially responsible enough to know what to do with it.
With the game, surely I'd probably introduce that at some stage, however, like middo mentioned., it involves a lot of stock picking (unless you are buying an index fund) so I'm not quite sure whether it suits a passive investor. Maybe my kid will like it, maybe not - we'll see.
Any feedback on 1/1/1 between cash in saving/Vanguard LifeStrategy High Growth Fund/Vanguard Index International Shares Fund?
OK, it looks like the tax man would still consider it your money. https://www.ato.gov.au/Individuals/Investing/In-detail/Children-and-under-18s/Children-s-share-investments/
I'm not convinced of the value of having a separate account for children's investment. Why not simply run a family book (spreadsheet) and keep track of "their" money separately. Teaching people that book-values and budgeted amounts are separate from actual bank accounts is a valuable thing too. I had to explain to my cousin that whilst it was a good idea to have a budget for various things, that didn't mean she actually had to open 10 different savings accounts just so that each budget item had its own corresponding account.
FWIW we do run separate transaction accounts for the kids, but they only get $5 per week. This has been enough to teach them prioritization and delayed gratification as well as to introduce the concept of capitalistic rent seeking (interest). My son is very excited about the last one ;)
Post by: anguyen on April 15, 2018, 10:15:30 PM
I'm not convinced of the value of having a separate account for children's investment. Why not simply run a family book (spreadsheet) and keep track of "their" money separately.
I actually do keep track of that - and I'm not setting up separate account just to it's in their name. I'm actually want to be flexible enough in the future in term of tax distribution as well as optimise capital gain tax (prevent ownership changing on the account).
Not sure if I'm making sense or I'm way over my head.
Post by: one piece at a time on April 15, 2018, 10:57:21 PM
My understanding is that any earnings on that money will be taxed at a high rate if the money is in the child's name. The government explicitly stops you using your under 18 child's low income status as a way to reduce tax. I also don't think the amounts you are talking about justify a trust fund. I'm not an accountant though, so you might need to pay a few hundred dollars to get a professional opinion.
Post by: BattlaP on April 16, 2018, 03:53:02 PM
https://www.ato.gov.au/Individuals/Investing/In-detail/Children-and-under-18s/Your-income-if-you-are-under-18-years-old/?page=3#Summary_of_how_income_is_taxed_if_you_are_under__160_18
My understanding is that any earnings on that money will be taxed at a high rate if the money is in the child's name. The government explicitly stops you using your under 18 child's low income status as a way to reduce tax. I also don't think the amounts you are talking about justify a trust fund. I'm not an accountant though, so you might need to pay a few hundred dollars to get a professional opinion.
I have an account set up with Vanguard for my minor, so that the Investor Name is "Mr BattlaP A/C Miss Mini Battla". I'm assuming that this money is considered and taxed as being mine until such a time as I give her full control - am I right or wrong?
Post by: anguyen on April 16, 2018, 04:56:02 PM
I have an account set up with Vanguard for my minor, so that the Investor Name is "Mr BattlaP A/C Miss Mini Battla". I'm assuming that this money is considered and taxed as being mine until such a time as I give her full control - am I right or wrong?
Exactly my question as well, unfortunately Vanguard customer support wasn't of much help and telling me to talk to my accountant. I have yet to receive a financial tax statement for the account so I'm not quite sure how that work out yet.
Post by: mjr on April 16, 2018, 05:40:00 PM
Just call the ATO.
Post by: PDM on April 16, 2018, 06:16:56 PM
https://www.ato.gov.au/Individuals/Investing/In-detail/Children-and-under-18s/Your-income-if-you-are-under-18-years-old/?page=3#Summary_of_how_income_is_taxed_if_you_are_under__160_18
My understanding is that any earnings on that money will be taxed at a high rate if the money is in the child's name. The government explicitly stops you using your under 18 child's low income status as a way to reduce tax. I also don't think the amounts you are talking about justify a trust fund. I'm not an accountant though, so you might need to pay a few hundred dollars to get a professional opinion.
I have an account set up with Vanguard for my minor, so that the Investor Name is "Mr BattlaP A/C Miss Mini Battla". I'm assuming that this money is considered and taxed as being mine until such a time as I give her full control - am I right or wrong?
My limited reading into this that you'll pay tax on the distribution as the 'trustee'.
http://moneymag.com.au/shares-kids-tax/
I think by doing it in your name (https://www.marketindex.com.au/buying-shares-for-a-child) with the a/c you own the shares but they are the beneficiary.
ATO website not very clear on the matter.
Post by: anguyen on April 16, 2018, 06:24:50 PM
My limited reading into this that you'll pay tax on the distribution as the 'trustee'.
http://moneymag.com.au/shares-kids-tax/
I think by doing it in your name (https://www.marketindex.com.au/buying-shares-for-a-child) with the a/c you own the shares but they are the beneficiary.
ATO website not very clear on the matter.
Thanks for that PDM. It's hard to find any black and white document regarding this. If I'm paying tax for this it should be fine as I'll be only missing out on $4xx tax free - compared to having to setup a trust.
And there won't be a capital gain event when time comes so that's good as well.
Post by: lush on April 17, 2018, 09:33:19 PM
Yes this is probably considered timing the market and know that some will say just invest when you can and forget the timing :). Thanks.
Post by: PDM on April 17, 2018, 10:57:58 PM
Hi All - For those with familiar with the Vanguard Balanced Fund and VAS - you might have noticed June distributions can be significant, and soon after the re-invest price seems to drop also sometimes significantly. I am trying to work out if it is better to hold off until after June to invest to make the most of what could be low re-investment costs OR invest before end of June to get in on the larger distribution anticipated - however this will come with tax implications which I don't really need. I am currently not reliant on living off the distributions.
Yes this is probably considered timing the market and know that some will say just invest when you can and forget the timing :). Thanks.
Personally, I've never liked VAS. It tracks the ASX300 which is basically banks, mining, two grocery stores and a couple of telcos. The current Royal Commission into Banks is already hammering bank share prices. Any downturn in property prices is likely to greatly impact the banks further and consumer spending.
A major appeal of ETFs is the opportunity to play in a bigger ocean - not just splashing about in the piddling pond that is the ASX.
Post by: PDM on April 17, 2018, 11:03:35 PM
Post by: anguyen on April 18, 2018, 01:16:08 AM
not just splashing about in the piddling pond that is the ASX.
Hm what is the one that track US market? Sorry I'm a bit green.
Post by: marty998 on April 18, 2018, 02:13:51 AM
not just splashing about in the piddling pond that is the ASX.
Hm what is the one that track US market? Sorry I'm a bit green.
VTS is the one I think - believe there is also a currency hedged one too but can't remember off the top of my head.
Post by: PDM on April 18, 2018, 02:15:08 AM
not just splashing about in the piddling pond that is the ASX.
Hm what is the one that track US market? Sorry I'm a bit green.
VTS is the US whole market.
There are a few that have US exposure.
https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/productType=etf
Post by: oysters on April 18, 2018, 09:59:09 PM
http://www.etfwatch.com.au/data-analysis?fund_type_search=1®ion_search=&industry_search=&fund_size_search=&inception_form_search=&inception_to_search=&include_search_etf=ETF
For example, you can get ishares small cap 600 US for 0.07 MER which is very reasonable.
Lots of options :-)
Post by: one piece at a time on April 23, 2018, 09:02:44 PM
EDIT: my VAE shares are set up for reinvestment, VEU came through earlier in the year. This was all pretty obvious on "computershare" but a bit baffling on the bank trading website.
Post by: kiwiozearlyretirement on April 25, 2018, 10:39:21 AM
My dividends ex supervcame through but my SMSF dividends with vhy were taxed at 100 percent withholding tax. Anyone got any ideas why?
This is the first time I have received dividends in the smsf.
Mysterious and concerning
Post by: one piece at a time on April 25, 2018, 03:18:24 PM
Post by: marty998 on April 25, 2018, 03:37:10 PM
Yes vanguard dividends.
My dividends ex supervcame through but my SMSF dividends with vhy were taxed at 100 percent withholding tax. Anyone got any ideas why?
This is the first time I have received dividends in the smsf.
Mysterious and concerning
Nothing is ever taxed at 100% - Withholding tax is taken at the top marginal rate of 45%.
Post by: kiwiozearlyretirement on April 26, 2018, 09:43:57 AM
So now will have to wait till tax time to get the money back. I never had this problem with vanguard etfs outside of super so maybe it’s how they treat companies.
Guess we must have missed some correspondence regarding tax file numbers .....
Post by: marty998 on May 02, 2018, 05:51:35 AM
Post by: marty998 on May 02, 2018, 05:54:56 AM
Quite a bit lower than Vanguard, wonder if VAS will try and compete?
Post by: PDM on May 08, 2018, 05:41:21 PM
It is hard not to get frustrated with the politics of budgets. Also the language used in the media which frames it as "Winners vs Losers". "Are you a winner from the budget?" etc. Surely on some level the aim should be to improve the overall society not pick winners and losers?
Post by: mjr on May 08, 2018, 06:36:49 PM
Retiring come new financial year.
Post by: Gremlin on May 08, 2018, 07:24:56 PM
Woohoo. Non-super balance touched the million dollar mark today. It took a dive when I moved the $540k into super 18 months ago. So now I have greater than a million in super and outside of it.
Retiring come new financial year.
Awesome work mjr!
Post by: asosharp on May 08, 2018, 09:12:07 PM
And the budget... I find it interesting that there's the backlash for an extra $10 a week in the pocket. While $10 a week is good for savings, on the other hand Australia's services and infrastructure is poor so that $10 a week could have been used to actually do something more important. Society ends up losing in a way.
I used to have a client in disability services until I left that company last year and I kept hearing from them and basically people in the industry is what a major mess / catastrophe it is with NDIS/NDS. For people who need help, we could be spending to fix that mess... plus many others that are out there. Take your pick of causes that need our help.
I don't approve of the one for high income earners though.
Post by: steveo on May 08, 2018, 09:58:25 PM
Woohoo. Non-super balance touched the million dollar mark today. It took a dive when I moved the $540k into super 18 months ago. So now I have greater than a million in super and outside of it.
Retiring come new financial year.
That is a tonne of money. Do you own your house ?
Great work though and good luck in retirement.
Post by: ynotme on May 09, 2018, 04:45:58 AM
Woohoo. Non-super balance touched the million dollar mark today. It took a dive when I moved the $540k into super 18 months ago. So now I have greater than a million in super and outside of it.
Retiring come new financial year.
That's a fantastic milestone and a great way to enter retirement!
Post by: marty998 on May 09, 2018, 05:47:36 AM
Any thoughts on the budget? Seems bit meh to me. Most useful analysis I read referred to the government 'keeping their powder dry' to buy votes in the lead up to the election.
It is hard not to get frustrated with the politics of budgets. Also the language used in the media which frames it as "Winners vs Losers". "Are you a winner from the budget?" etc. Surely on some level the aim should be to improve the overall society not pick winners and losers?
This is a far too sensible suggestion.
Post by: mjr on May 09, 2018, 06:38:28 AM
Woohoo. Non-super balance touched the million dollar mark today. It took a dive when I moved the $540k into super 18 months ago. So now I have greater than a million in super and outside of it.
Retiring come new financial year.
That is a tonne of money. Do you own your house ?
Great work though and good luck in retirement.
I do own my house, yes. House is not included in the $2.2m net worth.
Thanks for the congrats, all.
Post by: steveo on May 09, 2018, 05:16:57 PM
Woohoo. Non-super balance touched the million dollar mark today. It took a dive when I moved the $540k into super 18 months ago. So now I have greater than a million in super and outside of it.
Retiring come new financial year.
That is a tonne of money. Do you own your house ?
Great work though and good luck in retirement.
I do own my house, yes. House is not included in the $2.2m net worth.
Thanks for the congrats, all.
Freaken awesome.
Post by: MrThatsDifferent on May 10, 2018, 03:12:03 PM
Post by: marty998 on May 10, 2018, 03:33:57 PM
Australia peeps, apologies for a bit off-topic, but I’m thinking of getting a used car. I could either pay cask for something $5-7k or salary package something $10-15k. I’ve got a pretty good job, good pay. What’s the mustachian view on salary packaging cars?
Pay cash, move on with life. Eliminate the complexity.
Will say that $5k is very low for a car (even if a used car).
Post by: centastic on May 10, 2018, 04:48:12 PM
Australia peeps, apologies for a bit off-topic, but I’m thinking of getting a used car. I could either pay cask for something $5-7k or salary package something $10-15k. I’ve got a pretty good job, good pay. What’s the mustachian view on salary packaging cars?
I recently had to buy a car, ended up going new (end of year runout) after looking at second hand for about five months. I think the second hand car market is in a strange state at the moment where there are very few bargains. Instead of your car losing 20% of its value the moment you drive it off the lot, the drop-off is much more smooth, much more linear.
I'm not sure the reason, but my hypothesis is that it's a combination of technology lifting the fog (previously the market was nothing short of a confusopoly), more Australians feeling the squeeze and looking to save on a car purchase (ie more people opting for second hand), and "lock in" by manufacturers, whereby there are large enough benefits to trading in your car at the place you bought it that these car yards basically get to control the market.
Agree with Marty999 re: paying cash, for the same reason.
Post by: GT on May 10, 2018, 07:17:59 PM
Finance for new cars has low % rates and local manufacturing has gone, so everything is pretty much an import.
Post by: MrThatsDifferent on May 10, 2018, 09:49:35 PM
Australia peeps, apologies for a bit off-topic, but I’m thinking of getting a used car. I could either pay cask for something $5-7k or salary package something $10-15k. I’ve got a pretty good job, good pay. What’s the mustachian view on salary packaging cars?
Pay cash, move on with life. Eliminate the complexity.
Will say that $5k is very low for a car (even if a used car).
Thanks. What would you say would be the right price for a used car? And what car? I want something easy that I can put the bike in and take to some riding trails.
Post by: Notch on May 10, 2018, 11:10:32 PM
Australia peeps, apologies for a bit off-topic, but I’m thinking of getting a used car. I could either pay cask for something $5-7k or salary package something $10-15k. I’ve got a pretty good job, good pay. What’s the mustachian view on salary packaging cars?
Pay cash, move on with life. Eliminate the complexity.
Will say that $5k is very low for a car (even if a used car).
Thanks. What would you say would be the right price for a used car? And what car? I want something easy that I can put the bike in and take to some riding trails.
Two months worth of take-home pay is a good rule I think.
Post by: middo on May 11, 2018, 03:46:24 AM
$7000 is wasting money.
Post by: MrThatsDifferent on May 11, 2018, 06:04:32 AM
Australia peeps, apologies for a bit off-topic, but I’m thinking of getting a used car. I could either pay cask for something $5-7k or salary package something $10-15k. I’ve got a pretty good job, good pay. What’s the mustachian view on salary packaging cars?
Pay cash, move on with life. Eliminate the complexity.
Will say that $5k is very low for a car (even if a used car).
Thanks. What would you say would be the right price for a used car? And what car? I want something easy that I can put the bike in and take to some riding trails.
Two months worth of take-home pay is a good rule I think.
Umm, that’s a lot
Post by: Richmond 2020 on May 12, 2018, 04:37:34 PM
Two months worth of take-home pay is a good rule I think.
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Umm, that’s a lot
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Depends on your take-home pay I guess lol.
Post by: misterhorsey on May 12, 2018, 07:31:38 PM
You'll end up potentially overpaying. I.e. If your on $10k a month, why pay $20k for a car when you might be able to get away with $10k.
Maybe start an Australian car thread here on MMM or look at a car forum for suggestions?
My tips would be to look for a car that has a good reputation for reliability/ has low servicing costs / ready cheap after market for spares / low kms / good mileage / something you wouldn't insure comprehensively if you can get away with it / not the first iteration of it's model .....Toyota Camry anyone? (Yawn...)
Of course, all of the above is just an excuse for me to post a totally off topic top gear comparison between a 1991 Peugeot 205 and a Porsche 911R, which shows you don't need to spend huge $ for a great driving experience:
https://www.youtube.com/watch?v=EfDHULZZjpQ
Of course, no car is the best! What state are you in Mr Different? I'm lucky enough to live in Melbourne where there are plenty of bike trails, but I do sometimes wish I had a car as then I'd buy a MTB and go on some single track. It's one compromise I've been willing to make to avoid car ownership.
Post by: MrThatsDifferent on May 12, 2018, 11:56:58 PM
Capping a purchase price as a multiple of your income may make sense if you're on a lower income/needing to budget and wanting to maximise what you get for what you pay for, but may not make much sense if you are on a higher income seeking good value, but still wanting to minimise what you pay.
You'll end up potentially overpaying. I.e. If your on $10k a month, why pay $20k for a car when you might be able to get away with $10k.
Maybe start an Australian car thread here on MMM or look at a car forum for suggestions?
My tips would be to look for a car that has a good reputation for reliability/ has low servicing costs / ready cheap after market for spares / low kms / good mileage / something you wouldn't insure comprehensively if you can get away with it / not the first iteration of it's model .....Toyota Camry anyone? (Yawn...)
Of course, all of the above is just an excuse for me to post a totally off topic top gear comparison between a 1991 Peugeot 205 and a Porsche 911R, which shows you don't need to spend huge $ for a great driving experience:
https://www.youtube.com/watch?v=EfDHULZZjpQ
Of course, no car is the best! What state are you in Mr Different? I'm lucky enough to live in Melbourne where there are plenty of bike trails, but I do sometimes wish I had a car as then I'd buy a MTB and go on some single track. It's one compromise I've been willing to make to avoid car ownership.
Yeah, my take home pay is too much to use that rule, defeats the purpose. I’m in Sydney. I know nothing about cars. I’d probably use it twice a month on the weekends. I read running costs are about $6k a year, that’s crazy!
Post by: MrThatsDifferent on May 13, 2018, 12:44:17 AM
Post by: misterhorsey on May 13, 2018, 03:22:12 AM
Used your advice Misterhorsey. Car I want is Nissan Pathfinder between 1999-2004. Can get for $3-7k.
Er, please note I'm no car expert. Unless your able to do your maintenance I'd be wary of an older model 4WD, mainly because there's so much that can wear out and go wrong, and a 4WD has so much weight to carry compared to a car, and thus petrol to consume.
MMM has some great posts debunking the utility of 4WDs:
http://www.mrmoneymustache.com/2014/12/01/all-wheel-drive-does-not-make-you-safer/
https://www.mrmoneymustache.com/2015/04/28/what-does-your-work-truck-say-about-you/
My actual advice would be not to buy one if you only plan to use it only twice a month. I'd use a car next door instead - https://www.carnextdoor.com.au/. 2 times a month is 24 times a year. Different story if you needed a car to commute with, but if you're only using a car for 24 times a year, then let someone else worry about maintenance, servicing, repairs, insurance and rego. Rent it as you need.
A lot of people seem to rationalise a car purchase by saying they will go camping or hiking on weekends, but often find that life gets in the way and they find they don't get away as much as they can.
Of course if you find renting a car doesn't cover the times you use it, then I'd consider buying one. But I'd get a mustachian inclined rev head to advise you.
I appreciate being carless in Sydney can be tricky if you aren't near decent PT, which is a shame. That's one of the reasons why I stayed in Melbourne after moving down here (although apparently more people commute by car in Melbourne than in Sydney - but the inner city is very well serviced with PT and, more importantly, bike paths.)
Good luck!!
Post by: MrThatsDifferent on May 13, 2018, 04:31:44 AM
Used your advice Misterhorsey. Car I want is Nissan Pathfinder between 1999-2004. Can get for $3-7k.
Er, please note I'm no car expert. Unless your able to do your maintenance I'd be wary of an older model 4WD, mainly because there's so much that can wear out and go wrong, and a 4WD has so much weight to carry compared to a car, and thus petrol to consume.
MMM has some great posts debunking the utility of 4WDs:
http://www.mrmoneymustache.com/2014/12/01/all-wheel-drive-does-not-make-you-safer/
https://www.mrmoneymustache.com/2015/04/28/what-does-your-work-truck-say-about-you/
My actual advice would be not to buy one if you only plan to use it only twice a month. I'd use a car next door instead - https://www.carnextdoor.com.au/. 2 times a month is 24 times a year. Different story if you needed a car to commute with, but if you're only using a car for 24 times a year, then let someone else worry about maintenance, servicing, repairs, insurance and rego. Rent it as you need.
A lot of people seem to rationalise a car purchase by saying they will go camping or hiking on weekends, but often find that life gets in the way and they find they don't get away as much as they can.
Of course if you find renting a car doesn't cover the times you use it, then I'd consider buying one. But I'd get a mustachian inclined rev head to advise you.
I appreciate being carless in Sydney can be tricky if you aren't near decent PT, which is a shame. That's one of the reasons why I stayed in Melbourne after moving down here (although apparently more people commute by car in Melbourne than in Sydney - but the inner city is very well serviced with PT and, more importantly, bike paths.)
Good luck!!
Thanks. I do ride my bike everywhere. Yeah, car service does make sense. Running costs look to be at least $200/fortnight.
Post by: gsp on May 15, 2018, 12:01:48 AM
I want to change my super to low fee industry super. Can you suggest low fee and has MSCI ACWI - All Country World Index on it ?
Post by: MrThatsDifferent on May 22, 2018, 03:45:08 PM
Hi All
I want to change my super to low fee industry super. Can you suggest low fee and has MSCI ACWI - All Country World Index on it ?
I think Australian Super is awesome and love their app.
Post by: Luckyvik on May 23, 2018, 06:06:44 AM
https://www.canstar.com.au/superannuation/?gclid=CjwKCAjwopTYBRAzEiwAnU4kbz5yWsIbzm_hfV2xYTdcPW_FznRk75eZw0SbdTvDdxN7uQD9iHtgNRoCAFYQAvD_BwE
Sent from my Pixel 2 using Tapatalk
Post by: superannuationfreak on May 23, 2018, 06:10:55 AM
Hi All
I want to change my super to low fee industry super. Can you suggest low fee and has MSCI ACWI - All Country World Index on it ?
Many super funds' international shares options use MSCI ACWI ex-Australia as a benchmark (but will often be actively managed, albeit often reasonably priced). I don't know of a cheap ACWI fund.
However you can proxy it with approximately 90% MSCI World and 10% MSCI EM. SunSuper offer MSCI World Ex-Australia and MSCI EM (and you can divert 2% into ASX 200 if you don't have Australia elsewhere and wanted it). No real need to rebalance as it will naturally float close to the relevant market cap weights.
Post by: chasingthegoodlife on May 23, 2018, 04:48:52 PM
Our best car buys have been from a friend or relative with a known reliable car that is upgrading. Often they are thrilled to get more than they have been offered as trade in value, and still much cheaper than buying used from a dealer. Have bought two cars second hand from unknown sellers too, one was fantastic (97 pulsar, recently retired) and one was an absolute disaster that has cost us a lot of money. The second cost about twice as much, money paid is no guarantee. In future I will probably stick to common model, cheaper to repair cars (Toyota Camry :) )when buying secondhand and do some prior research on known faults.
One more thing, if you are planning to take the car out of the city consider if the safety features of slightly newer cars are worth paying for. When I lived in Melbourne any old junk bucket was fine, but now I’m driving long distances on country roads every day with kangaroo hazards, poor road surfaces etc my husband insisted I upgrade to something with ABS and airbags.
Post by: oysters on May 23, 2018, 06:51:10 PM
https://www.youtube.com/watch?v=xidhx_f-ouU
The difference in safety and survive-ability is not that insignificant. Note that most fatalities are really two-car head ons like this, rather single car accidents from dangerous driving, fatigue, alcohol/drugs, inattention, etc. If you control those factors your own chances are much reduced. Doesn't take into account other idiots on the road. Though understanding and being cautious with others, watching your mirrors, defensive driving, etc, reduces the chances again.
Carsales.com.au is a good way to search for cars. You can limit by location, km, ANCAP safety rating eg set to 5 stars, fuel economy, price. This narrows down good options. There are often many reasonably low km Prius that aren't too expensive.
Post by: TheEmuSydney on May 23, 2018, 07:52:53 PM
Post by: PDM on May 23, 2018, 08:42:30 PM
What do you guys think of https://www.spaceshipinvest.com.au/ ?
I referred to my usual source of proper financial advice - https://www.macrobusiness.com.au/2017/08/spaceship-deemed-space-cowboy/
and ended up here:
https://cuffelinks.com.au/spaceship-stalls-launch-pad/
They seem to give a fairly comprehensive run down.
Seems like more fancy marketing over substance? Targeting millennials?
Post by: johnnydoe on May 24, 2018, 02:37:44 AM
Australia peeps, apologies for a bit off-topic, but I’m thinking of getting a used car. I could either pay cask for something $5-7k or salary package something $10-15k. I’ve got a pretty good job, good pay. What’s the mustachian view on salary packaging cars?
I'm a fan of using the RACQ guide on car running costs https://www.racq.com.au/cars-and-driving/cars/owning-and-maintaining-a-car/car-running-costs. I used it as a guide for which car would have the lowest on-going costs then bought that second-hand in cash. I've been happy with the decision! I don't think salary sacrificing is worth it as you can generally buy a second-hand car for much cheaper, and if you are handy and do some maintenance yourself you can save more $$s
Post by: marty998 on May 24, 2018, 05:40:02 AM
What do you guys think of https://www.spaceshipinvest.com.au/ ?
I referred to my usual source of proper financial advice - https://www.macrobusiness.com.au/2017/08/spaceship-deemed-space-cowboy/
and ended up here:
https://cuffelinks.com.au/spaceship-stalls-launch-pad/
They seem to give a fairly comprehensive run down.
Seems like more fancy marketing over substance? Targeting millennials?
Yep - just a new way of extracting fees - dress it up as high reward investments without making crystal clear it's very high risk and high fee.
Post by: FFF on May 24, 2018, 05:51:04 PM
What do you guys think of https://www.spaceshipinvest.com.au/ ?
I referred to my usual source of proper financial advice - https://www.macrobusiness.com.au/2017/08/spaceship-deemed-space-cowboy/
and ended up here:
https://cuffelinks.com.au/spaceship-stalls-launch-pad/
They seem to give a fairly comprehensive run down.
Seems like more fancy marketing over substance? Targeting millennials?
Yep - just a new way of extracting fees - dress it up as high reward investments without making crystal clear it's very high risk and high fee.
It seems like there are 2 different products being discussed above. I agree that the Spaceship super fund (https://www.spaceship.com.au/) is very high fee at around 1%pa for GrowthX.
However, the general fund (https://www.spaceshipinvest.com.au/) is offering investment in their Spaceship Index Portfolio for MER 0.05% with no buy-sell spreads, no entry-exit or brokerage fees, and the first $5000 invested is fee free. Admittedly, the portfolio details are rather sketchy but I can't help but feel I'm missing something here. What's the catch?
Post by: PDM on May 24, 2018, 06:11:32 PM
Post by: FFF on May 24, 2018, 06:21:51 PM
Good point. I don't see how they're making any money there at all. Is it a play to build up market share and customers then sell the business?
Maybe, probably.
Either way, without knowing exactly how the money is invested means I'm not going to touch it. They have a rough breakdown in the PDS that it's 75% global large caps, 20% Aussie large caps, 5% cash, all directly invested (i.e. no ETFs) but that is virtually meaningless without any further details.
Post by: limeandpepper on May 25, 2018, 04:43:20 AM
Either way, without knowing exactly how the money is invested means I'm not going to touch it.
I'm not interested in investing with them but their portfolio breakdown is actually quite informative and I found it quite easily just by clicking on the relevant thing and scrolling? Not only do they tell you exactly which companies are included, but they also provide a blurb on what each company is about. For the Universe one they also tell you why they like the company but tell you the risks as well.
Post by: asosharp on May 27, 2018, 04:42:56 AM
Post by: Llewellyn2006 on May 27, 2018, 06:58:37 AM
I'm looking for a savings account to be linked to my transaction account. I looked at ME and ING but they require you to actually use your debit card 4 or 5 times a month respectively but I actually rarely use my debit card except to take out cash from the ATM - if that. Can anyone recommend me a good savings account where I won't lose interest for the month if I take money out of the account?
RAMS Saver account. 1.35% plus a bonus 1.65% each month when you deposit at least $200 and make no withdrawals
Post by: FFF on May 27, 2018, 09:25:32 PM
Either way, without knowing exactly how the money is invested means I'm not going to touch it.
I'm not interested in investing with them but their portfolio breakdown is actually quite informative and I found it quite easily just by clicking on the relevant thing and scrolling? Not only do they tell you exactly which companies are included, but they also provide a blurb on what each company is about. For the Universe one they also tell you why they like the company but tell you the risks as well.
I stand corrected - hadn't seen that!
Post by: TheEmuSydney on May 27, 2018, 11:50:34 PM
Either way, without knowing exactly how the money is invested means I'm not going to touch it.
I'm not interested in investing with them but their portfolio breakdown is actually quite informative and I found it quite easily just by clicking on the relevant thing and scrolling? Not only do they tell you exactly which companies are included, but they also provide a blurb on what each company is about. For the Universe one they also tell you why they like the company but tell you the risks as well.
I stand corrected - hadn't seen that!
Yeah you can see all the portfolio companies on https://www.spaceshipinvest.com.au/invest/universe and https://www.spaceshipinvest.com.au/invest/index
Post by: lush on May 28, 2018, 10:57:07 PM
Post by: mjr on May 30, 2018, 01:47:23 AM
Woohoo. Non-super balance touched the million dollar mark today. It took a dive when I moved the $540k into super 18 months ago. So now I have greater than a million in super and outside of it.
Retiring come new financial year.
That is a tonne of money. Do you own your house ?
Great work though and good luck in retirement.
I do own my house, yes. House is not included in the $2.2m net worth.
Thanks for the congrats, all.
Freaken awesome.
and just to let the group know that sometimes miracles happen, after 6+ months of ground work I've managed to score a $200k redundancy package right at the start of the next financial year.
Investible assets will end up at $2.4 million and some change. I am a lucky, lucky, bastard.
Post by: nnls on May 30, 2018, 03:29:03 AM
Woohoo. Non-super balance touched the million dollar mark today. It took a dive when I moved the $540k into super 18 months ago. So now I have greater than a million in super and outside of it.
Retiring come new financial year.
That is a tonne of money. Do you own your house ?
Great work though and good luck in retirement.
I do own my house, yes. House is not included in the $2.2m net worth.
Thanks for the congrats, all.
Freaken awesome.
and just to let the group know that sometimes miracles happen, after 6+ months of ground work I've managed to score a $200k redundancy package right at the start of the next financial year.
Investible assets will end up at $2.4 million and some change. I am a lucky, lucky, bastard.
wow thats awesome
Post by: Gremlin on May 30, 2018, 03:35:10 AM
Post by: steveo on May 30, 2018, 04:36:23 AM
Woohoo. Non-super balance touched the million dollar mark today. It took a dive when I moved the $540k into super 18 months ago. So now I have greater than a million in super and outside of it.
Retiring come new financial year.
That is a tonne of money. Do you own your house ?
Great work though and good luck in retirement.
I do own my house, yes. House is not included in the $2.2m net worth.
Thanks for the congrats, all.
Freaken awesome.
and just to let the group know that sometimes miracles happen, after 6+ months of ground work I've managed to score a $200k redundancy package right at the start of the next financial year.
Investible assets will end up at $2.4 million and some change. I am a lucky, lucky, bastard.
wow thats awesome
It is awesome for mjr but I'm more than a little jealous of the retrenchment package post FI. That is a dream of mine.
Post by: Primm on May 30, 2018, 05:25:27 AM
I'm looking for a savings account to be linked to my transaction account. I looked at ME and ING but they require you to actually use your debit card 4 or 5 times a month respectively but I actually rarely use my debit card except to take out cash from the ATM - if that. Can anyone recommend me a good savings account where I won't lose interest for the month if I take money out of the account?
RAMS Saver account. 1.35% plus a bonus 1.65% each month when you deposit at least $200 and make no withdrawals
Ubank. 2.85% for a savings account with a linked transaction account, minimum $200 a month deposits but no restrictions on withdrawals.
Post by: Fresh Bread on May 30, 2018, 05:00:44 PM
I'm looking for a savings account to be linked to my transaction account. I looked at ME and ING but they require you to actually use your debit card 4 or 5 times a month respectively but I actually rarely use my debit card except to take out cash from the ATM - if that. Can anyone recommend me a good savings account where I won't lose interest for the month if I take money out of the account?
RAMS Saver account. 1.35% plus a bonus 1.65% each month when you deposit at least $200 and make no withdrawals
Ubank. 2.85% for a savings account with a linked transaction account, minimum $200 a month deposits but no restrictions on withdrawals.
CUA has a similar deal for its rewards saver - you have to deposit $1000 a month but you can make as many withdrawals as you like. However the rate just dropped to 2.7% and the balance limit for the bonus interest is 100k. They pay 2.75 on another account where you can't make withdrawals.
Post by: BRAFRA on June 03, 2018, 08:20:42 PM
What is the best way to avoid CGT ? Buy individual shares and sell the individual lines that did not perform well ? Can I group a share that performed -10% with a +10% to avoid any CGT ?
If I forecast that the AUD will struggle due to the future elections (Labour) and the housing bubble, I should invest in products with international exposure like VGS/VTS/VEU. Correct ?
Post by: itchyfeet on June 03, 2018, 08:41:45 PM
scenario: I want to invest $150k in shares/ETF with dividends reinvested and withdraw part of this money in 4y. Over the 4 years, value goes up.
What is the best way to avoid CGT ? Buy individual shares and sell the individual lines that did not perform well ? Can I group a share that performed -10% with a +10% to avoid any CGT ?
If I forecast that the AUD will struggle due to the future elections (Labour) and the housing bubble, I should invest in products with international exposure like VGS/VTS/VEU. Correct ?
I would recommend against backing yourself as a forex punter.
Post by: deborah on June 03, 2018, 08:52:29 PM
scenario: I want to invest $150k in shares/ETF with dividends reinvested and withdraw part of this money in 4y. Over the 4 years, value goes up.
What is the best way to avoid CGT ? Buy individual shares and sell the individual lines that did not perform well ? Can I group a share that performed -10% with a +10% to avoid any CGT ?
If I forecast that the AUD will struggle due to the future elections (Labour) and the housing bubble, I should invest in products with international exposure like VGS/VTS/VEU. Correct ?
Ok. Obviously you are a beginner investor.
Shares should be bought and held for about 10 years - otherwise, because they have a lot of ups and downs (volatility), you are being risky. If you want to invest for a short period, things like bank term deposits are the traditional way to go. Divide the money into longer term and shorter term requirements, and invest it appropriately.
CGT is really not much on what you are investing - it's only on the actual capital gain - not the full amount. If you've had the investments for more than a year the gain is halved, and then your marginal tax rate is applied. And, if you sell at a loss that can be used against years that you sell at a profit.
Why do you want to reinvest dividends? It is the easiest way I can think of to get yourself in a muddle. You have to declare the dividends as income anyway. You have to keep tabs on exactly how many you bought at every dividend and when you sell each individual parcel. If you have more than one investment, dividend reinvestment will skew your portfolio.
The AUD is much more likely to struggle because of other factors - like a world war. We have been pretty lucky. In 1900 we had the one of the highest per capita standard of living - along with Argentina. We are still one of the highest standards of living 118 years later. Most people here are looking at retiring in their 30s and living until they're 100 - a 70 year retirement, so talking about how the world has changed in 118 years is relevant. Of course you need to have world exposure as well as home exposure.
Post by: PDM on June 03, 2018, 09:54:32 PM
scenario: I want to invest $150k in shares/ETF with dividends reinvested and withdraw part of this money in 4y. Over the 4 years, value goes up.
What is the best way to avoid CGT ? Buy individual shares and sell the individual lines that did not perform well ? Can I group a share that performed -10% with a +10% to avoid any CGT ?
If I forecast that the AUD will struggle due to the future elections (Labour) and the housing bubble, I should invest in products with international exposure like VGS/VTS/VEU. Correct ?
A sure fire way to avoid CGT is to buy stocks that don't have any capital gain. Pick some real dogs. The downside to that is you don't get the sweet profits of capital growth. Even better if you make a massive loss - you can use that to offset the CGT. Downside is you'll have to make a loss...
I'd say chill and don't worry about it. You'll already get the 50% discount for owning longer than 12 months. Its only a tax on the gains.
Post by: BRAFRA on June 03, 2018, 10:24:57 PM
-single 29
-Australian resident for tax purposes
-should be in the highest tax bracket in around 4 years
-plan to take a full gap year to travel (and liquidate all the CGT) in 5-6y
Ok. Obviously you are a beginner investor.Mainly new to the country, completely different rules and investment models.
Shares should be bought and held for about 10 years - otherwise, because they have a lot of ups and downs (volatility), you are being risky. If you want to invest for a short period, things like bank term deposits are the traditional way to go. Divide the money into longer term and shorter term requirements, and invest it appropriately.I don't mind volatility and keen to take risk.
My tax bracket is 37%, so 39% of the interests on a term deposit goes away, so 3% becomes 1.8%, less than the inflation.
CGT is really not much on what you are investing - it's only on the actual capital gain - not the full amount. If you've had the investments for more than a year the gain is halved, and then your marginal tax rate is applied. And, if you sell at a loss that can be used against years that you sell at a profit.ATO: Individuals and small businesses (excluding companies) can generally discount a capital gain by 50% if they hold the asset for more than one year.
I will check more on the ATO website how they calculate the CGT and what they consider as an asset.
As I plan to travel during a FY, I want to liquidate all the assets with high CGT during this low income year.
Why do you want to reinvest dividends? It is the easiest way I can think of to get yourself in a muddle. You have to declare the dividends as income anyway. You have to keep tabs on exactly how many you bought at every dividend and when you sell each individual parcel. If you have more than one investment, dividend reinvestment will skew your portfolio.Where I come from, the reinvested dividends can stay in the "product" and become part of the CGT when you sell the "product".
For example, VGS reinvests the net dividends. Does this mean Vanguard already paid my income tax or only the company tax ?
Post by: PDM on June 04, 2018, 12:09:04 AM
If you are on a Distribution Reinvestman Plan (DRP) they will use the distribution to buy 'new' units at the current market rate. I think this is what Deborah is getting at. When you sell, to calculate the CGT you'll have to use the difference between sale price and purchase price. This may be 16 different very small lots. 4 per year - each might be 6 or so units (depending on returns etc).
It isn't the end of the world - and just means you're better off keeping a spreadsheet to track purchase prices.
Post by: deborah on June 04, 2018, 11:49:14 AM
In Australia, both the income and the capital gain are taxed separately.
Broadly speaking, any money you get as income is taxed, generally at the source. If you buy a stock and you don’t give the company your TFN, they will tax your dividend at the highest marginal tax rate. If they have your TFN, they won’t tax it but they’ll send the tax office information about your dividend payment, and you’ll have it already prefilled when you come to do your tax return (unless you fill out your tax return too early).
In Australia we have franking credits - as the company has probably already paid tax on the dividend they give you, you don’t have to pay the tax again on that dividend (income). Because you are on a 37% marginal tax rate, and company tax is currently 30% your share dividends will probably mean you get little extra tax from your dividend income. However, some companies don’t pay much tax (for instance mining companies setting up mines have a lot of expenses they can claim against their tax) so may give dividends without many franking credits. When you get your dividend statement it will tell you just how much tax has already been paid. The dividend income will be added to your other income, and then the franking credits you’ve already paid will be taken off what you need to pay in tax. This is regardless of whether or not you are involved in dividend reinvestment.
If you spent money to earn that income, you can claim it against the income. In the past, your expenses for attending a company’s AGM could be deducted from your income, and if you have a loan for the investment itself, you can claim the interest of that loan as an income deduction. You have to be able to prove to the ATO that your deductions are solely related to the investment (don’t take a holiday at the same time as you go to the AGM). I think attendance at an AGM was taken out in the last budget, but I don’t go to any, so I’m not sure. Many people with investment property have more deductions than income from the property, so they end up with less income than they received from their job - this is called negative gearing. As you plan to buy shares without a loan, I assume you won’t be negative gearing.
Whenever you buy any investment (including in DRPs), you have a base price for that investment - what you paid. Base prices can be adjusted - for inflation, or if the capital value of the investment has changed in any other way. With shares, this can happen if the company decides to have a share split or various other mechanisms. When you sell your investment, the difference between the price you receive and the current base price is the capital gain. Occasionally, companies give you money other than dividends, and the ATO rules whether you have received a dividend or a capital gain (for instance when a company sells part of itself, like the banks are currently doing with their financial services arms) or something else. When you get the statement from the company, it will advise you where the ATO ruling is, so you can work out how to complete your tax return.
If you sell an investment after less than twelve months, you are considered to be playing the market for a living rather than investing. Because of this, capital gains in the first twelve months are considered income, and after twelve months CGT is halved. So, the capital gain is the actual increase between the pile of money you had originally and the pile you received when you sold it (subject to changes in the base price as above).
This (or half of it) is considered to be income, and is treated similarly to other income. However, if you have a capital loss you can only offset it against capital gains, not against other sources of income. To make things more equitable, the loss can be carried forward, and offset against capital gains in future years.
However, like with negative gearing, it’s a bit stupid to want a capital loss. You want your investments to grow, and capital gains are only taxing you for what you have earnt from your investment.
Now, in your particular situation, I don’t understand why you’re bothered about capital gains. Surely you will take your gap year from January to December or something, so that you have two years at a very low marginal tax rate. If you continue to pay super during this time, you can virtually set your own marginal rate. Any capital gains on shares you sell during those two years will be taxed at almost nothing.
Post by: BRAFRA on June 06, 2018, 08:20:39 AM
Now, in your particular situation, I don’t understand why you’re bothered about capital gains.Based on the Australian rules you described, there seem to be limited optimisation available around CGT minimisation.
I see one loophole: to get rid of some shares before moving to the next tax bracket and "save" in my case half of 45%-37%= 4% of the capital gain.
If you spent money to earn that income, you can claim it against the income. In the past, your expenses for attending a company’s AGM could be deducted from your income, and if you have a loan for the investment itself, you can claim the interest of that loan as an income deduction. You have to be able to prove to the ATO that your deductions are solely related to the investment (don’t take a holiday at the same time as you go to the AGM). I think attendance at an AGM was taken out in the last budget, but I don’t go to any, so I’m not sure.Are the management fees, for example from a Vanguard wholesale fund, deductible ?
Post by: Luckyvik on June 06, 2018, 08:29:53 PM
I was looking at the 'indexed investment' option for this fund and it concerned me that the listed investments under this investment option are picked by spaceship therefore it doesn't seem to reflect a particular index such as the ASX 200 or a worldwide index therefore it seems to me it's not an index fund it's an actively managed fund. I think the name index fund for this investment option is misleading.Either way, without knowing exactly how the money is invested means I'm not going to touch it.
I'm not interested in investing with them but their portfolio breakdown is actually quite informative and I found it quite easily just by clicking on the relevant thing and scrolling? Not only do they tell you exactly which companies are included, but they also provide a blurb on what each company is about. For the Universe one they also tell you why they like the company but tell you the risks as well.
I stand corrected - hadn't seen that!
Yeah you can see all the portfolio companies on https://www.spaceshipinvest.com.au/invest/universe and https://www.spaceshipinvest.com.au/invest/index
Sent from my Pixel 2 using Tapatalk
Post by: pistolpete on June 13, 2018, 05:53:28 PM
I have around 100k in a issue lics (ago, Milton, Whitefield, similar to vas but higher franking and smoother divs)
Looking to open the vanguard international fund and maybe another fund so 70k in and maybe 30k another wholesale fund.
Instead of using my own money I would borrow from the bank 100k even tho i have around 115k cash at bank and claim the interest at tax time and let the loan tick over and pay it off whilst reinvesting the distributions as well as dividend reinvestment of my lics.
Any feedback to approaches in how to get into the wholesale fund whilst also having my a aussie lics and blue chips???
Post by: MrThatsDifferent on June 21, 2018, 01:36:47 PM
Currently I’m thinking, if I want to live off $40k a year, then take $18k from investments cause it’s tax free, and have $22k in cash saved for 50-60. Does that make sense?
What are the rest of you doing? Rental income?
I’m perplexed.
Post by: Richmond 2020 on June 21, 2018, 02:30:06 PM
I’m curious about people’s ER strategy. So, say you retire at 50. You can’t touch your super for 10 years (presume you don’t early withdraw at 55 because you don’t want the tax hit). So, then what you can access is cash or investments outside of super. But if you sell your shares you get a CGT hit and then you impact the growth, which will impact what you need to have at 60 to live off 4% for life.
Currently I’m thinking, if I want to live off $40k a year, then take $18k from investments cause it’s tax free, and have $22k in cash saved for 50-60. Does that make sense?
What are the rest of you doing? Rental income?
I’m perplexed.
Good question i’m struggling with this one also.
In my case it will likely be a far less than ideal multifaceted strategy. A combination of dividends from stocks, selling some stocks, cash and rental income.
The less than ideal part of this strategy for us will be once we’re both drawing our pensions we may find we have too much money for the later part of our Retirement phase.
First world problem I guess. But the flip side is that if this is the case we have probably spent to much time slaving away 9 to 5. I guess it will come down to finding that sweet spot where we stop accumulating and start selling some shares.
Post by: Richmond 2020 on June 21, 2018, 02:41:35 PM
Post by: deborah on June 21, 2018, 02:45:47 PM
The other thing is that tax is not something to be avoided. We get a lot of services for our taxes. Planning a strategy just to avoid tax is silly - you should adopt a strategy that maximises your overall outcome. If you’re going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.
Post by: middo on June 22, 2018, 12:33:07 AM
Post by: mrmoonymartian on June 22, 2018, 05:57:11 AM
I’m curious about people’s ER strategy. So, say you retire at 50. You can’t touch your super for 10 years (presume you don’t early withdraw at 55 because you don’t want the tax hit). So, then what you can access is cash or investments outside of super. But if you sell your shares you get a CGT hit and then you impact the growth, which will impact what you need to have at 60 to live off 4% for life.As already noted, CGT is no big deal. If it is a big deal it means you're rich, so shouldn't care about a bit of tax.
Currently I’m thinking, if I want to live off $40k a year, then take $18k from investments cause it’s tax free, and have $22k in cash saved for 50-60. Does that make sense?
What are the rest of you doing? Rental income?
I’m perplexed.
I haven't finalised my pre-preservation plan yet. I had been thinking of a base comprising something like cash/certificate of deposit ladder/bonds and stock selling if/when conditions are suitable. Now I'm thinking a home equity loan/line of credit could replace a lot of that cash/bonds stuff for smoothing out the gaps when I don't want to sell stocks. I could live entirely off my home equity for the time between FIRE and preservation if desired.
If you’re going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.I looked at the eligibility criteria and they seem pretty strict. For example, you have to sell down other assets before you can touch super. Is there something I'm missing?
Does anyone have any insight into why our market is running up at the moment? I see cheering online, but not explanation.Trade wars, bears in Asia, Aussies shovelling cash into super before EOFY? This is the first year personal contributions can be claimed back easily...
"From 1 July 2017, most people, regardless of their employment arrangement, will be able to claim a full deduction for personal super contributions they make to their super until they turn 75."
https://www.ato.gov.au/Individuals/Super/Growing-your-super/Adding-to-my-super/Personal-super-contributions/
Post by: MrThatsDifferent on June 22, 2018, 06:10:30 AM
I was stupid, and had five year’s cash. I then planned to use super, but didn’t for long because the cash lasted longer than I thought it would. Why worry about the tax hit - you’re going to be on a much smaller income, so the tax hit is much smaller than it would be now. I guess you could use insurance bonds if you start them soon enough.
The other thing is that tax is not something to be avoided. We get a lot of services for our taxes. Planning a strategy just to avoid tax is silly - you should adopt a strategy that maximises your overall outcome. If you’re going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.
I appreciate your thoughts regarding tax. But I take the GoCurryCracker view, I should do everything legally possible to pay the least tax possible, everyone should. I’m not even talking about radical stuff.
Post by: deborah on June 22, 2018, 10:30:28 AM
I was stupid, and had five year’s cash. I then planned to use super, but didn’t for long because the cash lasted longer than I thought it would. Why worry about the tax hit - you’re going to be on a much smaller income, so the tax hit is much smaller than it would be now. I guess you could use insurance bonds if you start them soon enough.
The other thing is that tax is not something to be avoided. We get a lot of services for our taxes. Planning a strategy just to avoid tax is silly - you should adopt a strategy that maximises your overall outcome. If you’re going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.
I appreciate your thoughts regarding tax. But I take the GoCurryCracker view, I should do everything legally possible to pay the least tax possible, everyone should. I’m not even talking about radical stuff.
Please note the part that I’ve highlighted.
There is no point in minimising tax if you are actually reducing your own outcomes. Many people who are minimising tax by having a negatively geared investment property are actually worse off - we have had people here who have bought investment properties in WA mining towns and lost everything.
Tax is just one part of the equation. You need to work on the total outcome.
When I was retiring, the best total outcome was to take super as early as possible. I can’t see any changes that would make that different today.
Post by: MrThatsDifferent on June 22, 2018, 06:12:46 PM
I was stupid, and had five year’s cash. I then planned to use super, but didn’t for long because the cash lasted longer than I thought it would. Why worry about the tax hit - you’re going to be on a much smaller income, so the tax hit is much smaller than it would be now. I guess you could use insurance bonds if you start them soon enough.
The other thing is that tax is not something to be avoided. We get a lot of services for our taxes. Planning a strategy just to avoid tax is silly - you should adopt a strategy that maximises your overall outcome. If you’re going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.
I appreciate your thoughts regarding tax. But I take the GoCurryCracker view, I should do everything legally possible to pay the least tax possible, everyone should. I’m not even talking about radical stuff.
Please note the part that I’ve highlighted.
There is no point in minimising tax if you are actually reducing your own outcomes. Many people who are minimising tax by having a negatively geared investment property are actually worse off - we have had people here who have bought investment properties in WA mining towns and lost everything.
Tax is just one part of the equation. You need to work on the total outcome.
When I was retiring, the best total outcome was to take super as early as possible. I can’t see any changes that would make that different today.
Thanks for the clarity. Maybe I’m not understanding what you mean by total outcome? My singular goal is to live off of $40k a year from 50 onwards. I will only have 3 buckets: super, Vanguard and cash. My goal is to have that $40k but structured in a way to pay little or no tax from withdrawals/distributions.
The current thinking is have $220k cash and withdraw $18k each year. Is there a flaw in that? Should all cash be redirect to Vanguard? Or get that all in super as after tax contribution?
I want something fairly simple. So I don’t want to create a trust or anything too complex.
Or are you suggesting to Use cash 50-55, then use super from 55-?
And what the hell would someone do at 30 or 40?
Post by: mjr on June 22, 2018, 08:30:06 PM
The answer, as usual, comes down to your tolerance of risk and volatility and asset allocation.
Although I'm not even close to Deborah's appreciation of paying tax to spendthrift governments, she is quite correct in that you should be looking at maximising your returns as opposed to drawing down on savings just to avoid paying tax. Your pre-super money is in taxable accounts, so you're going to pay tax.
Long-held capital gains is the lowest-tax option, so have as much in long-held capital as you can stomach.
Most Australian equity funds will be paying 4% in dividends whether you like it or not, so you'll be having that as an income stream and paying tax on it.
Personally, my dividends will be covering most if not all of my living expenses from 52 until 60, so I won't need to be liquidating shares. Assuming that the ALP don't get in to bring in their no-refunds-of-franking-credits policy that is.
Post by: Andy R on June 22, 2018, 11:52:33 PM
I'm new here, and have an unusual question.
I'm an Aussie expat, born in Australia but currently living in a developing country.
As I'm not an Australian resident, the following rules appear to apply:
1. No CGT on sales of shares (regardless of domestic or not)
2. Australian shares get no franking credits and unfranked shares have 30% withheld.
3. With International shares (which would be unfranked), I do not pay Australian withholding tax as it is considered to be just passing through from an non Australian company to a non-resident.
Even though I'm a non-resident, I still invest through the ASX since my money is mostly in AUD in Australia, although I guess this is not a huge issue if I wanted to invest other exchanges.
My questions are about bonds.
1. They're unfranked, and I am assuming I would then lose 30% in withholding tax (?)
2. What about an international bonds ETF like VBND - is this is treated the same way as say VTS/VEU where it is unfranked but since it is not Australian that I would not be liable for the withholding tax?
3. Or if tax is withheld, I am thinking it might be best to invest outside the ASX for global bonds and wondering what your thoughts or experiences are on this?
Appreciate any information, thank you.
Post by: MrThatsDifferent on June 23, 2018, 02:00:58 AM
It's a hard question to answer, because we don't know how much you have outside of super.
The answer, as usual, comes down to your tolerance of risk and volatility and asset allocation.
Although I'm not even close to Deborah's appreciation of paying tax to spendthrift governments, she is quite correct in that you should be looking at maximising your returns as opposed to drawing down on savings just to avoid paying tax. Your pre-super money is in taxable accounts, so you're going to pay tax.
Long-held capital gains is the lowest-tax option, so have as much in long-held capital as you can stomach.
Most Australian equity funds will be paying 4% in dividends whether you like it or not, so you'll be having that as an income stream and paying tax on it.
Personally, my dividends will be covering most if not all of my living expenses from 52 until 60, so I won't need to be liquidating shares. Assuming that the ALP don't get in to bring in their no-refunds-of-franking-credits policy that is.
Thanks MJR, so, then you’re basically suggesting keep as much as you can in investment account and live of the dividends. I think that would be fine. I’d probably keep $100k in a HISA as a safety net and to weather any market drops. So, right now I’m having all dividends reinvested, is the idea that you stop that at 52? They just become a quarterly income stream?
Post by: mjr on June 23, 2018, 02:23:31 AM
I said 52 only because I'm 52 and about to RE. Yes, I want them to become my income stream - I'm being taxed on them as income, so may as well use it.
Post by: MrThatsDifferent on June 23, 2018, 12:59:19 PM
Yep, that's my suggestion. I have money kept in HISA as well. Waaaay too much, but that's only while I'm still working.
I said 52 only because I'm 52 and about to RE. Yes, I want them to become my income stream - I'm being taxed on them as income, so may as well use it.
Ok MJR, that’s good, I get it. For some reason I was shying away from that because I thought you needed to have dividends reinvested for the invested money to double every 10 years? So, your plan is to live off the post-tax dividends from 52-60, and then take from your Super at 60? Or will you just take from 52-55 and then start accessing your Super like Deborah suggested and pay the tax? And how do you even know that your dividends will be enough?
I gave 50 for this thought exercise but on paper, I’m slated to pull the plug at 52 like you, so I’m very interested in how you’re making this work. There’s no guidance for the after FIRE part of money management, it’s all most accumulation phase focused.
Apologies for all the dumb questions, really appreciate you sharing.
Post by: deborah on June 23, 2018, 01:48:41 PM
Once any portion of super is in pension phase, that portion is not taxed, and that portion must generate an income for you (at first, you must withdraw 4% a year...). If you leave any portion in accumulation phase, it still gets taxed at 15% on its income and you don’t need to withdraw any of it - you can use this portion to withdraw lump sums if you like. Before you retire it’s all in accumulation phase. If you have more than $1.6million in super, the portion over the cap must stay in accumulation mode.
How are you planning to access super at 55? I would expect your preservation age (the age at which you can access super) to be higher than that - although there are some exceptions.
Moving on to your own tax... Lump sums are not taxed when you receive them - for some reason they aren’t considered to be income - yet. Pension withdrawals are considered to be income. Lump sums can come from money in either phase. However, if you are considering removing lump sums while on a transition-to-retirement, you can’t pull out more than 10% in a lump sum. There are tax reduction possibilities because of these distinctions, but I didn’t need to look into these, and after you’re 60, income from super is generally tax free, so it’s only of any value between your preservation age and 60 (which is rapidly becoming a non-issue as preservation age increases).
If I was doing it again, I’d live off dividends until my preservation age, and take super as soon as I hit my preservation age (thus reducing the super tax component) and put my investments into super after 60, when my pension is tax free, thus negating any CGT (you can really only do this between 60 and 65 unless you pass the work test), and making your investment income tax free too.
Post by: mjr on June 23, 2018, 04:19:49 PM
For some reason I was shying away from that because I thought you needed to have dividends reinvested for the invested money to double every 10 years?
Growth of your non-super assets will certainly be hampered by taking dividends, or by selling shares. I don't quite understand your thinking here. I don't expect my non-super assets to double every 10 years, nor do I need them to.
*My* plan is to draw down about $30k/year from my non-super portfolio of $1.2m. I'm getting more than that in dividends and interest now. I'll start drawing from super at my preservation age (60) from the funds in there (another $1.3m). As you can see, I have a safety margin a mile wide, because that's the kind of person I am. A more general plan would be to draw down on your non-super assets as long as you're comfortable it will get you to 60.
Maximise returns and minimise taxes for your non-super assets and your super in both the accumulation phase and pension phase. You have more options open to you after you turn 60.
Post by: deborah on June 23, 2018, 05:02:33 PM
Firstly, banks are reluctant to lend to people who aren't working, so having the account allows you to use it as a loan or a line of credit when you need it.
Secondly, no-one manages to get their retirement budget right before they've retired. Everyone I have met spends differently in retirement than they predicted. Everyone bar one spends less, so it isn't really something to worry about, but having the offset as a backup would allow you to draw on it if your dividends etc. don't work out as well as expected. If you repay it as soon as you get your dividends, you shouldn't be charged too much interest.
If you are retiring early, you know how to save, so you aren't likely to fall into the traps associated with using your mortgage. Having this could reduce the risks associated with early retirement until you have access to your super.
Post by: MrThatsDifferent on June 24, 2018, 01:52:24 AM
No Deborah, no offset account as I buying a property would probably set me back at least 2 years from retiring.
Post by: deborah on June 24, 2018, 03:32:51 AM
During this time your Vanguard dividends will be income, and your interest (if any) on your cash deposit will be income, so I suspect that you will count as a low income earner for the money the government gives out when low income earners put money into super. You probably won't want your Vanguard dividends to increase, as that will increase your taxable income. So, instead of dividend reinvestment (during this period), if you don't need all the dividend to spend, you probably should put it into super. You get the low income rebate directly from the ATO into your superannuation account, based on your tax return, so you can put the money into super on the last day of the financial year, and still get the rebate.
This has the added bonus of reducing your CGT liability if you transfer any of your Vanguard to super.
You have 2.5 years of cash, so I'd be gradually running it down during this period, using it as an emergency fund and as a top up for the dividends (if necessary). Then, at the end, when you've got all your money needs for the remainder of the period, I'd look at how I want to distribute my money between super and non-super accounts, and start to do so.
I personally think that having as much as you can in super by age 65 is a definite advantage. Super receives enormous tax benefits, which is why they are putting the cap on it. After 65, unless you meet the work requirements, you can't put anything into super and you can withdraw as much as you want to at any time.
Post by: MrThatsDifferent on June 24, 2018, 06:49:08 AM
You'll have 8 years between retirement and superannuation.
During this time your Vanguard dividends will be income, and your interest (if any) on your cash deposit will be income, so I suspect that you will count as a low income earner for the money the government gives out when low income earners put money into super. You probably won't want your Vanguard dividends to increase, as that will increase your taxable income. So, instead of dividend reinvestment (during this period), if you don't need all the dividend to spend, you probably should put it into super. You get the low income rebate directly from the ATO into your superannuation account, based on your tax return, so you can put the money into super on the last day of the financial year, and still get the rebate.
This has the added bonus of reducing your CGT liability if you transfer any of your Vanguard to super.
You have 2.5 years of cash, so I'd be gradually running it down during this period, using it as an emergency fund and as a top up for the dividends (if necessary). Then, at the end, when you've got all your money needs for the remainder of the period, I'd look at how I want to distribute my money between super and non-super accounts, and start to do so.
I personally think that having as much as you can in super by age 65 is a definite advantage. Super receives enormous tax benefits, which is why they are putting the cap on it. After 65, unless you meet the work requirements, you can't put anything into super and you can withdraw as much as you want to at any time.
This is gold! Thanks Deborah. I’m going to copy this and save it for when I’m ready.
Post by: lush on June 24, 2018, 07:26:43 PM
There are two forms of tax on super. Inside super itself, and your own income from super.
Once any portion of super is in pension phase, that portion is not taxed, and that portion must generate an income for you (at first, you must withdraw 4% a year...). If you leave any portion in accumulation phase, it still gets taxed at 15% on its income and you don’t need to withdraw any of it - you can use this portion to withdraw lump sums if you like. Before you retire it’s all in accumulation phase. If you have more than $1.6million in super, the portion over the cap must stay in accumulation mode.
How are you planning to access super at 55? I would expect your preservation age (the age at which you can access super) to be higher than that - although there are some exceptions.
Moving on to your own tax... Lump sums are not taxed when you receive them - for some reason they aren’t considered to be income - yet. Pension withdrawals are considered to be income. Lump sums can come from money in either phase. However, if you are considering removing lump sums while on a transition-to-retirement, you can’t pull out more than 10% in a lump sum. There are tax reduction possibilities because of these distinctions, but I didn’t need to look into these, and after you’re 60, income from super is generally tax free, so it’s only of any value between your preservation age and 60 (which is rapidly becoming a non-issue as preservation age increases).
If I was doing it again, I’d live off dividends until my preservation age, and take super as soon as I hit my preservation age (thus reducing the super tax component) and put my investments into super after 60, when my pension is tax free, thus negating any CGT (you can really only do this between 60 and 65 unless you pass the work test), and making your investment income tax free too.
Deborah you always provide such great financial insights! can I clarify: If I was to sell my entire Vanguard Portfolio of approx.. $1.3M to put into super at the age of 60 – when selling this I will get CGT right? I am trying to get an idea of what you mean by negating the CGT between 60 -65.
Post by: deborah on June 24, 2018, 08:45:04 PM
If I was to sell my entire Vanguard Portfolio of approx.. $1.3M to put into super at the age of 60 – when selling this I will get CGT right? I am trying to get an idea of what you mean by negating the CGT between 60 -65.Why do you have $1.3million outside super? How much do you expect to need each year after you have retired early?
There are several numbers related to superannuation contributions:
Concessional Contributions
Each year you can put maximum of $25,000 into super as a concessional (before tax) contribution. This number includes what your employer contributes (the 9.5% super guarantee). As there are huge fines if you put in too much, you need to be very careful as you reach the full amount. You can put in extra yourself, or you can get it directly docked from your wages as a salary sacrifice. But it must not exceed $25,000 or whatever the government decided this year you can put in. You can now put in more the following year if you didn't reach the limit in the preceding five years - https://www.ato.gov.au/Individuals/Super/Super-changes/Change-to-concessional-contributions-cap/
Quote
From 1 July 2018, you will be able to 'carry-forward' any unused amount of your concessional contributions cap. You will be able to access your unused concessional contributions cap on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.
The first year in which you can access unused concessional contributions is 2019–20.
You will only be able to carry-forward your unused concessional contributions cap if your total superannuation balance at the end of 30 June of the previous financial year is less than $500,000.
Non-concessional Contributions
You can put up to $100,000 per year into super as an after tax contribution if you have less than $1.6million inside super. Again, there are penalties if you get it wrong and put in too much. There is a bring-forward rule, where you can put in 3 years worth at once, but then no more for a few years - this is useful if you are about to turn 65, or have a year when you have a much lower income than normal and you are incurring CGT to move the money into super.
Contributions Cap
$1.6million.
So, if you want to put $1.3million into superannuation, I suspect that you can't. You certainly can't do it in one hit - it would take a minimum of 11 years to transfer that amount into superannuation - thus the reason for my initial questions. If you don't need much during your early retirement, you should be putting more into super now.
Secondly, if you have more than $300,000 in super already, you can never put the whole $1.3million into super. You will be able to put in as many full $25,000 concessional contributions as you want to, but you won't be able to add any non-concessional contributions after you have hit the contributions cap.
Note: all the above assumes that you aren't already doing some of this stuff. The non-concessional contribution limits (for example) have been reduced from $180000 last year to $100000 this year, so people who have already started the "bring forward" before this year have the ability to do things that are different to what I have said.
Also, you really have to watch when your employer contributions arrive into your superannuation account, if you are trying to put the maximum concessional contribution in, as they have the option of depositing your contribution up to about three months after your pay slip (legally), and some are more behind than that.
Post by: lush on June 24, 2018, 09:41:29 PM
If I was to sell my entire Vanguard Portfolio of approx.. $1.3M to put into super at the age of 60 – when selling this I will get CGT right? I am trying to get an idea of what you mean by negating the CGT between 60 -65.QuoteWhy do you have $1.3million outside super? How much do you expect to need each year after you have retired early?
Thanks Deborah.
An overview of our situation : Aim to get to $1.3M in about 6-8 months. I am 43 and my other half 46. We both want to go into part-time work in about 1- 2 years, then maintain this for maybe another 2 years before early retirement. Currently each of us almost hit the $25k Super contributions via our employers and each have about $180k in our super accounts.
The $1.3M is to provide us with about $40-60K per year in distributions is to carry us through the 10 year gap before we can assess our super – by which time combined we estimate an amount of approx. $600k. We don’t intend to sell off any units from our $1.3M over the period leading up to our super, hence why it caught my attention when you mentioned that you can transfer investments without any CGT impacts over into super.
Given the information you have provided we would need to start to move $100k non-concessional amounts starting from our 50’s to move a significant amount. Having said that by pulling down on the $1.3M to move into super this would mean the yearly distributions would be impacted negatively. In addition, for each sale of the $100k there would be CGT impacts so we would need to work out the cost of the CGT and also how it affects our distributions and really if all that is worth it.
Post by: deborah on June 24, 2018, 10:29:14 PM
When you make a concessional contribution into super, you are reducing your income by that amount. This should offset the CGT associated with withdrawing from Vanguard. If you have EFTs in Vanguard and a SMSF, you could do an “in specie” transfer from yourself to your SMSF. I understand that some WRAP accounts also allow this. However, this is just part of the mechanics.
Let us talk about one of you. You have $650k that you will want to put into super, from 60-64.9. You also estimate that you will have $300k in super at that time, and you won’t have made any concessional contributions for 5 years (or more). So, in the first year, you could make 5 years of concessional contributions ($125k), and 1year of non concessional contributions ($100k). This will put you over $500k, which means that you will only be able to make 1 year of concessional contributions from then on, with no catch up allowed. From then, each year you can make a full concessional, and a full non concessional contribution ($25k + $100k). In the last year, you can use the “bring forward” rule with non concessional contributions to put up to $300k into super (plus the concessional contribution of $25k).
This could work if the rules don’t change. I’d check it with someone from your superannuation fund to make sure.
CGT is reduced in early retirement because you simply don’t have the income that you had. The $100k that you’re taking out of Vanguard each year may consist of $80k of original savings, and $20k of capital gains. The capital gains are halved to $10k, and this is added to your income. If you’re on a lower tax rate, the tax is much smaller. Once your super is giving you a pension, it isn’t counted, so you could be on zero income from a tax perspective. As you move your Vanguard to super, you'll be lowering your income each year, and paying less CGT. You obviously don’t need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.
Post by: lush on June 24, 2018, 11:06:15 PM
Firstly, there are two of you, not one. So every number can be halved or doubled because you are separate people. This means you can do it.
When you make a concessional contribution into super, you are reducing your income by that amount. This should offset the CGT associated with withdrawing from Vanguard. If you have EFTs in Vanguard and a SMSF, you could do an “in specie” transfer from yourself to your SMSF. I understand that some WRAP accounts also allow this. However, this is just part of the mechanics.
Let us talk about one of you. You have $650k that you will want to put into super, from 60-64.9. You also estimate that you will have $300k in super at that time, and you won’t have made any concessional contributions for 5 years (or more). So, in the first year, you could make 5 years of concessional contributions ($125k), and 1year of non concessional contributions ($100k). This will put you over $500k, which means that you will only be able to make 1 year of concessional contributions from then on, with no catch up allowed. From then, each year you can make a full concessional, and a full non concessional contribution ($25k + $100k). In the last year, you can use the “bring forward” rule with non concessional contributions to put up to $300k into super (plus the concessional contribution of $25k).
This could work if the rules don’t change. I’d check it with someone from your superannuation fund to make sure.
CGT is reduced in early retirement because you simply don’t have the income that you had. The $100k that you’re taking out of Vanguard each year may consist of $80k of original savings, and $20k of capital gains. The capital gains are halved to $10k, and this is added to your income. If you’re on a lower tax rate, the tax is much smaller. Once your super is giving you a pension, it isn’t counted, so you could be on zero income from a tax perspective. As you move your Vanguard to super, you'll be lowering your income each year, and paying less CGT. You obviously don’t need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.
Deborah this is all new to me. Just amazing! Thanks so much! This should lead to some really good future planning.
I guess there might also be an opportunity to start the process of transferring funds into super in our mid 50’s as I believe you can start getting super at the age of 60 if you are not employed. Thanks again!
Post by: marty998 on June 27, 2018, 05:52:00 AM
Post by: deborah on June 27, 2018, 10:57:42 AM
Lush - you really need to get proper tax advice on this. Deborah is essentially right but you should go to a good fee-for-service Financial Planner to crunch all the exact numbers.+1
Post by: MrThatsDifferent on June 27, 2018, 03:26:16 PM
Lush - you really need to get proper tax advice on this. Deborah is essentially right but you should go to a good fee-for-service Financial Planner to crunch all the exact numbers.+1
You’re amazing Deborah. I’ve copied in pasted all of that into my FIRE notes. Now, I’m sure between now and when I retire, things will change but I’m understanding the value of super and how to structure my accounts. Thank you so much!
Post by: one piece at a time on June 27, 2018, 03:57:48 PM
You obviously don’t need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.
ahhh...still some time to go before I start my super saving.
Post by: lush on June 27, 2018, 04:03:15 PM
Lush - you really need to get proper tax advice on this. Deborah is essentially right but you should go to a good fee-for-service Financial Planner to crunch all the exact numbers.
Hi Marty yes totally agree. I am going to build a few scenarios and this should help with the next steps of getting the Financial advise. Having said that, I have spent a bit of money across Financial Advisors / Accounts for planning advise over the years and must say they have been a bit disappointing! I have found better advise / information within this forum. If you know of any awesome Financial Planners in Sydney let me know :).
Thanks!
Post by: GT on June 27, 2018, 04:25:47 PM
You obviously don’t need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.
ahhh...still some time to go before I start my super saving.
Why?
If you are a low income, dropping extra cash into Super gets you a government match, even if you're not going to see it in your hand for decades, it'll certainly help bump up the available funds at the end.
If you're not low income, then there are other reasons why it might be useful.
Post by: steveo on June 27, 2018, 05:41:15 PM
You obviously don’t need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.
ahhh...still some time to go before I start my super saving.
Why?
If you are a low income, dropping extra cash into Super gets you a government match, even if you're not going to see it in your hand for decades, it'll certainly help bump up the available funds at the end.
If you're not low income, then there are other reasons why it might be useful.
How about this. I retire at 50 and have a taxable income of say 20 grand. Can I take money out of my out of Super stash, put it into Super and get the government to chip in money as well. It sounds dodgy and it probably is but I like the idea.
Post by: deborah on June 27, 2018, 05:53:33 PM
Post by: GT on June 27, 2018, 08:27:53 PM
You obviously don’t need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.
ahhh...still some time to go before I start my super saving.
Why?
If you are a low income, dropping extra cash into Super gets you a government match, even if you're not going to see it in your hand for decades, it'll certainly help bump up the available funds at the end.
If you're not low income, then there are other reasons why it might be useful.
How about this. I retire at 50 and have a taxable income of say 20 grand. Can I take money out of my out of Super stash, put it into Super and get the government to chip in money as well. It sounds dodgy and it probably is but I like the idea.
As @deborah said, it's not dodgy.
IIRC I'll have racked up something like $18K all up this year. A bit of residual work and my Long Service payout (8 years worth - moving due to my wifes transfer got me early access to it) from the job I had to quit before we moved from Brisbane to Melbourne. I topped up my super with $1K to get the $500 match. It's not even a drop in the pond compared to what would have been added if I still worked, but I'll take it, as it's there for people like me who don't earn enough money to have Super go up in happy increments on a regular basis.
Post by: one piece at a time on June 28, 2018, 03:47:36 PM
You obviously don’t need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.
ahhh...still some time to go before I start my super saving.
Why?
If you are a low income, dropping extra cash into Super gets you a government match, even if you're not going to see it in your hand for decades, it'll certainly help bump up the available funds at the end.
If you're not low income, then there are other reasons why it might be useful.
My case is; My super $207k, wife's $78k, $353k in arg, veu, vae (total), and about $10k in cash. Single take home pay of $85 (net of super and tax). We're both 39 and two kids at primary school. We own our low maintenance, solar equipped, home in a bike friendly(ish) LCOL location. My aim is to get to a 25*$35k and then retire. My calcs have suggested that super will take care of itself simply by compounding between my retirement date and the 65 years I need to live to access it. We also anticipate at least some inheritance from parents, which further reduces the value of super savings.
Any reason to put more in super?? The low income matching is attractive (for my wife). But future money seems so far away!
Post by: steveo on June 28, 2018, 08:02:31 PM
Post by: deborah on June 28, 2018, 09:04:15 PM
https://forum.mrmoneymustache.com/australia-tax-discussion/early-retirement-australia/
Post by: marty998 on July 02, 2018, 02:43:05 AM
Chomp chomp, reinvested will be another 33 shares for me :) And with a big fat tax return and (hopefully a) work bonus too I will be loading up on some more this quarter.
@Rob_S - the VHY one is $1.79! Quite the very high yield it is turning out to be.
Post by: Adram on July 02, 2018, 06:28:25 AM
You obviously don’t need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.
ahhh...still some time to go before I start my super saving.
Why?
If you are a low income, dropping extra cash into Super gets you a government match, even if you're not going to see it in your hand for decades, it'll certainly help bump up the available funds at the end.
If you're not low income, then there are other reasons why it might be useful.
How about this. I retire at 50 and have a taxable income of say 20 grand. Can I take money out of my out of Super stash, put it into Super and get the government to chip in money as well. It sounds dodgy and it probably is but I like the idea.
This wouldn't work actually. You need at least 10% of your total income to be eligible income from employment or other self employment or business income to gain access to the co-contribution.
I have seen low income people with trust business income miss out on this because trust income is not eligible income.
Post by: Grogounet on July 02, 2018, 07:53:39 PM
Estimated Vanuguard Australian Shares (VAS) distribution payable on July 17 is $1.02 per unit.
Chomp chomp, reinvested will be another 33 shares for me :) And with a big fat tax return and (hopefully a) work bonus too I will be loading up on some more this quarter.
@Rob_S - the VHY one is $1.79! Quite the very high yield it is turning out to be.
Who do you trade with Marty?
I really love IB but I have to say I can't really understand how much dividend I receive and when.. Annoying
Post by: Grogounet on July 02, 2018, 07:55:22 PM
@one piece at a time - I'm in a similar situation and my opinion is that you need to save outside Super. You need to be able to get to Super. Your total portfolio matters so I have two components. One is total portfolio including Super and the other is my portfolio excluding Super that needs to get me to Super. I wouldn't want to fail getting to Super but actually be okay from a total portfolio perspective.
I ll go even further. You can take Super into account for ER to get a nice kick in your 60s
Definitely something to take into account when you FIRE
Post by: marty998 on July 03, 2018, 03:10:29 AM
How about this. I retire at 50 and have a taxable income of say 20 grand. Can I take money out of my out of Super stash, put it into Super and get the government to chip in money as well. It sounds dodgy and it probably is but I like the idea.
This wouldn't work actually. You need at least 10% of your total income to be eligible income from employment or other self employment or business income to gain access to the co-contribution.
I have seen low income people with trust business income miss out on this because trust income is not eligible income.
It also wouldn't work because you are 50 and cannot take money out of Super at that age.
Post by: marty998 on July 03, 2018, 03:11:30 AM
Estimated Vanuguard Australian Shares (VAS) distribution payable on July 17 is $1.02 per unit.
Chomp chomp, reinvested will be another 33 shares for me :) And with a big fat tax return and (hopefully a) work bonus too I will be loading up on some more this quarter.
@Rob_S - the VHY one is $1.79! Quite the very high yield it is turning out to be.
Who do you trade with Marty?
I really love IB but I have to say I can't really understand how much dividend I receive and when.. Annoying
Commsec.
Dividends have nothing to do with the Broker you are with.... I don't fully understand your question here. Can you elaborate?
Post by: Rob_S on July 03, 2018, 04:02:58 AM
Estimated Vanuguard Australian Shares (VAS) distribution payable on July 17 is $1.02 per unit.
Chomp chomp, reinvested will be another 33 shares for me :) And with a big fat tax return and (hopefully a) work bonus too I will be loading up on some more this quarter.
@Rob_S - the VHY one is $1.79! Quite the very high yield it is turning out to be.
Hi Marty! I was pleasantly surprised by the divie. I recently posted my overall thoughts on VHY in my MMM journal. It has strengths as well as weaknesses that aren't obvious at first glance or at least weren't obvious when I came up with the strategy a few years ago. VHY has been getting a lot of flack lately in investment circles and I reckon its over investment in Telstra is a yield trap similar to BHP and RIO from a few years back. Its lack of capital growth was also getting me down. However the sweet sweet dividends make up for that every time they roll around.
Post by: Grogounet on July 03, 2018, 05:48:49 AM
Post by: BattlaP on July 03, 2018, 09:59:30 PM
Impossible to plan for that kind of shit, particularly when estimate annual income for FTB, childcare etc. I don't feel like we receive any adequate notice, maybe I'm just not paying enough attention to the right emails.
Post by: bigchrisb on July 04, 2018, 01:04:30 AM
Another gigantic quarterly dividend for our Vanguard funds.. like 4.5% on the High Growth LifeStrategy..
Impossible to plan for that kind of shit, particularly when estimate annual income for FTB, childcare etc. I don't feel like we receive any adequate notice, maybe I'm just not paying enough attention to the right emails.
One of the reasons for the large distribution component from index funds was the sale of Westfield to Unibail Rodamco. About a third of this was cash, two thirds URW securities. The cash element came out as a distribution. When you consider the size of WFD in the Australian index, this significantly boosted this quarter's distribution.
Its also one of the reasons I'm a bit hesitant about treating index fund distributions the same way as a dividend from other shares - they often include elements of capital being distributed along the income, however the breakout of this ins't always apparent at the time. I try not to fall into the trap of thinking that if I only draw-down index fund distributions that I will be preserving my capital holdings - not the case.
Post by: lush on July 05, 2018, 11:36:01 PM
Post by: PDM on July 05, 2018, 11:57:07 PM
CGT Question on Shares: When calculating CGT for property you have a baseline of an overall amount that you paid for the purchase of the property to work off. However with shares as these grow gradually, and purchase cost will vary, how does the CGT get calculated if there is no baseline to work off? Thanks.
By each parcel you bought - that is your purchase price for CGT purposes. Can be many different transactions.
Post by: mjr on July 06, 2018, 12:00:25 AM
Post by: Grogounet on July 06, 2018, 12:05:13 AM
Post by: potm on July 06, 2018, 01:36:24 AM
Should be able to calculate for you if you set it up properly. Not sure if CGT calc comes woth the free version.
Post by: mjr on July 06, 2018, 01:51:22 AM
Post by: marty998 on July 06, 2018, 02:15:24 AM
no choice: an excel file with drp price and exact date + same for dividends
And each year lop a bit off each parcel proportionately for the tax deferred distribution component.
Post by: lush on July 06, 2018, 03:42:42 AM
no choice: an excel file with drp price and exact date + same for dividends
And each year lop a bit off each parcel proportionately for the tax deferred distribution component.
Thanks for everyone's feedback.
I thought it might be a bit complicated. Ok, so Vanguard provides me with a yearly tax summary statement - so I think I might start with that. As well a complete transaction history which I can bring into a spreadsheet.
But I am still confused as to what to do calculation wise. How can I work out the CGT impact of removing say $50k from a an overall portfolio value of $1M....when the first investment in the Wholesale Balanced Vanguard Fund started back in 2016, at around $200k, and since then I have been adding more funds and reinvesting the distributions. This means that some of the recent earnings in the portfolio may not allow the 50% CGT discount rate. Or does the CGT just look at the start date of the portfolio, as opposed to top up dates to make that determination?
Also I don't know when building the calculations if I take an average of the purchase price to date for units and then compare that to the current value to sell the units to see what loss or gain has been made by understanding the averages. I can't think of how else you can do it. I hope I am making sense!
I know I will have to get my accountant involved, however, I like to try to work things out for myself so I have a better understanding of it all.
Post by: PDM on July 06, 2018, 03:54:11 AM
https://www.ato.gov.au/General/Capital-gains-tax/Shares,-units-and-similar-investments/Identifying-when-shares-or-units-are-acquired/
Basically you don't use averages at all.
Post by: lush on July 06, 2018, 04:56:39 AM
You'll need to identify which units you are selling to make up the $50k. The ASX doesn't care and thinks they're all the same, but the ATO does.
https://www.ato.gov.au/General/Capital-gains-tax/Shares,-units-and-similar-investments/Identifying-when-shares-or-units-are-acquired/
Basically you don't use averages at all.
Thanks for this article. It is very helpful. It looks like you can the determine the units to baseline against - which in some ways seems a bit flawed, as I guessing most people woud choose units to be suit / limit their CGT impacts.
Also there was this quote at the end of the article about averages:
We'll also accept an average cost method to determine the cost of the shares disposed of if:
the shares are in the same company
the shares were acquired on the same day
the shares have identical rights and obligations
you're not required to use market value for cost base purposes.
Post by: Grogounet on July 09, 2018, 03:28:06 PM
Post by: lush on July 09, 2018, 04:31:47 PM
AMIT is a significant industry-wide reform, which introduces new concessional tax rules for managed investment trusts. Under the AMIT regime, investors will be assessed on the taxable income that is ‘attributed’ to them by a Fund on a ‘fair and reasonable’ basis (called ‘attribution’ of income)
Can anyone explain simple terms what this means - I have tried to work out from the ATO site - but too confusing for me.
Post by: Notch on July 09, 2018, 04:54:52 PM
So just read this in my Tax Information from Vanguard regarding Wholesale Funds:
AMIT is a significant industry-wide reform, which introduces new concessional tax rules for managed investment trusts. Under the AMIT regime, investors will be assessed on the taxable income that is ‘attributed’ to them by a Fund on a ‘fair and reasonable’ basis (called ‘attribution’ of income)
Can anyone explain simple terms what this means - I have tried to work out from the ATO site - but too confusing for me.
The biggest change for us is that when a Vanguard fund distributes more 'tax obligations' than it does cash, you can increase the cost base of your units.
This is to stop double taxation of capital gains that occurs when Vanguard sells shares to payout leaving unitholders, and ends up realising large capital gain 'tax obligations' that it then has to distribute to the remaining unitholders but doesn't have any corresponding cash to pass along with it.
Post by: lush on July 11, 2018, 02:11:36 AM
So just read this in my Tax Information from Vanguard regarding Wholesale Funds:
AMIT is a significant industry-wide reform, which introduces new concessional tax rules for managed investment trusts. Under the AMIT regime, investors will be assessed on the taxable income that is ‘attributed’ to them by a Fund on a ‘fair and reasonable’ basis (called ‘attribution’ of income)
Can anyone explain simple terms what this means - I have tried to work out from the ATO site - but too confusing for me.
The biggest change for us is that when a Vanguard fund distributes more 'tax obligations' than it does cash, you can increase the cost base of your units.
This is to stop double taxation of capital gains that occurs when Vanguard sells shares to payout leaving unitholders, and ends up realising large capital gain 'tax obligations' that it then has to distribute to the remaining unitholders but doesn't have any corresponding cash to pass along with it.
Thanks Notch. I guess that's why each June payout (in the past) has been so significant. However overall do you think this will have a negative or postive impact for investors?
Post by: marty998 on July 11, 2018, 05:28:33 AM
So just read this in my Tax Information from Vanguard regarding Wholesale Funds:
AMIT is a significant industry-wide reform, which introduces new concessional tax rules for managed investment trusts. Under the AMIT regime, investors will be assessed on the taxable income that is ‘attributed’ to them by a Fund on a ‘fair and reasonable’ basis (called ‘attribution’ of income)
Can anyone explain simple terms what this means - I have tried to work out from the ATO site - but too confusing for me.
The biggest change for us is that when a Vanguard fund distributes more 'tax obligations' than it does cash, you can increase the cost base of your units.
This is to stop double taxation of capital gains that occurs when Vanguard sells shares to payout leaving unitholders, and ends up realising large capital gain 'tax obligations' that it then has to distribute to the remaining unitholders but doesn't have any corresponding cash to pass along with it.
Thanks Notch. I guess that's why each June payout (in the past) has been so significant. However overall do you think this will have a negative or postive impact for investors?
It's a positive. It's designed to stop instances where for example a large investor invests into the fund on say June 29, and materially changes the allocation of the income earned between all investors for that quarter.
I am far too distracted watching Origin to write an example, but I think you can figure it out ;)
Post by: Grogounet on July 11, 2018, 07:45:06 PM
Post by: mjr on July 12, 2018, 02:18:51 AM
Still very confusing and I guess so confusing you can contest in case of issue with the ATO.
That is NOT how the ATO works. If you're confused, that's your problem. While they're mostly happy to help answer questions, they're not particularly interested if you try and contest their opinion.
Post by: lush on July 12, 2018, 05:44:28 PM
So just read this in my Tax Information from Vanguard regarding Wholesale Funds:
AMIT is a significant industry-wide reform, which introduces new concessional tax rules for managed investment trusts. Under the AMIT regime, investors will be assessed on the taxable income that is ‘attributed’ to them by a Fund on a ‘fair and reasonable’ basis (called ‘attribution’ of income)
Can anyone explain simple terms what this means - I have tried to work out from the ATO site - but too confusing for me.
The biggest change for us is that when a Vanguard fund distributes more 'tax obligations' than it does cash, you can increase the cost base of your units.
This is to stop double taxation of capital gains that occurs when Vanguard sells shares to payout leaving unitholders, and ends up realising large capital gain 'tax obligations' that it then has to distribute to the remaining unitholders but doesn't have any corresponding cash to pass along with it.
Thanks Notch. I guess that's why each June payout (in the past) has been so significant. However overall do you think this will have a negative or postive impact for investors?
It's a positive. It's designed to stop instances where for example a large investor invests into the fund on say June 29, and materially changes the allocation of the income earned between all investors for that quarter.
I am far too distracted watching Origin to write an example, but I think you can figure it out ;)
Thanks Marty - yep I get it now! Cheers!
Post by: mjr on July 20, 2018, 04:06:49 PM
Post by: FFF on July 20, 2018, 05:30:58 PM
Did anyone get their VTS dividend payment yesterday ? Mine are nowhere to be seen.
Likewise mjr, nothing received for VTS and VEU either. It’s usually in my ING account by the evening so glad to hear I’m not the only one. I’m sure it’ll be in on Monday, hopefully it’s just because the payment was made on a Friday this time - can’t wait for the NPP to be fully functional!
Post by: Primm on July 21, 2018, 11:54:58 PM
Did anyone get their VTS dividend payment yesterday ? Mine are nowhere to be seen.
Likewise mjr, nothing received for VTS and VEU either. It’s usually in my ING account by the evening so glad to hear I’m not the only one. I’m sure it’ll be in on Monday, hopefully it’s just because the payment was made on a Friday this time - can’t wait for the NPP to be fully functional!
Same. Got the email but no money.
Post by: No Money No Problems on July 25, 2018, 06:09:16 AM
I'm 32 and have no share investments and no super.
If I have a 30 year investment horizon, am I best served by plowing my money into super e.g. hostplus vs investing in the index outside super, because of tax benefits?
Post by: itchyfeet on July 25, 2018, 10:35:45 AM
Post by: deborah on July 25, 2018, 01:20:55 PM
Long time lurker first time poster.It depends upon how much you can save. You currently have a 30 year investment horizon, which I assume means that you think you’re only saving enough to retire at 62. In that case, you would have access to your super, and putting most into super is a reasonable way to go.
I'm 32 and have no share investments and no super.
If I have a 30 year investment horizon, am I best served by plowing my money into super e.g. hostplus vs investing in the index outside super, because of tax benefits?
However, if you tackle your expenses, and get them to 20% of your income, you would be saving 4 years of expenses each year, and could retire in 6 years. In that case, keeping all your money outside super would be the way to go.
If you have only just found MMM, and you like the idea of retirement, I suggest starting by investing outside super for the first year, while you adjust your spending patterns. This gives you funds you can use before you retire for doing things like buying a house. Then in a year, you can review what you’re doing.
You can now play catch-up with super (from this year they will allow you to put in up to five years of concessional contributions that you haven’t made - this year is year 1). So you could invest outside super for up to 5 years while you are working out exactly when you think you can retire without any penalties.
Post by: MrThatsDifferent on July 25, 2018, 01:55:17 PM
Long time lurker first time poster.
I'm 32 and have no share investments and no super.
If I have a 30 year investment horizon, am I best served by plowing my money into super e.g. hostplus vs investing in the index outside super, because of tax benefits?
Because of the tax advantages the way I’d go is to get that $25k Max into your Super and then any excess into Vanguard. If you have no super, now’s the time to build it up. But if you’re 32 and no super something special must be going on in your situation so without more info, it’ll be tough for people to advise.
Post by: No Money No Problems on July 25, 2018, 08:45:07 PM
Because of the tax advantages the way I’d go is to get that $25k Max into your Super and then any excess into Vanguard. If you have no super, now’s the time to build it up. But if you’re 32 and no super something special must be going on in your situation so without more info, it’ll be tough for people to advise.
Its funny in a way because when I was a kid I was a Mustachian through and through. I had 80k saved by the time I was 19. Then due to a change in circumstance I went over to the dark side and ended up travelling for several years before settling back in Oz.
I have no personal debt. I run my own company hence no super. I owe 350k on my mortgage (aim to pay this off in next 10 years)
I can put 250-500 a week into index or super per week from this point and thank you Deborah for the advice regarding putting in 5 backdated years of concessional contributions that might be a good interim solution.
Reading these forums is a little overwhelming as I look back at the last 10 years of my life. Small changes here and there could have resulted in a nice little retirement pot hence why I now have a 30 year time frame.
Post by: MrThatsDifferent on July 25, 2018, 09:53:56 PM
Because of the tax advantages the way I’d go is to get that $25k Max into your Super and then any excess into Vanguard. If you have no super, now’s the time to build it up. But if you’re 32 and no super something special must be going on in your situation so without more info, it’ll be tough for people to advise.
Its funny in a way because when I was a kid I was a Mustachian through and through. I had 80k saved by the time I was 19. Then due to a change in circumstance I went over to the dark side and ended up travelling for several years before settling back in Oz.
I have no personal debt. I run my own company hence no super. I owe 350k on my mortgage (aim to pay this off in next 10 years)
I can put 250-500 a week into index or super per week from this point and thank you Deborah for the advice regarding putting in 5 backdated years of concessional contributions that might be a good interim solution.
Reading these forums is a little overwhelming as I look back at the last 10 years of my life. Small changes here and there could have resulted in a nice little retirement pot hence why I now have a 30 year time frame.
Great, well, if you can put in $500/week to super, do it! As Deborah said, if you plan to work for 30 more years, use super as your main vehicle.
Also, The Barefoot Investor is pretty good, simple to read and grasp and tailored for Australians.
Post by: deborah on July 25, 2018, 11:22:48 PM
This is an interesting article on benefits of using the 5 year rule in different scenarios.
Post by: Andy R on July 31, 2018, 10:30:15 AM
I've heard that stocks have returned about 6% real and bonds 2% real over the past whatever long time period, but I see nowhere that bonds are returning 2% over inflation which would be around 4%. In fact VFI/VGB are around 2%, which is about the same as inflation meaning no real return, and lower than RAMS high interest savings account.
I am aware we are at the end of a multi-decade bonds bull run with interest rates going to crazy heights a few decades ago and steadily coming down over this very long period driving the bonds market, but this is not only in Australia, so I don't quite get why people (outside of Australia also) continue to suggest bonds over just keeping cash, and also the fact that both of them seem to have no real return at all after inflation, which is very unlikely to change for a very long time since interest rates are at crazy low levels and has only one way to go.
Could someone please tell me what I must be completely missing here? Where exactly is the return with bonds that people continue to recommend them?
Post by: deborah on July 31, 2018, 11:29:15 AM
Post by: mjr on July 31, 2018, 09:59:10 PM
Bonds are and have been always more popular in the US, probably due to lower interest rates on savings accounts/CDs.
Bond yields now are mediocre at best compared to term deposit rates and bond prices have no where to go from here except down.
Post by: Andy R on August 01, 2018, 09:50:21 PM
I was not aware that that the US has lower interest on savings vs bonds unlike Australia, but that would make sense then.
I wonder what the situation will be for bonds going forward since developed economies now have a target of 2-3% inflation and will pull levers (such as interest rates) to maintain it. I wonder if that means real returns for bonds will remain at or close to zero as the new norm.
Certainly sux that there is basically no real return now, as bonds or savings accounts both match inflation and are not over, but I guess you take what you can get when there is no other option for low risk returns =/
Definitely seems wacky that bonds can return equal or lower than cash though.
I see people putting some money in international REIT's, infrastructure, and utilities as a lower risk lower return (more as you move from left to right in that list), but that's still not exactly low risk the way bonds are.
Post by: centastic on August 05, 2018, 01:49:10 AM
The remaining term on the bond "amplifies" the capital gain/loss.
Think of it as a hedge against a period of deflation. A couple of years ago all economist talking heads were saying that the ex-Japan developed world was heading toward a similar situation as Japan, ie low growth, dipping into deflation. As a result the price of long term bonds shot through the roof (I don't have Australian data but US 20+ year term bonds went up 25% in 2014). Things back to normal now, so probably a good time to be cautiously accumulating them.
Post by: marty998 on August 10, 2018, 07:35:32 PM
Almost tempted to pay 1bp extra in management fees so they can hire another tax accountant to push things along :)
Hopefully it will be out this week.
Post by: oysters on August 10, 2018, 08:40:20 PM
Is 2.8% about as good as it gets at the moment for cash savings?
Post by: PDM on August 10, 2018, 09:59:47 PM
Not for me as I have a mortgage to offset, but my Sister and BIL got an ING savings account the other day at 2.8%. She said it was really easy to set up. To get the 2.8% they have to deposit $1000 a month, and make at least 5 transactions on the attached debit account (which came with a debit card (one for each of them) and can eft etc).
Is 2.8% about as good as it gets at the moment for cash savings?
Sounds worse than RAMS.
https://www.rams.com.au/savings-and-transactions/rams-saver/
3%. $200 per month and don't make any withdrawals.
The needing to make 5 transactions would annoy me. Particularly if ING wasn't my main bank. I also dislike having too many cards.
Post by: MrThatsDifferent on August 10, 2018, 10:00:28 PM
I am still here twiddling my thumbs waiting for my Vanguard tax statement so I can do my tax return.
Almost tempted to pay 1bp extra in management fees so they can hire another tax accountant to push things along :)
Hopefully it will be out this week.
I went online and got mine.
Post by: mjr on August 10, 2018, 11:57:11 PM
I am still here twiddling my thumbs waiting for my Vanguard tax statement so I can do my tax return.
Almost tempted to pay 1bp extra in management fees so they can hire another tax accountant to push things along :)
Hopefully it will be out this week.
I went online and got mine.
For the managed funds? Because Computershare have indicated that the ETF statements are not coming out until mid-August.
Post by: MrThatsDifferent on August 11, 2018, 02:33:35 AM
I am still here twiddling my thumbs waiting for my Vanguard tax statement so I can do my tax return.
Almost tempted to pay 1bp extra in management fees so they can hire another tax accountant to push things along :)
Hopefully it will be out this week.
I went online and got mine.
For the managed funds? Because Computershare have indicated that the ETF statements are not coming out until mid-August.
I have the life strategy retail fund
Post by: BattlaP on August 12, 2018, 03:26:50 AM
Post by: c3044897 on August 14, 2018, 12:09:56 AM
I'm sure this has been asked a million times before - but I could not find it myself.
Is there a 'standard' index fund, or group of index funds that you would recommend investing in to get a portfolio started?
FYI I'm 31, no investments outside of my PPOR and Super. Aiming for financial independence by 50.
Thank you!
Post by: deborah on August 14, 2018, 12:27:54 AM
Hi guys,A fair bit of this thread is devoted to looking at different people’s different allocations. You could do worse than reading the thread and see what ideas you have at the end. It’s messy, but it might help you in other ways as well.
I'm sure this has been asked a million times before - but I could not find it myself.
Is there a 'standard' index fund, or group of index funds that you would recommend investing in to get a portfolio started?
FYI I'm 31, no investments outside of my PPOR and Super. Aiming for financial independence by 50.
Thank you!
Post by: kiwiozearlyretirement on August 14, 2018, 08:17:23 AM
Post by: oysters on August 16, 2018, 03:36:18 AM
Is anyone invested with beta shares A200 with its nice low fees. I was all excited as it seems pretty close to VAS and apparently the additional 100 companies only add another 3% of total worth to the index (VAS 300 vs beta shares 200). But did anyone notice the dividend for beta shares was 0.20 per unit. Seem woeful compared with VAS 1.02 also considering beta shares is already $104 per unit and VAS is still $80. What's going on aren't they tracking a similar index?
To save people time looking it up:
https://www.betashares.com.au/fund/australia-200-etf/
The fund inception date was 7 May 2018 and from what I can tell there has only been one dividend distribution so far...assuming that would only be for a partial quarter, which could explain the relative lower dividend? Or I could be missing something?
Post by: marty998 on August 17, 2018, 08:29:14 PM
Is anyone invested with beta shares A200 with its nice low fees. I was all excited as it seems pretty close to VAS and apparently the additional 100 companies only add another 3% of total worth to the index (VAS 300 vs beta shares 200). But did anyone notice the dividend for beta shares was 0.20 per unit. Seem woeful compared with VAS 1.02 also considering beta shares is already $104 per unit and VAS is still $80. What's going on aren't they tracking a similar index?
To save people time looking it up:
https://www.betashares.com.au/fund/australia-200-etf/
The fund inception date was 7 May 2018 and from what I can tell there has only been one dividend distribution so far...assuming that would only be for a partial quarter, which could explain the relative lower dividend? Or I could be missing something?
Also sounds like Beta Shares started at $100 whereas VAS started at $50 a unit many years ago.
Post by: BRAFRA on August 18, 2018, 05:20:08 PM
ATO says that: You can't claim a deduction for some costs related to purchasing your shares, such as brokerage fees and stamp duty, but you can include them in the cost base (cost of ownership - which you deduct from what you receive when you dispose of the shares) to work out your capital gain or capital loss.
Is it a simple pro-rata for the purchase, like $100 for 200 shares so $0.5 per share of brokerage fee, and the same when you sell?
Post by: mjr on August 18, 2018, 05:56:09 PM
When you're selling, the brokerage costs are apportioned equally across the number of shares you are selling and lower the capital gain.
Post by: kiwiozearlyretirement on August 20, 2018, 08:56:09 AM
Is anyone invested with beta shares A200 with its nice low fees. I was all excited as it seems pretty close to VAS and apparently the additional 100 companies only add another 3% of total worth to the index (VAS 300 vs beta shares 200). But did anyone notice the dividend for beta shares was 0.20 per unit. Seem woeful compared with VAS 1.02 also considering beta shares is already $104 per unit and VAS is still $80. What's going on aren't they tracking a similar index?
To save people time looking it up:
https://www.betashares.com.au/fund/australia-200-etf/
The fund inception date was 7 May 2018 and from what I can tell there has only been one dividend distribution so far...assuming that would only be for a partial quarter, which could explain the relative lower dividend? Or I could be missing something?
Also sounds like Beta Shares started at $100 whereas VAS started at $50 a unit many years ago.
thanks for your ideas. But even if Beta shares are $100 you might except the dividend distribution to be half of VAS for example. Not 20% of it. It shouldn't matter if it is a partial quarter as you just have to own the shares on the distributions record date. Unless some companies paid distributions early that quarter e.g. April.
Guess I will watch them
Post by: Gremlin on August 20, 2018, 07:27:48 PM
Is anyone invested with beta shares A200 with its nice low fees. I was all excited as it seems pretty close to VAS and apparently the additional 100 companies only add another 3% of total worth to the index (VAS 300 vs beta shares 200). But did anyone notice the dividend for beta shares was 0.20 per unit. Seem woeful compared with VAS 1.02 also considering beta shares is already $104 per unit and VAS is still $80. What's going on aren't they tracking a similar index?
To save people time looking it up:
https://www.betashares.com.au/fund/australia-200-etf/
The fund inception date was 7 May 2018 and from what I can tell there has only been one dividend distribution so far...assuming that would only be for a partial quarter, which could explain the relative lower dividend? Or I could be missing something?
Also sounds like Beta Shares started at $100 whereas VAS started at $50 a unit many years ago.
thanks for your ideas. But even if Beta shares are $100 you might except the dividend distribution to be half of VAS for example. Not 20% of it. It shouldn't matter if it is a partial quarter as you just have to own the shares on the distributions record date. Unless some companies paid distributions early that quarter e.g. April.
Guess I will watch them
Most companies report yearly or half-yearly results in February. Typically those that pay a div/distribution will then do so in March/April with an ex div date late Feb/early March. So a fund incepting in May will "miss" most of the quarter's divs that would typically get paid in April.
Also, any divs/distributions accruing would be based on the monies invested at the time the underlying securities were paying out. But they need to be paid out to anyone holding the ETF when it goes ex-distribution. For a mature fund, the difference in volumes shouldn't be that great, but for a completely immature fund, you can get some funny distributions in the first few periods. This will settle down as the ETF matures.
Post by: asosharp on August 21, 2018, 07:07:30 AM
The other person said how would the government know if a room in your house has been rented if you don't declare the income in your tax. I disagreed.
Thoughts?
Post by: deborah on August 21, 2018, 06:08:33 PM
But you can negatively gear, and get paid for maintenance of the room and the common areas of the house. What’s not to like?
Post by: GT on August 21, 2018, 06:40:42 PM
Post by: Andy R on August 21, 2018, 07:47:25 PM
Post by: PDM on August 21, 2018, 08:15:14 PM
Currently having a debate with someone about renting spare rooms in your home. I said that there's CGT when a non-relative rents your room.So you're not debating actual tax law - you're debating fraud.
The other person said how would the government know if a room in your house has been rented if you don't declare the income in your tax. I disagreed.
Thoughts?
Basically it is a question of how much fraud your friend is comfortable with. Its illegal - your friend just has to weight up the risk of getting caught (and the moral aspect of fraud). I'd be concerned about the ATO's data sharing these days. In the era of big data it wouldn't be hard at all to work out that you've rented a room in your house. So much paper trail - a lease, a bond deposited with the RTA, a regular occurring payment (or will it be cash?).
https://www.ato.gov.au/About-ATO/Access,-accountability-and-reporting/In-detail/How-we-use-data-matching/?anchor=Sources_of_thirdparty_information#Sources_of_thirdparty_information
Post by: Little Aussie Battler on August 21, 2018, 08:30:40 PM
Post by: oysters on August 23, 2018, 04:04:19 AM
...or a disgruntled former tenant who notifies the ATO.
Not hard to notify the ATO or another government agency incidentally these days. You often have to supply your residential address. Many things the ATO cross-references with information supplied to other departments.
Much better to do it properly.
Post by: marty998 on August 23, 2018, 05:31:32 AM
...or a disgruntled former tenant who notifies the ATO.
Not hard to notify the ATO or another government agency incidentally these days. You often have to supply your residential address. Many things the ATO cross-references with information supplied to other departments.
Much better to do it properly.
Not hard for the IT guys at the ATO to write a script trawling gumtree, airbnb, Facebook groups etc as well.
Post by: oysters on August 25, 2018, 04:40:07 AM
...or a disgruntled former tenant who notifies the ATO.
Not hard to notify the ATO or another government agency incidentally these days. You often have to supply your residential address. Many things the ATO cross-references with information supplied to other departments.
Much better to do it properly.
Not hard for the IT guys at the ATO to write a script trawling gumtree, airbnb, Facebook groups etc as well.
Yep ;-)
Post by: Evasion on August 27, 2018, 02:53:02 AM
I am a long time lurker who recently became more serious about FI. I already own some shares through Acorns / Raiz (purchased before I realised I could do just as well myself through a broker). I also own some VDHG ETF.
I have been looking at diversifying a bit or buying something less Australian focused for my next 5k investment bundle.
Comparing VGS to IWLD it seems that the latter has lower ER (0.16 Vs 0.18), is tracking the same index, and has way lower share price (32 AUD Vs about 70)
Given that Vanguard is usually the go to company, what's the catch? Tempted to go for IWLD instead of VGS but was wondering whether I missed a difference between the ETFs.
Interested in opinions of people who own IWLD and others!
Thank you for your help and sorry if this is a noob question, first message on this thread (that I've read entirely a few months ago;))
Post by: marty998 on August 27, 2018, 03:38:14 AM
Hello,
I am a long time lurker who recently became more serious about FI. I already own some shares through Acorns / Raiz (purchased before I realised I could do just as well myself through a broker). I also own some VDHG ETF.
I have been looking at diversifying a bit or buying something less Australian focused for my next 5k investment bundle.
Comparing VGS to IWLD it seems that the latter has lower ER (0.16 Vs 0.18), is tracking the same index, and has way lower share price (32 AUD Vs about 70)
Given that Vanguard is usually the go to company, what's the catch? Tempted to go for IWLD instead of VGS but was wondering whether I missed a difference between the ETFs.
Interested in opinions of people who own IWLD and others!
Thank you for your help and sorry if this is a noob question, first message on this thread (that I've read entirely a few months ago;))
The share price doesn't matter if it tracks the same index. They will both go up and down by the same % value each day, less the differential in the management fee.
At the end of the day you are buying Tip-Top bread from either Woolworths or Coles. Occasionally one will be cheaper than the other.
Post by: marty998 on August 27, 2018, 03:41:08 AM
On a % basis, the fees are criminal, they make the Banks look like angels.
Post by: PDM on August 27, 2018, 03:55:32 AM
Hello,
I am a long time lurker who recently became more serious about FI. I already own some shares through Acorns / Raiz (purchased before I realised I could do just as well myself through a broker). I also own some VDHG ETF.
I have been looking at diversifying a bit or buying something less Australian focused for my next 5k investment bundle.
Comparing VGS to IWLD it seems that the latter has lower ER (0.16 Vs 0.18), is tracking the same index, and has way lower share price (32 AUD Vs about 70)
Given that Vanguard is usually the go to company, what's the catch? Tempted to go for IWLD instead of VGS but was wondering whether I missed a difference between the ETFs.
Interested in opinions of people who own IWLD and others!
Thank you for your help and sorry if this is a noob question, first message on this thread (that I've read entirely a few months ago;))
No catch, to compare you need to look at the Net Asset Value.
IWLD - $34.34 https://www.morningstar.com.au/ETFs/NewsAndQuotes/IWLD
VGS - $71.83 https://www.morningstar.com.au/ETFs/NewsAndQuotes/VGS
These are both pretty close to the share price of each and represent the value of each share's portion of the fund's underlying assets and cash at the end of the trading day.
VGS is a much much larger fund, which may give you more comfort? Both are trading at the top of their 52 week range, with VGS at all time highs. This reflects a the weakness in the AUD and strength in the US economy - I think.
Post by: Evasion on August 27, 2018, 05:21:07 AM
And bloody hell, I'm amazed at how easily Acorns and companies like them have managed to dupe so many people into paying away such a high proportion of their well earned.
On a % basis, the fees are criminal, they make the Banks look like angels.
Hey marty, thanks for your response.
Not sure what you mean, when I look at the PDS of Acorns and adding all fees (and i've done this a few times)
I'm at about 0.56% p.a which I consider quite decent for a diversified portfolio (compared to 0.9% for Vanguard managed retail funds for example).
Having said that you have to invest lump sumps quickly (what I did) because if you just use the round up function at the beginning it is indeed a rip off imo.
Is this what you mean or is there something I missed?
Thanks for your response PDM, I had figured they were extremely similar but was confused about differential in share price.
Post by: FFF on August 28, 2018, 06:59:01 PM
1. Does anyone invest their super with Hostplus in their direct investment option, Choiceplus? I've started with them for FY2018 and haven't been able to find any info about when they pay the proceeds from franking credits? I used to be with ING's DIO and they paid whenever there was a distribution (and then adjusted slightly where necessary at FY end), but when they screwed up their fee structure I moved to Choiceplus. When Choiceplus didn't pay any franking credits with my first distribution from VAS, I assumed that it would be after end of FY. 2 months later, still nothing.
Anyone have any prior experience with franking credits from Choiceplus and when they get paid?
2. Has anyone done any 'debt recycling' with their mortgage and home equity? There's obviously a lot more subtlety to it than this but, if you are ahead of your mortgage payments, the general structure is to refinance mortgage to current mortgage value and obtain a line of credit based on the already built up home equity. The main reason is to then use this LOC to invest in the market and use the distributions to pay the LOC interest and enjoy the capital growth - the interest payable on the LOC is then tax-deductable. Kind of like negative-gearing for the market, I suppose.
I'm investigating options and rates at the moment, not necessarily thinking that now is the best time to invest a sizeable amount but I want to be ready to capitalise on any market drops. Of course, I can just redraw the equity as it stands but this wouldn't be tax-deductable if invested. Depending on the rates available the LOC option might not be viable, however, I'm interested to hear if anyone has any experience in doing the above? Would you do it again; anything you'd wish you'd know before; things to watch out for?
Post by: itchyfeet on August 28, 2018, 08:23:53 PM
Re: making geared investments, I think it’s ok but you have to be very aware of the risks.
Say you buy 50% of your shares with cash and 50% with debt amd then unfortunately the share market drops 20% and you are forced to sell the shares for any reason (eg: you lost your job and can’t service the loan). You will have lost 40% of your savings in the process and not 20%.
With gearing both gains and losses are multiplied.
You need to be careful.
1. You need to be honest with yourself about the risks you are taking
2. You need to have a strong stomach if your portfolio drops in value, which could be the case for several years
3. You probably want some income protection insurance if you can’t service the debt without your job.
The positive news is that there is a good probability that over the long term the returns from the market will be higher than the interest rate on the LOC as you are taking far more risk than the bank is taking. In the short term you might lose on the gamble.
Personally, I have been quite heavily geared most of my working life, and it has worked out for me. I have managed to stay employed. But I will say that as I have got older, and the amount of equity at risk has got bigger, and as I have got closer to FIRE, my appetite for leverage has decreased. That said, I am still quite leveraged compared to most on this forum with debt equaling about 30% of my net worth (23% of total assets). When I FIRE this will be <10%, Maybe even 0.
Post by: Andy R on August 28, 2018, 08:35:18 PM
Of course, I can just redraw the equity as it stands but this wouldn't be tax-deductable if invested.
Why not? It is what the equity is used for that determines deductability, not where it comes from.
Get some tax advice from an accountant, but I am 99% sure it would be tax deductible.
Post by: marty998 on August 30, 2018, 03:41:52 AM
Don't ever mix loans. Once you piss in a pot of water you can't un-mix it
Post by: marty998 on August 30, 2018, 03:43:38 AM
And bloody hell, I'm amazed at how easily Acorns and companies like them have managed to dupe so many people into paying away such a high proportion of their well earned.
On a % basis, the fees are criminal, they make the Banks look like angels.
Hey marty, thanks for your response.
Not sure what you mean, when I look at the PDS of Acorns and adding all fees (and i've done this a few times)
I'm at about 0.56% p.a which I consider quite decent for a diversified portfolio (compared to 0.9% for Vanguard managed retail funds for example).
Having said that you have to invest lump sumps quickly (what I did) because if you just use the round up function at the beginning it is indeed a rip off imo.
Is this what you mean or is there something I missed?
Thanks for your response PDM, I had figured they were extremely similar but was confused about differential in share price.
Yes sorry... I was referring to the people who only use the round up thing. Seems a waste of time and cents/sense
Post by: MrThatsDifferent on August 30, 2018, 01:41:26 PM
Post by: TJEH on September 02, 2018, 10:00:52 PM
Current Assets:
- We have a total of just over 2 million in cash, super and shares, breakdown as follows:
- Cash: $930k (approx $300k in $GBP, the rest in $AUD....no reason to hold the $GBP)
- Super: $566k (fairly evenly split between my wife and I)
- Shares: $595k ($250k in my wife's name, $345k in my name)
Other Financials:
- We own our house, valued at approx 400k
- We have no debt
- We are both in our mid forties
- I earn approx $150k + super
- My wife earns approx $170k + super
- Incomes are variable, as we are both contractors
I've continued to work since, the diagnosis, though reduced to approx four days per week due to the multitude of appointments. I've just taken around 6 weeks off for a medical procedure, but am returning to work two days\week. I might bump this up to 3-4 days, but might not. Ultimately, at some point I will not be able to work, so I'm balancing the need to continue life as normal vs spending my time how I choose. It might seem like an easy decision given the situation, but sometimes these things are not straight forward.
My wife is working full time, although this will also be affected by my health. As she is a contractor (as am I), we just get paid for the hours we work, with no other entitlements. Her ability to work in her current capacity will also be affected when I'm no longer about (trying to balance work and commuting with solely looking after two young school age kids).
I handle all the finances at the moment. My wife has a good overall understanding of the picture, but perhaps lacks the finer details. She is willing to learn more, especially now!
Prior to the diagnosis, I was slowly investing the cash into shares (VAS, VEU, VTS, VGS, MVW), split equally between my wife and I. Included in my share balance of $345k are approx $140k of blue chip shares I held before I discovered indexing, most of which I plan to sell.
Since the diagnosis I've been sitting back wondering what to do with the financial plan.
- Continue the same?
- Invest more in my name, as my salary is likely to decrease in the coming months\years?
- Invest more into super (e.g. salary sacrifice plus make non concessional contributions)?
- None of the above?
- Any CGT on my assets when they pass to my wife?
I would really appreciate any advice or insights from the collective knowledge on this thread - thanks in advance.
Post by: englyn on September 03, 2018, 01:30:46 AM
Others are likely to be able to answer your questions better, but my input: at $1.5M + home out of super, the both of you have enough to FIRE. If 4% of $1.5M doesn't cover your expenses, put your effort into controlling your expenses. Might be worth seeing a fee-for-service financial planner about your questions for peace of mind & efficient use of your time.
Post by: bigchrisb on September 03, 2018, 02:06:52 AM
I was diagnosed with a serious illness this year.
I would really appreciate any advice or insights from the collective knowledge on this thread - thanks in advance.
Sorry to hear about this - its hard news to take and your brain must be processing a thousand things. I had a diagnosis about three years ago (albeit degenerative rather than acute) when I was also pretty much FI, but not RE. I stressed a lot about the future, about the potential of not being able to work, and the trade off between a high current income (with associated stress), and not knowing how much future work capacity I would have, or my partner would have if things turned downhill and she became a carer.
I slogged away for about two years after diagnosis, padding the stash and adding (financial) safety nets, and working out bucket lists. In hindsight, I wish I'd prioritized work and finances less - my health has been a lot better since hanging up the full time boots, despite having a first kid in that same time. Babies are a very different sort of stress! 20/20 hindsight says I should have focused on family, friends and ticking off the bucket list. Although, over the 3 and a bit years saving, investing and booming investment returns resulted in net worth going up from about $1.5 to $3.3m, so I probably feel more relaxed than had those 3 years been less lucrative.
Take a deep breath and have a good think. I found these issues really hard to think though as its depressing to think about life expectancy. However, processing them helped me a great deal in coming to terms with myself. A couple of questions I'd be asking myself:
1. Do I have any insurance coverage, either in or out of super. While its nasty to think about, if you have some life insurance in super, it would help to support a family without you.
2. You have $2m of investable assets, plus a paid off house. Even without your income, this could support the family for a long (perhaps indefinite) time. Your wife still has the ability to work too.
3. The kids are primary school and pre-school - they need a lot of time now, but that won't be forever. Even if you didn't earn an investment cent, and neither of you worked a paid hour, you could still spend $200k a year post tax (more like $300k a year pre-tax, akin to your incomes) for a decade.
4. Is it my role to enable FIRE for my surviving spouse after I'm unable to work, or to support my "half" of the costs of parenting through to my kids reaching adulthood? I came to the realisation that my spouse could (and may actually want) to work in the after time.
5. Do you really enjoy your work? Knowing that your horizon just got closer, is work what you would choose to do with your time, or would you rather focus on other things? For me, changing focus helped deal with the diagnosis and has improved the health outcomes (and I'm now doing a little contract work).
So, I'd get your headspace sorted out on those issues. You have enough assets that you can both take a career break for a few years and be just fine. But you need to decide what you actually want to do.
In terms of assets and investments, some more questions:
Why so much cash, and why the GBP?
What do you expect your healthcare costs to be? I've found that while I have some out of pocket costs (a few grand a year), getting really sick in Australia isn't actually that expensive. Its the elective stuff that costs $$.
Look into super rules for early release. Both incapacity (TPD), and terminal illness (2 years life expectancy) can be conditions of release. I ended up putting more into super for the lower medium term tax rates, knowing that if I deteriorated that I'd be able to set up a disability pension.
As for CGT and other estate issues, I didn't do a lot of research. Mostly because the course of my diagnosis is reduced function rather than reduced life expectancy, and I didn't want to mentally head down another rabbit hole.
Good luck - its a tough head space to be in. Feel free to PM me if you want to talk more.
Post by: MrThatsDifferent on September 03, 2018, 04:53:13 AM
So the only other thing I think is, you guys have enough money. Your kids are young, invested money will double every 10 years, that’s almost $8m when they are in their early 20s. There is no reason for you to work another hour. If it were me, I’d take the time and spend it with them, fill their lives with you. Spend time with family, friends, travel and do all those things you’ve ever wanted to. You and your wife can take a break from work. Obviously it’s your decision, there’s no wrong choice. Hug.
Post by: marty998 on September 03, 2018, 05:05:13 AM
https://www.ato.gov.au/super/apra-regulated-funds/in-detail/apra-resources/access-to-super-for-members-with-a-terminal-medical-condition/
Post by: TJEH on September 03, 2018, 05:58:58 AM
Stopping work has definitely crossed my mind. If you asked me what I would do in this situation prior to my diagnosis, I would have almost certainly have said I'd quit. Spending more time with my family is very good advice and something I would not regret. My only reason for considering more work is my need (misguided or otherwise) to contribute while I can, and for something to distract me from sitting at home thinking too much about everything.
Our expenses are currently more than 4% of our funds outside of super. There is definitely some room to make changes here, and both of us stopping work would give us more opportunities to improve. Having said that, we'd probably start spending more on travel. I guess that even though it would still exceed 4%, and thus eat into the stash, it would only be temporary and would clearly have many benefits.
We have a will, although it is old (prior to having kids), my wife is the sole beneficiary.
Happy to have any recommendations for financial\estate planners (Melbourne based would be good).
Post by: TJEH on September 03, 2018, 06:24:30 AM
I have around $270k of tpd and life insurance inside super, so that's another buffer that can be tapped into when the time comes - cue cheery thoughts :D
Your insights are very useful, and I need to think more about it. So far the health issue hasn't really slowed me down too much, so I'm fortunate in that respect. This also means I've done an excellent job in not thinking too deeply about it all. My brain starts to hurt when I do! Even writing this down has made me realize I should make the most of my current situation (diagnosis=bad, day-day functionality=pretty good!)
To answer your questions:
Why so much cash, and why the GBP?
Lots of saving and not much investing, until the last couple of years anyway. I couldn't bring myself to invest a large lump sum, so have invested it in 20k increments per month. With the returns over the last couple of years, perhaps I should have gone the lump sum route, though if the market had tanked I would be thinking the opposite. Regarding the GBP, we lived and worked in the UK for a few years. It is currently getting virtually no return. I know I need to transfer it back, but keep waiting for the rate to improve. Stupid, I know!
What do you expect your healthcare costs to be? I've found that while I have some out of pocket costs (a few grand a year), getting really sick in Australia isn't actually that expensive. Its the elective stuff that costs $$.
So far they have been minimal. I shudder to think how much they would have been if I had to pay for them myself. In that respect, I consider myself extremely fortunate to be Australian, just about everything has been covered by the pubic system. I haven't given too much thought to future costs, they I don't envisage it to change much. Well, unless I run out of PBS entitlements, or want to get my hands on something not covered by the PBS. Although my prognosis is not great, there are plenty of new drugs coming, though the cost of these is astronomical if funding them yourself.
Look into super rules for early release. Both incapacity (TPD), and terminal illness (2 years life expectancy) can be conditions of release. I ended up putting more into super for the lower medium term tax rates, knowing that if I deteriorated that I'd be able to set up a disability pension.
I've heard of others in my situation getting early access to super. Is there a benefit in taking it now vs leaving it there? My wife is the binding beneficiary.
Post by: MrThatsDifferent on September 03, 2018, 06:33:10 AM
Thanks everyone, lots of sensible advice.
Stopping work has definitely crossed my mind. If you asked me what I would do in this situation prior to my diagnosis, I would have almost certainly have said I'd quit. Spending more time with my family is very good advice and something I would not regret. My only reason for considering more work is my need (misguided or otherwise) to contribute while I can, and for something to distract me from sitting at home thinking too much about everything.
Our expenses are currently more than 4% of our funds outside of super. There is definitely some room to make changes here, and both of us stopping work would give us more opportunities to improve. Having said that, we'd probably start spending more on travel. I guess that even though it would still exceed 4%, and thus eat into the stash, it would only be temporary and would clearly have many benefits.
We have a will, although it is old (prior to having kids), my wife is the sole beneficiary.
Happy to have any recommendations for financial\estate planners (Melbourne based would be good).
Awww man, until this happens to you, you never know what you’d do. Look for STEP accredited estate planner. Definitely get your will updated. Consider visiting a therapist to talk things out. Your financial situation is extraordinary. You and your wife have done everything right. You’ve provided and your family is set for several lifetimes. You don’t have to work to stay out of the house.
Post by: Gremlin on September 03, 2018, 05:57:37 PM
We have a will, although it is old (prior to having kids), my wife is the sole beneficiary.
I've heard of others in my situation getting early access to super. Is there a benefit in taking it now vs leaving it there? My wife is the binding beneficiary.I wish you and your family all the best with the coming months and years, TJEH.
It may be worth talking to a lawyer about reviewing your will and potentially updating your binding beneficiary. I know there are a couple of different schools of thought here, but one school suggests that you might consider leaving your assets, including any payout through super/life insurance, in a testamentary trust. You can have your spouse and kids as beneficiaries. It was explained to me that one advantage is that distributions to the beneficiaries are taxed as if they are adults and not kids, which effectively means that distributions to the kids are not hit with the punitive tax rates for minors. This can substantially reduce the tax burden for your spouse into the future whilst your kids are growing to adulthood.
Post by: TJEH on September 04, 2018, 12:35:59 AM
Gremlin - thanks, you have reminded me about testamentary trusts. I did think about them previously, though as a way of passing on both my wife and my assets when we are both gone. The solution of having my assets pass to a testamentary trust sounds well worth looking into.
marty998- thanks, i think I qualify...ummm, hooray....sort of :D
If anything, this might be a good nudge for all you good people to consider the worst, as cheery as that is, and make some plans. I was a bit lazy\naive in this respect, thinking we had saved plenty and that I lead a healthy lifestyle and would be fine. It's all a bit gloomy, but it will lessen the stress if the worst should happen.
Post by: marty998 on September 04, 2018, 05:19:32 AM
Gremlin - thanks, you have reminded me about testamentary trusts. I did think about them previously, though as a way of passing on both my wife and my assets when we are both gone. The solution of having my assets pass to a testamentary trust sounds well worth looking into.
This also protects your kids if your wife remarries someone who turns out to be of questionable character and sees a pot of gold and helps themselves (sorry to throw that out there, I don't mean to be a downer!).
Post by: Chug on September 04, 2018, 05:58:23 PM
I've always been keen on investing in something but never had the guts or knowledge to do anything. I am a complete novice when it comes to shares, superannuation and the like. The only real thought I've had about investing is in real estate and again, haven't had the guts to buy anything.
My current situation in a nutsell:
- The wife and I paying off the mortgage on our home.
- About $35k in savings.
- Home equity around $350k.
- $15k new car loan.
The wife is not interested when I try talking to her about investing our money rather than just have it sitting in the offset. Sure it's important to have cash in case of an emergency, but I want to set up something for the future, obviously in preparation for retirement (I'm 31 so that is a long long way off).
Throw me some suggestions please. I'm keen to learn.
Post by: middo on September 04, 2018, 07:36:32 PM
Hello all, first time poster and in need of some guidance / direction.
I've always been keen on investing in something but never had the guts or knowledge to do anything. I am a complete novice when it comes to shares, superannuation and the like. The only real thought I've had about investing is in real estate and again, haven't had the guts to buy anything.
My current situation in a nutsell:
- The wife and I paying off the mortgage on our home.
- About $35k in savings.
- Home equity around $350k.
- $15k new car loan.
The wife is not interested when I try talking to her about investing our money rather than just have it sitting in the offset. Sure it's important to have cash in case of an emergency, but I want to set up something for the future, obviously in preparation for retirement (I'm 31 so that is a long long way off).
Throw me some suggestions please. I'm keen to learn.
Others will chime in here, but a couple of ideas from my personal perspective:
- Make sure you are putting as much as you can into super (up to $25,000 p.a. in total is very tax effective)
- Don't buy property as an investment. Australian property does not add up when you look hard at it.
- Get Scott Papes book and have a read. It isn't the only solution, but may help you work out what you (and she) want for your future.
- I would suggest you keep your 35K as an emergency fund, but as you save more, invest that into a broad based stock index fund, such as Argo (Australian) or Vanguard as widely suggested here.
Post by: GT on September 04, 2018, 07:40:38 PM
Hello all, first time poster and in need of some guidance / direction.
I've always been keen on investing in something but never had the guts or knowledge to do anything. I am a complete novice when it comes to shares, superannuation and the like. The only real thought I've had about investing is in real estate and again, haven't had the guts to buy anything.
My current situation in a nutsell:
- The wife and I paying off the mortgage on our home.
- About $35k in savings.
- Home equity around $350k.
- $15k new car loan.
The wife is not interested when I try talking to her about investing our money rather than just have it sitting in the offset. Sure it's important to have cash in case of an emergency, but I want to set up something for the future, obviously in preparation for retirement (I'm 31 so that is a long long way off).
Throw me some suggestions please. I'm keen to learn.
Check how your thought process fits in with this.
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333550/#msg1333550
Post by: TJEH on September 05, 2018, 05:02:30 AM
Gremlin - thanks, you have reminded me about testamentary trusts. I did think about them previously, though as a way of passing on both my wife and my assets when we are both gone. The solution of having my assets pass to a testamentary trust sounds well worth looking into.
This also protects your kids if your wife remarries someone who turns out to be of questionable character and sees a pot of gold and helps themselves (sorry to throw that out there, I don't mean to be a downer!).
Good point too marty998. I have told my wife I am going to come back and haunt her if she does anything dodgy, so I'll add this to the list :)
Post by: steveo on September 05, 2018, 04:47:32 PM
Hello all, first time poster and in need of some guidance / direction.
I've always been keen on investing in something but never had the guts or knowledge to do anything. I am a complete novice when it comes to shares, superannuation and the like. The only real thought I've had about investing is in real estate and again, haven't had the guts to buy anything.
My current situation in a nutsell:
- The wife and I paying off the mortgage on our home.
- About $35k in savings.
- Home equity around $350k.
- $15k new car loan.
The wife is not interested when I try talking to her about investing our money rather than just have it sitting in the offset. Sure it's important to have cash in case of an emergency, but I want to set up something for the future, obviously in preparation for retirement (I'm 31 so that is a long long way off).
Throw me some suggestions please. I'm keen to learn.
I would pay off the car loan with $35k in savings. I figure that the car loan has a high interest rate and you won't be able to beat that via savings.
You can invest into index funds if you want too or you can pay off your house. I choose to pay off my house first but it depends on your mortgage interest rate compared to index funds returns. Paying off your mortgage gives you a tax free guaranteed return but if your mortgage rate is 2% then over time I think the market should beat that return.
You need to spend some time working through your investing options but it's not really hard:-
1. ETF's - you can use these to create a simple portfolio that will do really well. You could just buy VGS or you could have some bonds and Australian shares as well.
2. Vanguard diversified funds.
I would look at bogleheads for some ideas. I use a simple 3 found portfolio outside of super - VGA, VAS & VAF. If I was in your position I wouldn't buy any bonds until you are close to retirement and the house is paid off.
Post by: Andy R on September 05, 2018, 07:31:54 PM
For instance, a 60/40 allocation would mean 40 of the remaining 50% not in direct-property is in fixed interest, leaving only 10% of your wealth and 20% of your non direct-property invested in equities.
I wonder if a good idea is to release a big chunk of equity from the property, and leave it sitting there offsetting the loan, and in a crash, I could draw down from that until the market recovers, and this would allow me to be fully invested with my other half in stocks for maximum growth.
Appreciate any thoughts on this.
Post by: MedusaMo on September 09, 2018, 02:36:51 AM
I'm renting at the moment, a little burned on property after a PPOR-turned-investment turned sour and netted me a loss.
I've stashed the equity remaining from the property sale in two places:
high-interest savings account - this carries a 6-month living expenses buffer (I work on contract) plus extra with a vague notion of using it all for a house deposit sometime in the future
ETFs 25k - dipping my toes in VAS, VTS, VEU, A200
I'm toying with whether I am going to be sick of renting soon and want to buy a place to live in, and what I should do with my money in the meantime to grow it but have it somewhat available. I see stuff about LICs and DSSPs, which would be fine for my income level but not if I want to pull the whole lot out at some stage and shift it to a PPOR.
When work is stable I'm living off half my income. My ultimate goal is FI or at least enough of a buffer that gives me the freedom to choose which work I'd like to do.
The guides I see for investment order talk about paying off your PPOR first, then investing elsewhere.
Does anyone have experience with doing this the other way around? Which are good investments to make if you then want to switch to paying off your home?
Post by: PDM on September 09, 2018, 04:46:58 AM
Why VAS and A200? That is a lot of doubling up.
Why VEU and VTS? US market + Rest of world excluding US?
Post by: MedusaMo on September 09, 2018, 05:52:35 AM
That selection of ETFs doesn't make sense to me.
Why VAS and A200? That is a lot of doubling up.
Why VEU and VTS? US market + Rest of world excluding US?
I was thinking of leaving that detail out because I didn't want to distract from my question.
Got VAS, then saw A200 had better MER so bought that in another batch, why would 'doubling up' be an issue? I went for roughly half aus, half ex-aus (mostly US), so I just buy a batch of something when I have enough for a trade.
Post by: PDM on September 09, 2018, 03:56:37 PM
My wife and I don't own any property but may buy in the coming years. We've invested in ETFs and largely reduced our exposure to the ASX and Aussie economy (excluding our jobs). I'm pretty bearish on the AUD, Australian property and the ASC.
We do have a probably too large cash position in a "high" interest saver to use for a deposit if we do want to buy.
The order of investment advice is very situational dependent. If you already had a large loan then paying it off quickly is a guaranteed 4-5% return and you're not taxed on it. If you don't have any property then it depends on whether you're able to rent and still save a bunch to invest.
Also skewed by our massively inflated property prices.
Post by: deborah on September 09, 2018, 05:22:19 PM
However, there are other things in our lives to be considered. Many people also want to have investments even when they are paying off debt. Pure financial optimisation would be against this. But it gives more diversity, which reduces overall risk.
Your choices are your own. You need to be happy with what you’re doing.
Having the investment order as a starting point makes you justify your choices to yourself.
Post by: MedusaMo on September 10, 2018, 05:59:00 AM
Ok, to answer the question, it depends. Particularly on your view of the Australian property market. If you think it is currently a massive bubble and likely to strongly correct/crash then don't buy.
My wife and I don't own any property but may buy in the coming years. We've invested in ETFs and largely reduced our exposure to the ASX and Aussie economy (excluding our jobs). I'm pretty bearish on the AUD, Australian property and the ASC.
We do have a probably too large cash position in a "high" interest saver to use for a deposit if we do want to buy.
The order of investment advice is very situational dependent. If you already had a large loan then paying it off quickly is a guaranteed 4-5% return and you're not taxed on it. If you don't have any property then it depends on whether you're able to rent and still save a bunch to invest.
Also skewed by our massively inflated property prices.
Thanks. I might refine the balance of my ETFs etc over time. I work in the resources industry on contract, so if mining dries up I want to be exposed to other industries, not have my income and investments tied up in the same basket.
I'm at the limit of the ING saver balance where the interest drops back to the base rate and considered opening a saver account at another bank to put more in, but the interest rate is just so low... I figure I should do something better with the money beyond keeping a 20% deposit if I have no immediate plans to buy.
If you buy property, would you sell off your ETFs to pay down the mortgage or would you keep them and at most use any dividends on the mortgage?
One strategy I saw was renting first and with the extra saved (I do save) buying up LICs on a DSSP (reinvested, tax-deferred), then when it's time to buy switch off the reinvestment and take the dividend as payment towards the mortgage. I have run some calcs on doing this after different years as I was concerned it would still take ages to pay back the loan (even if I leave buying till late I'd like it paid off before I hit 60). It looks like I could pay it off without selling off the investments, but it was a pretty rough calculator and I might be missing a few tax considerations.
Probably getting in the weeds here in my own situation, should ask an accountant.
Post by: Andy R on September 10, 2018, 06:54:11 AM
I think you have it backwards. Debt recycling is where you get a loan for PPOR (which is not deductible), and as you save more than the repayments, you pay it into the loan and then borrow it back out to invest in shares. Then the interest on what you borrowed out is now tax deductible. Doing it the way you described doesn't make much sense. It would be better to just sell the shares once you buy the PPOR, pay it into the PPOR loan and redraw it out to rebuy the shares. This turns your debt from non-deductible to deductible (ie free money from the govt)
Post by: PDM on September 10, 2018, 11:18:46 PM
Ok, to answer the question, it depends. Particularly on your view of the Australian property market. If you think it is currently a massive bubble and likely to strongly correct/crash then don't buy.I work in the resources industry on contract, so if mining dries up I want to be exposed to other industries, not have my income and investments tied up in the same basket.
My wife and I don't own any property but may buy in the coming years. We've invested in ETFs and largely reduced our exposure to the ASX and Aussie economy (excluding our jobs). I'm pretty bearish on the AUD, Australian property and the ASC.
We do have a probably too large cash position in a "high" interest saver to use for a deposit if we do want to buy.
The order of investment advice is very situational dependent. If you already had a large loan then paying it off quickly is a guaranteed 4-5% return and you're not taxed on it. If you don't have any property then it depends on whether you're able to rent and still save a bunch to invest.
Also skewed by our massively inflated property prices.
I'm at the limit of the ING saver balance where the interest drops back to the base rate and considered opening a saver account at another bank to put more in, but the interest rate is just so low... I figure I should do something better with the money beyond keeping a 20% deposit if I have no immediate plans to buy.
If you buy property, would you sell off your ETFs to pay down the mortgage or would you keep them and at most use any dividends on the mortgage?
One strategy I saw was renting first and with the extra saved (I do save) buying up LICs on a DSSP (reinvested, tax-deferred), then when it's time to buy switch off the reinvestment and take the dividend as payment towards the mortgage. I have run some calcs on doing this after different years as I was concerned it would still take ages to pay back the loan (even if I leave buying till late I'd like it paid off before I hit 60). It looks like I could pay it off without selling off the investments, but it was a pretty rough calculator and I might be missing a few tax considerations.
Probably getting in the weeds here in my own situation, should ask an accountant.
We don't plan on selling the ETFs to buy a home - instead paying a 20% deposit with cash money. The idea of the ETFs is to distribution reinvest and let it grow, then keep that for FIRE. Then pay off the mortgage.
It probably isn't the optimal use of a chunk of cash - keeping it in RAMS saver 3% - sort of treading water against inflation - however with a tentative plan to look at buying in the next few years or so it doesn't make too much sense to us to buy into an ETF. I like a longer investment timeframe - 7+ years maybe?
Post by: MedusaMo on September 11, 2018, 06:14:08 AM
Have you had a look at RAMS bonus saver. I think it's around 3%
I think you have it backwards. Debt recycling is where you get a loan for PPOR (which is not deductible), and as you save more than the repayments, you pay it into the loan and then borrow it back out to invest in shares. Then the interest on what you borrowed out is now tax deductible. Doing it the way you described doesn't make much sense. It would be better to just sell the shares once you buy the PPOR, pay it into the PPOR loan and redraw it out to rebuy the shares. This turns your debt from non-deductible to deductible (ie free money from the govt)
I haven't looked into debt recycling yet, interesting, thanks.
Post by: MedusaMo on September 11, 2018, 06:18:34 AM
Ok, to answer the question, it depends. Particularly on your view of the Australian property market. If you think it is currently a massive bubble and likely to strongly correct/crash then don't buy.I work in the resources industry on contract, so if mining dries up I want to be exposed to other industries, not have my income and investments tied up in the same basket.
My wife and I don't own any property but may buy in the coming years. We've invested in ETFs and largely reduced our exposure to the ASX and Aussie economy (excluding our jobs). I'm pretty bearish on the AUD, Australian property and the ASC.
We do have a probably too large cash position in a "high" interest saver to use for a deposit if we do want to buy.
The order of investment advice is very situational dependent. If you already had a large loan then paying it off quickly is a guaranteed 4-5% return and you're not taxed on it. If you don't have any property then it depends on whether you're able to rent and still save a bunch to invest.
Also skewed by our massively inflated property prices.
I'm at the limit of the ING saver balance where the interest drops back to the base rate and considered opening a saver account at another bank to put more in, but the interest rate is just so low... I figure I should do something better with the money beyond keeping a 20% deposit if I have no immediate plans to buy.
If you buy property, would you sell off your ETFs to pay down the mortgage or would you keep them and at most use any dividends on the mortgage?
One strategy I saw was renting first and with the extra saved (I do save) buying up LICs on a DSSP (reinvested, tax-deferred), then when it's time to buy switch off the reinvestment and take the dividend as payment towards the mortgage. I have run some calcs on doing this after different years as I was concerned it would still take ages to pay back the loan (even if I leave buying till late I'd like it paid off before I hit 60). It looks like I could pay it off without selling off the investments, but it was a pretty rough calculator and I might be missing a few tax considerations.
Probably getting in the weeds here in my own situation, should ask an accountant.
We don't plan on selling the ETFs to buy a home - instead paying a 20% deposit with cash money. The idea of the ETFs is to distribution reinvest and let it grow, then keep that for FIRE. Then pay off the mortgage.
It probably isn't the optimal use of a chunk of cash - keeping it in RAMS saver 3% - sort of treading water against inflation - however with a tentative plan to look at buying in the next few years or so it doesn't make too much sense to us to buy into an ETF. I like a longer investment timeframe - 7+ years maybe?
Yeah, your strategy to keep was my initial thinking too.
I don't know what else to do with a mid-term holding. Seems caught between low risk/low interest and the longer term volatile options.
Thanks
Post by: BRAFRA on September 21, 2018, 04:01:42 AM
For example, imagine a treaty with Luxembourg stating that the dividends of shares from one of the 2 countries are only taxed in this country. Luxembourg may only have a 10% flat tax, so you better have to buy shares in Luxembourg if your marginal tax rate in Australia is 32.5% or more.
Post by: Andy R on September 21, 2018, 05:47:30 AM
Australia has treaties with some countries to avoid the double taxation with respect to taxes on income and the prevention of fiscal evasion. Are you aware of any country with a treaty that could be used by investors to maximise their profit?
For example, imagine a treaty with Luxembourg stating that the dividends of shares from one of the 2 countries are only taxed in this country. Luxembourg may only have a 10% flat tax, so you better have to buy shares in Luxembourg if your marginal tax rate in Australia is 32.5% or more.
I thought that you get a credit for the tax amount paid in the other country and then make up the rest up to your marginal rate.
So if you paid 10% tax there and your marginal rate here is 32.5, wouldn't you then still need to pay the Aus govt the remaining 22.5% ?
Post by: mjr on September 21, 2018, 03:55:54 PM
Post by: Ballyoz on September 22, 2018, 08:39:08 PM
Background:
I am 37, my wife is 30. We moved to Australia from Ireland last year. We live in Sydney. Both working full-time. I earn $125,000 and she earns $90,000 (both ex super). At the moment, after rent and all other expenses, we manage to save $5,000 monthly. We have a budget and minimising outgoings is a continuous project. Happy to report we're on the same page when it comes to what we want out of life, including financially.
We came from Ireland with very little, around €50,000 in pension funds left behind and some 'get started' money. We plan to stay here in Sydney and are planning accordingly when it comes to our finances. I have no idea if (and how) we would transfer that Irish pension money into Super, but that's another day's work!
We have managed to save $63,000 dollars to date, all of it an ING savings maximiser account. We have no debts (bought a car cheaply here with cash).
Our main goals:
- To start a family (hopefully next year)
- To provide for our future here in Australia
Our main challenges:
- Starting a family is expensive in so many ways - lots we don't even know about yet! (Loss of earnings, childcare etc.)
- We are on the back foot already when it comes to Super, savings etc. given our respective ages... especially mine!
- Property prices in Sydney
In our favour:
- We have good jobs
- We are committed to each other and our future together - willing to make sacrifices
We have discussed the following in terms of our approach:
- Building an emergency fund for unforeseen events (can come from existing savings)
- Happy to keep renting for the foreseeable future as to buy reasonably close to where we both work would be far too expensive. The median price for a basic two-bed unit is comfortably more than $1 million. Renting that same unit costs around $700 per week. To move to a place where that same unit costs $800,000, for example, we would both spend three hours plus a day commuting and these areas are also far more exposed in a downturn. There's also the issue of building the required deposit (we wouldn't feel comfortable at less than 20%). Overall, we are not comfortable with planning to purchase right now, but not ruling it out at some point in the future - if the stars align!
- Considering salary sacrifcing to Super, especially for me, to kick start that fund. If (hopefully when) my wife has to go on maternity leave and all that follows, I could also contribute to her Super to keep it moving forward. We are aware of the concessional cap and I could try make the most of it, especially if there is a pay rise in my future.
- Investing money for the future. This is critical for us, I feel. Obviously this is an area where people can debate ETFs and approaches all day long, but ideally, I would like to keep this as simple as possible, especially as we are interested in a set and (not quite) forget long-term option(s), where we are contributing steadily and consistently towards a future income. In this regard I think one of the old-school LICs while not very exciting may be a suitable option for us, using a dividend reinvestment plan. Vanguard, of course, is another popular option and offers the potential (if we were exposed heavily to Australia via an LIC and Super) to diversify somewhat and focus more on capital growth (again using a DRIP). These would be investments we intend to not even consider touching for at least 20 years. Despite my slight misgivings about the market right now, I am not interested in trying to time it, but just getting started.
- Last consideration is IF there is income left after we build an emergency fund and start investing for our future (via salary sacrifice to Super and otherwise, as outlined above) should we also looking at directing some of our income to a high interest bank account for slow and steady home deposit building, so that it remains a live option for us, despite us feeling the time/market etc. is not right at the moment (and we don't have enough cash!). Homes in Sydney will never be cheap and, who knows, if we decide to move elsewhere in NSW or Australia some day it could be useful then too.
Thanks for reading and, in advance, for any thoughts you share.
Post by: PDM on September 22, 2018, 09:21:37 PM
Post by: marty998 on September 22, 2018, 09:32:22 PM
There is more to Sydney then just the Eastern Suburbs. Plenty of nice areas where you can get a 2-3 bedder for well under $800k, without a 3 hour a day commute.
Post by: middo on September 22, 2018, 09:43:42 PM
Post by: Ballyoz on September 22, 2018, 10:25:35 PM
- PDM, we're in Sydney for now and a move is not likely any time soon. Take your point, but I guess earning potential comes into it too - among other things. I look forward to visiting Brisbane!
- Marty, we live and work on the north side of the city, and neither of us are in finance ;) But I do know of whom you speak! We have never lived in (and barely visited) the Eastern suburbs and we are not tied to the North Shore (where we do live) either for that matter, but proximity to work does matter. What nice areas do you have in mind?!
- Middo, we have not done that, we have just focused on saving what we can and now we are trying to figure out the best way forward. Took time to get settled and start to educate ourselves in a different country! As I said in my post, salary sacrificing to Super is definitely something we're thinking about. We just want to strike the right balance across priorities.
Post by: PDM on September 22, 2018, 10:41:18 PM
Thanks all for your replies.
- PDM, we're in Sydney for now and a move is not likely any time soon. Take your point, but I guess earning potential comes into it too - among other things. I look forward to visiting Brisbane!
Brisbane is a nice place to live - terrible place for a holiday. I reckon about 4 hours is enough tourist time.
Post by: marty998 on September 22, 2018, 10:43:58 PM
Thanks all for your replies.
- PDM, we're in Sydney for now and a move is not likely any time soon. Take your point, but I guess earning potential comes into it too - among other things. I look forward to visiting Brisbane!
- Marty, we live and work on the north side of the city, and neither of us are in finance ;) But I do know of whom you speak! We have never lived in (and barely visited) the Eastern suburbs and we are not tied to the North Shore (where we do live) either for that matter, but proximity to work does matter. What nice areas do you have in mind?!
- Middo, we have not done that, we have just focused on saving what we can and now we are trying to figure out the best way forward. Took time to get settled and start to educate ourselves in a different country! As I said in my post, salary sacrificing to Super is definitely something we're thinking about. We just want to strike the right balance across priorities.
Ahh crap! I guess I am a little sick of all the Irish resumes that have come across my desk the past couple of years :)
I'm more familiar with the southern parts of Sydney, but up North yeah look the commutes are a bit worse, especially with slow buses from places like Dee Why and Narrabeen. And from the North West, with the Epping/Chatswood rail shut down for the metro it isn't looking great either. Have a mate who lives in Mosman, and I beat him into work in the CBD in the morning, even though I live on the outskirts of the metro area.
It will cost you more that side of the bridge, but alas, privilege has to be paid for.
A lot of noise is made about super and the gender gap and making sure women have the same standard of retirement etc... however in your case because of your age gaps you would want to put as much in your name as possible, as you will have access to it first. In 23 years when you draw it down, you can simply wash it back into your wife's fund.
A big mortgage when you're about to start a family and interest rates are on the way up and you're down to 1.5 incomes with childcare bills is something to either be avoided or strategically planned for. Take your time war-gaming it!
Post by: Ballyoz on September 23, 2018, 02:21:56 AM
My wife works in Mosman and I am further north, right in the midst of that rail shut down! We both like our jobs, so happy to rent for the privilege of being close to them, but highly doubt we'll ever be in a position to buy up here. That's why we're looking at other investments.
Thanks for the advice on the Super. I have a lot of ground to make up for sure.
World domination is not on our agenda, or even FIRE realistically, we just want to set ourselves up as best we can.
Post by: mjr on September 23, 2018, 04:38:59 PM
Brisbane is a nice place to live - terrible place for a holiday. I reckon about 4 hours is enough tourist time.
4 hours if it includes a long lunch !
Post by: PDM on September 23, 2018, 04:44:51 PM
Brisbane is a nice place to live - terrible place for a holiday. I reckon about 4 hours is enough tourist time.
4 hours if it includes a long lunch !
I’d assumed a long lunch, a city cat ride to capture a photo of the bridge from the water (looking back towards the city), a quick visit to either the Powerhouse/New Farm Park or GOMA/Southbank.
Post by: mjr on September 23, 2018, 07:57:15 PM
Post by: steveo on September 23, 2018, 10:48:55 PM
Vanguard pre-fills are in.
Thanks for the update. Off to complete my tax returns.
Post by: BattlaP on September 24, 2018, 12:31:08 AM
Vanguard pre-fills are in.
Some of my ETFs are there, but my wholesale funds aren't showing up yet. Had a go at doing it myself but its pretty confusing. The tax guide on the Vanguard site has barely any relation to my AMMA Tax statement and it's not clear what goes where in the mygov tax return process. I'm dumb.
Post by: steveo on September 24, 2018, 03:18:44 AM
Vanguard pre-fills are in.
Some of my ETFs are there, but my wholesale funds aren't showing up yet. Had a go at doing it myself but its pretty confusing. The tax guide on the Vanguard site has barely any relation to my AMMA Tax statement and it's not clear what goes where in the mygov tax return process. I'm dumb.
I checked and I have 2 out of my 3 funds there. I'm not even going to try to fill it in correctly. I'll just wait a week or two.
Post by: NotSure on September 24, 2018, 10:43:07 PM
In myGov tax return there is no pre-fill data from VGS, only VAS, is this normal? Will it be later or should I fill details myself?
Thanks in advance.
Post by: BRAFRA on September 28, 2018, 11:29:29 PM
I now read that if you don't provide computershare (or whoever) with a W8 form and tax was withheld at 30%, you can only claim tax withheld at 15%. Can you confirm?
Post by: marty998 on September 29, 2018, 02:57:54 AM
Cha ching! +$3150 to the kitty :D
Post by: mjr on September 29, 2018, 05:45:28 PM
Post by: marty998 on October 02, 2018, 02:58:47 AM
The banks are still falling. 30 September is year-end for Westpac, ANZ and NAB, results will be out at the start of November.
Some further implications from the Royal Commission are sinking in.... ASIC finally awaking after being told to act more like an angry Cerberus rather than a scared Scooby Doo. AMP the first to be put in the dock.
Post by: Richmond 2020 on October 11, 2018, 02:48:26 AM
Post by: Andy R on October 11, 2018, 03:17:19 AM
I’ve got a lazy $20k sitting in an offset account against my mortgage. Leave it there or buy some Vanguard on the cheap?
What was the purpose of the 20k?
If it was earmarked for anything such as an emergency fund then don't see why the change.
If it was not, why hasn't it been invested already?
Post by: Richmond 2020 on October 11, 2018, 04:07:22 PM
Post by: Andy R on October 11, 2018, 08:18:36 PM
The “Purpose” is to offset some of the interest costs 4.06% on our home loan. The decision point for moving this money to shares is whether the drop in the share market will shift the odds in favour of getting a better return in shares (noting this will incur tax).
If I had money that was not earmarked for anything except to pay off the property while having money available for some particularly great opportunity, I wouldn't consider a 5% drop all that great. I'd ether be investing it sooner without waiting for some particularity good opportunity, or I would be waiting for quite a lot more of a drop, but that's just an opinion.
Anyone who says they have an answer to this is full of it. It could recover quickly and go up a lot more or it could continue to drop another 5, 10, 20, 30, or 50%.
Post by: bigchrisb on October 12, 2018, 04:52:54 AM
The “Purpose” is to offset some of the interest costs 4.06% on our home loan. The decision point for moving this money to shares is whether the drop in the share market will shift the odds in favour of getting a better return in shares (noting this will incur tax).
If I had money that was not earmarked for anything except to pay off the property while having money available for some particularly great opportunity, I wouldn't consider a 5% drop all that great. I'd ether be investing it sooner without waiting for some particularity good opportunity, or I would be waiting for quite a lot more of a drop, but that's just an opinion.
Anyone who says they have an answer to this is full of it. It could recover quickly and go up a lot more or it could continue to drop another 5, 10, 20, 30, or 50%.
+1 on this. While the last week is reported as dire, even after this drop anyone who invested a year ago is doing just fine... Including distributions, VAS is up 6%, VGS about 14%, VEU 3.5% and VTS 19%. All pretty healthy returns. If it wasn't a screaming buy to you 12 months ago, its less of a screaming buy now.
As for me, I'm sticking the course. I sold off a couple of things a few weeks ago to pay down some debt (see journal if you want the details). After a little wobble, I'm sticking the course - a bit of reinvestment, and chipping away with accumulation in my super fund. No real news here...
Post by: mjr on October 12, 2018, 05:10:56 AM
I do think it's still more of a buy situation though. It's now been higher. It's not unchartered territory anymore, there are likely to be investors who aren't keen to sell at a loss providing upwards pressure.
It certainly hasn't been anything to write home about, though. Hardly moved the needle.
Post by: superannuationfreak on October 13, 2018, 08:55:57 PM
We've only received an AMMA tax statement which doesn't have the helpful tax return labels.
It also looks wrong (The entire Net Cash Distribution is attributed to "Other non-attributable amounts", even though there is a foreign tax paid amount which should logically have Assessable Foreign Income > $0 attached)
For comparison, VAS had the more familiar Member Tax Statement while another Vanguard Wholesale Fund had the same as International but at least looked properly attributed to Foreign Income, etc.
Thanks!
Post by: BattlaP on October 13, 2018, 09:23:17 PM
Post by: steveo on October 14, 2018, 01:14:12 AM
Post by: PDM on October 14, 2018, 02:00:16 AM
I just manually entered the VGS details in the tax return. It's not that hard and I avoided it for as long as possible.
It was fairly straightforward. The order of the items didn't match up but the tax code letter and numbers I could easily match.
Post by: BattlaP on October 14, 2018, 10:03:13 PM
Post by: superannuationfreak on October 15, 2018, 01:51:14 AM
Post by: lush on October 15, 2018, 09:58:46 PM
Originally we put all our eggs into one basket an put all we had into into the Vanguard Balanced Fund Portfolio as we considered it be very safe (later we invested in the VAS). This was at a time that we really didn’t know very much at all about the world of shares etc. So it gave us some comfort. Over 2 years down the track and we have become very comfortable with the stock market and anticipate several highs and lows in our lifetime and have come to an understanding that actually the real risk maybe in being too conservative, meaning reduced growth and distributions if we remain predominately within the Balanced Portfolio.
Below is a breakdown of what we have currently and please keep in mind that we hope to FIRE within 1-2 years (current ages 47 /44) – however may continue to work part-time a few more years, meaning that we can let the distributions reinvest into VAS for hopefully the next 5 years.
Balanced Fund = $1.02M (20% VAS+ 30% International Shares = 50% Growth) + (35% Bonds + 15% Cash = 50% Defensive )
VAS = $225k
Over the next year we intend to top up VAS with another $150 – 200k (ambitious target). This would mean our asset allocation would be approx. 33% Defensive + 67% Growth (VAS would make up about 47% across the both portfolios)
In order to increase the Growth/VAS asset allocation of the Portfolio, I have been contemplating selling down about $300k out of the Balanced fund (I know there will be CGT impacts but intend to sell over 1-3 years to limit impacts) to top up the our VAS in order to help future proof the portfolio. The thinking is - better to do this now early into our portfolio / asset building strategy, rather than years into the future, if at all. The additional $300k would see the portfolio asset allocation to:
25% Defensive/ 75% Growth (VAS making up 60%)
As Vanguard control the VAS allocation in the Balanced fund this could change over time if they increase or decrease it, however something tells me they will leave it at about that 20%.
I am sharing my thoughts in this forum to see what people think or could advise. I am somewhat concerned about the CGT impacts of selling part of Balanced Portfolio, but think it may be short term pain for long term gain. I also have come to believe we need to drop the cash / bonds down (Defensive) to at least 30% of our portfolio asset allocation...if we are going to live until about 100 years old!
Oh and if you are thinking about our super - my partner and I have about $200k each in Balanced Portfolio in Host Plus – which is about 60% Growth/40% Defensive ( I think).
Thanks!
Post by: one piece at a time on October 15, 2018, 10:13:24 PM
Post by: Andy R on October 15, 2018, 11:23:24 PM
Post by: PDM on October 15, 2018, 11:23:57 PM
Here is the VAS top 10 - 43% of the fund. Banks and super markets with a sprinkling of mining.
You're missing the huge opportunities for diversification and international exposure provided by etfs.
The ASX is a backwater stock exchange in a backwater country that flogs houses to itself for inflated prices and digs up some stuff to sell to China.
Post by: marty998 on October 16, 2018, 12:33:39 AM
Seems like a lot of VAS. I'm not a huge fan of it myself.
Here is the VAS top 10 - 43% of the fund. Banks and super markets with a sprinkling of mining.
You're missing the huge opportunities for diversification and international exposure provided by etfs.
The ASX is a backwater stock exchange in a backwater country that flogs houses to itself for inflated prices and digs up some stuff to sell to China.
But but but... we have.... errrr..... umm.... franking credits!!!
Yes yes... invest here because of that....
/s
So ridiculous that SMSFs are up in arms because of the proposed policy from the opposition. Perhaps it's about time the small proportion of the population who hold $700 billion in assets might start to pay just a teensy little bit of tax on their incomes?
Post by: bigchrisb on October 16, 2018, 03:57:45 AM
Seems like a lot of VAS. I'm not a huge fan of it myself.
Here is the VAS top 10 - 43% of the fund. Banks and super markets with a sprinkling of mining.
You're missing the huge opportunities for diversification and international exposure provided by etfs.
The ASX is a backwater stock exchange in a backwater country that flogs houses to itself for inflated prices and digs up some stuff to sell to China.
But but but... we have.... errrr..... umm.... franking credits!!!
Yes yes... invest here because of that....
/s
So ridiculous that SMSFs are up in arms because of the proposed policy from the opposition. Perhaps it's about time the small proportion of the population who hold $700 billion in assets might start to pay just a teensy little bit of tax on their incomes?
Indeed. However, that is a problem with having 0% tax rates on super funds in pension mode, as opposed to a problem with the franking system. Wish both sides would address the actual issue of taxing super pensions rather than looking for work-arounds that cause collateral damage.
Post by: one piece at a time on October 16, 2018, 02:46:07 PM
Seems like a lot of VAS. I'm not a huge fan of it myself.
Here is the VAS top 10 - 43% of the fund. Banks and super markets with a sprinkling of mining.
You're missing the huge opportunities for diversification and international exposure provided by etfs.
The ASX is a backwater stock exchange in a backwater country that flogs houses to itself for inflated prices and digs up some stuff to sell to China.
I get my ASX exposure with Argo. They cost 0.15% which is a bit higher than the 0.14% of VAS, but they are focused on dividends rather than index tracking so I think it is worth it. Their top 20 is https://www.argoinvestments.com.au/assets/docs/monthly-nta/ARG-NTA-0918.pdf
High (enough) volume traded through Argo to make the transactions pretty easy -- compared to some of the more boutique Vanguard funds that heavily rely on market makers. The volume makes dipping into shares to fund life cash flow crunches a little easier. Having said that I stopped buying new Argo shares shortly after finding this site and have been adding VEU and VAE.
Post by: mjr on October 16, 2018, 09:25:37 PM
Indeed. However, that is a problem with having 0% tax rates on super funds in pension mode, as opposed to a problem with the franking system. Wish both sides would address the actual issue of taxing super pensions rather than looking for work-arounds that cause collateral damage.
Indeed. Although my SMSF is not yet in pension mode, I'll continue to go right off at the ALP distorting the playing field in an unabashed attack on SMSFs to get people to move to union industry funds.
These people are only playing by the rules. They shouldn't be penalised for playing by the rules.
Post by: mjr on October 16, 2018, 10:05:06 PM
You're missing the huge opportunities for diversification and international exposure provided by etfs.
The ASX is a backwater stock exchange in a backwater country that flogs houses to itself for inflated prices and digs up some stuff to sell to China.
It's true that Australia is not exactly an economic powerhouse. But it's where we live (no currency volatility) and there's not much danger of foreign banks and miners coming in and taking significant market share away.
Plus we are a nice, stable country and there aren't that many in the world. I wont put a cent into Europe, for example.
Despite sarcastic comments as to their value, there are the franking credits which are worth real money to Australian investors. If solely invested overseas, you don't get the benefits of the foreign tax offsets.
Note that even Peter Thornhill is an advocate of Australian Industrials, which is a lot of banks and supermarkets.
VAS has its place and 60% doesn't sounds too bad.
Post by: Andy R on October 16, 2018, 10:56:02 PM
Note that even Peter Thornhill is an advocate of Australian Industrials, which is a lot of banks and supermarkets.
Peter Thornhill advocates no mining, no REITs, no bonds, no international, no index funds, and touts the catch-phrase "di-worse-ification" that people repeat because it's catchy and they are too brain dead to comprehend the insanity advocating against diversification in investing. His arguments for each of those are based on half-truths, which is why they appear to be true to someone who is unaware of the part he leaves out.
Post by: mjr on October 16, 2018, 11:03:45 PM
Luckily, having a brain myself, I have REITs, index funds (and hence mining) and a very significant exposure to the US. I don't follow Thornhill's exact strategy, I was merely pointing out that there are plenty of worse places to invest as an Aussie than the ASX.
Post by: lush on October 16, 2018, 11:36:25 PM
I understand the reactions to VAS, but tend to think that Australia is not a bad country to invest in.
Post by: marty998 on October 18, 2018, 12:51:39 AM
Two not so great indicators of the health of the economy (can you tell I'm bearish?)
Shopping centre landlords are going to struggle to fill the empty space, but to be frank, the crazy high rents contribute to sending businesses broke too.
Not a great week for retailers or REITS.
I was in the David Jones flagship store earlier this week at lunchtime..... apart from the basement food court there was very very little foot traffic browsing for merchandise. The rest of Westfield was pretty quiet too, though that has always been the case with those stores chasing the HNW tourist dollar.
Post by: potm on October 18, 2018, 06:16:03 AM
Especially when it's TRS and Roger David. I can see why they are struggling.
I use to buy some clothes from Roger David back in my uni days. There was no where near as much choice and options as there are now.
I actually think the Australian economy is doing very well, despite all the doom and gloom talk that has been persistently around since the GFC.
GDP growth is strong, population growth is still going strong, jobs growth is great. Per capita growth is not as great due to weak wage growth but the overall pie is still growing strongly. Commodity prices in AUD are very high. Coal and LNG exports are booming to join iron ore in creating strong trade surpluses. International students and tourism keeps notching up year after year of strong growth. The numbers show that Australia is in the best shape it's been in a long time.
House prices are coming off after some significant gains. There's lots of infrastructure spending which will help cushion any impact on construction.
There's lots of risks overseas though and if others sneeze, Australia could easily catch a cold.
Post by: BRAFRA on October 20, 2018, 07:25:30 PM
What are the reasons behind your choice of investing or not investing in this type of opportunities?
Post by: Andy R on October 20, 2018, 08:08:07 PM
Are you or did you think of becoming a business partner in a small business like a cafe, restaurant or cleaning company?
What are the reasons behind your choice of investing or not investing in this type of opportunities?
For me it it is too high risk/return. For others I think it is the want for a passive income.
I would be ok with long working hours involved in a business, and I would like to be a partner in a business if I felt I had any ability to contribute and succeed, but I don't and the thought of working up to 100 hours a week for up to 5 years only to end up with nothing when businesses fail like 90% of the time stops me. So for me the risk/return is too high. When there is such a high risk of having nothing at the end of it, that's beyond my risk tolerance. Maybe if I was financially independent and could still be ok if it ended up flat on it's face, or if I had some information indicating the business had a higher chance of being viable, that would be another thing.
Other reason is the passive nature of index investing. Many don't want the long hours and prefer to just get their money working for them instead of them working for money.
Post by: limeandpepper on November 07, 2018, 03:26:21 AM
Post by: Andy R on November 07, 2018, 06:04:40 AM
https://jlcollinsnh.com/stock-series/
https://www.bogleheads.org/forum/index.php
https://forum.mrmoneymustache.com/investor-alley/
https://www.amazon.com/Million-Life-Make-Manage-Maximise-ebook/dp/B007DIAENU
Actually putting money in should be the last step and only when she has a reasonable fundamental understanding about the nature of the stock market, can decide an equities to bonds allocation, and a home country to international allocation, and have reasons listed for each decision and why she chose it over other options. Just my 2c.
Post by: marty998 on November 07, 2018, 01:35:45 PM
Investing bits of money into some random fund doesn't make you learn about the stock market. Learning about the stock market helps you learn about the stock market. Why not give her some learning resources to that she can take responsibility for her actions and own the results, by learning and make a decision for herself?
https://jlcollinsnh.com/stock-series/
https://www.bogleheads.org/forum/index.php
https://forum.mrmoneymustache.com/investor-alley/
https://www.amazon.com/Million-Life-Make-Manage-Maximise-ebook/dp/B007DIAENU
Actually putting money in should be the last step and only when she has a reasonable fundamental understanding about the nature of the stock market, can decide an equities to bonds allocation, and a home country to international allocation, and have reasons listed for each decision and why she chose it over other options. Just my 2c.
Andy - this is too much even for me. If you expect people to know this before they invest then I'd hazard a guess only 1% of people should ever buy equities.
For most people a financial plan that involves a simple allocation to VAS and IVV, while paying down the mortgage and contributing a little extra to super, over 25 years, would be more than sufficient and generate a wonderful outcome, with absolutely no research at all.
Post by: steveo on November 07, 2018, 04:01:26 PM
Investing bits of money into some random fund doesn't make you learn about the stock market. Learning about the stock market helps you learn about the stock market. Why not give her some learning resources to that she can take responsibility for her actions and own the results, by learning and make a decision for herself?
https://jlcollinsnh.com/stock-series/
https://www.bogleheads.org/forum/index.php
https://forum.mrmoneymustache.com/investor-alley/
https://www.amazon.com/Million-Life-Make-Manage-Maximise-ebook/dp/B007DIAENU
Actually putting money in should be the last step and only when she has a reasonable fundamental understanding about the nature of the stock market, can decide an equities to bonds allocation, and a home country to international allocation, and have reasons listed for each decision and why she chose it over other options. Just my 2c.
Andy - this is too much even for me. If you expect people to know this before they invest then I'd hazard a guess only 1% of people should ever buy equities.
For most people a financial plan that involves a simple allocation to VAS and IVV, while paying down the mortgage and contributing a little extra to super, over 25 years, would be more than sufficient and generate a wonderful outcome, with absolutely no research at all.
It's good to read a bunch of information and I think those are really good links but I still think an allocation should be simple. Personally I think everyone should use VGS or something similar. The diversification is a lot more than using VAS.
You could even just do something like 50/50 VGS/VAS & save up a buffer in your savings account. That would work out great for money that is outside Super and assuming the mortgage is being paid down or paid off.
Post by: Andy R on November 07, 2018, 06:19:58 PM
Investing bits of money into some random fund doesn't make you learn about the stock market. Learning about the stock market helps you learn about the stock market. Why not give her some learning resources to that she can take responsibility for her actions and own the results, by learning and make a decision for herself?
https://jlcollinsnh.com/stock-series/
https://www.bogleheads.org/forum/index.php
https://forum.mrmoneymustache.com/investor-alley/
https://www.amazon.com/Million-Life-Make-Manage-Maximise-ebook/dp/B007DIAENU
Actually putting money in should be the last step and only when she has a reasonable fundamental understanding about the nature of the stock market, can decide an equities to bonds allocation, and a home country to international allocation, and have reasons listed for each decision and why she chose it over other options. Just my 2c.
Andy - this is too much even for me. If you expect people to know this before they invest then I'd hazard a guess only 1% of people should ever buy equities.
For most people a financial plan that involves a simple allocation to VAS and IVV, while paying down the mortgage and contributing a little extra to super, over 25 years, would be more than sufficient and generate a wonderful outcome, with absolutely no research at all.
Those links are not learning about stock picking or complex modelling. They explain very basic fundamental concepts like
• The market can go anywhere in the short term and it's normal to do so, and if you can't handle a 10% 30% or even a 50% drop then you need to adjust your AA
• Nobody knows where the market will go and anyone who does is worth walking away from
• Indexing lets you accept that nobody knows which way it will go and still get the market return
These aren't complex topics, they're fundamental and very basic. They are also "need to know" pieces of the puzzle otherwise you could really end up suffering. I don't want to jump on the bandwagon of "warren says" but the reality is that you shouldn't invest in anything you don't understand, whether shares or property. It takes a little time to learn but honestly not that much. We're talking about half an hour a day over a few months. Just going out and buying some VAS is not the answer and it can get you into serious trouble imo. Say you buy some, after a year it moves up and down slightly, over the next years you keep adding but never learned about it and you see it as a "black box" of where you park money to invest a bit like a bank account, and one day the all over the media they are saying the market is crashing, it's in ever media article, on FB, everywhere you look, and in complete ignorance you panic and sell at a time when the market is (only) at a 30% loss. If by then you had a few hundred k (not an unreasonable amount), you have just lost a hundred grand. How long does it take most people to recover a hundred grand in savings? 5 years you have been set back. This could have been so very easily avoided by just spending 20-30 minutes a day reading for a few months in the beginning.
Post by: limeandpepper on November 07, 2018, 08:38:58 PM
It's good to read a bunch of information and I think those are really good links but I still think an allocation should be simple. Personally I think everyone should use VGS or something similar. The diversification is a lot more than using VAS.
You could even just do something like 50/50 VGS/VAS & save up a buffer in your savings account. That would work out great for money that is outside Super and assuming the mortgage is being paid down or paid off.
This was also my first thought (a combo of VGS and VAS). I mentioned that brokerage platforms are around $10/trade so she needs to invest a significant amount, like a few thousand, to make the brokerage fees worthwhile and she balked a little at that, hence why I suggested possibly looking into the micro-investing apps instead if she doesn't have that kind of substantial outlay, and she warmed more to that idea.
It takes a little time to learn but honestly not that much. We're talking about half an hour a day over a few months. Just going out and buying some VAS is not the answer and it can get you into serious trouble imo. Say you buy some, after a year it moves up and down slightly, over the next years you keep adding but never learned about it and you see it as a "black box" of where you park money to invest a bit like a bank account, and one day the all over the media they are saying the market is crashing, it's in ever media article, on FB, everywhere you look, and in complete ignorance you panic and sell at a time when the market is (only) at a 30% loss. If by then you had a few hundred k (not an unreasonable amount), you have just lost a hundred grand. How long does it take most people to recover a hundred grand in savings? 5 years you have been set back. This could have been so very easily avoided by just spending 20-30 minutes a day reading for a few months in the beginning.
I also acknowledge that reading more about investing will help her in the long run, but agree with Marty in the sense that I have the feeling that reading half an hour a day over a few months is going to be more than she wants to take on. I'm thinking maybe just a few really short and simple articles that provides the basics of what to do and what to expect and how to stay the course and make the right decisions especially when the market gets shaky, if there's anything like that?
Post by: Andy R on November 07, 2018, 08:47:16 PM
I also acknowledge that reading more about investing will help her in the long run, but agree with Marty in the sense that I have the feeling that reading half an hour a day over a few months is going to be more than she wants to take on. I'm thinking maybe just a few really short and simple articles that provides the basics of what to do and what to expect and how to stay the course and make the right decisions especially when the market gets shaky, if there's anything like that?
The jlcollinsnh (first) link I posted, though it's a series of articles not just one. I doubt a single article is going to have a meaningful impact.
Post by: mjr on November 07, 2018, 09:46:01 PM
Post by: limeandpepper on November 08, 2018, 01:13:01 AM
The jlcollinsnh (first) link I posted, though it's a series of articles not just one. I doubt a single article is going to have a meaningful impact.
Thanks, yeah that link seems to at least have everything in a list so she doesn't have to sift through threads in forums.
It is so important that she have some idea of into what she is getting, otherwise you can pretty much guarantee she'll blame you for "losing her money" at the next crash.
Yes I'm trying to be careful... I told her what I was personally doing (buying ETFs via an online brokerage platform) and I said that I hadn't used the micro-investing apps myself, only heard of them, and said that she should check the fees etc. before choosing one. I told her about diversifying with index funds and ETFs. We catch up reasonably regularly so I'll check in with her again soon and see where she's at.
Post by: flaky on November 08, 2018, 08:05:13 PM
Having read the stock series and some other financial self-help stuff like Barefoot and If You Can, I have recently bought a bunch of VTS shares. This seemed like the best bet for Australians wanting to replicate the strategy in jlcollinsnh Stock Series posts. I am looking to continue to invest a significant percent of my total income over the next 10 years, along with the quarterly dividend (there is no DRIP for this ETF). Is this a sensible strategy that wont really require adjustment until I retire? Are there any likely hurdles I should be aware of with regard to dividends or tax? There seems to be a preference for the Australian market ETF rather than US in this thread. Why is this?
Kind regards,
Post by: TJEH on November 09, 2018, 06:29:43 AM
Hello,
Having read the stock series and some other financial self-help stuff like Barefoot and If You Can, I have recently bought a bunch of VTS shares. This seemed like the best bet for Australians wanting to replicate the strategy in jlcollinsnh Stock Series posts. I am looking to continue to invest a significant percent of my total income over the next 10 years, along with the quarterly dividend (there is no DRIP for this ETF). Is this a sensible strategy that wont really require adjustment until I retire? Are there any likely hurdles I should be aware of with regard to dividends or tax? There seems to be a preference for the Australian market ETF rather than US in this thread. Why is this?
Kind regards,
flaky, here are a couple of articles on ETF's and tax:
https://www.nestegg.com.au/tax/10332-how-are-etfs-taxed
https://www.nestegg.com.au/investing/10471-when-it-comes-to-your-etf-location-matters
VTS is domiciled in the US. Distributions are taxed at 30%, but if you fill out a W-8BEN form this can be reduced to 15%. This 15% can then be used as a tax offset when completing your tax return. There is also some uncertainty around estate taxes on US investments (i.e. a death tax).
As for whether it's a sensible strategy, you need to decide your level of Aus vs International exposure, and how you will achieve it. Many have gone for a combo of VTS and VEU in the past, however VGS is now favoured by many (it is domiciled in Aus).
Post by: TJEH on November 09, 2018, 06:33:01 AM
I will be setting up an account for each of them (in my name) and was hoping to keep it relatively simple. I looked at VDHG (Diversified High Growth Index Fund), it does tick a few boxes. For me, it would be better if it was 100% growth, but mostly I don't like the ~16% hedged component of VGS (performance quite a bit lower than non hedged component). I could go VAS\VGS\MVW, but don't know if I can be bothered with the admin across an additional two portfolios. Lazy of me....
Any better ideas?
I also occasionally wonder about just holding VTS (or perhaps IVV, being domiciled in AUS) instead of VGS or VEU for international exposure. VTS seems to have better long term returns.
Post by: mjr on November 09, 2018, 01:58:50 PM
You need many millions in VTS to have to worry about death tax. That said, if I have the luxury (?) of seeing death approach I'll be unwinding the VTS position because it'll be easier for me to do it than my heirs.
If Shorten's removal of franking credit refunds gets passed into legislation, a lot of money will be heading from ASX shares into VTS and VGS.
Post by: ianvestor on November 09, 2018, 09:12:51 PM
Investing bits of money into some random fund doesn't make you learn about the stock market. Learning about the stock market helps you learn about the stock market. Why not give her some learning resources to that she can take responsibility for her actions and own the results, by learning and make a decision for herself?
https://jlcollinsnh.com/stock-series/
https://www.bogleheads.org/forum/index.php
https://forum.mrmoneymustache.com/investor-alley/
https://www.amazon.com/Million-Life-Make-Manage-Maximise-ebook/dp/B007DIAENU
Actually putting money in should be the last step and only when she has a reasonable fundamental understanding about the nature of the stock market, can decide an equities to bonds allocation, and a home country to international allocation, and have reasons listed for each decision and why she chose it over other options. Just my 2c.
Andy - this is too much even for me. If you expect people to know this before they invest then I'd hazard a guess only 1% of people should ever buy equities.
For most people a financial plan that involves a simple allocation to VAS and IVV, while paying down the mortgage and contributing a little extra to super, over 25 years, would be more than sufficient and generate a wonderful outcome, with absolutely no research at all.
Those links are not learning about stock picking or complex modelling. They explain very basic fundamental concepts like
• The market can go anywhere in the short term and it's normal to do so, and if you can't handle a 10% 30% or even a 50% drop then you need to adjust your AA
• Nobody knows where the market will go and anyone who does is worth walking away from
• Indexing lets you accept that nobody knows which way it will go and still get the market return
These aren't complex topics, they're fundamental and very basic. They are also "need to know" pieces of the puzzle otherwise you could really end up suffering. I don't want to jump on the bandwagon of "warren says" but the reality is that you shouldn't invest in anything you don't understand, whether shares or property. It takes a little time to learn but honestly not that much. We're talking about half an hour a day over a few months. Just going out and buying some VAS is not the answer and it can get you into serious trouble imo. Say you buy some, after a year it moves up and down slightly, over the next years you keep adding but never learned about it and you see it as a "black box" of where you park money to invest a bit like a bank account, and one day the all over the media they are saying the market is crashing, it's in ever media article, on FB, everywhere you look, and in complete ignorance you panic and sell at a time when the market is (only) at a 30% loss. If by then you had a few hundred k (not an unreasonable amount), you have just lost a hundred grand. How long does it take most people to recover a hundred grand in savings? 5 years you have been set back. This could have been so very easily avoided by just spending 20-30 minutes a day reading for a few months in the beginning.
Well said Andy. A simple strategy is not necessarily easy to follow for a period of decades with all the temptations out there to change course. Especially for a beginner investor. Some basic reading to understand that falls of 50% in the U.S. major indices is quite possible along the long term journey is worthwhile. Also that there have been a few periods in the last century that the U.S. stock market has virtually done nothing over 15 - 20 years. When aware of such things it may substantially increase the chances of one sticking to their simple strategy.
Post by: Shaz_Au on November 19, 2018, 07:43:18 PM
I currently actively invest in VAS\VGS\MVW (I also hold VTS and VEU). I'm looking at investing for my kids, so I've taken another look at the options.
I will be setting up an account for each of them (in my name) and was hoping to keep it relatively simple. I looked at VDHG (Diversified High Growth Index Fund), it does tick a few boxes. For me, it would be better if it was 100% growth, but mostly I don't like the ~16% hedged component of VGS (performance quite a bit lower than non hedged component). I could go VAS\VGS\MVW, but don't know if I can be bothered with the admin across an additional two portfolios. Lazy of me....
Any better ideas?
I also occasionally wonder about just holding VTS (or perhaps IVV, being domiciled in AUS) instead of VGS or VEU for international exposure. VTS seems to have better long term returns.
Have you looked into the LICs that offer dividend substitution share plans (AFI, WHF) or the Investment Bonds mentioned on Aussie Firebug's website? the AFIC website has some reading to get you started and https://carpedividendum.com/ has a good post with further information about DSSP.
I know you will need to take care when setting up the accounts so that the beneficiary doesn't change when control is passed to your kids which, would otherwise be a CGT event.
Let us know what you end up deciding to do.
Post by: TJEH on November 24, 2018, 03:43:57 PM
Yes, also thinking of how to structure things as to who will hold the shares or funds I choose. I'm aware of the punitive tax imposed on minors for unearned income, so on one hand it seems like the only real option is to hold things in my name. In this case I believe I'll pay tax on income and there will be CGT when they pass to my kids. I have seen the option where you can purchase the shares on behalf of the kids, i.e you are the legal owner but you also nominate the minor with a designation A/C "minor name". In this case I believe there is no CGT event but it's not clear to me who pays the tax on the income. I've seen the ATO info at https://www.ato.gov.au/Individuals/Investing/In-detail/Children-and-under-18s/Children-s-share-investments/ but it's not clear to me how this would work given this structure. I'm also looking at a testamentary trust, going to speak to someone about that this week.
Post by: Shaz_Au on November 26, 2018, 02:55:44 PM
Post by: TJEH on December 09, 2018, 03:12:32 AM
Post by: mjr on December 09, 2018, 04:47:59 PM
Post by: Juan Ponce de León on December 09, 2018, 11:44:09 PM
Post by: PDM on December 09, 2018, 11:53:01 PM
I wouldn't touch the ASX with a barge pole. VGS every time crew.
Long term yes, day to day it gets hammered with wider ASX sentiment it seems. Down 2% today in line with wider market.
Post by: limeandpepper on December 10, 2018, 12:24:30 AM
Post by: marty998 on December 10, 2018, 02:21:53 AM
ASX tumbling again. Going to be some good index fund bargains in the new year, methinks.
I plopped $20k in last week into VAS @ $71.72 (got the low for the day).
Busted right through that today.
Funny though... I look at every stock in the top 20 and I'm struggling to see any that have fallen less than the 13% the index has in the last 2 months... seems CBA and BHP are holding up the entire market at the moment. Maybe WOW as well?
Scentre is up, but only after having fallen over 17% previously.
Looking forward to a massive VAS dividend & reinvestment in January. Should be a cracker with the BHP buyback, the bank and RIO divvies and a few other specials like the IAG capital management initiative.
Post by: bigchrisb on December 10, 2018, 11:06:51 AM
Post by: MrThatsDifferent on December 10, 2018, 11:30:28 AM
Post by: Little Aussie Battler on December 10, 2018, 06:13:30 PM
We could have some large renovation costs coming up over the next 18 months, but at this point it probably makes more sense to invest the cash and fund the renovation from our offset.
@MrThatsDifferent - the transport options to the city are pretty good from Dulwich Hill, and there are quite a few apartments going up in the area (particularly if you include Canterbury, etc). I would expect that a lot of the existing stock would be available at $650k or under? I'm not sure that I would be rushing to buy right now, although I clearly think that of all asset classes.
Post by: MrThatsDifferent on December 10, 2018, 07:55:06 PM
I'm sitting on quite a lot of cash right now, but will probably invest it over the next few months.
We could have some large renovation costs coming up over the next 18 months, but at this point it probably makes more sense to invest the cash and fund the renovation from our offset.
@MrThatsDifferent - the transport options to the city are pretty good from Dulwich Hill, and there are quite a few apartments going up in the area (particularly if you include Canterbury, etc). I would expect that a lot of the existing stock would be available at $650k or under? I'm not sure that I would be rushing to buy right now, although I clearly think that of all asset classes.
I’m thinking a year from now, but that means not investing that for the year. I get the idea that everything is a bargain now, but I just hate seeing my money disappear.
Post by: itchyfeet on December 12, 2018, 07:58:22 PM
Between property and the ASX it’s been a bit of a bugger of a year. I got a little lucky with the AUD dropping 8% against the USD which helped prop up my non-AUD investments.
Hopefully 2019 will be a better year for stash building.
Post by: NotSure on December 13, 2018, 08:09:00 PM
Post by: Richmond 2020 on December 16, 2018, 12:51:52 PM
Post by: marty998 on December 16, 2018, 01:21:25 PM
Is anyone worried/altering there investment strategy with the impending change of Government and the likely changes to negative gearing and capital gains tax?
No. Why would you be worried? No one is going to die or go broke from paying a little bit more tax.
There is a lot of whinging and complaining about this, even though there is no chance of it being fully implemented because the Senate will be another dogs breakfast of micro parties and interests.
My existing investment property will be grandfathered, and even if I buy another, I'll have enough dividend investment income to mean I'll be a net taxpayer on non-salary income anyway.
Post by: bigchrisb on December 16, 2018, 01:23:24 PM
Is anyone worried/altering there investment strategy with the impending change of Government and the likely changes to negative gearing and capital gains tax?
I'm frustrated at the prospect of more change. The timing of negative gearing doesn't personally impact me - while I have been neg geared in the past, I'm currently positively geared. Capital gains changes would be a nuisance, but in the main I'm not really intending on selling substantive assets either (holding for life and collective the income instead). Aside from being bad policy to try to push SMSFs back into their union mate's funds, the proposed modifications to franking credits is terrible news for Australian Mustachians - after pension phase SMSFs, it has its biggest impact on low-medium income individuals. People don't seem to understand how this works - it impacts those with modest share income and no other income hardest.
Am I changing anything? Well, no. There is still an election to have, and still a crossbench to navigate before anything gets implemented. Will I change things once I know what is actually implemented? Possibly.
The things I am doing however are taking advantage of things that may change - getting post-tax money into super before budget night for example. Mostly, I'm just sticking the course. If you let your life be run on a three (or less) year political cycle, you won't ever really think long term!
Post by: marty998 on December 16, 2018, 01:32:08 PM
If you let your life be run on a three (or less) year political cycle, you won't ever really think long term!
This is important for people to understand. Some people have missed out on hundreds of thousands in superannuation because "the gubbmint keeps changing the rules and it doesn't matter because in a few years they will steal it all".
If you jump at every shadow and refuse to invest because of change you are only going to make yourself poorer.
Post by: mjr on December 16, 2018, 04:09:04 PM
Echoing bigchrisb, if (and it's a big if) Shorten's franking credit refund policy gets up, that will be a big deal for me. It's already changed my national/international target allocation and you can bet that I'm not the only one. It's already exerting downward pressure on Australian stocks.
Post by: Dropbear on December 17, 2018, 03:04:21 AM
---
Those issues aside, I saw an interesting idea... I noticed the BetaShares Nasdaq 100 ETF (ASX:NDQ) as a tech market index mentioned in an article (below). What does everyone think about it?
At 0.48% for NDQ, it's a couple of times the price of VGS at 0.18%.
Being strongly convinced of the merits of index investing and buy-and-hold strategies, I'm not one for picking individual stocks. But picking the tech sector as a whole sounds a bit more inviting, if only it wasn't so expensive.
I suppose the weight of the tech sector within any international ETF such as VGS would provide a decent exposure to the techies without committing additional management fees to it? (That's currently where I sit on this particular fence).
Quote
The gift of diversification (and value)
When I suggest the BetaShares Nasdaq 100 ETF (ASX:NDQ), and trumpet the benefits of geographic, industry and currency diversification from a US technology ETF, you’re probably thinking you’re going to have to pay a pretty penny for it. But recent jitters in global sharemarkets have seen this ETF fall by 15 per cent over the past few months. Oh, and did I mention it gives you exposure to Google, Amazon, Apple, Facebook, Netflix and many other companies that are creating the future?
Source:
https://www.smh.com.au/money/investing/stocks-for-your-christmas-stocking-20181211-p50ljl.html (https://www.smh.com.au/money/investing/stocks-for-your-christmas-stocking-20181211-p50ljl.html)
Post by: MrThatsDifferent on December 17, 2018, 02:17:26 PM
Is anyone worried/altering there investment strategy with the impending change of Government and the likely changes to negative gearing and capital gains tax?
The things I am doing however are taking advantage of things that may change - getting post-tax money into super before budget night for example.
Big Chris or anyone, could you help me with this? I only contribute super through work up to the $25k limit. I put my after tax extra into Vanguard. Should I be contributing after tax to my super as well? Maybe split what I’m putting into Vanguard and do 50/50–between super and Vanguard? I have a pretty nice salary, would that result in me getting a tax rebate?
Post by: happy on December 17, 2018, 02:30:56 PM
Post by: mjr on December 17, 2018, 03:13:58 PM
Big Chris or anyone, could you help me with this? I only contribute super through work up to the $25k limit. I put my after tax extra into Vanguard. Should I be contributing after tax to my super as well? Maybe split what I’m putting into Vanguard and do 50/50–between super and Vanguard? I have a pretty nice salary, would that result in me getting a tax rebate?
Can't answer that question without knowing your age, balances of taxable and super accounts, when you plan to retire, etc, etc.
Make sure you have enough to cover yourself from your retirement date until preservation age before going nuts with non-concessional contributions. But once you're covered, it's good to get the funds into a low-tax earning environment instead of full marginal.
You won't get a tax deduction on non-concessional contributions.
Post by: MrThatsDifferent on December 18, 2018, 01:16:31 AM
Post by: deborah on December 18, 2018, 01:56:25 AM
Post by: Evasion on December 30, 2018, 07:59:57 PM
Opinions on VESG the international shares index from vanguard with ethical screening?
So far we bought VDHG but I would like to stop investing in fossil fuels for ethical and investment reasons.
The ER is lower (0.18 Vs 0.27) but it is slightly less diversified, quite weighted towards the US and un hedged, so interested in your opinions!
Anyone here who tries to invest ethically?
I don't care about investing in alcohol or porn but helping the fossil fuel industry survive a bit longer really annoys me.
Post by: Andy R on December 30, 2018, 09:40:31 PM
1. Decide on portion of fixed income (VAF or TDs)
2. Decide on an Australian equities portion (VAS)
3. Rest split between: VESG/VISM/VGE 80/10/10
Essentially slotting out VGS for VESG. So 5 funds and you cover all markets.
It is slightly more work rebalancing once a year, but still manageable.
Post by: mjr on December 30, 2018, 09:53:51 PM
I don't care about investing in alcohol or porn but helping the fossil fuel industry survive a bit longer really annoys me.
Coal is Australia's single biggest export earner and when it's not the biggest it comes in 2nd. Get rid of coal and our economy tanks.
No doubt you don't drive a car, catch a diesel bus, fly anywhere and have completely unplugged your house from the grid ?
Post by: marty998 on December 31, 2018, 03:08:08 AM
I don't care about investing in alcohol or porn but helping the fossil fuel industry survive a bit longer really annoys me.
Coal is Australia's single biggest export earner and when it's not the biggest it comes in 2nd. Get rid of coal and our economy tanks.
No doubt you don't drive a car, catch a diesel bus, fly anywhere and have completely unplugged your house from the grid ?
The economic benefits of mining are grossly overstated. I am especially irritated by the advertising blitz the BHP has engaged in, in part purveying the benefits of coal mining.
The headline export numbers might be large, but if you take away transfer pricing of revenue to marketing hubs in Singapore, the excessive use of intracompany loans to holding companies in Bermuda and the Caymans (Adani, Chevron here's looking at you), the monumental capex spending required to actually dig up the ore (much of it wasted on one-off infrastructure in and around a mine in the middle of nowhere, to a port in the middle of nowhere, the degradation of vegetation, habitat and the water table & basins, the social and family related problems caused by the FIFO "lifestyle".... etc etc
The resulting royalties, wages paid and company tax extracted is simply not enough to counter all of this. Couple with the fact the vast majority of large mining and oil companies have significant foreign ownership, which means profits go offshore and not accrue to Australia at large means we get a pretty raw deal.
Norway had the right idea. Even the much maligned middle eastern oil sheikhdoms manage to hold onto the wealth (however unevenly distributed).
Over here - we simply give it away. A $5m advertising campaign was all it took to overthrow the government 10 years ago when Rudd's mining tax was introduced (which raised a rounding error of tax anyway). The general population have no idea how much they are being taken for a ride, and there is little hope on the horizon of that changing.
Post by: PDM on December 31, 2018, 03:25:12 AM
Post by: Evasion on December 31, 2018, 04:37:52 PM
I don't care about investing in alcohol or porn but helping the fossil fuel industry survive a bit longer really annoys me.
Coal is Australia's single biggest export earner and when it's not the biggest it comes in 2nd. Get rid of coal and our economy tanks.
No doubt you don't drive a car, catch a diesel bus, fly anywhere and have completely unplugged your house from the grid ?
In true Mustachian style I only use my muscle power to get to places 90% of the time and I don't even know how to drive. Coal is a terrible thing for the world and a terrible investment. Even if the economy does great, it's not going to be of much use when we can't grow food anymore is it? Many serious investors including Jeremy Grantham have pointed this out.
I'm not really interested in debating whether coal should be phased out (as it is obvious it should) but rather about the best way to do so.
Thank you Andy for your response and good points Marty, even without mentioning climate change.
Post by: ImLikeTT on January 02, 2019, 12:03:54 AM
So this has essentially acted as a financial product with the ability to multiply your capital by up to 15 times without the risk of capital losses.
Post by: Evasion on January 02, 2019, 01:26:36 AM
Rolling 15 Year Returns for the All Ordinaries and S&P500 have been between 0% to 20% p.a during the past 100 years.
So this has essentially acted as a financial product with the ability to multiply your capital by up to 15 times without the risk of capital losses.
I know this but I want to avoid investing in certain companies that would be in these indexes for ethical reasons. I am searching for a solution to my issue.
Post by: Andy R on January 02, 2019, 02:13:54 AM
Rolling 15 Year Returns for the All Ordinaries and S&P500 have been between 0% to 20% p.a during the past 100 years.
So this has essentially acted as a financial product with the ability to multiply your capital by up to 15 times without the risk of capital losses.
Welcome to the forum.
This comment is not correct.
1. If there is a 0% return over 15 years, then with inflation, you have lost about half of it in real terms (ie in terms of what that money can buy). Losing half your money is not without risk of capital loss.
2. What if you are retired and the market drops and takes over a decade to recover, and your proposed 4% withdrawal rate means you are actually taking out 8% per year causing you to deplete it to a point where it can't recover? If you hit a particularly nasty period, you will be in the 5% of people who go broke and only realise it when you are too old to work and recover your finances.
3. Is there some reason you think a Japan style situation can not happen to your country? Or do you think "Japan is just somehow different"? What about Thailand? Still different? What about the Netherlands? How many countries do you think are somehow "just different" and that you are magically immune? How many of those countries have people that assumed the same thing before it happened?
There are ways to minimise various risks, but it certainly is not without risk of capital losses.
Post by: mjr on January 02, 2019, 02:22:09 PM
I'm not really interested in debating whether coal should be phased out (as it is obvious it should) but rather about the best way to do so.
Quite apart from the hide of stating your opinion as objective and uncontestable fact, from an investment point of view the purchase of stocks on the secondary market does not affect the business operations of the companies you don't like a jot.
There are many, many companies on the Australian and US stock markets that I don't care for personally, but my having money in them makes no difference either way and keeping it simple with a broad index is what index investing is all about.
Marty, you mention many things there about which I know nothing and am happy to admit I know nothing, but regardless of how much of a raw deal we're getting, mining's contribution to our economy and balance of payments is huge. Saying that we're being screwed over and it should be contributing is a whole other argument.
Post by: Evasion on January 02, 2019, 03:51:44 PM
I know me switching index fund for my next 500k isn't much, but if everyone does it it might have an impact, and like I said its an ethical consideration for me, not an impact or cost benefit analysis.
As per my "opinion", and I won't argue further as not really the point of this thread, 99% of scientists and most people on the planet (everyone except the 5 countries brainwashed by a very powerful fossil fuel industry) agree that phasing coal out is the right thing to do for humans, animals, the economy and the future of the whole planet.
If you don't agree with this, you need to read more, do your research or look at yourself in the mirror because if we don't phase it out our grandchildren are in big big trouble.
For that matter I have decided to not have children because of climate change in part.
I recommend a start with "race of our lives" Jeremy Grantham. He's the founder of GMO Asset Management so can hardly be accused of being a delusional hipster like me.
Thank you everyone for your response, in any case. Will probably go VGSE next bundle and then balance with something capturing aus market + some bonds later this year.
Post by: mjr on January 03, 2019, 04:42:43 PM
Post by: Evasion on January 03, 2019, 09:12:41 PM
Enjoy retirement because it won't be so pleasant for future generations..
Post by: MrThatsDifferent on January 03, 2019, 10:45:08 PM
This is for a fortnight:
Baby budget
Rent $1100
Electric/gas $20
Optus $65 (phone & Internet)
Health $100
Hobby $40
Netflix: $10
Skype: $10
Food $170
Travel $384
Household $15
Personal $90
Au pair $140
Baby accessories: $50
Diapers: $50
Car: $850
Gifts: $50
Grand Total: $3144
Post by: Juan Ponce de León on January 03, 2019, 11:48:39 PM
Hey Aussies, need some help here. I’m considering having a kid and working on the budget so I can figure out how that impacts what I have to invest and FIRE. I’m looking at the numbers going, that can’t be right, how could Aussie families survive? I don’t have a car but when I added it in (I think you need a car if you have a baby), the numbers have skyrocketed. And that’s me using an au pair instead of childcare. I’d love to know what a typical budget should be from you folks or any advice on mine?
This is for a fortnight:
Baby budget
Rent $1100
Electric/gas $20
Optus $65 (phone & Internet)
Health $100
Hobby $40
Netflix: $10
Skype: $10
Food $170
Travel $384
Household $15
Personal $90
Au pair $140
Baby accessories: $50
Diapers: $50
Car: $850
Gifts: $50
Grand Total: $3144
So a car costs you $850 a f/n and an Au pair $140? Cars don't have to cost a lot. Get a 6 grand Corolla and just put Petrol and oil in it. Mine costs me per fortnight probably $150.
Post by: Little Aussie Battler on January 03, 2019, 11:51:28 PM
Post by: MrThatsDifferent on January 03, 2019, 11:56:15 PM
Hey Aussies, need some help here. I’m considering having a kid and working on the budget so I can figure out how that impacts what I have to invest and FIRE. I’m looking at the numbers going, that can’t be right, how could Aussie families survive? I don’t have a car but when I added it in (I think you need a car if you have a baby), the numbers have skyrocketed. And that’s me using an au pair instead of childcare. I’d love to know what a typical budget should be from you folks or any advice on mine?
This is for a fortnight:
Baby budget
Rent $1100
Electric/gas $20
Optus $65 (phone & Internet)
Health $100
Hobby $40
Netflix: $10
Skype: $10
Food $170
Travel $384
Household $15
Personal $90
Au pair $140
Baby accessories: $50
Diapers: $50
Car: $850
Gifts: $50
Grand Total: $3144
So a car costs you $850 a f/n and an Au pair $140? Cars don't have to cost a lot. Get a 6 grand Corolla and just put Petrol and oil in it. Mine costs me per fortnight probably $150.
I don’t have a car and looked up what the average cost was and it said $425/week in Sydney, which seemed extreme but I have no idea. That’s not even buying the car, that’s maintenance, gas, Insurance’s, rego. What do your car budgets look like?
Post by: Juan Ponce de León on January 04, 2019, 12:04:16 AM
Hey Aussies, need some help here. I’m considering having a kid and working on the budget so I can figure out how that impacts what I have to invest and FIRE. I’m looking at the numbers going, that can’t be right, how could Aussie families survive? I don’t have a car but when I added it in (I think you need a car if you have a baby), the numbers have skyrocketed. And that’s me using an au pair instead of childcare. I’d love to know what a typical budget should be from you folks or any advice on mine?
This is for a fortnight:
Baby budget
Rent $1100
Electric/gas $20
Optus $65 (phone & Internet)
Health $100
Hobby $40
Netflix: $10
Skype: $10
Food $170
Travel $384
Household $15
Personal $90
Au pair $140
Baby accessories: $50
Diapers: $50
Car: $850
Gifts: $50
Grand Total: $3144
So a car costs you $850 a f/n and an Au pair $140? Cars don't have to cost a lot. Get a 6 grand Corolla and just put Petrol and oil in it. Mine costs me per fortnight probably $150.
I don’t have a car and looked up what the average cost was and it said $425/week in Sydney, which seemed extreme but I have no idea. That’s not even buying the car, that’s maintenance, gas, Insurance’s, rego. What do your car budgets look like?
That average cost of a car would likely be a new car with all of its scheduled services and costs. You don't have to buy one of those to have a car. My car expenses are roughly
Petrol $80 f/n
Servicing (done myself) $6 f/n?
Rego $27 f/n
Insurance $15 f/n
That's $128 f/n. Occasionally other things might come up. I'll need new tyres soon. Brakes I'll do when they are wearing out, other repairs if/when they come up.
Post by: MrThatsDifferent on January 04, 2019, 12:14:01 AM
Hey Aussies, need some help here. I’m considering having a kid and working on the budget so I can figure out how that impacts what I have to invest and FIRE. I’m looking at the numbers going, that can’t be right, how could Aussie families survive? I don’t have a car but when I added it in (I think you need a car if you have a baby), the numbers have skyrocketed. And that’s me using an au pair instead of childcare. I’d love to know what a typical budget should be from you folks or any advice on mine?
This is for a fortnight:
Baby budget
Rent $1100
Electric/gas $20
Optus $65 (phone & Internet)
Health $100
Hobby $40
Netflix: $10
Skype: $10
Food $170
Travel $384
Household $15
Personal $90
Au pair $140
Baby accessories: $50
Diapers: $50
Car: $850
Gifts: $50
Grand Total: $3144
So a car costs you $850 a f/n and an Au pair $140? Cars don't have to cost a lot. Get a 6 grand Corolla and just put Petrol and oil in it. Mine costs me per fortnight probably $150.
I don’t have a car and looked up what the average cost was and it said $425/week in Sydney, which seemed extreme but I have no idea. That’s not even buying the car, that’s maintenance, gas, Insurance’s, rego. What do your car budgets look like?
That average cost of a car would likely be a new car with all of its scheduled services and costs. You don't have to buy one of those to have a car. My car expenses are roughly
Petrol $80 f/n
Servicing (done myself) $6 f/n?
Rego $27 f/n
Insurance $15 f/n
That's $128 f/n. Occasionally other things might come up. I'll need new tyres soon. Brakes I'll do when they are wearing out, other repairs if/when they come up.
Well that’s much better. I couldn’t do the servicing so I could factor $200 a fortnight to cover service and extras?
Post by: Notch on January 04, 2019, 12:31:16 AM
Hey Aussies, need some help here. I’m considering having a kid and working on the budget so I can figure out how that impacts what I have to invest and FIRE. I’m looking at the numbers going, that can’t be right, how could Aussie families survive? I don’t have a car but when I added it in (I think you need a car if you have a baby), the numbers have skyrocketed. And that’s me using an au pair instead of childcare. I’d love to know what a typical budget should be from you folks or any advice on mine?
Grand Total: $3144
So a car costs you $850 a f/n and an Au pair $140? Cars don't have to cost a lot. Get a 6 grand Corolla and just put Petrol and oil in it. Mine costs me per fortnight probably $150.
I don’t have a car and looked up what the average cost was and it said $425/week in Sydney, which seemed extreme but I have no idea. That’s not even buying the car, that’s maintenance, gas, Insurance’s, rego. What do your car budgets look like?
That average cost of a car would likely be a new car with all of its scheduled services and costs. You don't have to buy one of those to have a car. My car expenses are roughly
Petrol $80 f/n
Servicing (done myself) $6 f/n?
Rego $27 f/n
Insurance $15 f/n
That's $128 f/n. Occasionally other things might come up. I'll need new tyres soon. Brakes I'll do when they are wearing out, other repairs if/when they come up.
Well that’s much better. I couldn’t do the servicing so I could factor $200 a fortnight to cover service and extras?
My all-in vehicle operating costs for a 2006 Kia Rio and a Yamaha 250 dirtbike over the past 4.5 years of tracking is $176 per month :)
This includes everything bar depreciation. So registration for both, maintenance (mostly done by me), tyres, 3rd party prop insurance for car, licence renewal, motorbike training and gear (2nd hand), tolls and fuel.
Post by: MrThatsDifferent on January 04, 2019, 03:17:43 PM
Hey Aussies, need some help here. I’m considering having a kid and working on the budget so I can figure out how that impacts what I have to invest and FIRE. I’m looking at the numbers going, that can’t be right, how could Aussie families survive? I don’t have a car but when I added it in (I think you need a car if you have a baby), the numbers have skyrocketed. And that’s me using an au pair instead of childcare. I’d love to know what a typical budget should be from you folks or any advice on mine?
Grand Total: $3144
So a car costs you $850 a f/n and an Au pair $140? Cars don't have to cost a lot. Get a 6 grand Corolla and just put Petrol and oil in it. Mine costs me per fortnight probably $150.
I don’t have a car and looked up what the average cost was and it said $425/week in Sydney, which seemed extreme but I have no idea. That’s not even buying the car, that’s maintenance, gas, Insurance’s, rego. What do your car budgets look like?
That average cost of a car would likely be a new car with all of its scheduled services and costs. You don't have to buy one of those to have a car. My car expenses are roughly
Petrol $80 f/n
Servicing (done myself) $6 f/n?
Rego $27 f/n
Insurance $15 f/n
That's $128 f/n. Occasionally other things might come up. I'll need new tyres soon. Brakes I'll do when they are wearing out, other repairs if/when they come up.
Well that’s much better. I couldn’t do the servicing so I could factor $200 a fortnight to cover service and extras?
My all-in vehicle operating costs for a 2006 Kia Rio and a Yamaha 250 dirtbike over the past 4.5 years of tracking is $176 per month :)
This includes everything bar depreciation. So registration for both, maintenance (mostly done by me), tyres, 3rd party prop insurance for car, licence renewal, motorbike training and gear (2nd hand), tolls and fuel.
So $200 is reasonable as I can’t do maintenance myself.
Post by: deborah on January 04, 2019, 03:26:55 PM
Post by: FFF on January 04, 2019, 07:37:09 PM
Hey Aussies, need some help here. I’m considering having a kid and working on the budget so I can figure out how that impacts what I have to invest and FIRE. I’m looking at the numbers going, that can’t be right, how could Aussie families survive? I don’t have a car but when I added it in (I think you need a car if you have a baby), the numbers have skyrocketed. And that’s me using an au pair instead of childcare. I’d love to know what a typical budget should be from you folks or any advice on mine?
This is for a fortnight:
Baby budget
Rent $1100
Electric/gas $20
Optus $65 (phone & Internet)
Health $100
Hobby $40
Netflix: $10
Skype: $10
Food $170
Travel $384
Household $15
Personal $90
Au pair $140
Baby accessories: $50
Diapers: $50
Car: $850
Gifts: $50
Grand Total: $3144
Hi, I'd add a couple of points here. Agree with the estimates of about $200 on car depending on car you buy. On a 20 year old Corolla we spent approx $140, which includes all petrol (about 12000km driven), servicing (including $700 replacing something with the clutch), rego and insurance.
I'd say your estimates on nappies are pretty high too. Aldi do nappies at about 20c a nappy, so you're budgeting 250 nappies a fortnight which is almost 18 a day. I don't know anyone that's used that much! We probably use a low end number of nappies but our best benchmark year was last year and we spent $350 total for our daughter who is now 18months. I reckon you can at least halve your number to $25 a fortnight.
Baby accessories also is hard to say and hard to track what we spent as there is a lot of second hand recycling we have done and hand-me-downs from older kids. I would say though, don't get sucked into the hype with a lot of the baby specific stuff - think long and hard about whether you need/want additional stuff in your house beyond the basics of cot, car seat, bassinet, change mat, high chair. Most of it is just marketing that preys on you while you are sleep deprived! If you want any more specifics on kid stuff, send me a message as I think we have done things pretty frugally with our 2 (18 months and 4 currently). In fact, if you're in Melbourne you can have some free/cheap stuff in the not too distant future!
Post by: Evasion on January 04, 2019, 09:33:16 PM
This is an investing thread.
Or if a mod could relocate posts.
Thanks
Post by: PDM on January 04, 2019, 09:39:08 PM
Could you please start a case study?
This is an investing thread.
Or if a mod could relocate posts.
Thanks
18 posts and he is running the place. Jeeze. First all the nonsense around climate change now this.
It seems a reasonable question. And this thread is ideal to get the Australian perspective on a blog that is predominantly American with different cars and considerations.
Post by: PDM on January 04, 2019, 09:54:10 PM
Hey Aussies, need some help here. I’m considering having a kid and working on the budget so I can figure out how that impacts what I have to invest and FIRE. I’m looking at the numbers going, that can’t be right, how could Aussie families survive? I don’t have a car but when I added it in (I think you need a car if you have a baby), the numbers have skyrocketed. And that’s me using an au pair instead of childcare. I’d love to know what a typical budget should be from you folks or any advice on mine?
This is for a fortnight:
Baby budget
Grand Total: $3144
The overall number seems about right, we budget $1650 a fortnight plus $1100 rent. Sydney a bit pricier than Brisbane. As others have said, probably look into that car costs as it is the most dubious number and biggest impact after rent.
The bigger question is maternity leave and how that will impact on your income. How much does your partner want to take? Will they go back full time?
The inclusion of an Au pair is interesting. Is this totally replacing childcare? At what age of the child?
Are you currently dual income? Usually the day to day budget isn't the issue, it is the single income for a potentially long period.
Post by: MrThatsDifferent on January 04, 2019, 11:48:20 PM
Hey Aussies, need some help here. I’m considering having a kid and working on the budget so I can figure out how that impacts what I have to invest and FIRE. I’m looking at the numbers going, that can’t be right, how could Aussie families survive? I don’t have a car but when I added it in (I think you need a car if you have a baby), the numbers have skyrocketed. And that’s me using an au pair instead of childcare. I’d love to know what a typical budget should be from you folks or any advice on mine?
This is for a fortnight:
Baby budget
Grand Total: $3144
The overall number seems about right, we budget $1650 a fortnight plus $1100 rent. Sydney a bit pricier than Brisbane. As others have said, probably look into that car costs as it is the most dubious number and biggest impact after rent.
The bigger question is maternity leave and how that will impact on your income. How much does your partner want to take? Will they go back full time?
The inclusion of an Au pair is interesting. Is this totally replacing childcare? At what age of the child?
Are you currently dual income? Usually the day to day budget isn't the issue, it is the single income for a potentially long period.
It’ll be me as a single dad. I’ll take a year off on family leave and then work a couple days from home. I’ll need a plan for pre-school and childcare. It’ll only be a single income.
Post by: PDM on January 04, 2019, 11:53:54 PM
Post by: MrThatsDifferent on January 05, 2019, 12:13:19 AM
Ah cool, sorry for making assumptions. Yeah it seems tough on a single salary.
Fortunately I’ve got a good one.
Post by: marty998 on January 05, 2019, 12:43:55 AM
I'm not really interested in debating whether coal should be phased out (as it is obvious it should) but rather about the best way to do so.
Quite apart from the hide of stating your opinion as objective and uncontestable fact, from an investment point of view the purchase of stocks on the secondary market does not affect the business operations of the companies you don't like a jot.
There are many, many companies on the Australian and US stock markets that I don't care for personally, but my having money in them makes no difference either way and keeping it simple with a broad index is what index investing is all about.
Marty, you mention many things there about which I know nothing and am happy to admit I know nothing, but regardless of how much of a raw deal we're getting, mining's contribution to our economy and balance of payments is huge. Saying that we're being screwed over and it should be contributing is a whole other argument.
It's all about how you measure it. I don't deny the gross numbers are large, and that in the good times up to 2007 and then from 2012 to 2015 the boom did have an effect on the mainstream economy (see Perth for all the evidence you need).
But, it takes a gigantic boom in extractive industries for something like that to have an effect. With other industries, banking retail, construction, a 1 or 2% wobble can be noticed in the GDP numbers.
And yes - local populations do benefit, and benefit quite well (and kudos to all those who take advantage for the time they can). But Australia at large has done an incredibly poor job of banking the benefits of it.
Post by: marty998 on January 05, 2019, 12:55:47 AM
Thanks for the comment on the secondary market mjr, was only partially aware of this.
I know me switching index fund for my next 500k isn't much, but if everyone does it it might have an impact, and like I said its an ethical consideration for me, not an impact or cost benefit analysis.
As per my "opinion", and I won't argue further as not really the point of this thread, 99% of scientists and most people on the planet (everyone except the 5 countries brainwashed by a very powerful fossil fuel industry) agree that phasing coal out is the right thing to do for humans, animals, the economy and the future of the whole planet.
If you don't agree with this, you need to read more, do your research or look at yourself in the mirror because if we don't phase it out our grandchildren are in big big trouble.
For that matter I have decided to not have children because of climate change in part.
I recommend a start with "race of our lives" Jeremy Grantham. He's the founder of GMO Asset Management so can hardly be accused of being a delusional hipster like me.
Thank you everyone for your response, in any case. Will probably go VGSE next bundle and then balance with something capturing aus market + some bonds later this year.
Yes coal needs to be phased out - I would like to think humanity has reached a stage where we have the technology and ingenuity to not need this 19th Century resource anymore.
The bold I take issue with. Saying it's all too hard and humanity is fucked and therefore not having children I disagree with (I appreciate you said in part).
Have kids. Have confidence your kids will make the world better than you have left it.
If you chose not to have kids for personal reasons then fine fair enough. But because you think we are doomed? Then what the fuck is the point of it all.
Forgive the off topic post. I feel strongly about this.
Post by: mjr on January 05, 2019, 01:14:31 AM
What I am vehemently against is the climate change religion which results in galahs driving stupid policies which are ridiculously expensive and don't achieve the goal.
I am an electrical engineer. Anyone wants to talk nuclear and hydrogen and fuel cells as part of a base load power system and I'm all ears. Anyone who talk windmills and solar and climate change as an the imperative and the tonnes of fairy dust you'd need for base load at this stage of the game and you're talking blind, impractical ideology and I'll call it out where I see it.
Post by: alsoknownasDean on January 05, 2019, 02:00:32 AM
There seems to be a few ETFs (I saw a couple through BetaShares for one) that cater to ethical investing (although of course do your own diligence with each of these funds), and sector-specific ETFs for one to build their own portfolio around these ETFs rather than buying into VAS/etc. Then of course there's taking a more active approach and buying a bunch of individual companies.
Oh, and my calculations of the cost of owning my car used to be about $300-400 per month, but it's less now as it doesn't have much further to depreciate :)
10,000km a year at 8L/100km with fuel at $1.50 a litre is $1200pa, $800pa for registration, maybe $600pa for maintenance ($400 for normal servicing and the rest for tyres etc) and $550 for insurance? Obviously add depreciation (and opportunity cost on capital if you want to get really in-depth) and vary those numbers where applicable, but even a cheap car can be $300 a month or so to run. If you've got some car that uses 15L/100km doing 25,000km a year that depreciates by $4000pa, then obviously the numbers would change some.
Post by: Dyna$ty on January 09, 2019, 04:19:49 PM
Posting it again under Australian Investing Thread.
Hi,
Working on saving for my First home.
Goal: $100,000
Saved so far: $12000
I would like some ideas as to where can I invest those $12000 (Plus $2000 every month) to reach my goal quicker?
Thank you
P.S: I am a total noob at investing. Currently reading the Barefoot investor to learn about financial planning.
Post by: PDM on January 09, 2019, 04:32:08 PM
1. Consider timeframe for wanting to use the deposit.
2. Decide if the risk of short term losses in the stock market is worth the potential greater gains than high interest saver account.
3. Consider if the FHSS Scheme is of benefit to you (it is a bit shit and can be hard to access when you want to buy - timing wise).
TLDR: high interest saving account if wanting to use money within next few years.
Post by: Andy R on January 09, 2019, 07:17:59 PM
TLDR: high interest saving account if wanting to use money without next few years.+1
Post by: mrmoonymartian on January 10, 2019, 12:12:47 AM
I've posted this earlier but I guess it was a wrong forum. I got all USA related advise.Are you already maxing out your concessional super contributions? If not, then FHSS could be worthwhile.
Posting it again under Australian Investing Thread.
Hi,
Working on saving for my First home.
Goal: $100,000
Saved so far: $12000
I would like some ideas as to where can I invest those $12000 (Plus $2000 every month) to reach my goal quicker?
Thank you
P.S: I am a total noob at investing. Currently reading the Barefoot investor to learn about financial planning.
Post by: JimmyMac on January 10, 2019, 04:30:30 AM
I've posted this earlier but I guess it was a wrong forum. I got all USA related advise.
Posting it again under Australian Investing Thread.
Hi,
Working on saving for my First home.
Goal: $100,000
Saved so far: $12000
I would like some ideas as to where can I invest those $12000 (Plus $2000 every month) to reach my goal quicker?
Thank you
P.S: I am a total noob at investing. Currently reading the Barefoot investor to learn about financial planning.
As someone who was recently in your same position I can say the best thing you can do is keep your cash in a savings account.
Good returns will have an immaterial effect on the time it takes to reach your goal. Bad returns will cause you stress and set you back months.
Saving more will have the greatest impact, if at all possible.
Post by: MrThatsDifferent on January 10, 2019, 06:47:15 AM
For example, assume I have $1m invested, and say my withdrawal target is $40k/yr. If my invested money generates $20k/yr in dividends and I take that out and don’t reinvest it, does that mean I only have to withdrawal 2% from my invested stache to get the $40k? Or does what you remove from dividends count towards the 4%? Does it make sense what I’m asking? Lol
I guess the other thing I’m wondering is, when you retire should you let your dividends reinvest or should you have them continually distributed and then just top up the remainder?
I don’t think the FIRE movement is very clear on how to get out and manage money during the retire phase, so I’m a bit confused.
Post by: Andy R on January 10, 2019, 07:48:03 AM
Stupid question: if you withdraw your dividends during retirement, does that impact the 7% expected growth of invested money? And how does that impact your 4% withdrawal?
For example, assume I have $1m invested, and say my withdrawal target is $40k/yr. If my invested money generates $20k/yr in dividends and I take that out and don’t reinvest it, does that mean I only have to withdrawal 2% from my invested stache to get the $40k? Or does what you remove from dividends count towards the 4%? Does it make sense what I’m asking? Lol
Dividends are not free seperate money, they come out of the total return.
https://www.cnbc.com/2016/12/08/dont-buy-in-to-the-dividend-fallacy-new-academic-paper-warns.html
https://www.bogleheads.org/wiki/Why_did_my_fund_unexpectedly_drop_in_value
https://www.bogleheads.org/forum/viewtopic.php?f=1&t=258311
If a company has earnings of 10% and pays out 2% or 4% or 8% dividends, your growth is 10% minus the dividend, so the dividend has nothing to do with your total return. Ignore it.
The 4% rule comes out of the total return.
If your dividends are 6%, then if you follow the 4% rule, you should re-invest the extra 2%, and if your dividends are 2%, then you would be selling down the other 2% to get your 4% out.
I know someone who has a 6% dividend and lives off all of that. He is already suffering the consequences, and things are only going to get worse.
I guess the other thing I’m wondering is, when you retire should you let your dividends reinvest or should you have them continually distributed and then just top up the remainder?
I don’t think the FIRE movement is very clear on how to get out and manage money during the retire phase, so I’m a bit confused.
In retirement you generally do not auto-reinvest dividends since you usually need it to live off. However if your dividends are more than 4%, then yes re-invest the rest.
Post by: MrThatsDifferent on January 10, 2019, 01:38:48 PM
Stupid question: if you withdraw your dividends during retirement, does that impact the 7% expected growth of invested money? And how does that impact your 4% withdrawal?
For example, assume I have $1m invested, and say my withdrawal target is $40k/yr. If my invested money generates $20k/yr in dividends and I take that out and don’t reinvest it, does that mean I only have to withdrawal 2% from my invested stache to get the $40k? Or does what you remove from dividends count towards the 4%? Does it make sense what I’m asking? Lol
Dividends are not free seperate money, they come out of the total return.
https://www.cnbc.com/2016/12/08/dont-buy-in-to-the-dividend-fallacy-new-academic-paper-warns.html
https://www.bogleheads.org/wiki/Why_did_my_fund_unexpectedly_drop_in_value
https://www.bogleheads.org/forum/viewtopic.php?f=1&t=258311
If a company has earnings of 10% and pays out 2% or 4% or 8% dividends, your growth is 10% minus the dividend, so the dividend has nothing to do with your total return. Ignore it.
The 4% rule comes out of the total return.
If your dividends are 6%, then if you follow the 4% rule, you should re-invest the extra 2%, and if your dividends are 2%, then you would be selling down the other 2% to get your 4% out.
I know someone who has a 6% dividend and lives off all of that. He is already suffering the consequences, and things are only going to get worse.I guess the other thing I’m wondering is, when you retire should you let your dividends reinvest or should you have them continually distributed and then just top up the remainder?
I don’t think the FIRE movement is very clear on how to get out and manage money during the retire phase, so I’m a bit confused.
In retirement you generally do not auto-reinvest dividends since you usually need it to live off. However if your dividends are more than 4%, then yes re-invest the rest.
Ok, thanks for that, it makes sense. So it does seem right that I identify what my 4% is, take out as much of the dividends up to the 4% and if that falls short, top by cashing out shares or using cash.
Ok, here’s something else I’m wondering. Say my 4% is $40k. My investments distribute $20k and I have $120k cash. Does it make more sense to use the $20k distribution plus $20k cash for 6 years, or use the cash for 3 years, and let the distributions reinvest to grow the invested stache, or will the end result be the same however you do it?
And apologies for these dumb questions, this stuff doesn’t click with me well.
Post by: deborah on January 10, 2019, 03:08:54 PM
You need to plan why you are doing things in retirement. If you have only a few years until super becomes available to you, you may decide to use your cash first, topping it up with dividends and (if necessary) selling shares, reducing taxable income and not generating capital gains. If you retire many years before super is available, you could have a completely different strategy, retaining a certain amount of cash at all times, to ride market fluctuations or to gradually reduce your share holdings over time so that you have almost no taxable income.
Post by: Andy R on January 10, 2019, 06:49:17 PM
Ok, here’s something else I’m wondering. Say my 4% is $40k. My investments distribute $20k and I have $120k cash. Does it make more sense to use the $20k distribution plus $20k cash for 6 years, or use the cash for 3 years, and let the distributions reinvest to grow the invested stache, or will the end result be the same however you do it?
Firstly you should have decided on an asset allocation (AA) of stocks to fixed income.
Each year, you would have a plan, such as:
1. Have distributions not reinvested and instead put into a separate account to use
2. Anything that not enough for the withdrawal rate, take out of the allocation that has performed the best to bring the proportions closer to your target AA
3. If you are out of our pre-decided percentage bands, then rebalance to bring it back
Here is a simple example
Assumptions
1 mil
4% withdrawal rate
70/30 AA
Rebalance bands of 5%
After one year say you have gotten 30k in distributions
And say stocks grew to 805k and fixed income grew to 305k
Your AA is now 72.5/27.5, so your equities portion has grown more, so you take out the other 10k from your equities.
That leaves you with 795k equities, 305k fixed income and your AA is now 72.25/27.25
Since it is not outside of your balancing bands of 5% (65/35 and 75/25) you do nothing more
After another year or two, you might end up with an AA of 76/24, in which case you would sell down 6% of the 76 to bring it back in line with your original allocation.
You need to determine these and put it into an investment policy statement (IPS) so you are not guessing and instead have a set of steps laid out in advance that you follow each year.
- An appropriate AA for yourself
- A withdrawal rate you are comfortable with
- Rebalancing bands
Post by: MrThatsDifferent on January 10, 2019, 11:20:35 PM
Ok, here’s something else I’m wondering. Say my 4% is $40k. My investments distribute $20k and I have $120k cash. Does it make more sense to use the $20k distribution plus $20k cash for 6 years, or use the cash for 3 years, and let the distributions reinvest to grow the invested stache, or will the end result be the same however you do it?
Firstly you should have decided on an asset allocation (AA) of stocks to fixed income.
Each year, you would have a plan, such as:
1. Have distributions not reinvested and instead put into a separate account to use
2. Anything that not enough for the withdrawal rate, take out of the allocation that has performed the best to bring the proportions closer to your target AA
3. If you are out of our pre-decided percentage bands, then rebalance to bring it back
Here is a simple example
Assumptions
1 mil
4% withdrawal rate
70/30 AA
Rebalance bands of 5%
After one year say you have gotten 30k in distributions
And say stocks grew to 805k and fixed income grew to 305k
Your AA is now 72.5/27.5, so your equities portion has grown more, so you take out the other 10k from your equities.
That leaves you with 795k equities, 305k fixed income and your AA is now 72.25/27.25
Since it is not outside of your balancing bands of 5% (65/35 and 75/25) you do nothing more
After another year or two, you might end up with an AA of 76/24, in which case you would sell down 6% of the 76 to bring it back in line with your original allocation.
You need to determine these and put it into an investment policy statement (IPS) so you are not guessing and instead have a set of steps laid out in advance that you follow each year.
- An appropriate AA for yourself
- A withdrawal rate you are comfortable with
- Rebalancing bands
I use a life strategy fund, so I don’t think I control the allocation. I don’t rebalance.
Post by: Andy R on January 10, 2019, 11:50:45 PM
I use a life strategy fund, so I don’t think I control the allocation. I don’t rebalance.
Ok if they rebalance it for you, then just take out enough to make up the withdrawal rate you plan on that the dividends did not cover.
What is the purpose of the 120k cash then if your fund already has fixed income in there for you?
Post by: MrThatsDifferent on January 11, 2019, 02:15:17 AM
I use a life strategy fund, so I don’t think I control the allocation. I don’t rebalance.
Ok if they rebalance it for you, then just take out enough to make up the withdrawal rate you plan on that the dividends did not cover.
What is the purpose of the 120k cash then if your fund already has fixed income in there for you?
Well, I had seen someone else post that as their strategy, so I thought it was good and that if I used the cash first, it would let my money grow. But I guess what you’re saying is the life strategy fund has a cash component. Honestly this bit is all confusing. Hmmmm
Post by: Andy R on January 11, 2019, 03:42:04 AM
Well, I had seen someone else post that as their strategy, so I thought it was good and that if I used the cash first, it would let my money grow. But I guess what you’re saying is the life strategy fund has a cash component. Honestly this bit is all confusing. Hmmmm
Stick with it, it will make more and more sense the longer you read. Or rather, the stuff that is flat out wrong becomes more obviously wrong rather than you wondering who was right.
Anyway, I would question the reason for holding cash. If you have a life strategy fund, you have fixed income in there already.
It looks like you also have not selected the life strategy fund based on AA and done so on age or something else?
I would suggest learning what and AA is and how to go about figuring one out. It is really the pinacle of investing. Once you have that, the rest is just following a set of simple steps.
Post by: MrThatsDifferent on January 11, 2019, 11:12:27 AM
Well, I had seen someone else post that as their strategy, so I thought it was good and that if I used the cash first, it would let my money grow. But I guess what you’re saying is the life strategy fund has a cash component. Honestly this bit is all confusing. Hmmmm
Stick with it, it will make more and more sense the longer you read. Or rather, the stuff that is flat out wrong becomes more obviously wrong rather than you wondering who was right.
Anyway, I would question the reason for holding cash. If you have a life strategy fund, you have fixed income in there already.
It looks like you also have not selected the life strategy fund based on AA and done so on age or something else?
I would suggest learning what and AA is and how to go about figuring one out. It is really the pinacle of investing. Once you have that, the rest is just following a set of simple steps.
I picked it because of simplicity. I wanted something I could set and forget and not have to actively manage or think about in any way. This stuff doesn’t come naturally to me so I don’t want to overly complicate things and I want my energy on some other things. I get what you’re saying though and that makes sense to me. I’ll look at keeping less cash, but using it for emergency purposes predominantly.
Thanks for your advice.
Post by: lush on January 11, 2019, 03:37:04 PM
Well, I had seen someone else post that as their strategy, so I thought it was good and that if I used the cash first, it would let my money grow. But I guess what you’re saying is the life strategy fund has a cash component. Honestly this bit is all confusing. Hmmmm
Stick with it, it will make more and more sense the longer you read. Or rather, the stuff that is flat out wrong becomes more obviously wrong rather than you wondering who was right.
Anyway, I would question the reason for holding cash. If you have a life strategy fund, you have fixed income in there already.
It looks like you also have not selected the life strategy fund based on AA and done so on age or something else?
I would suggest learning what and AA is and how to go about figuring one out. It is really the pinacle of investing. Once you have that, the rest is just following a set of simple steps.
I picked it because of simplicity. I wanted something I could set and forget and not have to actively manage or think about in any way. This stuff doesn’t come naturally to me so I don’t want to overly complicate things and I want my energy on some other things. I get what you’re saying though and that makes sense to me. I’ll look at keeping less cash, but using it for emergency purposes predominantly.
Thanks for your advice.
Mr Diff. I can relate to your situation. Initially I too choose the Balanced ( I think similar to Life Strategy) Vanguard fund as to me it seemed rather "secure" and they did all the hard work of re-balancing. However I then learnt through this forum and others the importance of playing a little bit more of an active role in your asset allocation. If I had my time over I would not have chosen such a conservative fund (Balanced). Consequently this has meant I am now re-setting the AA to what I would like it to be, by investing in more equities to bring the AA up to 70/30. But still have a long way to go since the Balanced fund has most of my money in it now and it has a 50/50 allocation.
In regards to savings my approach matches yours. I have about $120k for emergencies. I also see it as that if I need the cash I am not forced to sell out of my portfolio if the market is very low (selling at a loss). I am sure others may see it differently. I guess you can put this down to my lack of experience and confidence it putting everything into the portfolio. Maybe in the future I may get more experience under my belt and feel comfortable putting almost everything in it.
Good luck with it all.
Post by: chasingthegoodlife on January 11, 2019, 05:42:08 PM
Wondering if anyone has been affected by the recent Interactive Brokers problems?
https://www.smh.com.au/business/markets/stock-broker-collapse-traps-200-million-from-thousands-of-investors-20190111-p50qr8.html
I remember it being popular with some here for buying overseas ETFs.
Post by: potm on January 12, 2019, 01:50:08 AM
When deciding how much cash to keep on hand, don't forget to consider how much is available to you through a mortgage offset or redraw. For homeowners that's probably the most efficient way to keep an emergency fund.
Wondering if anyone has been affected by the recent Interactive Brokers problems?
https://www.smh.com.au/business/markets/stock-broker-collapse-traps-200-million-from-thousands-of-investors-20190111-p50qr8.html
I remember it being popular with some here for buying overseas ETFs.
I don't believe it was interactive brokers that collapsed. Seems like it is Halifax but they may have used the IB platform.
Post by: chasingthegoodlife on January 12, 2019, 03:27:02 AM
Post by: MrThatsDifferent on January 12, 2019, 01:24:01 PM
Well, I had seen someone else post that as their strategy, so I thought it was good and that if I used the cash first, it would let my money grow. But I guess what you’re saying is the life strategy fund has a cash component. Honestly this bit is all confusing. Hmmmm
Stick with it, it will make more and more sense the longer you read. Or rather, the stuff that is flat out wrong becomes more obviously wrong rather than you wondering who was right.
Anyway, I would question the reason for holding cash. If you have a life strategy fund, you have fixed income in there already.
It looks like you also have not selected the life strategy fund based on AA and done so on age or something else?
I would suggest learning what and AA is and how to go about figuring one out. It is really the pinacle of investing. Once you have that, the rest is just following a set of simple steps.
I picked it because of simplicity. I wanted something I could set and forget and not have to actively manage or think about in any way. This stuff doesn’t come naturally to me so I don’t want to overly complicate things and I want my energy on some other things. I get what you’re saying though and that makes sense to me. I’ll look at keeping less cash, but using it for emergency purposes predominantly.
Thanks for your advice.
Mr Diff. I can relate to your situation. Initially I too choose the Balanced ( I think similar to Life Strategy) Vanguard fund as to me it seemed rather "secure" and they did all the hard work of re-balancing. However I then learnt through this forum and others the importance of playing a little bit more of an active role in your asset allocation. If I had my time over I would not have chosen such a conservative fund (Balanced). Consequently this has meant I am now re-setting the AA to what I would like it to be, by investing in more equities to bring the AA up to 70/30. But still have a long way to go since the Balanced fund has most of my money in it now and it has a 50/50 allocation.
In regards to savings my approach matches yours. I have about $120k for emergencies. I also see it as that if I need the cash I am not forced to sell out of my portfolio if the market is very low (selling at a loss). I am sure others may see it differently. I guess you can put this down to my lack of experience and confidence it putting everything into the portfolio. Maybe in the future I may get more experience under my belt and feel comfortable putting almost everything in it.
Good luck with it all.
Ok, I guess I don’t understand what the advantages of the manual AA vs Lifestrategy? I mean, the only thing really would be that you all are saying I’d have more money under the manual AA plan than what I’m doing right? Can anyone calculate how much better someone would be? Other posters have told me that the Lifestrategy direction was perfectly fine, low fees, no hassles, and a good set up.
The other thing would be, if I was to do manual AA, what does that look like in the optimum sense that’s better than Lifestrategy? What products do I buy from Vanguard?
Post by: deborah on January 12, 2019, 02:10:33 PM
This means your current AA is 31% bonds, 45% shares and 24% cash, as your $100,000 is counted as cash. This seems to be very underweight in real estate and shares, which tend to be where growth occurs. As a result, you will be more likely to have problems with your stash giving you a sustainable income in retirement.
People are suggesting that you think about what you really want your AA to look like, and get a product (or more than one, if necessary) to match.
Your circumstances can give you different investment strategies. For instance, I own a house, and have a small defined benefit pension. I treat the pension as bonds and my house as real estate, so my actual investments are 100% shares, but this makes my overall asset allocation reasonable. If the shares go pear shaped, I still have my pension. Thinking about how different scenarios affect you is part of deciding what a reasonable personal asset allocation is.
Post by: Andy R on January 12, 2019, 06:17:59 PM
It boils down to the fact that everyone has a different AA and you need to know what your AA is first, and then select funds to suit it. You are doing it backwards by picking a fund and then you have no say in your AA.
For instance, in my current circumstances, I may find 70/30 most appropriate, so then I may pick a fund such as VDGR which is 70/30. Another person may prefer 80/20 and then may pick VDHG/VAF 90/10 (VDHG is 90/10 and VAF is the extra 10 for bonds).
If both of these people picked VDGR because "it is a good fund", then they are mistakenly letting the fund choose their allocation instead of choosing their allocation and selecting the funds to meet their allocation.
Post by: MrThatsDifferent on January 13, 2019, 01:45:48 AM
Your Asset Allocation (AA) is what you’re comfortable with. This can include having a certain amount of money in the bank. You decide what you want, and stay with it. What you appear to currently have as your AA is $100,000 in cash in the bank, and everything else in Lifestrategy. For the purpose of discussion, I will assume you have $900,000 in this and it’s the balanced option. This option has 35% bonds, 50% shares and 15% cash, if my cursory reading is correct. Let’s also assume you’re renting and have no real estate.
This means your current AA is 31% bonds, 45% shares and 24% cash, as your $100,000 is counted as cash. This seems to be very underweight in real estate and shares, which tend to be where growth occurs. As a result, you will be more likely to have problems with your stash giving you a sustainable income in retirement.
People are suggesting that you think about what you really want your AA to look like, and get a product (or more than one, if necessary) to match.
Your circumstances can give you different investment strategies. For instance, I own a house, and have a small defined benefit pension. I treat the pension as bonds and my house as real estate, so my actual investments are 100% shares, but this makes my overall asset allocation reasonable. If the shares go pear shaped, I still have my pension. Thinking about how different scenarios affect you is part of deciding what a reasonable personal asset allocation is.
I only have the Lifestrategy account, not the cash yet. I wasn’t going to have the cash until retirement. No property, no pension. Just Lifestrategy and super. The Lifestrategy has a nice balance for someone in my position and it’s dead simple. Not quite sure I understand the problem?
Post by: lush on January 13, 2019, 07:56:02 PM
Your Asset Allocation (AA) is what you’re comfortable with. This can include having a certain amount of money in the bank. You decide what you want, and stay with it. What you appear to currently have as your AA is $100,000 in cash in the bank, and everything else in Lifestrategy. For the purpose of discussion, I will assume you have $900,000 in this and it’s the balanced option. This option has 35% bonds, 50% shares and 15% cash, if my cursory reading is correct. Let’s also assume you’re renting and have no real estate.
This means your current AA is 31% bonds, 45% shares and 24% cash, as your $100,000 is counted as cash. This seems to be very underweight in real estate and shares, which tend to be where growth occurs. As a result, you will be more likely to have problems with your stash giving you a sustainable income in retirement.
People are suggesting that you think about what you really want your AA to look like, and get a product (or more than one, if necessary) to match.
Your circumstances can give you different investment strategies. For instance, I own a house, and have a small defined benefit pension. I treat the pension as bonds and my house as real estate, so my actual investments are 100% shares, but this makes my overall asset allocation reasonable. If the shares go pear shaped, I still have my pension. Thinking about how different scenarios affect you is part of deciding what a reasonable personal asset allocation is.
I only have the Lifestrategy account, not the cash yet. I wasn’t going to have the cash until retirement. No property, no pension. Just Lifestrategy and super. The Lifestrategy has a nice balance for someone in my position and it’s dead simple. Not quite sure I understand the problem?
You sound like you are on top of it and are happy with your set up. I don't think anyone is suggesting there is a problem, it was more about if you had thought about your AA. I think you have done a bit of research across this topic so you have set yourself up that suites your FIRE needs.
Post by: Kgoose on January 16, 2019, 12:26:44 AM
I know someone who has a 6% dividend and lives off all of that. He is already suffering the consequences, and things are only going to get worse.
Hi Andy R,
Serious question trying to learn
Apart from the whole 4% rule can you please explain why he is suffering the consequences already.
Dividend payouts haven't really dropped
Thanks
Post by: deborah on January 16, 2019, 12:49:52 AM
Your investments have fees - income tax, management fees, brokerage fees... If you’re living on the entire dividend, you need to sell something to pay the fees. This, of course, attracts other fees, like CGT.
When people have calculated the withdrawal rate for countries based on their history, Australia’s has been 3.8% rather than the 4% we tend to assume. 4% is based on the US history, and is much better than just about anywhere else. Since the future is just a guess, the best guess is past performance.
Post by: Andy R on January 16, 2019, 01:51:59 AM
The point is that dividends are not free separate money. They come out of the total return. If you have only high dividend stocks and spend down the whole dividend, then that extra money is coming out of what would have gone into the growth return.
As Deborah said, when accounting for returns, 4% (from the total return) has been shown to be about what will get you through retirement. If you pick the companies that payout higher dividends and spend it all, then that will mean it is actually growing less and you are living off a higher withdrawal rate and you are eating into the growth, so over time as inflation devalues your dollar, your dollar amount of investment might stay the same but be lower in it's purchasing power amount (ie its inflation adjusted amount)
Post by: BRAFRA on January 16, 2019, 12:33:25 PM
Are you aware of any over vehicle or ETF to invest in Brazil?
Post by: marty998 on January 16, 2019, 01:17:54 PM
Post by: Notch on January 16, 2019, 03:17:27 PM
Vanguard dividends get paid today in case anyone has forgotten :)
And if you own the funds instead of the ETFs, distributions were already paid on the 9th Jan :P
Post by: FrugalUndercover on January 17, 2019, 03:56:01 AM
https://www.rest.com.au/indexed-investment-options
And
https://barefootinvestor.com/a-super-fund-option-with-zero-fees/
*no investment fees, small admin fee 0.1% capped at $800
Post by: marty998 on January 17, 2019, 01:55:39 PM
Vanguard dividends get paid today in case anyone has forgotten :)
And if you own the funds instead of the ETFs, distributions were already paid on the 9th Jan :P
Hey no fair! How come yours get done quicker :D
Post by: Notch on January 17, 2019, 09:34:38 PM
Vanguard dividends get paid today in case anyone has forgotten :)
And if you own the funds instead of the ETFs, distributions were already paid on the 9th Jan :P
Hey no fair! How come yours get done quicker :D
Maybe computershare holds on to the dividends for a week to earn some interest before passing it on xD
Post by: Wadiman on January 21, 2019, 06:52:51 PM
Long story short, I believe the Brazilian economy will do well over the next years after. Ibovespa is the Brazilian stock exchange. I plan to buy an ETF like iShares MSCI Brazil USD or Lyxor Brazil (IBOVESPA) UCITS EUR. The Lyxor scares is a synthetic (unfunded swap) so the iShares is my favorite at this stage.
Are you aware of any over vehicle or ETF to invest in Brazil?
Hi - Investing in Brazil as an individual country may be a little too risky for many -you may want to consider a more diversified approach like choosing an emerging markets ETF.
IEM (iShares emerging markets) for example holds about 10% in direct Brazilian equities and is domiciled in Australia.
Post by: chasingthegoodlife on January 22, 2019, 12:35:44 PM
Post by: Andy R on January 22, 2019, 07:11:24 PM
Brafra- why do you this Brazil specifically is a great option right now?
You are asking the wrong question. You should be asking why they think they know more than the entire market and why they think this information has not been priced in.
The same question you would be asking someone who thinks they can time the market and that they know something the entire rest of the market doesn't and has not been priced in.
This argument can not be defended. The answer is arrogance.
In fact, let me ask you something. If a whole lot of people believed or agreed with someone who said something similar, would you jump on the bandwagon and believe it too just because a lot of people did? There are large groups of Aussies who think LIC's are somehow special and better than indexing. Literally every reason put forward has been shot down as either bullshit or a red herring, yet masses of people follow it "because they do, so it must be good".
At what point does the fundamental understanding of "they don't know more than the market" guide you away from the endless bullshit that is not indexing?
Post by: chasingthegoodlife on January 22, 2019, 09:30:40 PM
(For the record, I hold only VAS and VGS and do not intend to change this)
Post by: Korrywow on January 22, 2019, 11:16:29 PM
Would you recommend the Perth Mint to non-Aussie (foreign)investors who want to purchase physical precious metals? Or is it just another one of those Western Australian mining scams!? (joke).
Post by: totalfireban on January 22, 2019, 11:27:25 PM
Its been a great few years, my partner got on board, we started saving like crazy, investing some into ETFs and keeping some in ING savings accounts to work towards buying a PPOR. We kept expenses really low and were fortunate enough to be able to move in with partners parents while we saved. We both more than doubled our incomes over these years too.
This all happened to align perfectly with Sydney house prices increasing, meaning no matter how much we saved it would keep up with the increase in a modest 2/3 bed townhouse in western sydney we were after.
After a few years of this, we had to make the call, either move out and rent or purchase. End of 2017 we purchase a cheap townhouse, 650k to keep us within first home owner stamp duty concessions and put down 20%.
It was a good price and under market value but was unliveable as is and with me doing a significant portion of the work still cost about 70k to fully renovate.
This brings us to the present-
Both 30yrs old
A townhouse that owes us 720 but would probably sell for 700.. Our budget for a liveable 2 bed townhouse in 2015 when we decided to PPOR was 500k (which was ridiculous even then)
$250k p.a combined income
$90k ETFS
$~110k super
$50k in offset
-$465k owing on mortgage
$485k net assets or -$215k if you exclude the PPOR
Ill be honest, its tough coming back now a few years later and seeing how far away I am from FIRE… Put everything in to our jobs to increase income, cut expenses and didn’t increase lifestyle in line with salary but still end up worse of than those already own or purchased 2/3 years before.
I know I'm complaining, and we are lucky to have well-paying jobs and to have found MMM/FIRE advice in the first place, but it still BURNS to be on the wrong end of the housing cycle putting us back I don’t know how many years…
The other side of this is that life changes, we got married, would like kids in near future & would like to enjoy some of the money we earn (so have booked a holiday and bought good quality appliances and furniture for the home).
Basically, I've come back to 1) vent , 2) reset expectations and see what we should be doing financially going forward. Anyone else out there is in a similar situation?
Post by: mrmoonymartian on January 23, 2019, 12:29:15 AM
New thread/subthread.Yes, Perth Mint is top quality and well priced locally. Only trouble might be your shipping cost compared to the Royal Canadian Mint or US mints. If importing small quantities is uneconomic you have plenty of dealers in the US who will sell you Perth Mint stuff.
Would you recommend the Perth Mint to non-Aussie (foreign)investors who want to purchase physical precious metals? Or is it just another one of those Western Australian mining scams!? (joke).
Personally I think physical is unnecessary for a bit of diversification, but I understand people have their reasons. I do like the idea for small gifts.
Post by: Andy R on January 23, 2019, 12:46:09 AM
$485k net assets or -$215k if you exclude the PPOR
Ill be honest, its tough coming back now a few years later and seeing how far away I am from FIRE… Put everything in to our jobs to increase income, cut expenses and didn’t increase lifestyle in line with salary but still end up worse of than those already own or purchased 2/3 years before.
I know I'm complaining, and we are lucky to have well-paying jobs and to have found MMM/FIRE advice in the first place, but it still BURNS to be on the wrong end of the housing cycle putting us back I don’t know how many years…
The other side of this is that life changes, we got married, would like kids in near future & would like to enjoy some of the money we earn (so have booked a holiday and bought good quality appliances and furniture for the home).
Basically, I've come back to 1) vent , 2) reset expectations and see what we should be doing financially going forward. Anyone else out there is in a similar situation?
The thing is though, whether you FIRE with or without a PPOR, it is not as different as it may seem to you. If you were renting, you would still need a ton more assets not too dissimilar to the value of a house of which to draw from to get and pay for rent. It just feels like it's much worse because you may not have accounted for this.
But yes, it god damn sux. Why is the cost of shelter so many years of sacrifice! People on US forums commonly mention property valued at 300-350k USD. It's fucking ridiculous that the average Syd house is around a mil unless you want to live in a shoebox out in a high crime area and travel 4 hours a day to/from the city.
Anyway, yes I'm sure there are a shitload of people in a similar situation to you. You are not alone. Also there is an option to retire to a smaller city where rent/property is quite a bit cheaper if that suits you.
Post by: mjr on January 23, 2019, 01:11:00 AM
$485k net assets or -$215k if you exclude the PPOR
If you exclude your PPOR, you should exclude your mortgage as well. You're both 30 and have nearly a cool half million in assets. Don't be hard on yourself.
Post by: chasingthegoodlife on January 23, 2019, 03:38:10 AM
$485k net assets or -$215k if you exclude the PPOR
If you exclude your PPOR, you should exclude your mortgage as well. You're both 30 and have nearly a cool half million in assets. Don't be hard on yourself.
What he said. About both.
I’m 35 and most of my Melbourne circle of friends worry they will be priced out of the market forever.
My husband, in his 50s, bought his first house when his then-partner was on the dole and quit his own stable job as soon as he had the loan to play in his band and do odd jobs here and there.
My parents bought their bayside Melbourne family home for $30k.
You want to live in Sydney, you need somewhere to live. Your hard work and saving has delivered that for you (congratulations! Amazing achievement and you should be proud!). You may be 20k down on the value now but if you live there for 15 years this will mean nothing.
Post by: marty998 on January 23, 2019, 04:15:40 AM
$485k net assets or -$215k if you exclude the PPOR
Ill be honest, its tough coming back now a few years later and seeing how far away I am from FIRE… Put everything in to our jobs to increase income, cut expenses and didn’t increase lifestyle in line with salary but still end up worse of than those already own or purchased 2/3 years before.
I know I'm complaining, and we are lucky to have well-paying jobs and to have found MMM/FIRE advice in the first place, but it still BURNS to be on the wrong end of the housing cycle putting us back I don’t know how many years…
The other side of this is that life changes, we got married, would like kids in near future & would like to enjoy some of the money we earn (so have booked a holiday and bought good quality appliances and furniture for the home).
Basically, I've come back to 1) vent , 2) reset expectations and see what we should be doing financially going forward. Anyone else out there is in a similar situation?
The thing is though, whether you FIRE with or without a PPOR, it is not as different as it may seem to you. If you were renting, you would still need a ton more assets not too dissimilar to the value of a house of which to draw from to get and pay for rent. It just feels like it's much worse because you may not have accounted for this.
But yes, it god damn sux. Why is the cost of shelter so many years of sacrifice! People on US forums commonly mention property valued at300-350k100-150k USD. It's fucking ridiculous that the average Syd house is around a mil unless you want to live in a shoebox out in a high crime area and travel 4 hours a day to/from the city.
Anyway, yes I'm sure there are a shitload of people in a similar situation to you. You are not alone. Also there is an option to retire to a smaller city where rent/property is quite a bit cheaper if that suits you.
Fixed that for you.
Post by: Abundant life on January 23, 2019, 08:10:31 PM
I came across MMM about 4 years ago and got hooked; read all of the articles and went away and started saving/investing as much as possible. Starting from basically nill savings..
Its been a great few years, my partner got on board, we started saving like crazy, investing some into ETFs and keeping some in ING savings accounts to work towards buying a PPOR. We kept expenses really low and were fortunate enough to be able to move in with partners parents while we saved. We both more than doubled our incomes over these years too.
This all happened to align perfectly with Sydney house prices increasing, meaning no matter how much we saved it would keep up with the increase in a modest 2/3 bed townhouse in western sydney we were after.
After a few years of this, we had to make the call, either move out and rent or purchase. End of 2017 we purchase a cheap townhouse, 650k to keep us within first home owner stamp duty concessions and put down 20%.
It was a good price and under market value but was unliveable as is and with me doing a significant portion of the work still cost about 70k to fully renovate.
This brings us to the present-
Both 30yrs old
A townhouse that owes us 720 but would probably sell for 700.. Our budget for a liveable 2 bed townhouse in 2015 when we decided to PPOR was 500k (which was ridiculous even then)
$250k p.a combined income
$90k ETFS
$~110k super
$50k in offset
-$465k owing on mortgage
$485k net assets or -$215k if you exclude the PPOR
Ill be honest, its tough coming back now a few years later and seeing how far away I am from FIRE… Put everything in to our jobs to increase income, cut expenses and didn’t increase lifestyle in line with salary but still end up worse of than those already own or purchased 2/3 years before.
I know I'm complaining, and we are lucky to have well-paying jobs and to have found MMM/FIRE advice in the first place, but it still BURNS to be on the wrong end of the housing cycle putting us back I don’t know how many years…
The other side of this is that life changes, we got married, would like kids in near future & would like to enjoy some of the money we earn (so have booked a holiday and bought good quality appliances and furniture for the home).
Basically, I've come back to 1) vent , 2) reset expectations and see what we should be doing financially going forward. Anyone else out there is in a similar situation?
Despite the timing of the purchase, you are doing really well. And you have time on your side to recover, providing you are happy in your PPOR and plan to stay for a few more years.
There's a lot to be said for being settled in your own home and not at the mercy of landlords selling out from under you and the resulting multiple moves.
Post by: BRAFRA on January 24, 2019, 11:02:31 PM
Brafra- why do you this Brazil specifically is a great option right now?
You are asking the wrong question. You should be asking why they think they know more than the entire market and why they think this information has not been priced in.
The same question you would be asking someone who thinks they can time the market and that they know something the entire rest of the market doesn't and has not been priced in.
This argument can not be defended. The answer is arrogance.
I believe the new president and government that started in 2019 will do well. I spent 3 weeks in Brazil last month. The marge majority of the Brazilians I discussed with want to invest, move from their lazy government job to the private sector or start a business. They did not have these intentions with the previous socialist government that ruled the country for 15 years.
No scientific data, just a gut feeling like Mark Baum doing his investigation of the real estate market in the movie "The Big Short".
Post by: itchyfeet on January 26, 2019, 01:33:26 AM
I was just looking at my brokerage statement for 2018 and noticed that I am paying various fees amounting to about 0.3% of my portfolio. This includes the Vanguard fees from the various EFTs I am using, plus brokerage fees.
It got to wondering whether this is a bit high. I don’t make too many trades. Maybe some are a bit small in size.
Do you all optimize fees below this level. Obviously the fees on VAS (0.14%) are lower than some of the other funds I am using (VWRD 0.25% and VDEM 0.25% - I get paid in USD and have kept some savings in uSD), and then there’s the brokers cut.
I haven’t been using a low cost brokerage. I started out with using the brokerage that I felt had the easiest to use trading platform. I knew it was expensive (Saxo) at the Time, but am thinking it might be nice to try and optimize my fees a little, by opening am account with a low cost broker. I am not exposed to CGT whilst living in the Middle East, so now is the time to get my house in order, and get everything optimised.
I am also realizing that I have not been taking enough care in changing my USD salary back to AUD, and racking up some fees here too, so would appreciate any thoughts from you all on the cheapest/ best way to send money home to Aus.
Post by: Andy R on January 26, 2019, 03:32:42 AM
On brokerage:
I use IB and have heard that the exchange rates for IB are incredibly low, so that would be worth looking into.
Buying on the ASX is 0.08% with a min of 6 AUD per trade.
If you have under 100k USD invested with them, there is a $10/month charge, but anything you have from trading is removed from this. And if you have over 100k USD there is no monthly charge.
On ongoing fund fees - only if staying a non-resident of Australia for the foreseeable future:
With no CGT payable, have you considered VTS/VEU? If you go 50/50, the overall MER is crazy low and it covers the entire investable world of developed, emerging, large/mid/small caps.
The downside for those funds for Aussie residents is that the fund is US domiciled and if you die while invested in that, they take an estate tax cut, but if you pay no CGT then you can always just sell it later on down the track. And I read someone commented elsewhere that Vanguard may be looking into the possibility of re-domiciling these 2 funds to Australia so then you would never need to sell facing that estate tax (but don't know if that will happen or not).
Oh you will need to check if your country of residence has a taxation treaty with the US like Australia does to make sure you pay 15% tax on dividends and not 30%, over wise VWRD over on the LSE might make more sense.
By the way, have you considered the other costs?
On international funds (if your country of residence has a tax treaty with the US) you pay around 15% tax on 2% dividends which means you are losing 0.3% (of an expected 8% long term return)
On VAS you pay 30% tax on 4% dividends which means you are losing about 1.2% (of an expected 8% long term return). And as a non-resident you get no franking credits.
That is a LOT of money to lose in tax by choosing Australian equities. It is like paying an extra 0.9% extra management fee, so I hope you have a good reason for choosing Australin equities over global equities.
Post by: Minion on January 26, 2019, 11:21:27 PM
Post by: MrThatsDifferent on January 28, 2019, 02:24:18 AM
I’m thinking that might make more sense than lump summing your money into super as non concessional. Thoughts? @deborah ?
Post by: deborah on January 28, 2019, 04:06:24 AM
You have until you’re 65 to put money into super - and if you work for 20 hours in one month of the year (say you get a job in a store as Santa before Christmas), you can do it until you’re 75, so there’s no hurry to do it before you’re 60.
There are a number of advantages to adding extra to super after 60 (and retirement). Capital gains is probably less, you know your interim money supply lasted (an emergency in the last year before you get your super won’t cause as many problems)...
Non concessional contributions are good for avoiding “death tax” (if you leave your super to a non dependent the concessional portion gets taxed), but I’m not sure of other reasons to prefer them. In your situation, you may expect to have a dependent, so a concessional contribution may reduce the overall tax.
The early retirement Australia thread is probably of some use to you - https://forum.mrmoneymustache.com/australia-tax-discussion/early-retirement-australia/
Post by: MrThatsDifferent on January 28, 2019, 04:12:03 AM
Several points:
You have until you’re 65 to put money into super - and if you work for 20 hours in one month of the year (say you get a job in a store as Santa before Christmas), you can do it until you’re 75, so there’s no hurry to do it before you’re 60.
There are a number of advantages to adding extra to super after 60 (and retirement). Capital gains is probably less, you know your interim money supply lasted (an emergency in the last year before you get your super won’t cause as many problems)...
Non concessional contributions are good for avoiding “death tax” (if you leave your super to a non dependent the concessional portion gets taxed), but I’m not sure of other reasons to prefer them. In your situation, you may expect to have a dependent, so a concessional contribution may reduce the overall tax.
The early retirement Australia thread is probably of some use to you - https://forum.mrmoneymustache.com/australia-tax-discussion/early-retirement-australia/
Thank you Deborah!
Post by: marty998 on January 29, 2019, 01:28:02 PM
Hey all, been looking at some things and wonder if my thinking makes sense. Say you’re 50 and you FIRE with $600k in your non retirement investment account. Your strategy is to live off that money and any cash until you’re 60 and can access your Super. You also want to get some of you’re money into your Super so you can take tax free at 60. But, would you also want to contribute $25k from your post tax investment as a concessional contribution to your Super for the tax deduction each year until 60 or even 65?
I’m thinking that might make more sense than lump summing your money into super as non concessional. Thoughts? @deborah ?
There's not a lot of benefit to concessional contributions if you already have a low income (say $10,000 in work income, and $24,000 in dividends on a $600k portfolio). Franking credits will wipe out most of your tax liability, and making a deductible contribution to reduce your taxable income below $18,200 will actually cost you money (15% tax in super vs 0% outside).
Concessional contributions work well enough once you get to the 32.5% bracket, but as @deborah mentioned, watch out for the 15% death tax on the taxable component.
Post by: MrThatsDifferent on January 29, 2019, 06:45:42 PM
Hey all, been looking at some things and wonder if my thinking makes sense. Say you’re 50 and you FIRE with $600k in your non retirement investment account. Your strategy is to live off that money and any cash until you’re 60 and can access your Super. You also want to get some of you’re money into your Super so you can take tax free at 60. But, would you also want to contribute $25k from your post tax investment as a concessional contribution to your Super for the tax deduction each year until 60 or even 65?
I’m thinking that might make more sense than lump summing your money into super as non concessional. Thoughts? @deborah ?
There's not a lot of benefit to concessional contributions if you already have a low income (say $10,000 in work income, and $24,000 in dividends on a $600k portfolio). Franking credits will wipe out most of your tax liability, and making a deductible contribution to reduce your taxable income below $18,200 will actually cost you money (15% tax in super vs 0% outside).
Concessional contributions work well enough once you get to the 32.5% bracket, but as @deborah mentioned, watch out for the 15% death tax on the taxable component.
Oh, so, what would you recommend? Just leave the money in taxable account or don’t go below the $18k?
Post by: itchyfeet on January 30, 2019, 09:40:46 AM
Buying VAS is to get some AUD exposure as we will be returning to AUs in the next few years and will spend most of our savings there. I have a large exposure to VWRD All world ETF, but am nervous that the AUD could go on a run at some point and quickly wipe out a chunk of my savings (as measured in AUD). Taxes on the dividend portion of returns is a cost of this.
Happy to hear of better ideas how to protect myself from any strengthening of the AUD.
Post by: deborah on January 30, 2019, 09:53:33 AM
Post by: steveo on January 30, 2019, 02:15:31 PM
No, this is the main reason everyone is advised to be a little more exposed to their own currency than its % of the world economy would dictate.
This is an interesting point. I wonder how best to do this and how big an issue it is.
A couple of topics that I'd like to hear everyone thoughts on are:-
1. How much international and how much Australian shares should we have ?
2. Do you hedge your International Share portfolio ?
3. Bonds - do you use international bonds or just Australian.
My portfolio is 50% international equities un-hedged, 30% Australian equities, 15% Australian bonds and 5% cash. It's pretty simple and I like it but at the same time I wonder if my Australian equities are too high.
Post by: mjr on January 30, 2019, 03:07:39 PM
Despite Australia being small globally, it's stable, has shown great returns and is in Australian dollars. I wouldn't be chucking in huge dollars if I wasn't Australian but that's the point.
Plenty of counter arguments, which is why I have 50% unhedged in the US. I don't see the AUD massively gaining ground.
The biggest risk to the ASX is regulatory. If Bowen manages to get abolition of franking credits through parliament, then I'll be exchanging Australian shares for US ones in a heartbeat rather than let him steal my imputed tax. I won't be the only one.
I have no bonds, they're at the bottom of the cycle and term deposits are paying about the same. I have way too much in cash (~40%) which I'll trickle into equities the as I worry less about sequence of returns risk and I get closer to super preservation age.
Post by: Andy R on January 30, 2019, 07:11:56 PM
No, this is the main reason everyone is advised to be a little more exposed to their own currency than its % of the world economy would dictate.
This is an interesting point. I wonder how best to do this and how big an issue it is.
A couple of topics that I'd like to hear everyone thoughts on are:-
1. How much international and how much Australian shares should we have ?
2. Do you hedge your International Share portfolio ?
3. Bonds - do you use international bonds or just Australian.
My portfolio is 50% international equities un-hedged, 30% Australian equities, 15% Australian bonds and 5% cash. It's pretty simple and I like it but at the same time I wonder if my Australian equities are too high.
Have a read of siamond's Investing in the World (https://finpage.blog/2017/03/18/investing-in-the-world-part-1/) series. All in global equities has upside country risk. All home country equities has downside country risk.
I split it into 3
• Home country equities
• Global equities
• Global equities currency-hedged
The first has concentration risk and downside currency risk, but hedges against upside currency risk
The second has upside currency risk, but hedges against downside currency risk and helps with diversification
The third has a cost of hedging (that goes beyond MER), but helps with upside currency risk and with diversification
So if someone wanted half of their equities in AUD, but did not want more than 25% in the highly concentrated Australian stock market, and they did not want more than 25% facing the cost of hedging, they could just go 50/25/25 in Global / VAS / VGAD.
The more I learn about investing, the more I realise portfolio construction and financial planning is more about managing risks than maximising the return. Upside currency risk, downside currency risk, SOR risk, risk of outliving your money, concentration risk, etc etc.
Post by: steveo on January 31, 2019, 01:49:50 PM
Post by: marty998 on January 31, 2019, 02:02:01 PM
The biggest risk to the ASX is regulatory. If Bowen manages to get abolition of franking credits through parliament, then I'll be exchanging Australian shares for US ones in a heartbeat rather than let him steal my imputed tax. I won't be the only one.
This is a little silly. Firstly, no one is proposing to "abolish" franking credits. Secondly, if you sell, I'll happily buy them because my marginal rate is 39%. Thirdly, you're going to have to eat CGT when you swap out.
Shoot yourself in the foot if you like. I definitely won't stop you.
My investment time horizon is 30-50 years. I'm not going to keep chopping and changing every 3 years at minor variances in tax policy by the government of the day.
Post by: mjr on January 31, 2019, 05:45:27 PM
OK, I missed "refund of excess " franking credits, but you knew what I meant.
My investment horizon is also 30-50 years, but I'm not going to stand idly by while an inept group of socialist politicians reduce my dividend income by ~20%. If I'm going to take a hit, I'll make sure that they get none of it.
Post by: deborah on January 31, 2019, 06:27:28 PM
An entirely predictable response from you Marty, not that my post was unpredictable either.Firstly, your dividend income won't take a 20% hit - where do you get that figure from? Secondly, we are one of the only countries in the world which HAS franking credits, so you won't get that extra income from anywhere else either. I agree with Marty that you appear to be shooting yourself in the foot. Or am I misunderstanding the situation?
OK, I missed "refund of excess " franking credits, but you knew what I meant.
My investment horizon is also 30-50 years, but I'm not going to stand idly by while an inept group of socialist politicians reduce my dividend income by ~20%. If I'm going to take a hit, I'll make sure that they get none of it.
Post by: middo on February 01, 2019, 01:02:21 AM
An entirely predictable response from you Marty, not that my post was unpredictable either.
OK, I missed "refund of excess " franking credits, but you knew what I meant.
My investment horizon is also 30-50 years, but I'm not going to stand idly by while an inept group of socialist politicians reduce my dividend income by ~20%. If I'm going to take a hit, I'll make sure that they get none of it.
Lol. "socialist politicians". The ALP has no idea what socialism is. Maybe look at your investments rather that your ideology when posting about investing in Australia.
Post by: marty998 on February 01, 2019, 04:53:39 PM
An entirely predictable response from you Marty, not that my post was unpredictable either.
OK, I missed "refund of excess " franking credits, but you knew what I meant.
My investment horizon is also 30-50 years, but I'm not going to stand idly by while an inept group of socialist politicians reduce my dividend income by ~20%. If I'm going to take a hit, I'll make sure that they get none of it.
Oh dear. I supposed you've been asleep the last 20 years. Both the Howard, and the Abbott/Turnbull/Morrison governments have had higher tax to GDP ratios on average than the Rudd/Gillard/Rudd Governments.
I would prefer if both sides of politics had more discipline when it comes to spending, but you are not entitled to your own facts here. The Liberals have been pretty ordinary the last 6 years.
I might also add, dismissing the essential point as "you know what I meant" is exactly the sort of misinformation being bandied about that is scaring everyone. It destroys any ability to have a rational debate about the topic.
Post by: alsoknownasDean on February 01, 2019, 05:09:48 PM
I’m actually keen on the idea of changing superannuation funds so I can have more of it in international equities, rather than the portfolios chosen by my fund.
Post by: deborah on February 01, 2019, 06:02:31 PM
Post by: mjr on February 01, 2019, 08:49:57 PM
Firstly, your dividend income won't take a 20% hit - where do you get that figure from? Secondly, we are one of the only countries in the world which HAS franking credits, so you won't get that extra income from anywhere else either. I agree with Marty that you appear to be shooting yourself in the foot. Or am I misunderstanding the situation?
From my current ratio of franking credits to dividend income from my taxable portfolio. Retirees who are heavily invested in back stocks in their SMSF, say, which are 100% franked will lose 30% of their dividend income.
As far as being one of the only countries in the world will franking credits, yep that's true. But you can't take just one aspect of the tax system. Take the US. In the US dividends are tax-advantaged, mortgages are tax deductible. You can't just say that Australia's imputation is somehow flawed. It's actually pretty bloody fair - shareholders pay their share of their income at their marginal rate.
We all know that US equities are much more slanted to capital growth than Australia's, which pay more dividends. In the the presence of a distorting policy which targets franking credit refunds on dividend income, I'd be better off with US equities and their capital growth. Under Bowen's plan, fully franked dividends are taxed at 30% from the first dollar for an SMSF in pension mode, despite the current law is for said person to not pay tax at all on their super pension. So no, this is not shooting myself on the foot.
"Oh dear. I supposed you've been asleep the last 20 years."
Charming. Thanks for getting insulting, it really helps positive discourse.
"Both the Howard, and the Abbott/Turnbull/Morrison governments have had higher tax to GDP ratios on average than the Rudd/Gillard/Rudd Governments."
Even if that's true and I don't care enough to look it up, so what ? The policy about which I am talking is a purely redistributive socialist policy - aimed at low income share holders and SMSFs. Rest assured I had a go at Morrison and his bank (bank shareholder!!) levy when that came out too. Try and keep on topic, will you ?
The ALP defines itself in its constitution as a democratic socialist party.
"I might also add, dismissing the essential point as "you know what I meant" is exactly the sort of misinformation being bandied about that is scaring everyone. It destroys any ability to have a rational debate about the topic."
You and I have had a conversation on this topic before. It was a simple omission on my part, not misinformation. You want misinformation, listen to to Bowen proclaim how all pensioners will be exempt, when that is patently not true.
Post by: steveo on February 02, 2019, 01:12:51 AM
I guess one of the issues with the Australian index is the domination of this by banks and miners, and both of those sectors have headwinds on the horizon and probably will struggle for the medium term.
I’m actually keen on the idea of changing superannuation funds so I can have more of it in international equities, rather than the portfolios chosen by my fund.
In my fund you can pick an option like this. So I don't pick a 70/30 option or whatever. I pick x percentage in international stocks and y percentage in cash etc.
Post by: deborah on February 02, 2019, 01:54:06 AM
That’s not quite correct. If you’re in indexed funds, or even if you’re not, and you have some miners, you will have some shares that aren’t fully franked. If you only have bank shares in an SMSF you’re very poorly diversified!
Firstly, your dividend income won't take a 20% hit - where do you get that figure from? Secondly, we are one of the only countries in the world which HAS franking credits, so you won't get that extra income from anywhere else either. I agree with Marty that you appear to be shooting yourself in the foot. Or am I misunderstanding the situation?
From my current ratio of franking credits to dividend income from my taxable portfolio. Retirees who are heavily invested in back stocks in their SMSF, say, which are 100% franked will lose 30% of their dividend income.
As far as being one of the only countries in the world will franking credits, yep that's true. But you can't take just one aspect of the tax system. Take the US. In the US dividends are tax-advantaged, mortgages are tax deductible. You can't just say that Australia's imputation is somehow flawed. It's actually pretty bloody fair - shareholders pay their share of their income at their marginal rate.
We all know that US equities are much more slanted to capital growth than Australia's, which pay more dividends. In the the presence of a distorting policy which targets franking credit refunds on dividend income, I'd be better off with US equities and their capital growth. Under Bowen's plan, fully franked dividends are taxed at 30% from the first dollar for an SMSF in pension mode, despite the current law is for said person to not pay tax at all on their super pension. So no, this is not shooting myself on the foot.
But, you’re right that it’s important to look at the probable total outcome. Where do you look at to find expected outcomes - given that historical data is from financial systems that are very different from those we have today?
As an example, when I went to university, it was almost impossible to get a personal loan and there were very few credit cards (you needed to be very well off to get one), so it would have been difficult to open up education to the masses without making universities free. Once credit became readily available, university education moved to being available via loans. The availability of credit has fundamentally changed our way of doing business, but there are many other changes - going off the gold standard and floating currencies, tariff reduction... As a result, I suspect that the historical data is just about useless as a prediction of future returns.
So how do you look at outcomes from a variety of countries, and where would you put your money?
Post by: steveo on February 02, 2019, 03:10:02 AM
So how do you look at outcomes from a variety of countries, and where would you put your money?
You diversify. So you want the broadest index funds available. I think historical returns are the best guide of expected future returns but we don't know what will be successful - will banks die and recreational drug companies take over from drug cartels and become huge conglomerates that earn billions for their investors.
Post by: itchyfeet on February 02, 2019, 05:45:23 AM
FX risk is an additional risk to any portfolio that has to be carefully considered.
(Of course Aussie companies are operating internationally so your investment in most Australian companies is exposed to FX risk, but you can be sure that their CFOs are managing FX risk in some way on shareholders behalf, so in general Aussie companies returns will be less exposed to FX risk than if you buy shares in a foreign company where management’s performance is evaluated in USD or EURO or whatever).
I have decided that having the majority of my investments in Australian companies, with the added benefit of imputation credits, amd removing a lot of FX risk is less risky than investing overseas.
It was only a few years ago that the AUD was worth more than $1 USD and I can remember the AUD being worth less than 0.60c USD in the not too distant past. It is a big gamble to bet the AUD will not rise or fall materially against the USD when you need to draw on your stash.. Currencies are quite volatile in the short term.
The above being said, FX risk is not the only risk we need to take care of.
The Australian economy is also a risk. For this reason it does make sense to have something invested abroad. How much? For me, the answer is less than what I have invested in Australia as FX risk is a bigger risk (in terms of volatility) than the Australian economy. The Australian economy is less volatile than the AUD. %GDP growth or fall (yes it’s been a long time) is less than what you see with currencies.
Aussie GDP is very unlikely to rise 30% in one year, particularly now the economy is more about services than agricultural production, but the AUD might (amd quite possibly multiple times during my retirement).
I do not know the statistically correct answer, but for me having 25-30% invested outside Australia is the upper limit of what I am comfortable with.
And, continuing with my risk mitigation approach, I don’t want to bet on any one region of the world out performing all others, so for it makes sense to invest my foreign investments broadly through All World index trackers. Simple as that! Not too much thought or research 😬
For full disclosure, I do have a small amount in emerging markets.... I accept this does not align with everything I have said above, so I should sell it. Today this makes up 3.5% of my Net Worth, so I consider this my small speculative stake in humanity solving the problems of poverty in the developing world and will keep it for now.
I am pretty sure that there are mathematical models to prove my assessment of risk and risk mitigation is wrong, and as I become aware of such models I’ll probably revisit my investment thinking.
Post by: bigchrisb on February 02, 2019, 12:40:19 PM
Refundable franking credits are one of the worlds most equitable* forms of taxing company profits.
(* if you believe progressive taxation is equitable).
The net effect of refundable franking credits is to tax company profits at an individual's marginal tax rate. You have a high income, you pay more tax. Have a low income? Pay less tax. Foreign investor? Aus collects company tax at the company tax rate on the business activity in Australia. How neat.
The system comes badly unstuck when a large portion of the population have a non-progressive, or indeed zero tax rate. This problem is a lot bigger than people think - according to https://www.superannuation.asn.au/resources/superannuation-statistics at the end of September super funds held $1.7T of Australian shares. The Australian total market cap was just shy of $2T. So only 15% of the total market is held outside super funds, between individual investors and international investors. I.e. the effective company tax rate that the government sees for Australia is probably under 15%, and depending on the ratio of pension to accumulation assets (which stat I can't find) is probably lower.
The fundamental problem here is that super pensions should never have been made tax free in the first place. But rather than address that head on, both parties are trying to do other things to nibble around the edges - the libs tried to implement a cap of $1.6m cap, while shorten is trying to do it with the least political pain for him (pick on SMSFs, who mostly wouldn't vote for him anyway, and avoid upsetting your funding base from unions and industry super funds).
Personally, I'm most upset about the modifications to franking, as it distorts an otherwise efficient and progressive system. It also means that you are subject to different tax outcomes based on who manages your super, which is discriminatory.
However, in practice, I've come to the conclusion that the impacts on me are going to be somewhat limited. I have income in my own name that isn't franked that can use up most of the tax free threshold (REIT and international shares, and heaven forbid, potentially some earned income). My expenses are never likely to be under the 30% tax rate either... My SMSF has more potential impact as its mostly franked dividends. While it's in accumulation, I can use my contributions to soak up the excess franking from $25k of gross dividends. Beyond that I'll need to add more international and property/REITS into the super fund, to avoid further franking credits that can't be used - i.e. I'm keeping the level of franked income in there along the lines of what will result in a zero refund. I'm currently 37 with a preservation age of 60 (at the moment), so that strategy will work longer than I expect the rules to stay constant. Should the current rules still apply come triggering pension phase, I will have to consider putting the pension account with an APRA supervised fund, or changing investments. However, as it will have 0% capital gains tax rates by then, this won't cost anything to implement.
While I hate the policy and think it is dumb, I suspect that for those in accumulation, it may actually help. I'm not currently getting franking credits refunded. If the marginal return for pension investors is lower and Aus shares are in less demand and become cheaper relative to earnings, people like me may actually be better off. Yep Mr Shorten, you are making someone with several million invested no worse off / possibly better off, while someone with a small sum invested will be worse off. Kinda opposite of what you are claiming. Nice policy...
Now, I could always dream that we might fix super once and for all... One index driven fund with 2.7T under management and 5 basis points of costs. Tax free on contributions and tax free on earnings. Full marginal tax on anything drawn from the fund at the time of drawing. Oh. Wait. There is a whole industry running super funds (looking at retail funds, industry funds and the professionals assisting smsfs here) who would need to look for a job. And the tax revenue would be in the political never-never (i.e. several elections away!). I'm glad I'm currently overseas and somewhat insulated from Australian politics, because the whole lot is entirely depressing!
Post by: Andy R on February 02, 2019, 08:39:59 PM
@deborah , the way I look at this is that the game we are all playing is one of managing risk more than one of maximising returns.
Couldn't agree more.
However,
You mentioned FX risk and that since Aussie companies sell overseas that this mitigates FX risk. So just reading what you included in your text, you are correct.
The problem is in the information you failed to include
You failed to mention that diversifying is not solely or even mainly for the act of diversifying currency. It is for diversifying companies, sectors, investments.
If you were American, by your same reasoning, you would invest in Apple and not Samsung saying that they both have the same customer base so currency risk is not different, but if Apple customers realised they are paying more for a logo and branding or if their management went downhill, and the company went out of business, someone who invested only in Apple would be fucked. This is the reason to diversify between countries. It has nothing to do with FX risk. Another reason is diversifying industry. If you had 70% of your equities in Aussie equities, you would have 1/3 of your entire equities in 10 companies. and 1/3 of your entire portfolio in 2 sectors of a single market which is 2.5% of the worlds markets. You would also be very underweight in technology.
Every Thornhill proponent mentions your argument and every single one of them without fail leaves out the blindingly obvious part that I mentioned above - that international diversification is not in itself FOR currency diversification, it is for investment diversification so this argument is not only unhelpful but it detracts attention away from the real reason for international diversification which is downright dangerous.
There is actually a very simple solution to this problem.
1. Decide your portion of Australian currency to international you want (yes you can choose this rather than letting it choose you)
2. Decide your asset allocation (bonds to equities)
3. Decide how much is the maximum concentration risk you want in your home countries equities
Lets say you want
• 70% in AUD assets
• 25% in fixed income
• max 30% in the concentrated Australian market
That comes out to
AUD based assets
• 25% AUD fixed income
• 30% VAS
• 15% VGAD
Non-AUD based assets
• 30% Global equities
You have now mitigated upside currency risk, downside currency risk, and the one you completely missed out on by following the Thornhill (non) argument, concentration risk.
For all the countries in the world, plenty of them are going to under perform the average (by definition of the word average) over any given period.
If I mention Japan, I'm sure you will say "but we're not like Japan", and when I mention Thailand, you will say the same. What about Netherlands? Not the same again? How many countries are you going to dismiss as being "not the same" ?
There is nothing stopping Australia from under performing over the next two decades, and with 70% in Australian equities you are resigning yourself to that very real possibility of decades of under performance.
Your first sentence was that your portfolio construction was based on risk mitigation and not maximising performance. Having a high percentage in the concentrated Australian market is not risk mitigation.
Post by: steveo on February 02, 2019, 10:06:43 PM
Your first sentence was that your portfolio construction was based on risk mitigation and not maximising performance. Having a high percentage in the concentrated Australian market is not risk mitigation.
I think having too much invested in the Australian market is the riskiest thing you can do. I don't view foreign currency risk as being anywhere near the level of risk compared to having all your money tied up in the Australian economy.
The best answer I've heard (from a rational perspective and not statistical proof) to home country risk is to have zero securities assets within your home economy outside it's standard weighting. So if the ASX represents 2% of the world economy that is what you have. Over time foreign currency risk is going to be negligible whereas home country security risk could be an issue (ala Japan). You mitigate foreign currency risk by having cash and bonds in your home currency.
Your cash and bonds get you through the bad periods and having a diversified stock portfolio will maximise the longevity of your portfolio.
In stating all of that I don't do this. I only have 50% of my portfolio in the total stock market. I suppose I do intend to sell down the Aussie component of my portfolio first mainly because I view it as the riskiest part of my portfolio.
Post by: Andy R on February 02, 2019, 11:38:22 PM
Your first sentence was that your portfolio construction was based on risk mitigation and not maximising performance. Having a high percentage in the concentrated Australian market is not risk mitigation.
I think having too much invested in the Australian market is the riskiest thing you can do. I don't view foreign currency risk as being anywhere near the level of risk compared to having all your money tied up in the Australian economy.
The best answer I've heard (from a rational perspective and not statistical proof) to home country risk is to have zero securities assets within your home economy outside it's standard weighting. So if the ASX represents 2% of the world economy that is what you have. Over time foreign currency risk is going to be negligible whereas home country security risk could be an issue (ala Japan). You mitigate foreign currency risk by having cash and bonds in your home currency.
Your cash and bonds get you through the bad periods and having a diversified stock portfolio will maximise the longevity of your portfolio.
Well, yea it is true that as you get older and closer to draw down, your fixed income portion will increase, which increases your home currency assets, but for an early retiree who needs a higher portion of equities, a global (unhedged) portfolio has currency risk, and even though it evens out over time, this time can be decades. The AUD was 0.50 USD in 2000 and more than doubled until 2011. That is a seriously long time, and compared to an AUD hedged version it has lost half it's value in AUD. And now almost 2 decades later is still 1.5x. Drawing down all this time in AUD is a pretty serious risk if you ask me.
If you don't want any home bias (which seems reasonable due to concentration risk), then it would be easy enough today to just go partly hedged with VGAD or IHWL. The total cost of this is around 0.3% for the hedging (only 0.03 is from the added MER, the rest is other losses associated with hedging), and then there is loss of franking credit, of which about half seems to be priced in, so about 0.6%. That total is quite expensive, but lets say you have 30% in bonds and half of your remaining in hedged, then the total cost to your portfolio isn't so much. The other alternative is to split that hedged portion into some VAS and the rest global hedged. I don't think the concentration risk is that bad for say 25 or 30% of your total equities, but if you really wanted to avoid it, then keeping it as global hedged for a modest fee seems more than reasonable.
Post by: steveo on February 03, 2019, 01:42:01 AM
The AUD was 0.50 USD in 2000 and more than doubled until 2011. That is a seriously long time, and compared to an AUD hedged version it has lost half it's value in AUD. And now almost 2 decades later is still 1.5x. Drawing down all this time in AUD is a pretty serious risk if you ask me.
This is the risk but I'm not sure that it is a risk that needs to be mitigated against. I change my opinion on this but I just read the book Investing Dymystified and the author states to use an un-hedged position with world equities for the risky part of your portfolio and home currency domiciled government bonds as your safe assets.
Things aren't as simple as stating the AUD has dropped that much. There may be real structural changes but those changes will come with other benefits. I assume that swings from trading will even out over time.
I'm not sure on this issue and honestly to me there doesn't seem to be great data to back up anyone's opinion.
I suppose my view on investing is that I can't pick anything in relation to the future so I diversify as much as possible. I need some safe assets and these consist of bonds and cash which are in AUD. I also own my house so I have a lot invested in my home country. If I also have the ASX I seem massively invested in an economy that could under perform the rest of the world over the next 50 years. I do have about 30% of my portfolio in the ASX but I'm not convinced that is a rational approach. In stating that I figure it will do pretty well over time.
Post by: Zebu12 on February 04, 2019, 10:56:07 PM
I need some input from fellow Aussies. ( or anyone for that mater!! ) . I have a rather large portfolio i’m handling and trying to get sorted.
I posted it over in the case studies area:
https://forum.mrmoneymustache.com/case-studies/help-with-a-huge-$-portfolio-(australia)/ (https://forum.mrmoneymustache.com/case-studies/help-with-a-huge-$-portfolio-(australia)/)
Welcome some feedback!! cheers
Post by: Juan Ponce de León on February 06, 2019, 12:52:18 AM
Post by: itchyfeet on February 06, 2019, 11:42:34 AM
In late 2014 I negotiated to take a job OS and agreed to get paid in USD. At the time I negotiated we agreed to an FX rate of 0.95, as the AUD had just started dropping after years near parity with the USD, and I proposed to my employer to use the average FX rate of the 3 preceding years.
I moved OS in early 2015 and the FX rate has averaged around 0.75 the past four years.
I accidentally received a 30% pay rise.
I am very happy with how things have played out and I would not want to find myself on the other side of this and be drawing down on a portfolio that suddenly dropped 30% and didn’t recover for 4 years, and shows no signs of recovering.
The AUD is notoriously volatile which is a big reason it’s a popular currency with FX traders. Meanwhile the GBP has dropped 25% or so against the Euro since 2016. Currencies move quite violently all the time, amd often unpredictably.
On the other hand in the past 20 years the Australian economy has grown pretty much by around to 2-4% every year. Consistently.
The volatility (risk) between the Australian economy and the AUD is not comparable.
I do agree that some diversity away from Australia makes 100% good sense (who knows what could befall Australia), and I am targeting 30% of my stash, but I can’t agree with the conclusion that having too much invested in Australia is the riskiest thing you can do as an Australian resident. There must be much more risky things to do with ones money 😁.
@Andy R thanks for your ideas on hedging foreign investments. I have started looking into this after your comments.
Post by: deborah on February 06, 2019, 12:32:34 PM
If you live somewhere, it makes sense to have a bias toward that currency - not all, or most. As @itchyfeet says, 30% is a lot if you’re on the wrong end of it. Keeping in home currency avoids that at the risk of the country going bad. There is the oft cited comparison with Argentina. In 1900, the two countries with the wealthiest citizens in the world were Australia and Argentina. This changed. Depending on the comparison, we’re still there, but Argentina is nowhere near where it was. We can be dismissive towards our politicians and our businesses and our response to environmental issues, and can see places where it’s possible that we’re losing ground, so that we could be this century’s Argentina. On the other hand, we may not. A century is not long when you’re talking about ER and retirements of up to 60 or 70 years.
Post by: Zebu12 on February 13, 2019, 10:50:24 PM
https://tradingeconomics.com/australia/government-bond-yield
I get how bonds pricing works. But i must be missing something here.
From my perspective:
- seems the likely hood of an interest rate increase has evaporated - and next move may be down - if not sideways (here and the US) . So wouldnt that mean there is less risk of a bond yield dropping (ie govt issuing bonds at a higher rate) - hence the bond should hold its value?
- also seems there has been a big influx of cash into bonds as the storm clouds build. So wouldn't that push demand prices up? (or does it work in reverse - more people want bonds - so govt issues more at lower rates? (But wasn't the last 10year bond issued 2.75%?
Post by: mjr on February 14, 2019, 02:19:38 AM
Looks to me like a bunch of money went into bonds as the share market took its tumble in late 2018/early 2019. As you say, this demand for bonds pushed their price up. Bond yields move in the opposite direction to bond prices and down they went.
Post by: marty998 on February 15, 2019, 12:48:15 AM
Post by: Juan Ponce de León on February 15, 2019, 01:18:18 AM
Five year chart of VAS (in yellow) against VHY (black) in share price performance terms. VHY obviously has a slightly higher yield, but damn, not enough to make up for this gap.
I wonder what happens to these 'high yield' ETFs in a GFC type scenario if dividends are being cut. Your stock tanks, it keeps spewing out its worth in dividends, it tanks some more, then a few of the big companies within it cut their dividend and are cast out of the 'high yield' index, sold cheap. Eventually the crisis is over, prices recover, dividends are reinstated and your ETF buys the companies back at a much higher price. Bought high, sold low, bought high.
Post by: Dropbear on February 22, 2019, 11:47:34 PM
Can you please help me with some perspective on salary verses work/life balance?
I'm mulling over a job offer in my professional services industry, and am currently about 7 years away from being FI.
- I'm currently on $85k and 37.5 hours a week.
- The new offer is $100k and 40 hours a week.
This extra salary is 10% expressed in like-for-like hours/week terms, or 18% in actual $ terms.
My current 37.5 hours/week might blow out by a couple of hours some weeks, but I peg it back when feasible. While looking for a new job, extending my weekly work commitment wasn't what I had in mind... I feel as like I'm currently pretty close to my effective contribution (before my work effectiveness would start to fall away due to overworking). Like any mustachian, I'm convinced of the need to stay healthy and happy while in a pre-FIRE stage of life.
Does this 2.5 hours/week make much of a difference in the whole scheme of things? Has anyone ever made this sort of comparison themselves?
Thanks in advance! I understand the yanks would consider 40h/w to be like gold, but I'm hoping for a more local perspective!
Post by: deborah on February 23, 2019, 12:22:01 AM
Post by: Little Aussie Battler on February 23, 2019, 12:44:16 AM
How much do you like your current job? Boss? Colleagues?
If all of those things were positive, and I wasn't sure about the new boss/team/culture, or sure about the certainty of the hours, I would pass.
Post by: MrThatsDifferent on February 23, 2019, 12:55:47 AM
Hi Aussies,
Can you please help me with some perspective on salary verses work/life balance?
I'm mulling over a job offer in my professional services industry, and am currently about 7 years away from being FI.
- I'm currently on $85k and 37.5 hours a week.
- The new offer is $100k and 40 hours a week.
This extra salary is 10% expressed in like-for-like hours/week terms, or 18% in actual $ terms.
My current 37.5 hours/week might blow out by a couple of hours some weeks, but I peg it back when feasible. While looking for a new job, extending my weekly work commitment wasn't what I had in mind... I feel as like I'm currently pretty close to my effective contribution (before my work effectiveness would start to fall away due to overworking). Like any mustachian, I'm convinced of the need to stay healthy and happy while in a pre-FIRE stage of life.
Does this 2.5 hours/week make much of a difference in the whole scheme of things? Has anyone ever made this sort of comparison themselves?
Thanks in advance! I understand the yanks would consider 40h/w to be like gold, but I'm hoping for a more local perspective!
Are you actually debating 2.5hrs of work for an extra $15k? That’s an extra 30 min a day. WTF? You need internet strangers to help with this? Over 7 years that would generate an extra $105k. Hell, that might even reduce your time to FIRE. Sheesh.
Post by: PDM on February 23, 2019, 01:55:35 AM
You don’t say what profession, but things like expected billable hours are more important to consider. Filling and accounting for 40 hours on a time sheet might be harder.
Post by: Juan Ponce de León on February 23, 2019, 05:10:18 AM
MOD EDIT: Don't be rude, please.
Post by: AussieMM on February 23, 2019, 10:56:56 PM
Is the 40hr pw job likely to actually only be 40hrs?
How much do you like your current job? Boss? Colleagues?
If all of those things were positive, and I wasn't sure about the new boss/team/culture, or sure about the certainty of the hours, I would pass.
I second this. I'd rather work longer in a workplace I like and that offered good work-life balance, rather than earn more but be miserable. Although that isn't necessary the two options Dropbear is dealing with.
Ultimately, if you try out the new job and it isn't suiting you, you could always find another job elsewhere.
Post by: Dropbear on February 24, 2019, 12:11:29 AM
To avoid a complicated discussion here I won't go into the finer details, but there's myriad reasons to stay or go, hence my wanting to give this question good consideration.
Cheers!
Post by: MrThatsDifferent on February 24, 2019, 12:46:02 PM
Thanks to those who've offered constructive responses, you've certainly helped add some mustachian perspectives on money and time.
To avoid a complicated discussion here I won't go into the finer details, but there's myriad reasons to stay or go, hence my wanting to give this question good consideration.
Cheers!
Sure, except you didn’t provide us with a myriad of reasons, you gave us 37.5 vs 40 hrs for an increase of $15k. With just that to go with, most people would choose the 40 hrs (cause I don’t know anyone that does 37.5 on the nose anyways). If there’s other info or mitigating factors, share them for more nuanced advice, otherwise it seems like a no-brainer.
Post by: chasingthegoodlife on March 01, 2019, 05:04:53 PM
FWIW I work a 40 hour week to accrue an RDO each month, and I don’t find the extra hours too onerous.
Seconding other posters that expectations for unpaid overtime and flexibility of hours are probably more important than your ‘official’ hours.
Also worth keeping in mind that 15k isn’t 15k after tax either.
Post by: Dropbear on March 01, 2019, 06:09:09 PM
I didn't want to go into the whole set of considerations of the old job verses the new job because this is an investing thread after all... Anyway, thanks lots!
Post by: MrThatsDifferent on March 01, 2019, 11:36:40 PM
I've taken the new offer! It'll make my walk to work a bit longer, but that's my own time, and I'll make the most of it... or otherwise shorten it by jumping on a bike. The new place is quite flexible by the sound of it, so I'll plan around a work / life balance.
I didn't want to go into the whole set of considerations of the old job verses the new job because this is an investing thread after all... Anyway, thanks lots!
Congrats!
Post by: givemesunshine on March 02, 2019, 08:02:42 PM
I am considering investing my Emergency Fund (6 months expenses) and using my accrued Long Service Leave as my EF. As far as I can tell unless I was fired for serious misconduct I am guaranteed my LSL payout (currently ~18 weeks, which is >100% of my EF value).
I'm trying to consider all the 'worst case scenarios' that could occur. Job loss is one, although very unlikely, I am a good employee who has worked in my company for over 11 years and they struggle to get rid of the poor performing employees. A health emergency is another possibility but I think my workplace, sick leave and income protection would cover most eventualities. I get enough Rec Leave per year to not touch my LSL so my plan is to leave it until I retire to either use for a long holiday on half pay or as a payout.
Other securities in case of emergencies include;
- HISA account for immediate access (~$5K) in case of washing machine/fridge explosion (although I could likely cash flow this over a pay cycle)
- HISA with my accruing investment money (I invest when I have ~$10K, 3-5 times per year)
- Credit Cards (zero balance, $28K limits) if I need access to spending above the available $5K whilst I liquidate some investments
- 50+ days Sick Leave
- Income Protection (75% of wage after 14 days + sick leave used up) - no issues living on this amount, I'd have money left over
- TPD insurance
- ability to reduce expenses to bare minimum and willingness to work in any job to keep earning
- family that could help financially in extreme cases
I have had 'til now another HISA with 6 months expenses ($20K) sitting earning under 3% - I am considering investing this cash into the market.
Would appreciate any opinions on other things I haven't considered or encouragement to invest it!
Much appreciated.
Post by: deborah on March 02, 2019, 09:46:44 PM
Firstly, a number of employers go down the gurgler owing employees LSL, annual leave and superannuation. So, if you’re planning to use your emergency fund on loss of employment, you’d be out of luck. There are provisions where the government picks up the tab, but it takes time.
Secondly, you seem to be assuming that you can cash out your LSL while you’re still working. Or are you only planning to use your emergency fund for when you can’t? There are plenty of situations where you will need an emergency fund and may still be working. What if your house burnt to the ground? You might not own it, but it takes a lot to replace your possessions and find somewhere new to live... Insurance only gives you so much, and you need to get your life back immediately. Certainly credit cards... are quite good at giving you a reasonable amount, but would that be enough in a timely manner?
So many people have not got income protection/TPD when problems occurred that I don’t trust that type of insurance at all.
I’ve had several emergencies in my life. Fire consuming every single possession except the clothes I was actually wearing; accident writing off my car and giving me whiplash for three years, causing a lot of time off work (and I fell through the cracks in insurance); job loss... You are often eligible for some compensation, but you may need emergency funds to cover extra, and to cover immediate requirements. I don’t think LSL would have worked in any of the emergencies I have faced.
Post by: MrThatsDifferent on March 02, 2019, 10:17:43 PM
Post by: givemesunshine on March 03, 2019, 01:04:00 AM
A HISA would work similarly to a mortgage offset account, but why do you have one if it isn’t your emergency fund?
Firstly, a number of employers go down the gurgler owing employees LSL, annual leave and superannuation. So, if you’re planning to use your emergency fund on loss of employment, you’d be out of luck. There are provisions where the government picks up the tab, but it takes time.
I appreciate those points but I work for a State Government department so I'm not particularly worried about not getting my entitlements. I should have explained my situation better - apologies. I would (I think) only need my EF if I left my current job, in which case I could use my LSL as it would be paid out in a pay cycle or two.
I have contents insurance in case of fire/flood/destruction of possessions, which I appreciate I may have to wait for but think I could cover paying a new rental bond and the basics (bed, fridge, clothes) with my small EF ($5K - which I'll keep) and credit cards in the meantime (and even cash flow from salary). My TPD and Income Protection are through my Super and I have seen them pay out in a timely manner to a colleague who had a medical condition.
I fully appreciate that unexpected things can happen and I'm fairly conservative in general but I'm starting to sway towards investing my 6 month EF and worst case scenario I have to liquidate some ETFs should the worst happen.
But I see where you going with this and agree that your money is probably better off earning more money invested than a HISA.
This is what I'm thinking.
Thanks both for your responses.
Post by: AussieMM on March 03, 2019, 01:37:33 AM
Post by: bigchrisb on March 03, 2019, 11:53:38 AM
Many thanks for your responses. To clarify, I don't have a mortgage (so no offset) and my current EF is in a HISA (UBank). Also, single, healthy, employable - conscious that those things can change!
You have safety net after safety net. What situation do you see where your other safety nets won't work? Getting sued, perm disability while waiting for insurance to kick in and developing a drug/gambling habit are the ones that come to my mind. Will $20k make the difference for these? I doubt it. So I don't see much reason for you holding it in cash - I'd invest it.
For the record, I haven't had an EF as such. Since starting investing seriously I've had some form of debt (margin loan or house mortgage), and have had available credit from those. Holding cash while also holding debt made no sense to me.
Post by: happy on March 03, 2019, 01:41:24 PM
If you invest in shares, you can always sell them if need be fairly quickly.
Post by: MrThatsDifferent on March 03, 2019, 02:09:59 PM
Post by: Bloop Bloop on March 04, 2019, 08:43:17 PM
People's wages are flatlining and a lot of people are confined to renting, so hopefully rental yields remain strong and steady. Though my worry is that the government will keep making it harder for property investors to do their thing, by punishing investment.
Post by: givemesunshine on March 05, 2019, 07:37:41 PM
Appreciate all the points of view, as ever very glad this forum exists and that so many thoughtful people contribute.
Cheers!
Post by: Dropbear on March 06, 2019, 04:54:25 AM
Post by: Andy R on March 06, 2019, 05:31:56 AM
From 10 years ago until now, it has tripped when including dividends (http://"https://au.investing.com/indices/s-p-asx-200-accumulated"). 11% CAGR.
We are basically right at the peak from just before the bear market at the end of last year too.
Post by: Dropbear on March 06, 2019, 06:02:56 AM
"In response to the figures, the Australian dollar fell to a two-month low, from US70.88c to US70.34c."
"The falling currency and the prospect of cheaper borrowing was a boon for the ASX200, however, with the index rising 46.3 points, or 0.75%, to 6,245.6 points."
https://www.theguardian.com/business/2019/mar/06/election-blow-for-coalition-as-australian-falls-into-per-capita-recession (https://www.theguardian.com/business/2019/mar/06/election-blow-for-coalition-as-australian-falls-into-per-capita-recession)
Post by: Bloop Bloop on March 06, 2019, 01:37:47 PM
I don't even care about the wider economy; as long as it's stable and not growing or shrinking particularly fast, it doesn't matter one bit.
A lack of economic confidence also means that it's cheaper to invest in assets because you don't pay a surcharge like you would in a bull market. We shouldn't fear bad sentiment.
Aussies are a bit soft anyway, always looking for magical growth and handouts.
Post by: mjr on March 07, 2019, 12:34:27 AM
They bought the tag-line of "no recession" with a bucket-load of debt and recurring spending.
A recession avoided by government largesse isn't anything to be proud of. Government spending doesn't enhance productivity.
Post by: Fresh Bread on March 07, 2019, 01:19:42 AM
Some states went into recession in 2008. The only reason the country as a whole didn't meet the technical criterion for a recession is that the government of the time spent like drunken sailors to avoid it.
They bought the tag-line of "no recession" with a bucket-load of debt and recurring spending.
A recession avoided by government largesse isn't anything to be proud of. Government spending doesn't enhance productivity.
Would you rather have had the recession? Sounds a bit cold.
Post by: marty998 on March 07, 2019, 01:59:11 AM
Some states went into recession in 2008. The only reason the country as a whole didn't meet the technical criterion for a recession is that the government of the time spent like drunken sailors to avoid it.
They bought the tag-line of "no recession" with a bucket-load of debt and recurring spending.
A recession avoided by government largesse isn't anything to be proud of. Government spending doesn't enhance productivity.
Would you rather have had the recession? Sounds a bit cold.
I'm interested to know if mjr has a better economic theory up his sleeve than a Keynesian view of the world.
On a spending to GDP ratio, the last few years of the Howard Government still outspent Rudd too. Abbott, Turnbull and Morrison are all still above Rudd and Gillard era level spending too. It was tax receipts that collapsed in 2008-2012, which is just as bad a problem if there is no plan to deal with a structural change.
Both sides have trouble with the pursestrings, it's not right to only call out the side you don't like.
Post by: middo on March 07, 2019, 04:13:06 PM
Some states went into recession in 2008. The only reason the country as a whole didn't meet the technical criterion for a recession is that the government of the time spent like drunken sailors to avoid it.
They bought the tag-line of "no recession" with a bucket-load of debt and recurring spending.
A recession avoided by government largesse isn't anything to be proud of. Government spending doesn't enhance productivity.
Would you rather have had the recession? Sounds a bit cold.
I'm interested to know if mjr has a better economic theory up his sleeve than a Keynesian view of the world.
On a spending to GDP ratio, the last few years of the Howard Government still outspent Rudd too. Abbott, Turnbull and Morrison are all still above Rudd and Gillard era level spending too. It was tax receipts that collapsed in 2008-2012, which is just as bad a problem if there is no plan to deal with a structural change.
Both sides have trouble with the pursestrings, it's not right to only call out the side you don't like.
And it can easily be argued that at least one side has a plan to change some of the current tax lurks that are costing the Australian People, for that is what our government represents, billions and billions. We as Australians benefit from a healthy economy that then provides us with services such as hospitals, education and transport infrastructure. But to provide that the revenue needs to come from somewhere. Howard gave away much at a time when there were opportunities to make Australia really safe from an international crisis like the GFC. If Howard and Costello saved the boom rather than gave it away, we wouldn't be talking about deficits, but about the wise use of our nest egg.
However, from a partisan liberal viewpoint, that will make no sense at all.
Post by: Bloop Bloop on March 08, 2019, 03:06:39 PM
Some states went into recession in 2008. The only reason the country as a whole didn't meet the technical criterion for a recession is that the government of the time spent like drunken sailors to avoid it.
They bought the tag-line of "no recession" with a bucket-load of debt and recurring spending.
A recession avoided by government largesse isn't anything to be proud of. Government spending doesn't enhance productivity.
Would you rather have had the recession? Sounds a bit cold.
I would rather have a recession and let the cards fall where they may.
I would always back my own ability and earning power whatever the circumstances, so long as the rule of law held.
Recessions are generally good for those with stable jobs and income, anyway. Lower inflation, lower interest rates, more investment opportunities, etc
A bull economy where everything's going up doesn't really give you many good opportunities other than just floating with the rising tide
Post by: deborah on March 08, 2019, 03:40:35 PM
Post by: Bloop Bloop on March 08, 2019, 03:48:57 PM
But I don't think that is a valid reason to critique my view.
At the end of the day, market uncertainty/downturn is a good thing. It creates opportunities for investment.
Post by: Fresh Bread on March 08, 2019, 04:08:56 PM
Nope. I'm still in my early 30s.
But I don't think that is a valid reason to critique my view.
At the end of the day, market uncertainty/downturn is a good thing. It creates opportunities for investment.
When I said mjr sounded cold I was referring to the impact on other people. I couldn't give a stuff if there is a recession for myself for the same reasons you gave, but... what about caring for others who aren't as well off/ in stable jobs??
Recessions are pretty shitty. Shops lie empty, get vandalised, services are cut, so it does affect you even if you keep your job.
Post by: Bloop Bloop on March 08, 2019, 04:13:42 PM
Post by: marty998 on March 08, 2019, 04:14:24 PM
Nope. I'm still in my early 30s.
But I don't think that is a valid reason to critique my view.
At the end of the day, market uncertainty/downturn is a good thing. It creates opportunities for investment.
When I said mjr sounded cold I was referring to the impact on other people. I couldn't give a stuff if there is a recession for myself for the same reasons you gave, but... what about caring for others who aren't as well off/ in stable jobs??
Recessions are pretty shitty. Shops lie empty, get vandalised, services are cut, so it does affect you even if you keep your job.
Yeah I'd rather not have to live in a society with an increased crime rate, homelessness, a surge in mental health problems and children going hungry.
I am surprised at the callousness being displayed here. Downturns are not a good thing.
Post by: Fresh Bread on March 08, 2019, 04:35:25 PM
Nope. I'm still in my early 30s.
But I don't think that is a valid reason to critique my view.
At the end of the day, market uncertainty/downturn is a good thing. It creates opportunities for investment.
When I said mjr sounded cold I was referring to the impact on other people. I couldn't give a stuff if there is a recession for myself for the same reasons you gave, but... what about caring for others who aren't as well off/ in stable jobs??
Recessions are pretty shitty. Shops lie empty, get vandalised, services are cut, so it does affect you even if you keep your job.
Yeah I'd rather not have to live in a society with an increased crime rate, homelessness, a surge in mental health problems and children going hungry.
I am surprised at the callousness being displayed here. Downturns are not a good thing.
Also a recession is a different beast to a downturn. It means actual noticeable cuts to services that were already a bit thin. e.g. the disadvantaged kid that was getting support loses their case worker and ends up dropping out of school, but there aren't any jobs, so you can imagine any number of scenarios with negative subsequent knock on effects for the wider economy. If things like generations of families on the dole annoy you, it only gets worse in a recession.
I was so lucky with timing in that I was old enough to be aware of the UK early 90s recession and see other families have to sell up their houses and stuff, but my mum was a teacher and my dad went onto a 3 day week at his engineering firm and we were fine. It literally was all over as I finished uni. My sister finished earlier tho and couldn't get a job and it really knocked her confidence.
Post by: Bloop Bloop on March 09, 2019, 06:04:54 PM
Post by: itchyfeet on March 09, 2019, 11:23:10 PM
Post by: Bloop Bloop on March 09, 2019, 11:25:45 PM
Post by: marty998 on March 11, 2019, 08:18:40 PM
General practice from WBC, ANZ, NAB and Macquarie has been to pay their half year dividend in July, as a sweetner to shareholders who would not have to declare that dividend in their tax returns until the following financial year.
I'm betting that with the changes to franking credits as proposed by Labor, Westpac are being kind to their elderly cohort of shareholders by giving them three dividends this year.
Not a bad PR strategy. May also help result in a supersized June quarter ETF dividend.
Post by: mjr on March 14, 2019, 02:42:33 PM
Post by: mjr on March 14, 2019, 02:51:58 PM
I'm interested to know if mjr has a better economic theory up his sleeve than a Keynesian view of the world.
On a spending to GDP ratio, the last few years of the Howard Government still outspent Rudd too. Abbott, Turnbull and Morrison are all still above Rudd and Gillard era level spending too. It was tax receipts that collapsed in 2008-2012, which is just as bad a problem if there is no plan to deal with a structural change.
Both sides have trouble with the pursestrings, it's not right to only call out the side you don't like.
I don't know what numbers you're looking at. The first google search I did came back with this: https://tradingeconomics.com/australia/government-spending-to-gdp
It's also irrelevant. I agree that both parties are profligate spenders and as I have said many time before I in no way say that the Coalition does everything to my satisfaction. They don't. But this discussion was about the technical recession and it was the ALP in power at the time. That's why I said the government of the day instead of calling them out because I wasn't interested in turning it overtly political.
News flash. It is also my opinion that Keynesian economics is crap.
Post by: marty998 on March 15, 2019, 01:08:28 AM
I'm interested to know if mjr has a better economic theory up his sleeve than a Keynesian view of the world.
On a spending to GDP ratio, the last few years of the Howard Government still outspent Rudd too. Abbott, Turnbull and Morrison are all still above Rudd and Gillard era level spending too. It was tax receipts that collapsed in 2008-2012, which is just as bad a problem if there is no plan to deal with a structural change.
Both sides have trouble with the pursestrings, it's not right to only call out the side you don't like.
I don't know what numbers you're looking at. The first google search I did came back with this: https://tradingeconomics.com/australia/government-spending-to-gdp
It's also irrelevant. I agree that both parties are profligate spenders and as I have said many time before I in no way say that the Coalition does everything to my satisfaction. They don't. But this discussion was about the technical recession and it was the ALP in power at the time. That's why I said the government of the day instead of calling them out because I wasn't interested in turning it overtly political.
News flash. It is also my opinion that Keynesian economics is crap.
Your graph is including State Government taxes and spending. Fed Government spending to GDP ratio hovers between 23-26% of GDP if I recall correctly.
Post by: BRAFRA on March 16, 2019, 12:39:49 AM
Why do you want to reinvest dividends? It is the easiest way I can think of to get yourself in a muddle. You have to declare the dividends as income anyway. You have to keep tabs on exactly how many you bought at every dividend and when you sell each individual parcel. If you have more than one investment, dividend reinvestment will skew your portfolio.Where I come from, the reinvested dividends can stay in the "product" and become part of the CGT when you sell the "product".
For example, VGS reinvests the net dividends.
Surely you will take your gap year from January to December or something, so that you have two years at a very low marginal tax rate. If you continue to pay super during this time, you can virtually set your own marginal rate. Any capital gains on shares you sell during those two years will be taxed at almost nothing.9 months later, I realise there is no accumulating ETFs in Australia, hence the confusion...
With the accumulating ETFs, the dividends don't end up in your pocket during the distribution time and get directly reinvested. The difference with a DRP is that you don't get extra units, but the unit price increases by the value of the dividend. As a result, you only pay the income tax when you sell (CGT). It is great for tax optimisation if you have FYs with low income and/or keep the ETFs until you retire as the taxman will - hopefully - never get his share of your dividends.
Post by: marty998 on March 17, 2019, 02:08:33 PM
Why do you want to reinvest dividends? It is the easiest way I can think of to get yourself in a muddle. You have to declare the dividends as income anyway. You have to keep tabs on exactly how many you bought at every dividend and when you sell each individual parcel. If you have more than one investment, dividend reinvestment will skew your portfolio.Where I come from, the reinvested dividends can stay in the "product" and become part of the CGT when you sell the "product".
For example, VGS reinvests the net dividends.Surely you will take your gap year from January to December or something, so that you have two years at a very low marginal tax rate. If you continue to pay super during this time, you can virtually set your own marginal rate. Any capital gains on shares you sell during those two years will be taxed at almost nothing.9 months later, I realise there is no accumulating ETFs in Australia, hence the confusion...
With the accumulating ETFs, the dividends don't end up in your pocket during the distribution time and get directly reinvested. The difference with a DRP is that you don't get extra units, but the unit price increases by the value of the dividend. As a result, you only pay the income tax when you sell (CGT). It is great for tax optimisation if you have FYs with low income and/or keep the ETFs until you retire as the taxman will - hopefully - never get his share of your dividends.
For those who don't know why, the reason for this is that most ETF's and managed funds are structured as Trusts, which are required to distribute their income out each year, otherwise the trustee incurs top marginal rate tax.
Your standard listed investment company does not have to pay any dividends, and thus potentially you can defer your tax bill until you sell your shares. Unfortunately for those looking for this option, most LIC's do pay semi-annual dividends. You'll be hard pressed to find one that doesn't.
Post by: alsoknownasDean on March 17, 2019, 07:36:27 PM
I don't know about any of you, but this government has been going on about debt and deficits for a number of years. Surely if now they're forecasting a surplus, it would make sense to use it to help reduce those same debts? Especially as it's due in part to a revenue boost from commodity prices, which are by their very nature cyclical.
Oh wait, election in two months. Of course.
Post by: Bloop Bloop on March 17, 2019, 07:42:07 PM
https://mobile.abc.net.au/news/2019-03-18/more-income-tax-cuts-could-on-the-cards-in-budget/10904760It's not necessary to reduce the debt all at once. Some of the surplus can go towards the debt whilst some of it can be paid back to the people whose industry helped create our strong economy. The article mentions that our average income tax take has risen to the highest it's been in 14 years (since prior to the last wave of Howard's reforms). This is entirely due to 14 years of bracket creep. So we need some indexation.
I don't know about any of you, but this government has been going on about debt and deficits for a number of years. Surely if now they're forecasting a surplus, it would make sense to use it to help reduce those same debts? Especially as it's due in part to a revenue boost from commodity prices, which are by their very nature cyclical.
Oh wait, election in two months. Of course.
It would be great to have some tax cuts especially since investors haven't had much relief since John Howard's era. As long as the debt is manageable I will not lose any sleep over it.
Post by: marty998 on March 18, 2019, 03:39:48 AM
https://mobile.abc.net.au/news/2019-03-18/more-income-tax-cuts-could-on-the-cards-in-budget/10904760It's not necessary to reduce the debt all at once. Some of the surplus can go towards the debt whilst some of it can be paid back to the people whose industry helped create our strong economy. The article mentions that our average income tax take has risen to the highest it's been in 14 years (since prior to the last wave of Howard's reforms). This is entirely due to 14 years of bracket creep. So we need some indexation.
I don't know about any of you, but this government has been going on about debt and deficits for a number of years. Surely if now they're forecasting a surplus, it would make sense to use it to help reduce those same debts? Especially as it's due in part to a revenue boost from commodity prices, which are by their very nature cyclical.
Oh wait, election in two months. Of course.
It would be great to have some tax cuts especially since investors haven't had much relief since John Howard's era. As long as the debt is manageable I will not lose any sleep over it.
I'm just going to politely suggest taxes could be lower if we were not paying $20 billion in interest per year.
So yes, paying off debt is desirable, but I agree - proportion surpluses between modest tax relief and paying off debt.
Post by: Bloop Bloop on March 18, 2019, 03:54:59 AM
Post by: Juan Ponce de León on March 18, 2019, 01:39:14 PM
Post by: deborah on March 18, 2019, 02:15:31 PM
The surplus won't ever actually happen. Labor are going to be in very shortly and they are already talking about raising welfare, adding dental care to medicare etc.
It's possible, but our best economic reforms almost all happened under the Keeting and Hawke Labor governments, which set us up for surplus for many years. The last Liberal government to do so was Fraser. Unfortunately neither political party has much to recommend in this area, and Howard was a real wrecking bar with his economic reforms.
Post by: Bloop Bloop on March 18, 2019, 05:15:19 PM
The surplus won't ever actually happen. Labor are going to be in very shortly and they are already talking about raising welfare, adding dental care to medicare etc.
It's possible, but our best economic reforms almost all happened under the Keeting and Hawke Labor governments, which set us up for surplus for many years. The last Liberal government to do so was Fraser. Unfortunately neither political party has much to recommend in this area, and Howard was a real wrecking bar with his economic reforms.
Howard's economic reforms led to a lot more money in hand for most of the population due to tax cuts across the board. Imagine how hard it would be to build wealth if we were still paying 48.5% on all income above $62,000, as was the situation prior to his reforms.
His NG/CGT combo was also a huge boom for investors, though sadly I missed out since I was in primary school when it was introduced. I managed to get in a couple of investment properties towards the tail end (2011-2017 boom) but that was it. Still, Howard has been the best thing that ever happened for investors and high income earners.
Post by: middo on March 18, 2019, 06:29:44 PM
The surplus won't ever actually happen. Labor are going to be in very shortly and they are already talking about raising welfare, adding dental care to medicare etc.
It's possible, but our best economic reforms almost all happened under the Keeting and Hawke Labor governments, which set us up for surplus for many years. The last Liberal government to do so was Fraser. Unfortunately neither political party has much to recommend in this area, and Howard was a real wrecking bar with his economic reforms.
Howard's economic reforms led to a lot more money in hand for most of the population due to tax cuts across the board. Imagine how hard it would be to build wealth if we were still paying 48.5% on all income above $62,000, as was the situation prior to his reforms.
His NG/CGT combo was also a huge boom for investors, though sadly I missed out since I was in primary school when it was introduced. I managed to get in a couple of investment properties towards the tail end (2011-2017 boom) but that was it. Still, Howard has been the best thing that ever happened for investors and high income earners.
It's always interesting reading peoples "take" on liberal vs labor governments and economic reforms and management. So much of people's views are pre-determined by their "left" vs "right" mindset.
Labor voters tend to lionise how great Keating was, even though he kept wage growth down through the accord, which is worse for the salaried wage earners. They also tended to follow economic rationalist policies even when they were not necessarily in the majority of the public's interest. Privatisation of monopolies is one area here.
Liberal voters tend to lionise Howard and Costello even though they had the chance to safeguard Australia for the future with the rivers of gold that flowed into the coffers in the early 2000's. Instead they grew welfare, particularly to the middle classes that had not needed it before. Dependence on that welfare grew, and now we have, as a country, unrealistic expectations of handouts from the Government.
The reality is that there does need to be reform on the dividend imputation policy. It makes no sense to hand out tax raised for no reason. There is also a case for reform of other areas of taxation, but most of these are not being touched by either side. Why a flat 10% GST? Why on only half of the goods and services used? Why do we not properly tax multinationals? Why do we not introduce a universal basic income? These are important questions that are not being discussed.
Post by: deborah on March 18, 2019, 06:54:06 PM
No, it's well documented - for instance - https://www.economist.com/special-report/2018/10/27/clever-reforms-30-years-ago-helped-australias-growthThe surplus won't ever actually happen. Labor are going to be in very shortly and they are already talking about raising welfare, adding dental care to medicare etc.
It's possible, but our best economic reforms almost all happened under the Keeting and Hawke Labor governments, which set us up for surplus for many years. The last Liberal government to do so was Fraser. Unfortunately neither political party has much to recommend in this area, and Howard was a real wrecking bar with his economic reforms.
Howard's economic reforms led to a lot more money in hand for most of the population due to tax cuts across the board. Imagine how hard it would be to build wealth if we were still paying 48.5% on all income above $62,000, as was the situation prior to his reforms.
His NG/CGT combo was also a huge boom for investors, though sadly I missed out since I was in primary school when it was introduced. I managed to get in a couple of investment properties towards the tail end (2011-2017 boom) but that was it. Still, Howard has been the best thing that ever happened for investors and high income earners.
It's always interesting reading peoples "take" on liberal vs labor governments and economic reforms and management. So much of people's views are pre-determined by their "left" vs "right" mindset.
Labor voters tend to lionise how great Keating was, even though he kept wage growth down through the accord, which is worse for the salaried wage earners. They also tended to follow economic rationalist policies even when they were not necessarily in the majority of the public's interest. Privatisation of monopolies is one area here.
Post by: Bloop Bloop on March 18, 2019, 07:55:54 PM
Post by: bigchrisb on March 19, 2019, 05:49:43 AM
Where as suggest any change to the rate of GST in Australia and its as though you are trying to commit genocide, let alone broadening the scope of GST.
My personal view is that its this kind of political morass and inaction on any kind of economic reform that means as a country we are headed for a very hard recession. The mild correction in house prices so far, and current bickering about relative inequality will seem like a summer picnic once unemployment picks up and/or interest rates normalise. It will hurt. I'm preparing myself for it - reducing debt, increasing overseas exposure in investments. I intend to be in a position of sufficient liquidity to be able to upgrade my house should it occur.
I love Australia, its lifestyle, its nature. We have had some excellent luck, and a strong tailwind from past economic reforms. However, we have been an economic policy basket case for the last two decades. Sooner or later we will have to pay the piper.
Post by: Bloop Bloop on March 19, 2019, 06:57:44 AM
As for GST, I would be thrilled if we raised GST to a more sustainable level.
Post by: Minion on March 19, 2019, 06:11:26 PM
Being out of Australia has highlighted to me how farcical our political debates have become. I'm currently in the Netherlands. They have a low rate and high rate BTW (GST) here - 21% on most of the things we have Aus GST on, with the low rate on most of the things we have no GST on, such as fresh food. While I have been here, the low rate was raised from 6% to 9%. It barely raised a peep in the media or political debate. Life went on.
Where as suggest any change to the rate of GST in Australia and its as though you are trying to commit genocide, let alone broadening the scope of GST.
My personal view is that its this kind of political morass and inaction on any kind of economic reform that means as a country we are headed for a very hard recession. The mild correction in house prices so far, and current bickering about relative inequality will seem like a summer picnic once unemployment picks up and/or interest rates normalise. It will hurt. I'm preparing myself for it - reducing debt, increasing overseas exposure in investments. I intend to be in a position of sufficient liquidity to be able to upgrade my house should it occur.
I love Australia, its lifestyle, its nature. We have had some excellent luck, and a strong tailwind from past economic reforms. However, we have been an economic policy basket case for the last two decades. Sooner or later we will have to pay the piper.
Agree, I'm working in Berlin these days. Living in the EU certainly gives you a different perspective in these things.
Post by: deborah on March 19, 2019, 06:39:09 PM
Post by: itchyfeet on March 23, 2019, 01:00:05 AM
Post by: marty998 on March 28, 2019, 11:43:43 PM
Comes around so quickly these quarterly dividends!
Post by: pistolpete on April 03, 2019, 11:38:04 PM
Post by: Todge on April 03, 2019, 11:44:27 PM
Post by: pistolpete on April 04, 2019, 12:11:14 AM
Post by: Notch on April 04, 2019, 12:18:09 AM
I don't have to worry about setting buy prices or missing orders or working out how many units I can buy. Just BPay and done.
No need to set-up a brokerage account.
No need to set-up a computershare account to register for dividends.
Just one Vanguard log-in with everything on there.
Only downside is to make a withdrawal, you need to post or fax a signed form lol.
Post by: pistolpete on April 04, 2019, 12:28:38 AM
Post by: Juan Ponce de León on April 04, 2019, 01:54:42 AM
Post by: pistolpete on April 04, 2019, 02:16:55 AM
Just trying to sort through the riff raff, and i see many ppl have pros and cons of each method!
Post by: BattlaP on April 04, 2019, 05:55:20 PM
I use the wholesale funds - no regrets.
I don't have to worry about setting buy prices or missing orders or working out how many units I can buy. Just BPay and done.
No need to set-up a brokerage account.
No need to set-up a computershare account to register for dividends.
Just one Vanguard log-in with everything on there.
Only downside is to make a withdrawal, you need to post or fax a signed form lol.
Last time I pig-snorted at the mention of faxing the guy said shamefully that they are currently trying to ‘modernise’ the process, so that could change in the coming years.
Post by: Notch on April 04, 2019, 07:31:34 PM
Cheers notch? May i ask is it a diversified fund or individual fund? No major dramas/surprises or higher CGT at tax time or all pretty smooth sailing?
I'm using five of their wholesale funds currently. Zero issues with tax - it's all basically the same as the ETFs.
Aso, just fyi, they say the minimum buy-in is $500,000, but they will let you open a wholesale account with only $100k, spread across as many funds as you want.
Last time I pig-snorted at the mention of faxing the guy said shamefully that they are currently trying to ‘modernise’ the process, so that could change in the coming years.
Oh that will be great!
Post by: mspym on April 04, 2019, 08:39:29 PM
My partner does ETFs, I dabbled in them a little but for me there was marginal gains in terms of cost and I didn't find them interesting enough to make it worth the effort.
Post by: things happen that way on May 01, 2019, 03:55:30 AM
I'm about 3 years from FIRE having already moved to a paid of smallish house in a LCOL location. My wife stays at home already as is needed due to some special needs with a kid. We're also looking into some NDIS support given the diagnosis. As we knew she wouldn't be working I've kept our non-super investments in her name. Specifically we've got 210k in Arg, 110k in VAE and 90k in VEU. Part of the attraction of the Arg is the franking credits. Any ideas on how to better manage our Australian local market exposure going forward? I'm on about $140k base with some potential shares coming through an internal bonus scheme at work (depending on eternal good-fortune!).
Thanks!
Post by: Andy R on May 01, 2019, 05:09:13 AM
By market cap, the current breakdown is about
55% US
35% Developed ex-US (includes Australia)
10% Emerging market
Ignoring your home country allocation in ARG, you look to have
0% US
52.5% Developed ex-US
47.5% Emerging market
Was this intentional?
If so, what is your reasoning?
Post by: middo on May 01, 2019, 07:49:27 PM
Long time reader, first time poster.
I'm about 3 years from FIRE having already moved to a paid of smallish house in a LCOL location. My wife stays at home already as is needed due to some special needs with a kid. We're also looking into some NDIS support given the diagnosis. As we knew she wouldn't be working I've kept our non-super investments in her name. Specifically we've got 210k in Arg, 110k in VAE and 90k in VEU. Part of the attraction of the Arg is the franking credits. Any ideas on how to better manage our Australian local market exposure going forward? I'm on about $140k base with some potential shares coming through an internal bonus scheme at work (depending on eternal good-fortune!).
Thanks!
I'm unfortunately not someone to answer your question, but I did notice you said you lived in a LCOL location. Without being too specific, can I ask where in Australia is a LCOL location? I mean, outside of Melbourne and Sydney the housing prices are lower, but the actual cost of everything else is not a lot different across the country from my experience?
Post by: Andy R on May 01, 2019, 08:29:22 PM
I'm unfortunately not someone to answer your question, but I did notice you said you lived in a LCOL location. Without being too specific, can I ask where in Australia is a LCOL location? I mean, outside of Melbourne and Sydney the housing prices are lower, but the actual cost of everything else is not a lot different across the country from my experience?
The extra half a million dollars that is released by selling in Sydney and going to a LCOL area can buy you $15-20,000 of free money every year for the rest of your life to use on other spending.
Post by: things happen that way on May 01, 2019, 08:51:03 PM
Asset allocation evolved from some 'high' interest savings over to Argo to get better yield (without stock picking). When I discovered this site I started picking up VEU as my 'gut' told me the ARG holdings were already pretty well coupled to US performance. I started buying VAE based on advice from a relative that I needed to take on more risk....so not the most in-depth assessments undertaken! Super is about another $300k (combined) in 'high growth' funds which have a fair bit of home country bias in them too.
We have a low cost of living due to very short commutes and (for example) meals out would be $30 rather than $45 for a good main course in a good restaurant. Co-op style sharing of fruit, eggs etc also helps. Coffee from a cafe here is at $3 rather than $4.50 in Sydney/Melbs/Perth. Similar spread on beer etc.
Post by: Andy R on May 01, 2019, 09:23:53 PM
We are talking about ARGO investments, right? The Austrlaian LIC that invests almost exclusively in Australian equities?
If you wanted more risk, I'd prefer a combination of emerging and global or US small caps to increase the risk profile while still limiting the exposure to emerging and keeping it more diversified.
You should be combining your super and taxable for an overall view of your asset allocation.
Post by: things happen that way on May 02, 2019, 01:24:54 AM
My thinking (at the time) was that the Australian economy was normally coupled to the US economy. There was probably a bit of 'top is in' thinking on my behalf when considering US equities.
I do consider my super when looking at overall allocation, the heavy Australia bias in my chosen fund is is part of why I started looking overseas. As I'm only 40 I'm a bit complacent about my super as I'm expecting the funds I'll need to get a SWR to cover the FIRE - 67 gap will mean I'm working long enough for the super to look after itself. I need to redo the numbers on that as well, we're still trying to lock down a sustainable target income rate which is difficult with changing kids expenses. I know I'll be able to retire before 50 and that I can't retire now, so further precision isn't needed on that topic.
US small caps is a great idea and I'll start reading up on that, thanks.
Post by: Andy R on May 02, 2019, 02:04:24 AM
You can see the correlation in action on the MSCI site.
https://www.msci.com/end-of-day-data-search
Select Regional or Country tab above the drop downs.
The select Australia or USA or whatever.
It comes up with a box and graph.
Click on Add/Remove Indexes, and get these on there
• USA
• World ex-US
• Australia
• Emerging Markets
• Asia ex-Japan
Then change the date to something longer than the default 4 years.
You will see that
• Australia is not correlated well with USA, which is a strong reason to include it.
• Beyond the Asian crisis in the mid 90's, Australia is highly correlated to EM/Asia-ex-Japan
So at the very least you will get much better diversification with USA than with Emerging markets (VGE) or Asia-ex-Japan (VAE).
The US market is also massively diversified like nowhere else, and in a well developed country with stable political system.
I really can't find a legitimate reason not to hold US market, but lots of reasons to hold it.
Post by: things happen that way on May 06, 2019, 01:36:07 AM
I'm not convinced that I should have 50% US equities but obviously 0% is a bigger call than I had consciously made. I'm going to start re-allocating through future purchases into VTS. I'm still a bit undecided about how suited Argo is to me once I stop getting the benefit of franking dividends. Depending on that outcome, I may be reallocating that bucket too.
Post by: Tyler on May 06, 2019, 08:40:03 PM
For anyone new to the site, I recommend checking out the Portfolios (https://portfoliocharts.com/portfolios/) section and the Portfolio Matrix (https://portfoliocharts.com/portfolio/portfolio-matrix/). Just be sure to click the black country box and select the Australia setting.
Enjoy!
Post by: mrmoonymartian on May 07, 2019, 05:11:44 AM
I don't know if this is a widespread concern, but one niggle for me at least with the latest update is that countries outside the US can't specify US for the international stocks any more, but are locked into WLD. In an ideal WLD, I would be able to select from more of the investment options you have data for, in a single portfolio (eg. domestic TSM + US SCV + EM + WLD REITS +...). But I would understand completely if the response is: "I'm afraid I can't do that, Dave".
Couple of tiny display bugs:
In the portfolio matrix, the data validation list in AG31:AH32 needs to be widened.
In the my portfolio heatmap, column F doesn't display the tooltip value on mouseover. It does in other heatmaps.
Post by: Tyler on May 07, 2019, 08:22:58 AM
I don't know if this is a widespread concern, but one niggle for me at least with the latest update is that countries outside the US can't specify US for the international stocks any more, but are locked into WLD. In an ideal WLD, I would be able to select from more of the investment options you have data for, in a single portfolio (eg. domestic TSM + US SCV + EM + WLD REITS +...). But I would understand completely if the response is: "I'm afraid I can't do that, Dave".
Yeah, striking the right balance between having enough features that power users are happy but keeping the site simple enough that it appeals to a wide audience is a tricky game to play. Thanks for the feedback, as it helps me get a feel for what people like to see. The site is never static, and I'm sure I'll continue to improve things and add new features in the future.
And thanks for the bug list. I'm on it.
Post by: Daniel S on May 07, 2019, 09:42:00 PM
I don't know if this is a widespread concern, but one niggle for me at least with the latest update is that countries outside the US can't specify US for the international stocks any more, but are locked into WLD. In an ideal WLD, I would be able to select from more of the investment options you have data for, in a single portfolio (eg. domestic TSM + US SCV + EM + WLD REITS +...). But I would understand completely if the response is: "I'm afraid I can't do that, Dave".
Thanks for your hard work Tyler.
I agree that it would be great to see some US based assets added, converted back to $AUD. It looks like you've done this for SCV in Canadian portfolios. In Australia we have a reasonable variety of listed US markets ETFs available to choose from, and many people use them in their portfolios. We also have the option of buying NYSE ETFs directly through our local brokers.
Post by: lush on May 07, 2019, 09:54:33 PM
FYI -- Australian portfolio data is back at Portfolio Charts (https://portfoliocharts.com/). I have domestic stocks and bonds, lots of international options, and a few real assets like gold and REITs. And everything is converted to Australian currency and inflation. So you should be able to study any popular portfolio in Australia and also create your own.
For anyone new to the site, I recommend checking out the Portfolios (https://portfoliocharts.com/portfolios/) section and the Portfolio Matrix (https://portfoliocharts.com/portfolio/portfolio-matrix/). Just be sure to click the black country box and select the Australia setting.
Enjoy!
Hi Tyler, Great work! Just a question that I can’t seem to work out. In the Portfolio Matrix, for the chart ranking best to worst, why does ‘Total Stock Market’ sit at 1 for ‘Average Return’ metric, however across all other metrics it has 19 (red). I would have thought that all the red ratings (and I think that 19 is the worst red) would have brought the ranking much lower. Thanks
Post by: Tyler on May 07, 2019, 11:52:06 PM
I agree that it would be great to see some US based assets added, converted back to $AUD. It looks like you've done this for SCV in Canadian portfolios. In Australia we have a reasonable variety of listed US markets ETFs available to choose from, and many people use them in their portfolios. We also have the option of buying NYSE ETFs directly through our local brokers.
Good to know! Feedback like this will definitely help me improve the usefulness of the tools over time, so thanks for educating me.
Post by: Tyler on May 07, 2019, 11:55:22 PM
Hi Tyler, Great work! Just a question that I can’t seem to work out. In the Portfolio Matrix, for the chart ranking best to worst, why does ‘Total Stock Market’ sit at 1 for ‘Average Return’ metric, however across all other metrics it has 19 (red). I would have thought that all the red ratings (and I think that 19 is the worst red) would have brought the ranking much lower. Thanks
Good observation. Long story short, that's simply an indicator that average return is an extremely overrated metric. There's so much more to picking a portfolio right for you, and navigating those other perspectives is the high-level goal of the site.
Post by: lush on May 09, 2019, 12:07:02 AM
Fascinating! My conclusion based on all the metrics is that the Pinwheel Portfolio has low risk and ok returns. Thanks again for all your work.Hi Tyler, Great work! Just a question that I can’t seem to work out. In the Portfolio Matrix, for the chart ranking best to worst, why does ‘Total Stock Market’ sit at 1 for ‘Average Return’ metric, however across all other metrics it has 19 (red). I would have thought that all the red ratings (and I think that 19 is the worst red) would have brought the ranking much lower. Thanks
Good observation. Long story short, that's simply an indicator that average return is an extremely overrated metric. There's so much more to picking a portfolio right for you, and navigating those other perspectives is the high-level goal of the site.
Post by: Mattystein on May 16, 2019, 06:05:44 AM
Will try to keep this as short and sweet as possible.
Couple aged 32/28 looking to begin our MMM journey.
We have $25k ready to invest, and ongoing $1200/month to add.
I'm happy with a portfolio of 90%+ shares, will most likely be holding for 20 years+ unless I somehow can become FI earlier.
My questions are:
1) What fund/s? I will go the ETF route. Been looking at VAS, VGS, VTS. Possibly even the diversified VDHG. I would prefer simplicity so keen for a 2 or 3 fund portfolio at most.
2) What's an ideal mix of Aus vs. International shares?
3) What broker? I want cheap and effective. Must be some favourites on here.
4) How often should I invest? With $1200/month what is a good interval to minimise brokerage fees?
5) How big of a concern are unhedged funds like VTS long term?
Hopefully not too much of a bombardment of questions. These are just my last details before I'm ready to get started.
Cheers.
Post by: Andy R on May 16, 2019, 10:54:43 AM
VDHG or VGS/VAS combo (optionally VGE with the latter)
First is simpler and stops you from tinkering (ie screwing it up), second is slightly cheaper and more tax efficient in draw down phase.
VTS/VEU combo would replace the VGS/VGE combo (weird to mix and match from the former with the latter) - they are cheaper but they are US domiciled so most avoid them and stick with VGS/VGE.
https://www.bogleheads.org/wiki/Non-US_investor%27s_guide_to_navigating_US_tax_traps
https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
https://www.bogleheads.org/wiki/Nonresident_alien%27s_ETF_domicile_decision_table
There is no "ideal" ratio of Aus vs Int.
More Aus means more franking credits no currency risk but more concentration risk.
More International means less franking credits, more currency risk, but more diversification.
With such a small amount of money relative to what your retirement goal would be, you could keep it simple at 50/50, but as it grows hopefully you come to realise that 50% in the highly concentrated Australian market is a lot of idiosyncratic country risk. I think 20-30% seems more reasonable. VDHG Vanguard thinks 40% (which is what the diversified funds have), but each to their own.
This link (https://www.reddit.com/r/AusFinance/comments/9bs9fl/how_often_should_i_dollar_cost_average_to/) should help with how often to buy.
With 1.2k/month, I would guess every 3 months is about right.
Unhedged is a comment on currency risk.
Again like there is no "ideal", just different risks to trade off each other.
In general, it is less of an issue -
1. When you have property in Australia
2. Have fixed income or cash in AUD
3. Have a lot of human capital (time to earn until retirement) in AUD.
So if you are nearing retirement, renting (own no property), and have a relatively low fixed income allocation, then it is more of a concern, otherwise not much of an issue.
Hopefully deborah drops by to give you some answers to the questions you were not aware you should ask, such as order of investments, emergency fund, super, etc. Or else you can looks through past posts in this thread and probably will find some good info.
Post by: Mattystein on May 17, 2019, 05:23:37 AM
It confirmed much of what I had read.
I have also read the order of investments set out in another thread (may have been written by Deborah). I do have an emergency fund as well, not included in the $25k.
I like the idea of 2 ETFs to begin with, most likely the VGS and VAS. And I myself was leaning to a 30-40% Australia portion. So it's good to see I was on the right track.
I have been working my way through this thread also, have read about half of it I'd say. Some very helpful Australia based info in amongst it all which is hard to find elsewhere. I also really enjoyed the jlcollinsnh stock series. I'm definitely not diving in before feeling comfortable, so I was happy to see an Aussie forum thread here with some more local info.
Post by: marty998 on May 20, 2019, 03:02:00 AM
Obviously this is due to a lower risk of adverse legislation if Labor won. I fully expect the Government to ignore the Royal Commission and Ken Hayne and Rowena Orr will be recalled back in 10 years with another one.
For now I'll say sentiment is the winner. We'll wait and see if it translates to a rebirth of the property market (doubtful, but you never know).
Post by: Mattystein on May 21, 2019, 02:25:13 AM
Posted a number of days ago and have since been trying to refine my plan towards FIRE. We've got our frugality nailed down to where we are living happily. So moving forward I need to finish my investment plan. As you will see below, we aren't starting with much, but we don't need much.
General Info
Couple, aged 32/28.
Both of us with HECS debt.
Super: $26k + $7k
Savings: ~$16k (cash in Ubank savings account) + ~$9k (lent using RateSetter @ average 8.6% p.a. split over 3 and 5 year terms)
Income
Me: $60k base. Opportunity for ~$5k of overtime (which I will do), but no super guarantee on this as per agreement.
Partner: $20k permanent part-time while studying at Uni. She will be finished in another 4 years, at which point graduate starting salary will be at least $60k, but until then...
Net income (after tax/HECS): ~$69k
Expenses
Yearly: $40k (includes everything, no need to go into too much detail)
This leaves ~$29k to invest each year (~$2,400/month). It seems my earlier estimation of $1,200/month was very conservative. Then when my partner reaches full time work we will be able to up our savings considerably but this plan is just for the next 4 years to set up a great base and get the good habits formed.
Emergency Fund
We will keep $10k as an emergency fund at this stage. According to current living expenses it is only 3 months of living, but realistically it would be 4 months as we'd tighten the belt a bit. I can aim to keep a full 6 months if this is entirely necessary, or add a little bit each week.
Leaves $15k to invest now. Could split it any way though if a bigger emergency fund is definitely required.
Super
Within Super I have just switched to SunSuper.
Fees are $78/year + 0.1% of balance up to $800k + Management fees of allocation.
I have tentatively selected an allocation of:
40% 'Australian Shares - Index' (VAS equivalent) - Fees = 0.11% p.a.
30% 'International Shares - Index (unhedged)' (VGS equivalent) - Fee = 0.09% p.a.
30% 'International Shares - Index (hedged)' (VGAD equivalent) - Fee = 0.09% p.a.
So all up the fees will be $78 + 0.198% p.a. Pretty good I think.
Also possibly interested in the 'Emerging Markets Shares' (0.15% p.a.) which is possibly VGE? Not sure if this warrants a portion of my allocation. I can change my allocations easy enough so that's a plus.
Outside Super
Vanguard ETFs for me using SelfWealth as a broker ($9.50 per trade). Asset allocation starting simple as:
30% VAS (0.14% p.a.)
70% VGS (0.18% p.a.)
I may look at substituting A200 (0.07% p.a.) for VAS (realise its only tracking top 200 not 300 so slightly less diverse Aussie wise) and VTS (0.03% p.a.) for VGS (also realise VTS being US-domiciled has possible ramifications).
Breakdown
Of the $2,400/month we can invest I was thinking of putting 20% ($720) into super and 80% ($1,680) outside.
So how does this all sound? I'd be particularly interested in thoughts relating to my asset allocation, both inside and outside of super.
Honestly, I would love any and all critique/suggestions you can throw my way. All are welcome.
If I have missed anything please let me know.
I am almost about to commit to this strategy with a goal of FIRE in 15 years (aged 47). I believe this will be easily possible with my partner obtaining full-time employment. I am also happy to do part-time work in my early 'retirement' which reduces the risks further. Another final note, is that we will most likely both be inheriting a decent amount (total ~$800k) from our parents which is an extra safety-net although not factored in to my plan.
Post by: Andy R on May 21, 2019, 05:09:17 AM
I think I like it all.
29k/yr is a good amount, much better than 15k, especially for a slightly late starter (or non-early starter)
Nice to see there is a great upside potential once your partner finishes studying.
I like your allocations. I'd bring your Aussie shares in super down to 30% max, but not a huge deal.
I include Emerging market, it is a nice diversifier, but the difference will be a very tiny fraction of the result of your consistent savings and having the plan, so it's not going to be significant in the grand scheme of things if you leave it out.
Sorry I don't have anything useful. It looks great to me.
Post by: marty998 on May 21, 2019, 06:15:54 AM
Post by: Notch on May 21, 2019, 07:54:32 PM
So how does this all sound? I'd be particularly interested in thoughts relating to my asset allocation, both inside and outside of super.
My advice is that you should decide on your overall asset allocation (VAS/VGS/VGE) then hold as much of the higher yielding component (VAS) in super as possible. This is so your dividends get taxed at 15% rather than 34.5%.
Post by: Mattystein on May 21, 2019, 08:01:45 PM
Plans for a house and/or kids @Mattystein?
Kid, yes (if possible). My partner has some medical issues which make this difficult. But ideally she would love kids. Maximum of 2.
House, not at this stage. Renting suits us regarding location and lifestyle. However if it is a worthwhile purchase down the track I would look at it, but not if it affects FIRE a lot.
Post by: Mattystein on May 21, 2019, 08:03:03 PM
So how does this all sound? I'd be particularly interested in thoughts relating to my asset allocation, both inside and outside of super.
My advice is that you should decide on your overall asset allocation (VAS/VGS/VGE) then hold as much of the higher yielding component (VAS) in super as possible. This is so your dividends get taxed at 15% rather than 34.5%.
Great tip, thank you!
Edit: Just to clarify, if I choose a total allocation of 30% VAS, I should hold it all inside Super? This doesn't affect the reliability of the portfolio outside super being enough to get me from ER to preservation age?
Post by: Mattystein on May 21, 2019, 09:32:00 PM
I like your allocations. I'd bring your Aussie shares in super down to 30% max, but not a huge deal.If I include a percentage of emerging markets how does 10% sound? And drop Aussie back to 20%? International 70%?
I include Emerging market...
Post by: Notch on May 21, 2019, 10:57:28 PM
So how does this all sound? I'd be particularly interested in thoughts relating to my asset allocation, both inside and outside of super.
My advice is that you should decide on your overall asset allocation (VAS/VGS/VGE) then hold as much of the higher yielding component (VAS) in super as possible. This is so your dividends get taxed at 15% rather than 34.5%.
Great tip, thank you!
Edit: Just to clarify, if I choose a total allocation of 30% VAS, I should hold it all inside Super? This doesn't affect the reliability of the portfolio outside super being enough to get me from ER to preservation age?
Yes.
That mostly depends on how much you save and how well the market performs.
But if, for example, VAS has outperformed and you'd like to spend some of it in early retirement - just sell VGS or whatever you hold outside of super, and convert some of your VAS to VGS in super to rebalance the allocation.
Post by: Andy R on May 22, 2019, 12:04:03 AM
If I include a percentage of emerging markets how does 10% sound? And drop Aussie back to 20%? International 70%?
Looks good to me.
Post by: itchyfeet on May 26, 2019, 10:38:16 PM
Post by: Andy R on May 27, 2019, 02:51:50 AM
Without VGAD you either pay with concentration risk (too much VAS) or currency risk (too much VGS), but I'm not going to comment much on VGAD because basically everyone writes it off saying that in the long term, currency movements are a wash. When I look at the history it tells a story, but each to their own.
Also Mattystein did say that half their international shares in super are currency hedged, which is essentially VGAD, so that will lower currency risk to some degree also.
Post by: itchyfeet on May 27, 2019, 11:25:05 AM
Yeah I target 50% in AUD based assets, with 25% in VAS and 25% on VGAD. This way if the Australian economy tanks, only 25% of my current capital is exposed to a recession or market crash, but the assets are equally affected by currency movements in either direction to minimise both upside and downside currency risk.
Without VGAD you either pay with concentration risk (too much VAS) or currency risk (too much VGS), but I'm not going to comment much on VGAD because basically everyone writes it off saying that in the long term, currency movements are a wash. When I look at the history it tells a story, but each to their own.
Also Mattystein did say that half their international shares in super are currency hedged, which is essentially VGAD, so that will lower currency risk to some degree also.
Fair comment
Post by: jaysee on May 27, 2019, 04:51:54 PM
I bought the Vanguard High Growth Index Fund (https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/wholesale/portId=8134/assetCode=balanced/?overview) about a year ago, with a management fee of 0.29%.
That seemed cheap at the time, but now, looking at what some of you are paying for ETFS - around 0.1x% and $9.50 p/trade through SelfWealth, I'm starting to wonder if I should move everything over to ETFs.
Do you think 0.29% is a bit pricey and going to eat into my growth? Would you switch to lower-cost ETFs if you were in my shoes?
I guess I also have to take into account that there will be potential taxation if I switch, so I might lose a bit money in any case, but possibly I'll lose less in the long-term by switching.
I did also notice that the high growth fund includes some higher-priced funds such as the International Small Companies Index Fund, so perhaps that explains the 0.29% overall fee. So perhaps it's worth it to keep my current fund, as those slightly more expensive small-cap funds might be good for diversification and they might grow faster than the larger-cap funds.
Post by: Gremlin on May 27, 2019, 05:46:47 PM
Post by: Andy R on May 27, 2019, 07:02:00 PM
I normally consider costs based on a portfolio of 1M, so in that regard the 2bps of the ETF vs managed fund is $200/yr.
If there was some sort of benefit, I would consider that a fair price, but for the long term investor with multiple decades ahead and low one-off brokerage cost, the benefit of more frequent transactions doesn't seem to have almost any value.
The other option is a DIY version. If you leave out bonds (most appear to prefer to do their bonds themselves), it would be basically
VAS 40%
VGS 33%
VGAD 15%
VGE 6%
VISM 6%
This will have an MER of around 0.20, and for a $1M portfolio, that is 2k every year vs 3k every year. Not insignificant IMO.
The upsides
• More tax efficient in drawdown as you sell only the winners
• Cheaper (1k every year is nothing to scoff at!)
• You can adjust the weights. I would make VAS 20-30% Max and adjust VGAD based on my total assets (property, bonds, shares) such that total AUD ratio meets my target of 50-75%
The downsides
• You can adjust the weights. You may respond to market noise and end up selling based on information that turns out to be rubbish as most of it is, whereas having an all-in-one, you can't screw it up, and screwing it up is the most costly part of investing, showing a long term loss of much more money than the 0.7% MER that you will save over VDHG.
• Have to rebalance yourself (not a big deal)
If you do split it up
• There is a lot of ambiguous research showing whether small caps out performs on a risk adjusted basis, plus it has a higher correlation with the rest of the market anyway, so I think it's reasonable to fold VISM and VGE into a single 10% VGE slice, giving you a fairly simple 4 fund portfolio.
Beware the downside I mentioned, nobody thinks they will mess it up and change allocations based on everyone saying the Australian market is good or bad, or that they will stop rebalancing into the laggard, but it is human nature to do so. For many, this alone will make it better to go with the all-in-one even at the slightly higher fee.
Post by: lush on May 27, 2019, 08:42:12 PM
I currently have savings in Ubank that has been increasing over the last 2-3 years and is my emergency fund. Currently it receives 1.81% interest rate. I have just discovered AMP is offering a 3% pa honeymoon rate for 4 months and a happily ever after 2.1% pa ongoing variable rate after that. I am debating whether to move my savings over to AMP or if I should stick with Ubank because my money has been compounding there over the last few years.
Post by: mspym on May 27, 2019, 09:34:08 PM
Ok I am going to ask something here that I should be able to answer, but I haven’t been able to work out.If you have a linked ubank transactional account and it has $200 a month put in there, then you get another 1.06% interest so that's 2.87%
I currently have savings in Ubank that has been increasing over the last 2-3 years and is my emergency fund. Currently it receives 1.81% interest rate. I have just discovered AMP is offering a 3% pa honeymoon rate for 4 months and a happily ever after 2.1% pa ongoing variable rate after that. I am debating whether to move my savings over to AMP or if I should stick with Ubank because my money has been compounding there over the last few years.
Post by: lush on May 27, 2019, 09:55:56 PM
Ok I am going to ask something here that I should be able to answer, but I haven’t been able to work out.If you have a linked ubank transactional account and it has $200 a month put in there, then you get another 1.06% interest so that's 2.87%
I currently have savings in Ubank that has been increasing over the last 2-3 years and is my emergency fund. Currently it receives 1.81% interest rate. I have just discovered AMP is offering a 3% pa honeymoon rate for 4 months and a happily ever after 2.1% pa ongoing variable rate after that. I am debating whether to move my savings over to AMP or if I should stick with Ubank because my money has been compounding there over the last few years.
Unfortunately once you hit $200k (it counts all your ubank accounts) it drops to 1.8% regardless of the monthly contribution amount.
Post by: Juan Ponce de León on May 28, 2019, 03:33:56 AM
Ok I am going to ask something here that I should be able to answer, but I haven’t been able to work out.If you have a linked ubank transactional account and it has $200 a month put in there, then you get another 1.06% interest so that's 2.87%
I currently have savings in Ubank that has been increasing over the last 2-3 years and is my emergency fund. Currently it receives 1.81% interest rate. I have just discovered AMP is offering a 3% pa honeymoon rate for 4 months and a happily ever after 2.1% pa ongoing variable rate after that. I am debating whether to move my savings over to AMP or if I should stick with Ubank because my money has been compounding there over the last few years.
Unfortunately once you hit $200k (it counts all your ubank accounts) it drops to 1.8% regardless of the monthly contribution amount.
Wouldn't you just move it over to AMP for the hunnybunny rate and then move less than 200K back. Put rest of it somewhere else. If your interest rate drops once you're over 200k, easy just don't go over 200k at that bank.
Post by: mspym on May 28, 2019, 04:22:03 AM
But yeah, at that amount switch over to AMP for the intro offer and then at some point move <200k back if you feel like it
Post by: lush on May 28, 2019, 04:22:29 PM
All good advice about moving the funds over / but my question was in relation to compounding interest, my hesitation for moving the savings is because I thought there might be a “loss” of some sort due to how long the funds have been in the savings account - the compounding calculation factor….or I might be just dead wrong.
Post by: mspym on May 28, 2019, 05:51:00 PM
The savings of over 200k is for emergency funds / required house renovations. I am on the conservative side.For most banks it's [Principal*InterestRate]/365, calculated daily and paid at the end of the month. I can't remember if any do daily accrual. That's often for TDs only but worth checking with your bank. Regardless, change over at the start of the new month and you will have been paid out all interest for that month.
All good advice about moving the funds over / but my question was in relation to compounding interest, my hesitation for moving the savings is because I thought there might be a “loss” of some sort due to how long the funds have been in the savings account - the compounding calculation factor….or I might be just dead wrong.
Post by: lush on May 28, 2019, 09:25:06 PM
The savings of over 200k is for emergency funds / required house renovations. I am on the conservative side.For most banks it's [Principal*InterestRate]/365, calculated daily and paid at the end of the month. I can't remember if any do daily accrual. That's often for TDs only but worth checking with your bank. Regardless, change over at the start of the new month and you will have been paid out all interest for that month.
All good advice about moving the funds over / but my question was in relation to compounding interest, my hesitation for moving the savings is because I thought there might be a “loss” of some sort due to how long the funds have been in the savings account - the compounding calculation factor….or I might be just dead wrong.
Thanks - that's what I was trying to work out. I will move money over the coming week, so will miss the exact start of the month by about a week, but I think that still works out better mathematically then leaving it where it is.
Post by: Juan Ponce de León on May 29, 2019, 02:33:10 AM
The savings of over 200k is for emergency funds / required house renovations. I am on the conservative side.
All good advice about moving the funds over / but my question was in relation to compounding interest, my hesitation for moving the savings is because I thought there might be a “loss” of some sort due to how long the funds have been in the savings account - the compounding calculation factor….or I might be just dead wrong.
Yep dead wrong mate. You're earning interest daily when it's in the bank and you stop when you take it out of the bank. Just keep under 200k in there and the rest elsewhere.
Post by: lush on June 04, 2019, 09:16:26 PM
The savings of over 200k is for emergency funds / required house renovations. I am on the conservative side.
All good advice about moving the funds over / but my question was in relation to compounding interest, my hesitation for moving the savings is because I thought there might be a “loss” of some sort due to how long the funds have been in the savings account - the compounding calculation factor….or I might be just dead wrong.
Yep dead wrong mate. You're earning interest daily when it's in the bank and you stop when you take it out of the bank. Just keep under 200k in there and the rest elsewhere.
thanks all - have sorted it out and moved the funds :)
Post by: Evasion on June 20, 2019, 06:09:57 PM
Interested in your thoughts!
Post by: Alchemisst on June 22, 2019, 01:50:07 PM
Post by: mjr on June 22, 2019, 04:44:34 PM
You can claim foreign tax credits, but once you hit $1000 in foreign tax credits other restrictions may kick, depending on how much Australian income you have.
If you cark it, your executor may have some fun trying to get the shares transferred, Medallion Signature Guarantees are a hassle and I still can't work out whether or not it'd be needed.
But yes, the W-8 form is really the only extra form you need.
Despite this, I have many hundreds of thousands in VTS and over the last couple of years, hasn't it paid off handsomely.... I'm happy to get my international exposure that way.
Post by: BRAFRA on June 22, 2019, 07:28:54 PM
You can claim foreign tax credits, but once you hit $1000 in foreign tax credits other restrictions may kick, depending on how much Australian income you have.To calculate the tax credits for VTS, do you use the Non-resident withholding tax and the Currency Conversion Rate of each dividend statements? Anything else?
Edit: And declare the gross amount of the dividends?
Post by: mjr on June 22, 2019, 07:35:25 PM
The tax is 15% if the W-8BEN form has been lodged. The currency exchange rate to be used is supplied on the dividend statement, as is the tax.
Post by: Andy R on June 22, 2019, 08:04:52 PM
I like Jim Collins' 2 fund strategy and would like to try to replicate this, unfortunately it's a bit difficult in Australia with currency risk etc, I have held off buying VTS for the currency risk, however I don't really want to pay higher fees for hedges either... Is it better to just accept the currency risk if you are long term and stick with VTS/ VGS? Is the only issue with the non Australian domiciled funds the W8 form?
To help with currency risk, it takes 1 more fund - VGAD which is the AUD hedged version of VGS.
So it would become a 3 fund portfolio
Bonds
VGS
VGAD
Optional modifications
1. If you wanted some franking credits (even though they are mostly priced in (https://www.vanguardinvestments.com.au/adviser/adv/articles/insights/research-commentary/asset-allocation/The-role-of-Australian-equities-and-the-impact-of-home-country-equity-bias.jsp?lang=en)), you could switch out some VGAD for VAS, but it comes with concentration risk of investing a higher proportion in the concentrated Australian market.
2. You could swap out 10% of VGS for VGE - emerging markets is a great diversifier.
Post by: Coco on June 22, 2019, 10:02:21 PM
* If you owned Australian property, VGAD would be less useful in your ETF portfolio because the property already gives you a high exposure to AUD.
* If you owned US assets (e.g. shares in a US company), VGAD would be more useful in your ETF portfolio because the US shares give you a high exposure to USD.
I've seen 50:50 mentioned as a good default ratio for local:overseas currency exposure. My current ratio is more like 20:80, which I'm now realising is rather risky. I'm thinking I'll direct my leftover income into VGAD for a while to balance this out. Seem like a sensible approach?
Post by: mjr on June 22, 2019, 10:50:55 PM
Post by: Andy R on June 23, 2019, 03:10:01 AM
Currency risk has been on my mind a bit recently. I currently hold VAS+VGS+VGE, but am considering adding VGAD into the mix as well. Am I correct in thinking that one should look at all of their assets when deciding what proportion of their ETF portfolio should be hedged? For example:
* If you owned Australian property, VGAD would be less useful in your ETF portfolio because the property already gives you a high exposure to AUD.
* If you owned US assets (e.g. shares in a US company), VGAD would be more useful in your ETF portfolio because the US shares give you a high exposure to USD.
I've seen 50:50 mentioned as a good default ratio for local:overseas currency exposure. My current ratio is more like 20:80, which I'm now realising is rather risky. I'm thinking I'll direct my leftover income into VGAD for a while to balance this out. Seem like a sensible approach?
Yes you are correct. It should be a whole-of-assets decision.
If you have Australian property worth half your net worth and some cash/bonds, then you are already well hedged into the AUD and are mitigating AUD upside risk, so then you would be better off with no VAS/VGAD and instead stick with an all-global (unhedged) portfolio in your equities.
If you have no property (eg renting), and are retiring early so less AUD bonds/cash, then you will be more subject to AUD upside risk, so you would want to add AUD based assets (VAS/VGAD) to mitigate this risk.
50/50 is an ok starting point.
I use liabilities to personalise my proportion. I would say that housing costs are around 30% of liabilities, and the rest is roughly split 50/50 between domestic goods and goods originating from imported sources, so overall that comes to 65% AUD based assets (30% + 0.5x70%), but it doesn't need to be exact - anywhere in 50-75% should be fine. Also you can estimate your own numbers, these just my estimations.
Post by: Andy R on June 23, 2019, 03:17:05 AM
Just don't forget that there are no free lunches. Hedging swaps performance for lower volatility. If your timeframe is short(er) or volatility makes you weak in the knees, then hedge. But you're in it for the long term and don't have the inside scoop that AUD is going to significantly appreciate against other currencies like the UDS, then hedging is likely to cost you in reduced performance.
What are you basing this on?
If you look at Vanguard's wholesale version of VGAD (to get a longer time frame, plus it is literally the same underlying fund), it has not under performed the index over the last 10 years worth of data they have.
I've also read from Wisdom Tree's research that today's hedging costs around 2-3 basis points, so essentially free.
There is a few Vanguard research papers that mention that in resource rich countries like Australia and Canada that hedging actually increases volatility (over some time periods), but they refer to "annualised" volatility, which means the volatility from one year to the next, which obscures your ability to realise that the real risk is when it moves in the same direction every year for over a decade, as it did from 2000 to 2011 and the a currency hedged fund would make an massive difference.
Post by: Coco on June 23, 2019, 04:20:09 AM
...the real risk is when it moves in the same direction every year for over a decade, as it did from 2000 to 2011 and the a currency hedged fund would make an massive difference.
Yeah, this is the kind of scenario that worries me. If the AUD is weak during my accumulation years but strengthens as I transition into retirement, it seems like this could be really, really bad for my portfolio (assuming I maintained my current 20:80 local:overseas currency ratio). Admittedly I haven't run the maths on this, so I'm going more on gut feeling than concrete numbers here.
Looking at the historical data, it does seem like multi-decade trends are pretty normal for exchange rates:
https://www.abc.net.au/news/2013-11-27/jericho-graph-4/5118864 (https://www.abc.net.au/news/2013-11-27/jericho-graph-4/5118864)
These timescales are far longer than normal stock market boom/bust cycles. I'm comfortable with stock market risks, but I don't want to be stuck waiting decades for exchange rates to change before I can retire!
Does anyone know of any good blogs/articles/books that go into this issue in more detail? I'd be really interested to see simulated scenarios that show the results of different levels of currency hedging.
Post by: Andy R on June 23, 2019, 04:59:43 AM
...the real risk is when it moves in the same direction every year for over a decade, as it did from 2000 to 2011 and the a currency hedged fund would make an massive difference.
Yeah, this is the kind of scenario that worries me. If the AUD is weak during my accumulation years but strengthens as I transition into retirement, it seems like this could be really, really bad for my portfolio (assuming I maintained my current 20:80 local:overseas currency ratio). Admittedly I haven't run the maths on this, so I'm going more on gut feeling than concrete numbers here.
Looking at the historical data, it does seem like multi-decade trends are pretty normal for exchange rates:
https://www.abc.net.au/news/2013-11-27/jericho-graph-4/5118864 (https://www.abc.net.au/news/2013-11-27/jericho-graph-4/5118864)
These timescales are far longer than normal stock market boom/bust cycles. I'm comfortable with stock market risks, but I don't want to be stuck waiting decades for exchange rates to change before I can retire!
Does anyone know of any good blogs/articles/books that go into this issue in more detail? I'd be really interested to see simulated scenarios that show the results of different levels of currency hedging.
Yes you are right - it is essentially a whole other dimension of SOR risk that is on top of SOR risk - SOC (Sequence Of Currency) risk?. If they both hit together and you have not spent time mitigating those risks, well, I don't even want to think about it.
I have barely seen it discussed anywhere. I have picked up the odd comment on multiple forums and pieced together basically what I mentioned above.
There are reasons why people say you don't need to bother
1. Currency eventually evens out (they never point out it can take decades)
2. Currency hedging has a cost (they don't point out that today it's 2-3bps for developed country hedging)
3. In resource rich countries such as Australia and Canada, currency hedging actually increases annualised volatility (they don't mention that it is decade plus periods of currency moving in the same direction that is the real problem, not the volatility from one single year to the next).
If you ask me, people hear one of these reasons, don't spend even a nanosecond trying to find holes in the argument, and automatically assume hedging is crap or useless and end of story.
I think VGAD has a fundamental part to play in portfolio construction, but I don't mention it too often because people have heard one of those reasons and have just written it off as not needed.
Post by: JimmyMac on June 23, 2019, 05:08:43 AM
...the real risk is when it moves in the same direction every year for over a decade, as it did from 2000 to 2011 and the a currency hedged fund would make an massive difference.
Yeah, this is the kind of scenario that worries me. If the AUD is weak during my accumulation years but strengthens as I transition into retirement, it seems like this could be really, really bad for my portfolio (assuming I maintained my current 20:80 local:overseas currency ratio). Admittedly I haven't run the maths on this, so I'm going more on gut feeling than concrete numbers here.
Looking at the historical data, it does seem like multi-decade trends are pretty normal for exchange rates:
https://www.abc.net.au/news/2013-11-27/jericho-graph-4/5118864 (https://www.abc.net.au/news/2013-11-27/jericho-graph-4/5118864)
These timescales are far longer than normal stock market boom/bust cycles. I'm comfortable with stock market risks, but I don't want to be stuck waiting decades for exchange rates to change before I can retire!
Does anyone know of any good blogs/articles/books that go into this issue in more detail? I'd be really interested to see simulated scenarios that show the results of different levels of currency hedging.
Vanguard have a useful whitepaper that explains their choices for the diversified funds; pages 13-15 might help you out.
https://static.vgcontent.info/crp/intl/auw/docs/literature/research/constructing-australian-diversified-funds-whitepaper.pdf?20190612|104905
You can easily hedge a portion of your international allocation if short-term movements are an issue.
Post by: Coco on June 23, 2019, 06:42:58 AM
You can easily hedge a portion of your international allocation if short-term movements are an issue.
Currency movement feels like a long-term risk to me, not a short-term one. In the linked Vanguard paper, figure 16 shows a period over 10 years long where hedged quite consistently outperforms unhedged (and vice-versa for other time periods!).
I don't really understand why people say hedging isn't needed for long time periods. Surely >10 years of underperformance could throw a big spanner in the works if one were drawing down on their portfolio during that time?
(I'm quite open to the possibility that I'm fundamentally misunderstanding something here, I'm still somewhat of a newbie to all this :))
Post by: Andy R on June 23, 2019, 07:03:35 AM
I don't really understand why people say hedging isn't needed for long time periods. Surely >10 years of underperformance could throw a big spanner in the works if one were drawing down on their portfolio during that time?
(I'm quite open to the possibility that I'm fundamentally misunderstanding something here, I'm still somewhat of a newbie to all this :))
I also don't understand.
But when I first started learning about investing in shares, I spent months reading endless nonsense about LIC's, trying to figure out which one is most profitable based on some "long term average", dividend investing and a whole lot of other info. I finally found bogleheads and realised the reason I didn't understand it was because it was based on half truths and the masses just accepting what was told to them without trying to critically think of whether something makes sense.
I know more than enough now to debunk all of that crap, and have enough confidence to disagree (or disregard) when someone says something that is obviously false such as currency movements are only a short term problem.
I mean, it's easy to debunk. Take a look at someone who retired in 2000 when the AUD was worth 0.5 USD. Over the next 11 years the AUD rose to more than double, making anything denominated in USD worth less than half in terms of buying power of those spending AUD.
That is no different to SOR risk.
Until last year it was still over 1.5x after almost 2 decades. There is nothing short term about this.
Post by: Roland of Gilead on June 23, 2019, 09:49:24 AM
Like buying Australian bonds paying in AUD or something?
So if I took $100,000 in USD and bought $144,000 in AUD intermediate bonds paying anything (3%?) then when/if AUD rises to .75 USD I sell the bonds for $108,000 USD?
Post by: itchyfeet on June 23, 2019, 11:26:17 AM
If international diversification is just an extra layer of diversification to reduce risk of portfolio failure, and the risk you are seeking to mitigate is home economy bias, then having an unhedged position is maybe what you want in the long term....
If the Australian economy tanks then the foreign exposure protects your investment returns, as the AUD will most likely depreciate.
If the Australian economy outperforms, then It is likely that the Australian currency would appreciate over the longer term, and your foreign investments will be worth less, but you will have made more money in Australia....
Diversification knocks the top and bottom off return scenarios.... This is the cost and benefit of diversification.
Maybe you shouldn’t worry about the AUD appreciating over the long term as it most probably means the Australian economy is doing ok and providing you with a nice return on your Aussie investments.
This is an untested and fairly ignorant hypothesis, but maybe something others who are better read can comment on....
Post by: Andy R on June 23, 2019, 11:41:31 AM
Diversification knocks the top and bottom off return scenarios.... This is the cost and benefit of diversification.
This is not correct.
You have something called "expected return". As you move up the risk-return spectrum, your "expected return" (kind of the average of all return possibilities) increases, but at the same time your range of possible returns widens - this is the higher risk you face for the higher expected return.
When you diversify, you narrow that range down without lowering the expected return - which is why diversification is a free lunch - an upside with no downside.
What you are suggesting is to increase the risk without increasing the expected return, which is gambling as opposed to investing.
If this did not explain it well, this article (https://awealthofcommonsense.com/2019/03/the-market-wont-provide-high-returns-just-because-you-need-them/) will.
Interestingly, just as idiosyncratic risk is a risk without a reward, so is currency risk. a risk without a reward They are really both silly risks to take when you think about it.
Post by: itchyfeet on June 23, 2019, 12:23:37 PM
Diversification knocks the top and bottom off return scenarios.... This is the cost and benefit of diversification.
This is not correct.
You have something called "expected return". As you move up the risk-return spectrum, your "expected return" (kind of the average of all return possibilities) increases, but at the same time your range of possible returns widens - this is the higher risk you face for the higher expected return.
When you diversify, you narrow that range down without lowering the expected return - which is why diversification is a free lunch - an upside with no downside.
What you are suggesting is to increase the risk without increasing the expected return, which is gambling as opposed to investing.
If this did not explain it well, this article (https://awealthofcommonsense.com/2019/03/the-market-wont-provide-high-returns-just-because-you-need-them/) will.
Interestingly, just as idiosyncratic risk is a risk without a reward, so is currency risk. a risk without a reward They are really both silly risks to take when you think about it.
Thanks
Post by: mrmoonymartian on June 23, 2019, 03:26:15 PM
Post by: mjr on June 23, 2019, 04:53:36 PM
when someone says something that is obviously false such as currency movements are only a short term problem.
That was not the point I was trying to make. The point was that if I am going to invest in an overseas market with currency risk, I'm doing it for the long term and will take what comes. Hedging comes with a cost - it has to, that's the point of it. It's like insurance. Sometimes it will pay off, but most of the time it's just an additional expense.
Post by: Alchemisst on June 23, 2019, 07:43:13 PM
...the real risk is when it moves in the same direction every year for over a decade, as it did from 2000 to 2011 and the a currency hedged fund would make an massive difference.
Does anyone know of any good blogs/articles/books that go into this issue in more detail? I'd be really interested to see simulated scenarios that show the results of different levels of currency hedging.
I would also like to know, as it's pretty confusing and I don't see why it wouldn't make much difference even if you're long term? If the AUD averages 60-70c but in 30 years it's around $1.00 that's a big difference..
Indexing seems so much easier for Americans haha
Post by: Andy R on June 23, 2019, 07:49:21 PM
when someone says something that is obviously false such as currency movements are only a short term problem.
That was not the point I was trying to make. The point was that if I am going to invest in an overseas market with currency risk, I'm doing it for the long term and will take what comes. Hedging comes with a cost - it has to, that's the point of it. It's like insurance. Sometimes it will pay off, but most of the time it's just an additional expense.
There are 2 currency risks.
1. Where home currency rises and non-AUD based assets are lower in AUD terms. This is where hedging comes in to mitigate it.
2. Where home currency goes down (for sometimes a decade or more) and imported goods are more expensive in AUD terms. This is where global equities (unhedged) come in to mitigate it.
They each have one risk and mitigate the other.
If you think hedging comes at a cost, then so does unhedged global equities.
I don't see how you can consider this an argument against hedging without being an argument against buying unhedged.
Post by: Andy R on June 23, 2019, 07:54:34 PM
Indexing seems so much easier for Americans haha
Eh I don't really agree.
They have the 3 fund portfolio - bonds, US equities, ex-US equities
We can have the 3 fund portfolio - bonds, global equities, global equities AUD-hedged
You can swap out some AUD-hedged for VAS to get some franking credits (although much of the franking credits are priced in now), so a 4 fund portfolio instead of a 3 fund portfolio. I don't see why it needs to be any more complicated.
Post by: Alchemisst on June 23, 2019, 08:42:06 PM
Indexing seems so much easier for Americans haha
Eh I don't really agree.
They have the 3 fund portfolio - bonds, US equities, ex-US equities
We can have the 3 fund portfolio - bonds, global equities, global equities AUD-hedged
You can swap out some AUD-hedged for VAS to get some franking credits (although much of the franking credits are priced in now), so a 4 fund portfolio instead of a 3 fund portfolio. I don't see why it needs to be any more complicated.
What about VTS? VTS has much lower expense ratio, also most bogleheads seem to own VTS rather than global. Also what's the reason for owning hedged and ingested? Wouldn't you go with one or the other?
Post by: Andy R on June 24, 2019, 12:20:56 AM
What about VTS? VTS has much lower expense ratio, also most bogleheads seem to own VTS rather than global.
Bogleheads use VTS because they are American, so overweighting US shares is their way of lower currency risk. It doesn't make sense for us to separate into US & ex-US.
Also what's the reason for owning hedged and ingested? Wouldn't you go with one or the other?
I think I mentioned that earlier.
AUD based assets help for when the AUD rises over long periods.
ex-AUD assets help for when the AUD lowers over long periods.
Post by: Alchemisst on June 24, 2019, 03:15:37 AM
Indexing seems so much easier for Americans haha
Eh I don't really agree.
They have the 3 fund portfolio - bonds, US equities, ex-US equities
We can have the 3 fund portfolio - bonds, global equities, global equities AUD-hedged
You can swap out some AUD-hedged for VAS to get some franking credits (although much of the franking credits are priced in now), so a 4 fund portfolio instead of a 3 fund portfolio. I don't see why it needs to be any more complicated.
What about VTS? VTS has much lower expense ratio, also most bogleheads seem to own VTS rather than global. Also what's the reason for owning hedged and unhedged? Wouldn't you go with one or the other?
Sorry that was a typo I meant to say why have both hedged and unhedged
Post by: Juan Ponce de León on June 24, 2019, 04:23:42 AM
It also trends hard within the range.
Between Dec 96 and March 2001 it went from roughly 81c to 48c.
Then it trended all the way to July 2008 at 98c
GFC hit and plummeted to 60c by Oct 2008 where it found support
Ran back up hard July 2011 $1.10!
Sep 2015 hit 70c and we've been between 70-80c ever since.
I do like how when the GFC hit the AU$ plumetted along with the stocks, the flight to safety (US$) in times of panic is a huge bonus for us Australians investing in US$.
Sorry just random thoughts haha
Post by: Richmond 2020 on June 24, 2019, 08:17:40 PM
Competition pushing the fees down for ETFs across the board.
Post by: Andy R on June 24, 2019, 10:04:32 PM
I notice that Vanguard are reducing/slashing their fees again. VAS down from .14% to .10%
I wonder if they are taking less profit from it or if they negotiated with S&P.
It would be great if they'd do outside the US what they did in the US and abandon MSCI/S&P and go with FTSE/CRSP instead. The investment will be the same, but the fees would drop like a stone, and it would serve MSCI/S&P right for being such greedy bastards.
Post by: marty998 on June 25, 2019, 05:30:59 AM
I notice that Vanguard are reducing/slashing their fees again. VAS down from .14% to .10%
I wonder if they are taking less profit from it or if they negotiated with S&P.
It would be great if they'd do outside the US what they did in the US and abandon MSCI/S&P and go with FTSE/CRSP instead. The investment will be the same, but the fees would drop like a stone, and it would serve MSCI/S&P right for being such greedy bastards.
Interesting question. I see firsthand how much the market data providers are "extracting" from the industry (and hence our investments), it's quite an extraordinary number from Moodys, S&P, Bloomberg, and those are just the well known ones.
Nonethless a drop in fees is always welcome :)
Post by: Alchemisst on June 26, 2019, 07:50:46 PM
Post by: mjr on June 28, 2019, 02:06:23 AM
How about that VAP dividend ? $2.52, 2.72%. Anyone know why it's so high ? I assume there's some capital repaid in that.
Post by: hm520 on June 28, 2019, 04:48:38 PM
Post by: marty998 on June 29, 2019, 06:13:03 AM
Vanguard estimated dividends announced.
How about that VAP dividend ? $2.52, 2.72%. Anyone know why it's so high ? I assume there's some capital repaid in that.
Top 10 stocks are 85% of the fund. I guess somewhere in those there must be a big corporate action that has triggered it. Final announcement will be on Monday, it may/may not get revised so we'll see.
Goodman
Scentre
Dexus
Mirvac
GPT
Stockland
Vicinity
Charter Hall
Unibail-Rodamco-Westfield
Shopping Centres Australasia
Post by: marty998 on July 21, 2019, 06:06:43 PM
Never seen this before but I've given a $552 AMIT upwards cost base adjustment! Nice little bonus there.
Post by: Gremlin on July 22, 2019, 08:00:38 PM
Vanguard tax statements are out (got mine for VAS today).
Never seen this before but I've given a $552 AMIT upwards cost base adjustment! Nice little bonus there.
Yes. I got that too! Not quite sure how I deal with it on my tax return, but I'm sure I'll work it out. It's a nice problem to have...
Post by: Notch on July 22, 2019, 08:50:44 PM
Vanguard tax statements are out (got mine for VAS today).
Never seen this before but I've given a $552 AMIT upwards cost base adjustment! Nice little bonus there.
Yes. I got that too! Not quite sure how I deal with it on my tax return, but I'm sure I'll work it out. It's a nice problem to have...
I don't understand the excitement. As I understand it, the adjustment to your cost base is to compensate for that fact you are going to be taxed this year on a capital gain in the fund that you did not receive a cash distribution for.
Post by: marty998 on July 23, 2019, 03:31:02 PM
Vanguard tax statements are out (got mine for VAS today).
Never seen this before but I've given a $552 AMIT upwards cost base adjustment! Nice little bonus there.
Yes. I got that too! Not quite sure how I deal with it on my tax return, but I'm sure I'll work it out. It's a nice problem to have...
I don't understand the excitement. As I understand it, the adjustment to your cost base is to compensate for that fact you are going to be taxed this year on a capital gain in the fund that you did not receive a cash distribution for.
Oh? Is that how it works? Boo. I should read up on this. Thank you for correcting me there.
Well, since I'm still eating into a pile of PY capital losses, I'm not actually paying tax on those non-cash distributed gains. So it's not a total loss.
Post by: marty998 on July 30, 2019, 02:16:30 AM
Seems very very frothy and there's no real sign of it slowing down.
Perhaps earnings season will be the reality check next week when results start getting released.
Until then, enjoy the bubbly gains!
Post by: bigchrisb on July 30, 2019, 04:40:12 AM
In the main I'll be letting things ride, letting DRPs do their job of automating re-investment. The gains this year have been strong, but its off a pretty hard decline late last year - I put about $100k into the markets then. When you look at it over a longer term, or in terms of valuation metrics (PE, yield etc), its pricier than it was, but not crazy expensive by historical norms.
Post by: marty998 on August 04, 2019, 10:35:15 PM
I'm in the same boat. Have gone quiet on the purchases, and indeed actually sold down a holding. The holding I sold was BKI, which I have been unimpressed by - too many games by the manager including externalization of management and dilutive capital raising. Never the less, as it got close to its NTA, I've offloaded. Put a little into VGS, but most of it is sitting in cash. That said, that was a $50k transaction on a roughly $3m equity portfolio, so I'm hardly switching to cash!
In the main I'll be letting things ride, letting DRPs do their job of automating re-investment. The gains this year have been strong, but its off a pretty hard decline late last year - I put about $100k into the markets then. When you look at it over a longer term, or in terms of valuation metrics (PE, yield etc), its pricier than it was, but not crazy expensive by historical norms.
Raising my eyebrows at the falls the past week, including the 1.5% today. Have cash on the sidelines waiting to go, just need to determine an entry point (probably if VAS goes down to around $80).
Post by: mjr on August 05, 2019, 12:11:10 AM
Post by: Richmond 2020 on August 05, 2019, 07:58:06 PM
Thanks to everyone who has contributed to this tread over the years as it has helped me to simplify and improve my investments greatly.
I also have some more funds I can deploy if the markets drop far enough.
Thanks.
Post by: Ozlady on August 05, 2019, 10:06:52 PM
Yep, I have a few hundred k from matured term deposits that will go in when this current dip turns the corner.
Me too:) Too cash heavy atm:(
Had a small nibble this morning; bought VAS for one of my kids...nothing big though...
Figured his investing horizon is MUCH longer than mine...makes it easier to pull the trigger..also got in at 6% yield (incl FC) ...
But with Trump and his histrionics , wouldn't be surprised at more buying opportunities to come:)
Post by: mjr on August 05, 2019, 11:17:38 PM
But with Trump and his histrionics , wouldn't be surprised at more buying opportunities to come:)
Can we please keep the Australian Investing thread free from the Trump Derangement Syndrome that pollutes most of this forum ?
I placed 6 figure buy orders today, but it looks like Westpac Online Trading collapsed under the strain. Someone's going to lose their job over this.
Post by: marty998 on August 06, 2019, 02:55:27 AM
But with Trump and his histrionics , wouldn't be surprised at more buying opportunities to come:)
Can we please keep the Australian Investing thread free from the Trump Derangement Syndrome that pollutes most of this forum ?
I placed 6 figure buy orders today, but it looks like Westpac Online Trading collapsed under the strain. Someone's going to lose their job over this.
I actually support Trump in what he is trying to do here. For various reasons that I am afraid to detail here for want of being locked up in a Chinese gulag.
Also bought some today, $25k of VAS. Managed to almost hit the low of the day ($81.58 buy price vs $81.52 low). Felt quite good about that little piece of market timing.
CBA 2019 results gets released tomorrow. In the absence of any further conniptions on Wall Street tonight, it will be a pointer to how the market will go on open.
Post by: mjr on August 07, 2019, 03:18:29 PM
Post by: chevy1956 on August 07, 2019, 07:11:44 PM
Vanguard pre-fills are in
Thanks for that.
Post by: Julard on August 11, 2019, 01:35:30 AM
Post by: chevy1956 on August 12, 2019, 01:53:22 AM
My VGE and VAS have prefilled, but VGS isn't there - anyone else?
It was there for me.
Post by: MrThatsDifferent on August 13, 2019, 04:30:14 AM
But with Trump and his histrionics , wouldn't be surprised at more buying opportunities to come:)
Can we please keep the Australian Investing thread free from the Trump Derangement Syndrome that pollutes most of this forum ?
I placed 6 figure buy orders today, but it looks like Westpac Online Trading collapsed under the strain. Someone's going to lose their job over this.
I actually support Trump in what he is trying to do here. For various reasons that I am afraid to detail here for want of being locked up in a Chinese gulag.
Also bought some today, $25k of VAS. Managed to almost hit the low of the day ($81.58 buy price vs $81.52 low). Felt quite good about that little piece of market timing.
CBA 2019 results gets released tomorrow. In the absence of any further conniptions on Wall Street tonight, it will be a pointer to how the market will go on open.
Et tu, Marty?
Post by: Richmond 2020 on August 15, 2019, 10:10:38 PM
But with Trump and his histrionics , wouldn't be surprised at more buying opportunities to come:)
Can we please keep the Australian Investing thread free from the Trump Derangement Syndrome that pollutes most of this forum ?
I placed 6 figure buy orders today, but it looks like Westpac Online Trading collapsed under the strain. Someone's going to lose their job over this.
I actually support Trump in what he is trying to do here. For various reasons that I am afraid to detail here for want of being locked up in a Chinese gulag.
Also bought some today, $25k of VAS. Managed to almost hit the low of the day ($81.58 buy price vs $81.52 low). Felt quite good about that little piece of market timing.
CBA 2019 results gets released tomorrow. In the absence of any further conniptions on Wall Street tonight, it will be a pointer to how the market will go on open.
Got myself $10k of VAS as well @ $81.20.
Post by: marty998 on August 16, 2019, 03:18:13 AM
But with Trump and his histrionics , wouldn't be surprised at more buying opportunities to come:)
Can we please keep the Australian Investing thread free from the Trump Derangement Syndrome that pollutes most of this forum ?
I placed 6 figure buy orders today, but it looks like Westpac Online Trading collapsed under the strain. Someone's going to lose their job over this.
I actually support Trump in what he is trying to do here. For various reasons that I am afraid to detail here for want of being locked up in a Chinese gulag.
Also bought some today, $25k of VAS. Managed to almost hit the low of the day ($81.58 buy price vs $81.52 low). Felt quite good about that little piece of market timing.
CBA 2019 results gets released tomorrow. In the absence of any further conniptions on Wall Street tonight, it will be a pointer to how the market will go on open.
Et tu, Marty?
I presume that comment is about my comment on Trump.....
Someone needs to stand up to the autocratic regime and the market / trade abuses being perpetuated. I don't like Trump but the appeasement of the last 10 years has most certainly not worked.
Playing nice to China means that end up owning your economic ass. Or at the very least, the Port of Darwin as we've come to find out.
Post by: superannuationfreak on August 17, 2019, 09:40:34 PM
Bitcoin, Gold, Bullets and Canned Food?
Kidding, I'm not actually changing my asset allocation (which is probably on the conservative side here, and does include somewhat more cash than it did two years ago).
What I was actually thinking about was tax-related opportunities if global shares do fall more than 25% (in AUD-terms, so would probably need to be more in local currency terms since the AUD tends to crash concurrently).
Currently my wife and I have similar amounts of international equities in each name, and some cash that is mostly in the lower-earning spouse's name (today, and probably for the next decade, my wife). If shares fall we can use at as an opportunity to move more assets into my wife's name. I was wondering if we should instead consider a family trust and at what level of financial assets people here have found it beneficial from a tax perspective?
Superficially it sounds good. Investment income can be streamed to my wife for the next decade or so (all going well) and then split with me if I cut back/RE after FI. When my son is 18 some of the income can accrue to him also.
However in practice I'm not sure it's worth the expense or legislative risks (e.g. minimum tax rate proposed at last election). My son will hit 18 after we reach preservation age so I would guess, to the extent that we are allowed to, we will be better-off shifting assets into Super to the extent possible closer to the time. We're not early-retirement-extreme but I'm also not planning to hit the 2x $1.6m pension cap.
There's also asset protection which I don't think is an issue today. If I ever became a director on a board I guess it would be prudent but I think getting on good boards will be challenging as the super industry consolidates, so I don't think I can expect that. Plus our house is in joint names so a trust is probably not much protection.
Appreciate any thoughts from those who've considered it or done it themselves.
Post by: Alchemisst on September 26, 2019, 06:50:16 PM
Post by: mjr on September 26, 2019, 07:35:35 PM
You need to have defined what international exposure and asset classes you want and then look for products accordingly. Going off just MERs is a bit narrow and simplistic.
Post by: Alchemisst on September 27, 2019, 03:31:31 AM
Post by: deborah on September 27, 2019, 03:35:52 AM
Post by: Andy R on September 27, 2019, 04:35:46 AM
Post by: superannuationfreak on September 27, 2019, 07:40:41 PM
Why not just invest everything in the US market? (http://passiveinvestingaustralia.com/why-not-just-invest-everything-in-the-us-market)
Nice link, thanks. I agree.
That said, if you're talking about marginal investments outside Super (and your Super is still much larger than these investments) then just chucking your money in IVV likely won't do any harm.
But holding the US BND doesn't make much sense to me if you're an AUD investor, since the currency fluctuations will dominate the returns of the investment. Outside Super I just don't think there's any point holding a small amount of bonds; I'd rather (and do) hold cash in an online savings account given the yield to maturity of most high quality Australian bond funds is ~1% p.a. before fees where uBank or ING pay over 2% p.a. Inside Super the return difference is usually much smaller (Cash is the one place retail rules over wholesale, due to bank regulation) and often the fees are lower, so if I hold bonds for potential downside protection I'll do it in Super.
Also, apologies if I killed the conversation with my crash/family trust post earlier. I'm not predicting a crash. For anyone wanting closure, thinking it through further and browsing through bigchrisb's threads convinced me that there isn't a compelling reason for me to use a family trust unless I'm looking at >$1m in financial assets (outside of cash and Super), or have a strong need for asset protection, and so I'd expect any case for it in my situation would be borderline at best. Hopefully the rules will still allow me to push materially more money into Super as I get closer to being able to access it.
Post by: Alchemisst on September 29, 2019, 02:10:44 AM
Post by: superannuationfreak on September 29, 2019, 04:36:25 AM
The difference is small now, but the long term returns of bonds is around 7=8% looking at the vanguard index chart
Please read up on how bonds work. If rates drop to zero you might get one year of 7-8%. If rates don't keep dropping you'll get roughly the yield to maturity (or losses if rates rise). They may still be useful for their zero or negative correlation with equities (if that persists) but expecting more than 1 or 2% p.a. from high grade bonds over the next decade on a standalone basis is a recipe for disappointment.
Post by: Alchemisst on September 29, 2019, 06:24:27 PM
https://www.vanguardinvestments.com.au/adviser/adv/v/index-chart-2019.jsp
Post by: Andy R on September 29, 2019, 10:12:07 PM
That's a prediction, I guess nobody really knows but the returns for the past 30 years have been 7-8%. You're predicting bonds will have their worst decade yet.
https://www.vanguardinvestments.com.au/adviser/adv/v/index-chart-2019.jsp
I did not read the comment as saying this decade will be the worst yet, but that the return from 4 decades of interest rates coming down from 17% to 1% can not be repeated unless interest rates can continue down from 1% to negative 16% over the coming decades.
People have been saying it will turn around for close to a decade now and it has just continued even in prosperous times, and in parts of Europe there are negative interest rates, so it could be years before it turns around.
But the point is that you can not assume the historical returns from the last 40 years to be a long term indicator going forwards.
However, just because bonds have a lower expected return than equities doesn't mean they have no value. Equities mitigate the risk of not returning enough money, bonds mitigate the risk of depleting your equities in a sustained market decline/recover. They both have an important use.
Post by: bigchrisb on September 30, 2019, 02:00:56 AM
Why not just invest everything in the US market? (http://passiveinvestingaustralia.com/why-not-just-invest-everything-in-the-us-market)
For anyone wanting closure, thinking it through further and browsing through bigchrisb's threads convinced me that there isn't a compelling reason for me to use a family trust unless I'm looking at >$1m in financial assets (outside of cash and Super), or have a strong need for asset protection, and so I'd expect any case for it in my situation would be borderline at best. Hopefully the rules will still allow me to push materially more money into Super as I get closer to being able to access it.
Sounds reasonable to me. I found the trust highly beneficial when working for a business I owned and in the accumulation stage. However, when I did a trial draw-down for 18 months, the benefits were marginal, for a lot of extra complexity. The CGT issues means that the money was pretty much stuck in those structures (approx. $500k in a company and $800k in a trust). I have since started working/ running a business again, and it's beneficial again at the moment.
Based on my experience, unless you are needing the asset protection, or are intending on accumulating a long way beyond a typical stash size, a company and trust probably isn't worth the effort. The challenge is that you may not know about your future needs ahead of time. I have more shares outside the trust than I would like that I accumulated before starting the trust. The CGT liability on these is large enough that I am unlikely to sell them to move them in.
I've accumulated beyond what I need for foreseeable FI, so I'm now focussed on getting money into my smsf rather than the trust. In terms of net worth, I'm about 1/3 in my own name, 1/3 in the company/trust and 1/3 in super.
Post by: marty998 on October 02, 2019, 03:43:37 AM
Post by: deborah on October 02, 2019, 03:48:39 AM
This quarter's vanguard (VAS) ETF dividend of $1.07 is enough to actually fund my expenses for a quarter. First time I've crossed that little achievement :DGreat going Marty!!!
Post by: marty998 on October 02, 2019, 03:56:55 AM
This quarter's vanguard (VAS) ETF dividend of $1.07 is enough to actually fund my expenses for a quarter. First time I've crossed that little achievement :DGreat going Marty!!!
Thankyou. Funny though, never see the cash because it all gets reinvested. So I don't actually feel like any progress is being made!
Post by: mspym on October 02, 2019, 05:15:40 AM
Post by: Little Aussie Battler on October 02, 2019, 05:22:33 AM
This quarter's vanguard (VAS) ETF dividend of $1.07 is enough to actually fund my expenses for a quarter. First time I've crossed that little achievement :DLean fire?
Post by: deborah on October 02, 2019, 10:17:49 AM
This quarter's vanguard (VAS) ETF dividend of $1.07 is enough to actually fund my expenses for a quarter. First time I've crossed that little achievement :DGreat going Marty!!!
Post by: bigchrisb on October 02, 2019, 02:03:17 PM
Post by: marty998 on October 02, 2019, 03:50:59 PM
Woo hoo Marty!
This quarter's vanguard (VAS) ETF dividend of $1.07 is enough to actually fund my expenses for a quarter. First time I've crossed that little achievement :DLean fire?
No. I have no interest in living off ~$20k a year for the rest of my life haha. I don't think that's an entirely sane choice. But if I lose my job tomorrow I could probably squeeze 20 years out of the dividends topped up with a little bit of capital selling.
Nice milestone Marty! Your earned income is fully optional this quarter!
Funny that last Friday I just qualified for long service leave at my work.
If ever I decide to leave I could take an entire quarter off and still get paid for it :D
Post by: Ozlady on October 02, 2019, 04:24:18 PM
Congrats!
Sounds like you have quite a bit just from VAS alone...
May i ask:
a) how long did you take to accumulate those VAS shares?
b) is it a matter of regular dripping in and if so, how often? per month? per quarter? sporadic?
c) do you have a target number to reach? What is your domestic/international allocation ?
Asking for my daughter's investing journey (she is only 20)..but feel free to ignore if it is too personal please! Many thanks!
Post by: happy on October 02, 2019, 04:31:08 PM
Post by: marty998 on October 03, 2019, 02:56:06 AM
Hi Marty
Congrats!
Sounds like you have quite a bit just from VAS alone...
May i ask:
a) how long did you take to accumulate those VAS shares?
b) is it a matter of regular dripping in and if so, how often? per month? per quarter? sporadic?
c) do you have a target number to reach? What is your domestic/international allocation ?
Asking for my daughter's investing journey (she is only 20)..but feel free to ignore if it is too personal please! Many thanks!
It took a while and I made a lot of mistakes, most of them around the time of when I was your daughter's age. Back then it was 2006-07 and I was geared 50-50. Nearly wiped out by the end of 2009, I still have today $50k in capital losses carried forward from then (got up to around $80k at one point).
I bought an apartment in 2010, paid off the mortgage by 2015, cash is still sitting in offset. Probably not the smartest thing to do but interest rates were 6-7% back then, not the 3.xx% you see today. Then I started buying shares again, but I stupidly bought VHY initially. Learned another lesson pretty quickly and rolled it all into VAS.
There's been a few gifts from the parents along the way, call it an early inheritance - their super has gone gangbusters. I generally buy every time I accumulate $10k, so that is once or twice a quarter. My salary has received a few bumps up along the way, so much of the extra purchases have occurred in the last two years.
I am all Australia, I don't hold any international shares either in ETFs or in super. I see no need to take on the extra risk. If the Australian market plods along as it has done on average for most of recent history at 4% dividends, 3-4% growth and 1% franking benefits then I'm quite happy with that.
No target number as such. I figure I'll know when the time comes.
Post by: Ozlady on October 03, 2019, 04:39:44 PM
So much achievement for such a young man...well done and keep plodding...
Footnote: i just bought some VAS for my kids yesterday too..could not resist:)
Post by: mjr on October 03, 2019, 04:55:18 PM
Gottilebsen in the Australian today bad-mouthing the ASX because of banks, again. He loves talking them down.
Post by: marty998 on October 04, 2019, 05:15:03 AM
Thanks for the sharing Marty:)
So much achievement for such a young man...well done and keep plodding...
Footnote: i just bought some VAS for my kids yesterday too..could not resist:)
Cheers, it is a nice achievement :)
Bewilders me how people live close to the edge, having nothing left over after each pay fortnight. Cannot imagine why people put themselves through the stress (lot of it being self inflicted).
Post by: lush on October 04, 2019, 04:39:21 PM
....I bought an apartment in 2010, paid off the mortgage by 2015, cash is still sitting in offset. Probably not the smartest thing to do but interest rates were 6-7% back then, not the 3.xx% you see today. Then I started buying shares again, but I stupidly bought VHY initially. Learned another lesson pretty quickly and rolled it all into VAS.
Hi Marty - why was VHY a stupid? BTW good on you for keeping at it.
Post by: Alchemisst on October 04, 2019, 11:44:13 PM
Post by: jk5954 on October 05, 2019, 12:29:23 AM
Curious to know peoples allocations e.g VAF, VAS, VTS, VGS, VEU etc. I'm still trying to decide on the best allocation/ combination. Also I'm with comsec, which doesn't have the lowest fees but I have been using it for a long time so all my shares are in there and its easy to manage, is it worth changing to a lower cost brokerage?
I myself have 100% shares with approximately 50/50 split between AU and Intl. I hold VAS for the AU in ETF's and hold my Intl shares in Super with 100% of my super in Intl shares (Through First State super which has really low fees for Intl shares)
In terms of VTS, VGS and VEU the usual split would be to hold VTS and VEU together or VGS. VTS and VEU gives a lower MER but are US Domiciled so need to fill out a W-8BEN form every so often. VGS has a higher MER but is AU Domiciled and can turn on DRP.
In terms of brokerage I started out with E Shares then when I found a cheaper broker in CMC Markets I changed to them. CMC markets had a form on their website to transfer holdings from another broker. This form was called "Transfer CHESS Holdings Form". Whichever low cost brokerage you choose to change to should have a similar form.
Post by: mjr on October 05, 2019, 12:41:53 AM
I'm with Westpac because that's where all my banking is. I don't bother with a low cost broker, all my trades are >= $20,000 so I pay 0.11% brokerage and don't trade often.
Post by: lush on October 05, 2019, 01:21:30 AM
Post by: Andy R on October 05, 2019, 05:11:33 AM
I am with Vanguard and have VAS making up 30% and 70% in Balanced Fund. However looking to change that to be all VAS see my case study here: https://forum.mrmoneymustache.com/case-studies/selling-and-switching-portfolios-for-better-cash-distribution/
So your balanced fund is
Fixed income: 50%
50% bonds
Equities: 50%
30% global equities
20% Australian equities
The decision for amount of bonds is one decision, and the decision of global equities vs Australian equities is another.
By switching to VAS you are making 2 decisions. Is this your intention?
From your post it sounds like the issue is performance which is related almost exclusively to the fixed income portion (the first decision) and not related to the second.
You could achieve the same thing by switching out from the balanced fund to the high growth fund and retain the equities portion being globally diversified, but for some reason you left out this option and decided the entirety of options were VAS or an LIC?
Post by: lush on October 05, 2019, 05:22:20 PM
I am with Vanguard and have VAS making up 30% and 70% in Balanced Fund. However looking to change that to be all VAS see my case study here: https://forum.mrmoneymustache.com/case-studies/selling-and-switching-portfolios-for-better-cash-distribution/
So your balanced fund is
Fixed income: 50%
50% bonds
Equities: 50%
30% global equities
20% Australian equities
The decision for amount of bonds is one decision, and the decision of global equities vs Australian equities is another.
By switching to VAS you are making 2 decisions. Is this your intention?
From your post it sounds like the issue is performance which is related almost exclusively to the fixed income portion (the first decision) and not related to the second.
You could achieve the same thing by switching out from the balanced fund to the high growth fund and retain the equities portion being globally diversified, but for some reason you left out this option and decided the entirety of options were VAS or an LIC?
Thanks Andy. Yes we are looking to make 2 decisions based on our ages. We entered the Balanced fund on mainly not understanding that what we are trying to achieve with part time work and how long we might live for - maybe another 40 odd years, then we have chosen too conservative a portfolio. So firstly we want to switch from fixed income representing 50% of our portfolio. The second was yes, which equities? Aussie or Global or both? We landed on Aussie mainly because of our confidence in the Aussie market to steadily keep growing (of course with downturns) and yes of course because of the current tax benefits that comes with it. Having said all that, we are now looking for maybe some balance in the asset allocation for equities, and yes maybe the High Growth or Global Diversified fund are worth considering, but we would still like VAS to make up most of the portfolio -maybe a 70/30 split.
Post by: Andy R on October 05, 2019, 07:13:48 PM
We landed on Aussie mainly because of our confidence in the Aussie market to steadily keep growing (of course with downturns) and yes of course because of the current tax benefits that comes with it. Having said all that, we are now looking for maybe some balance in the asset allocation for equities, and yes maybe the High Growth or Global Diversified fund are worth considering, but we would still like VAS to make up most of the portfolio -maybe a 70/30 split.
Regarding - your confidence in the Australian market, this is framing it such that you have less confidence in other markets. Is this based on some sort of analysis or is it just a feeling you have?
I have much more confidence in the US market. They have laws encouraging foreign investment, whereas Australia has a high company tax keeping many away. How do you think this affects the economy?
Unlike the incredibly diverse US stock market, the Australian stock market is massively concentrated with half the entire index in 2 sectors and 10 companies. If one of them takes a hit, the whole thing goes down.
You are also investing in the country where your house and job are, so in a recession, they are all going to get hit at the same time. When job losses are increasing, hopefully you have a lot of bonds because if you need to draw down from equities in an extended bear market and sustained recovery when they are down which they likely will be since they are in the same market, you will be depleting your portfolio faster and at a much higher magnitude than if you were globally diversified in your equities.
All of this is called concentration risk - everything is concentrated in one area and goes down together. It is the literal opposite of diversification.
Franking credits do give a return boost, but not as much as it appears. It is around 40-80% priced-in, which means when dividends are paid out, the share price drops not only the amount of the dividend but and additional 40-80% of the franking credit amount, so while there is a benefit, it is much less than the amount you get in your hand or calculate on paper.
The question becomes, how much are those remaining franking credits worth for the concentration risk you face.
Post by: lush on October 07, 2019, 02:44:56 AM
Ideally I would like to set up a scenario of something like this:
• Defensive 30% (Bonds)
• Growth 70% (VAS 35% & International 35%)
However given where I am at, I think the best approach without impacting (selling off) the Balanced Portfolio is to leverage existing Growth and Defensive within it in order to make up an overall asset allocation that I am seeking, or close to it.
In order to achieve this I will need invest as below:
Vanguard Australian Shares Index Fund (Wholesale) (VAS) $ 350,000
Vanguard International Shares Index Fund (Wholesale) $ 250,000
Vanguard Balanced Fund $ 1,000,000
Combining all these funds to these values would see this asset allocation:
Growth: Aus/VAS 34% & Inter 34%
Defensive: 22% Bonds & 10% Cash
My only concern about utilising the Growth and Defensive within the Balanced Fund to build this asset allocation, is: does it provide like for like payouts from those underlying funds, or would I be better off holding them separately like the below for example:
Vanguard Australian Shares Index Fund (Wholesale) (VAS) $ 550,000
Vanguard International Shares Index Fund (Wholesale) $ 550,000
Vanguard Global Aggregate Bond Index Fund (Hedged) $ 500,000
Probably a question I need to ask Vanguard.
Andy – do I dare ask what your allocation looks like? :)
Thanks.
Post by: Ozlady on October 07, 2019, 03:26:51 AM
Post by: Andy R on October 07, 2019, 07:19:58 AM
Vanguard Australian Shares Index Fund (Wholesale) (VAS) $ 350,000
Vanguard International Shares Index Fund (Wholesale) $ 250,000
Vanguard Balanced Fund $ 1,000,000
Why not simplify to this
Vanguard High Growth Fund $ 600,000
Vanguard Balanced Fund $ 1,000,000
I don't understand what you mean by "like for like payouts"
I currently have too much property, so no need for Australian equities at all. I will add when I sell those down. So right now I have an global cap weighted in the equities, and safe assets are in the offset.
When I sell the properties, I'm planning on the equities portion as about half VGS with some VGE in that half, and the other half split between VAS and VGAD. I've gone into some detail about all of this in the link in my signature. The main dislike I have with the vanguard diversified funds is the high Australian allocation. I don't want so much concentration risk of Australian shares. Otherwise I like the all-in-one funds..
Post by: Alchemisst on October 07, 2019, 03:57:46 PM
Post by: mjr on October 07, 2019, 05:01:56 PM
Why ? Precisely because I *do* live here. These equities are in Australian dollars, so I'm protected from currency risk with these assets.
Also, I'm well aware of the fallacy of thinking that dividends are free money, but the 4% dividend stream + franking is just about perfect and saves me from having to sell anything.
Half VAS, half VTS. DIY hedging.
Post by: Andy R on October 08, 2019, 01:16:42 AM
I don't advocate, nor have, all my equities in Australian equities, but I do have a good chunk.
Why ? Precisely because I *do* live here. These equities are in Australian dollars, so I'm protected from currency risk with these assets.
Also, I'm well aware of the fallacy of thinking that dividends are free money, but the 4% dividend stream + franking is just about perfect and saves me from having to sell anything.
Half VAS, half VTS. DIY hedging.
You're also protected from currency risk with a global AUD-hedged fund such as VGAD or IHWL, and it does not come with idiosyncratic country risk or the risk of having your employment and assets in the same market so that in a recession everything goes down together.
Also franking is largely priced in as the price drops more than the dividend paid out, so you are getting much less return than the cash in your hand. It still provides a benefit but you have to decide if whatever benefit is left after what is priced-in is worth the concentration risk.
Post by: lush on October 08, 2019, 01:54:37 AM
Instead of this
Vanguard Australian Shares Index Fund (Wholesale) (VAS) $ 350,000
Vanguard International Shares Index Fund (Wholesale) $ 250,000
Vanguard Balanced Fund $ 1,000,000
Why not simplify to this
Vanguard High Growth Fund $ 600,000
Vanguard Balanced Fund $ 1,000,000
I don't understand what you mean by "like for like payouts
I will run the numbers over the suggestion you have made, so thanks for that.
What I meant by like for like payouts is the diversified portfolios are built on a number of individual funds, so for example the balanced fund has funds like VAS, INTER, Bonds, Small Caps etc. Each of these individual funds have a CPU distribution and my question is do they just roll up those CPU payouts to provide a total CPU distribution for the balanced fund, or do they change it in someway. Hope that makes sense.
Post by: lush on October 08, 2019, 02:12:06 AM
If it were me, i would consider how your other assets eg. property sits in that overall allocation...n'est pas?Well I have done the numbers for me and my partner to live to 100 and basically can see a point in time when we would need to sell our home and rental property to make it through the last 30 years. But no have not made it part of my asset allocation.
Post by: mjr on October 09, 2019, 03:19:17 AM
You're also protected from currency risk with a global AUD-hedged fund such as VGAD or IHWL, and it does not come with idiosyncratic country risk or the risk of having your employment and assets in the same market so that in a recession everything goes down together.
ffs. We get it, you subscribe to the view that the ASX is too small and concentrated. How nice for you. Go nuts overseas.
If there's a serious recession, *everything* is going down. The global economy is just that.
I'm quite happy with my allocation. I'm not all VAS, but there are plenty of people here who are. Australia is still one of the safest, most stable countries in the world and the ASX's returns for a hunrded plus years have been great.
Post by: chevy1956 on October 09, 2019, 03:36:20 PM
You're also protected from currency risk with a global AUD-hedged fund such as VGAD or IHWL, and it does not come with idiosyncratic country risk or the risk of having your employment and assets in the same market so that in a recession everything goes down together.
ffs. We get it, you subscribe to the view that the ASX is too small and concentrated. How nice for you. Go nuts overseas.
If there's a serious recession, *everything* is going down. The global economy is just that.
I'm quite happy with my allocation. I'm not all VAS, but there are plenty of people here who are. Australia is still one of the safest, most stable countries in the world and the ASX's returns for a hunrded plus years have been great.
Personally I don't like having all my equity investments in the Australian market. I think it's too small and concentrated. The thing is I also agree that the world economy and share markets are so interconnected. I can't see Australia having a recession and the world economy booming or vice versa.
I also have a chunk of shares in the company where I'm employed. They give us shares every year. It's not much but it adds up. I will sell those shares first post retirement dependent on the tax implications but when I retire I'll be less invested in that company as I'm not working there. This is potentially a sub-optimal approach but there would be tax implications from selling while I'm employed whereas once I am retired I shouldn't have any capital gains tax.
Post by: Juan Ponce de León on October 09, 2019, 05:14:06 PM
Post by: middo on October 09, 2019, 06:24:26 PM
Hey guys, interesting discussion! Personally, I don't like having all my equity investments in the Australian market. I think it's too small and concentrated. Peace out.
I'm with Trevor on this. On both counts.
Post by: Andy R on October 09, 2019, 07:22:45 PM
Personally I don't like having all my equity investments in the Australian market. I think it's too small and concentrated. The thing is I also agree that the world economy and share markets are so interconnected. I can't see Australia having a recession and the world economy booming or vice versa.
You could be right that in a crash, the whole world goes down, but it's not that simple.
The last downturn, the US was the epicentre and was hit extremely hard. Despite the Australian stock market dropping as much as the US market, the Australian economy got through relatively unscathed. We did not get the very high unemployment numbers of the US, we didn't have banks being told by the government that they must stop paying out dividends for fear of even more banks going under as businesses collapsed left right and center, property prices had a dip instead of a crash.
There is nothing stopping the next one from having Australia as being right in the eye of the storm and being hit severely, while many other countries get out relatively unscathed.
So the short term effects could easily be much worse than other countries even if all countries are hit.
Then we have the long term effects. It's not unimaginable that Australia just returns lower for a decade or two relative to the rest of the world. If you look at the first decade 2000-2010, the US did very poorly while emerging markets did extremely well. When you look at 2010 until now, it has completely reversed, so even if everything goes down together as they did, it does not mean there is no diversification benefit.
Post by: chevy1956 on October 09, 2019, 09:43:26 PM
The thing is who knows how the world and Australian economies are going to develop over the next 50 years.
Post by: Andy R on October 09, 2019, 10:43:35 PM
Was just hashing out some of the reasoning so that people can make their own decisions based on as much information as possible.
Post by: Alchemisst on October 10, 2019, 05:21:09 PM
Post by: dividenddestination on October 10, 2019, 05:57:06 PM
A bit about me.
30, living in Sydney for work with my partner - no kids, no property, no debt of any kind.
Current stash is about 415k outside of super, all low cost Aussie LICs, bringing in about 25k in grossed up divis. I've also got about 80k super in a low cost balanced fund (Host Plus).
With my partners modest portfolio (~30k) I'm keen to get us to around 28k grossed up dividend income by end of year and hopefully high 30's by the end of next year. I need to figure out where we will be sitting in terms of tax payable, given that most of the income comes from investments in my name (no trust option to split the income unfortunately). This will largely dictate our FIRE date.
I've also recently got a 100k margin facility approved and anxiously trying to figure out if gearing is worth it to accelerate the journey (I've not drawn any loans out of it yet).
Anyone here using the NAB equity builder?
Well done to everyone on the journey.
DD
Post by: Andy R on October 10, 2019, 06:49:53 PM
I've pretty much settled on a VAF, VEU, VTS, VAE portfolio for more diversity and less costs than VGS, however not too sure how I should hedge for currency risk, especially since the AUD is pretty low at the moment, is VGAD the best way to do this, are there other options? How much should I have?
VEU already contains EM, so just be aware that you are doubling up. Which is fine if you are doing it intentionally.
For whether to use currency hedging -
Generally, you want some AUD based assets to hedge against upside currency risk and some non-AUD based assets to hedge against downside currency risk.
However, the AUD-based assets includes your total assets (House, investment property, Australian business, AUD based bonds, Australian equities, AUD-hedged global equities).
If you are likely to retire with a paid off house, and with a high allocation of bonds (which is normal for those retiring at normal retirement age of 60-70), then you already have a lot of AUD based assets and probably no need any hedged equities.
If you retire early and need a more aggressive portfolio and/or you rent in retirement, and if you have a high proportion of global shares to reduce the concentration risk of Australian shares, then having so much of your assets exposed to currency risk probably warrants some AUD-hedged global equities like VGAD/IHWL
More information here.
Currency risk - personalising your AUD to non-AUD allocation (http://passiveinvestingaustralia.com/personalising-your-aud-to-non-aud-allocation)
Post by: Alchemisst on October 10, 2019, 07:53:50 PM
Post by: lush on October 10, 2019, 09:32:27 PM
My accountant firmly believes that Vanguard, as part of their managed services, should report all the CGT impacts, rather than me keeping a spreadsheet to try to reconcile parcels of purchases and sales to determine CGT. However the Vanguard representatives I have spoken to are adamant that is something that I need to keep track of and report to the ATO. Apparently Vanguard will provide the statement of sale, but will not undertake any evaluation of the CGT.
Can anyone help shed light on this one? Thanks.
Post by: mspym on October 10, 2019, 09:49:04 PM
ETA vanguard do provide details of any CGT events within the fund but not your personal CGT obligations due to buying and selling units.
Post by: lush on October 10, 2019, 09:57:06 PM
@lush Last year I moved from retail to wholesale funds and I provided my accountant with a spreadsheet of all purchases I had made for her to sort out the CGT for me. This is not something Vanguard do.
ETA vanguard do provide details of any CGT events within the fund but not your personal CGT obligations due to buying and selling units.
Thank you so very much! I felt like I was going a bit stir crazy! Thanks again.
Post by: chevy1956 on October 11, 2019, 02:04:07 AM
If you are likely to retire with a paid off house, and with a high allocation of bonds (which is normal for those retiring at normal retirement age of 60-70), then you already have a lot of AUD based assets and probably no need any hedged equities.
There are a lot of good arguments on why you should have a fair chunk of international equities that aren't hedged. My Super only offers a 50% hedging option and I use that. I use VGS outside of Super.
Post by: Mellow Mallow on October 12, 2019, 07:05:28 PM
Just wondering how risky it is to have all ex-Super investments being invested via one company. I did read the J. L. Collins article "What if Vanguard gets nuked", but, being a cautious person, just wanted to check what other people's opinions were on this before I stump up actual cash.
Post by: mjr on October 12, 2019, 07:11:18 PM
The only real exposure there is that if this did happen, you'd assume that the funds would be frozen for some time until administration was complete.
I personally don't see the point in diversifying index management companies.
Post by: Mellow Mallow on October 12, 2019, 08:51:20 PM
Vanguard's funds are held in trust, so if Vanguard Australia Pty Ltd goes belly-up, the funds won't be lost.
The only real exposure there is that if this did happen, you'd assume that the funds would be frozen for some time until administration was complete.
I personally don't see the point in diversifying index management companies.
Thank you, @mjr !
Post by: LonerMatt on October 12, 2019, 11:36:07 PM
Maybe bonds are the way.
Post by: Andy R on October 13, 2019, 01:07:13 AM
With the RBA dropping rates so low having lots of cash seems dumb, but I just don't know how long I need to sit on it for (ie, we might buy a house in <5 years).
Maybe bonds are the way.
Cash (TD or HISA) is not dumb.
The lower interest rates correlate with lower inflation so you are losing much less than the nominal amount.
Bonds are a long term investment. I would stick with HISA for a house deposit.
Post by: tnanks on October 13, 2019, 04:30:52 AM
Some basic questions here:
1) Is it possible to invest in the total market index fund (VTASX) and/or the Total market bond fund through Vanguard Australia?
Currently I'm invested in just one fund - Vanguard Diversified High Growth Index Fund (Retail). There is also a similar one, but is an ETF ( Identifier is VDHG), it has less fees and pays quarterly dividends. But it also doesn't look like you can contribute via BPAY?
So this brings me to Q2) What are the major differences between the funds and which one would you recommend?
Any suggestions of a basic structure of the portfolio would be much appreciated.
Thanks in advance.
Post by: Daniel S on October 14, 2019, 03:44:47 AM
Assuming an index ETF like VAS returns a dividend yield of 4% and is 70% franked, how much would franking credits amount to for somebody not paying any tax? Could it be calculated as 0.04 (yield) * 0.7 (franking) * 0.3 (corporate tax rate) = 0.84%?
Thanks!
Post by: Andy R on October 14, 2019, 05:19:33 AM
Quick question:
Assuming an index ETF like VAS returns a dividend yield of 4% and is 70% franked, how much would franking credits amount to for somebody not paying any tax? Could it be calculated as 0.04 (yield) * 0.7 (franking) * 0.3 (corporate tax rate) = 0.84%?
Thanks!
If it is 70% franked and yield of 4%, then it would be 2.8% franked dividends, so since 30% tax was paid, you would be considered to have earned 100/70 * 2.8% = 4% and therefore credited as paid 1.2%.
So if you assume a return of 4% dividends and 4% growth, then this should bump your return from 8% to 9.2%
This would be accurate except for the fact that the market knows of this free money, and as a result, when dividends are paid out, the share price drops more than the value of the dividend paid out, so you are not getting this extra 1.2% once this is accounted for.
You can check the references in the below link which estimates that you lose around 40-80% of your franking credits due to this pricing-in
http://passiveinvestingaustralia.com/franking-credits-how-much-more-are-you-really-getting
If we guess it is 60% priced-in, then your 1.2% bonus drops down to about 0.5%
So if you have 100% of your investments in Australian equities, and an expected 8% return, this means it would become 8.5%.
I think it would be a lot of concentration risk to have 100% of your investment in the highly concentrated Australian market, so if you have 40% Australian equities (which I'd consider to be a lot), then the added benefit of franking would be about 0.2% so an expected return of maybe 8% becomes 8.2%.
So basically, a lot of it is priced-in meaning you are losing most of your return in a way that you don't notice (price drops), and beyond that you're making a decision of whatever is left of franking credits vs the concentration risk of how much you have in Australian equities.
Post by: mjr on October 14, 2019, 02:54:17 PM
Yet again you're pushing this factoid and your Australian market concentration risk viewpoint, despite the fact that the poster didn't ask for this. Yet again you're posting references from passiveinvestingaustralia.com. How come ?
Post by: Daniel S on October 14, 2019, 06:44:12 PM
If it is 70% franked and yield of 4%, then it would be 2.8% franked dividends, so since 30% tax was paid, you would be considered to have earned 100/70 * 2.8% = 4% and therefore credited as paid 1.2%.
Post by: Andy R on October 14, 2019, 08:31:29 PM
The fact that the market prices in some of the franking credits in the ex-dividend price drop is irrelevant to a long term investor. The franking credits still represent income to someone who is below the tax-free threshold and the price will recover over the next quarter before the next dividend payout.
When a share goes ex-dividend, the share price drops by that amount because dividends are not free money, they come out of the share price. This was first shown over 50 years ago. I suggest you look up Dividend Irrelevance Theory for more information.
In the same way, if you get a dividends of $4,000 from Australian shares and franking credits of $1,200, and the share price drops not just the $4,000 from the dividends, but another $720 more due to the market pricing in franking credits, even though you have got $1,200 paid out to you in cash, you can't just conveniently say the loss in value of shares of $720 doesn't matter.
Saying that the price will recover is no different from saying that dividends do not come out of the price of the shares, which is nonsense.
Yet again you're pushing this factoid and your Australian market concentration risk viewpoint, despite the fact that the poster didn't ask for this. Yet again you're posting references from passiveinvestingaustralia.com. How come ?
The website is not monetised and I crated it so that I don't have to write out long posts each time.
By framing it to say that I gain something from it and therefore am biased, you're trying to "win" you point by way of discrediting me rather than arguing the facts.
Post by: mjr on October 14, 2019, 09:17:41 PM
When a share goes ex-dividend, the share price drops by that amount because dividends are not free money, they come out of the share price. This was first shown over 50 years ago. I suggest you look up Dividend Irrelevance Theory for more information.
Maybe you can point out to me where I said that dividends are free money. I said that franking credits for those who are below the tax-free threshold are income - that's it.
In the same way, if you get a dividends of $4,000 from Australian shares and franking credits of $1,200, and the share price drops not just the $4,000 from the dividends, but another $720 more due to the market pricing in franking credits, even though you have got $1,200 paid out to you in cash, you can't just conveniently say the loss in value of shares of $720 doesn't matter.
Sure I can. Thought experiment: Let's say that the dividend is 90% of the share price. Every quarter, it drops by 90+%. Every quarter, it recovers. The dividend payout plus the franking credits are income and it's a lot more income than if it is paying 4% p.a. Obvously this would dramatically impact the growth potential of the share, but that's not the argument. I'm sayng that the fact the share price drops by more than the dividend and recovers makes it the "extra" drop due to the franking credits irrelevant. No one here bar you said anything about free money.
Yet again you're pushing this factoid and your Australian market concentration risk viewpoint, despite the fact that the poster didn't ask for this. Yet again you're posting references from passiveinvestingaustralia.com. How come ?
The website is not monetised and I crated it so that I don't have to write out long posts each time.
By framing it to say that I gain something from it and therefore am biased, you're trying to "win" you point by way of discrediting me rather than arguing the facts.
Hey, I worked out by how much you refer to it that you probably owned it, but I didn't claim that, nor that you were trying to gain something from it. I asked "How come" ? Nothing more.
Speaking of deflections, you haven't answered my question. Why do you keep bringing your viewpoint on this up even when it's not part of the question being asked ?
Post by: Andy R on October 14, 2019, 09:46:54 PM
Do you really not see how fallacious this argument is?
If you set alight $500 and go and earn $500 more, it does not mean that the original $500 was never lost.
2. You are also saying that the price drop when shares go ex-dividend can be ignored for franking credits but not for dividends.
3. I'm not "pushing" a "factoid". And through this use of language, you are not merely asking "how come".
I'm pointing out the concentration risk because it is a risk that people should be aware of.
If it bothers you, don't read it.
If you disagree with it, then disagree with the logic of the argument, don't try and censor me by use of accusing language.
Post by: mjr on October 14, 2019, 09:57:51 PM
I did respond to your comments, some posts ago. I'm not even disagreeing with you that concentration risk exists, I've already stated that I am not 100% Australian equities.
I'd like to ignore you, but you keep banging that drum. My question was "why" ? You pointed it out less than a week ago and unbidden you bring it out again. As I said a few days ago, "ffs. We get it".
Post by: Juan Ponce de León on October 15, 2019, 01:33:32 AM
Post by: marty998 on October 17, 2019, 02:38:04 PM
1. Your entire point is based on your idea that "Every quarter, it recovers.".
Do you really not see how fallacious this argument is?
If you set alight $500 and go and earn $500 more, it does not mean that the original $500 was never lost.
2. You are also saying that the price drop when shares go ex-dividend can be ignored for franking credits but not for dividends.
Well yeah, for most equities it does recover, because that's how equities are valued - future expectations. Only for ETFs and other funds traded at NAV does the academic theory on share price valuations perfectly hold. For every other business, it's based on expectations.
By the time a dividend is declared in respect of a previous half or quarter's results, the market is already looking forward to the next period's results.
Put up a graph of CBA's share price (down) against it's book value (up) and you'll see the difference, especially over the last five years.
Post by: Andy R on October 17, 2019, 06:41:33 PM
I tend to agree with mjr on this one, with a slightly different take on it...1. Your entire point is based on your idea that "Every quarter, it recovers.".
Do you really not see how fallacious this argument is?
If you set alight $500 and go and earn $500 more, it does not mean that the original $500 was never lost.
2. You are also saying that the price drop when shares go ex-dividend can be ignored for franking credits but not for dividends.
Well yeah, for most equities it does recover, because that's how equities are valued - future expectations. Only for ETFs and other funds traded at NAV does the academic theory on share price valuations perfectly hold. For every other business, it's based on expectations.
By the time a dividend is declared in respect of a previous half or quarter's results, the market is already looking forward to the next period's results.
Put up a graph of CBA's share price (down) against it's book value (up) and you'll see the difference, especially over the last five years.
I'm not really sure what your point is.
The future expectations were priced in the day before a dividend is paid out also. What changes on the day a share goes ex-dividend is based on
- all the usual expectation changes that have occurred in that 1 day; and
- the fact that a withdrawal has been made from the company to the owners (shareholders)
For the share price to "recover" back to the pre-withdrawal amounts, the future expectations of growth are going to have to be priced-in, meaning a recovery is based on (expected) new earnings, not on some idea that the drop in price when dividends are paid out is temporary and therefore irrelevant.
The point is that the price drop is definitely relevant and represents a value of your shares being removed from the company.
Similarly, when the share price drops more than the dividend amount due to franking credits being priced-in, the fact that the price eventually goes back up does not mean that a portion of your franking credits has not been eaten away.
Post by: deborah on October 17, 2019, 06:58:27 PM
But although franking credits are generally related to company taxes, they’re not the same thing.
Post by: Andy R on October 17, 2019, 07:31:52 PM
I don’t see how franking credits has anything to do with price changes ex dividend.
It is essentially free money, so people arbitrage it away (in part).
Vanguard's research (https://www.vanguardinvestments.com.au/adviser/adv/articles/insights/research-commentary/asset-allocation/The-role-of-Australian-equities-and-the-impact-of-home-country-equity-bias.jsp?lang=en)
Quote from: Vanguard
Investors place a higher value on dividends paid by
companies that have imputation credits attached.
This is evident in the domestic market place.
Usually after a company’s dividend is paid, the
share price drops further than the cash payment of
the dividend due to the added value placed on the
imputation credit. Our analysis of the dividend
payments from one of the largest companies by
market cap in the Australian market, National
Australia Bank (ASX Code: NAB), found that out of
64 dividend payments since 1987, when dividend
imputation was introduced, the ex-dividend price
fell by more than the cash dividend 69% of the
time. Of the declines, nearly half were of an
amount greater than the grossed-up dividend, the
other half being an amount slightly less than the
grossed-up amount. Similar results were obtained
from analysis of other major Australian companies
paying dividends that have an imputation component.
Other research found the same thing.
The Financial Implications of the Dividend Imputation System (https://ap01-a.alma.exlibrisgroup.com/view/delivery/61UNSW_INST/12186955770001731)
Dividend imputation – its rationale and its impact on superannuation outcomes (https://www.superannuation.asn.au/ArticleDocuments/359/ASFA_Dividend-imputation.pdf.aspx)
Estimating The Market Value Of Franking Credits (https://www.murdoch.edu.au/School-of-Business-and-Governance/_document/Australian-Conference-of-Economists/Estimating-the-market-value-of-franking-credits.pdf)
Post by: deborah on October 17, 2019, 08:07:09 PM
Post by: Andy R on October 17, 2019, 11:33:06 PM
It’s interesting that some of the papers you quote say that the research has found mixed results, rather than showing definitive results. It suggests that the research isn’t as black and white as you claim.
I didn't claim the full amount was priced in. I said that it is partially priced-in, which is what the research shows, and is likely due to the fact that international investors don't receive the franking credits.
If over decades 40-80% is priced in, is the fact that it is not an exact number somehow saying that franking credits are not being priced in?
If you look at non-Australian share prices, they doesn't fall by exactly the amount of the dividend paid out when they go ex-dividend, sometimes it's more and sometimes it's less. This is because the rest of the time when dividends are not paid out, the share price moves up and down. The market is reacting to new information about the company, sector, or market it is in. When a share goes ex-dividend, these forces are still in play, and therefore the share price doesn't drop by exactly the price of the dividend. This doesn't mean it's somehow not "black and white" that dividends are priced into by a drop in share price. In the same way, just because it doesn't drop by an exact amount each time doesn't mean that franking credits are not priced in.
This amount (however much it is), means that for the franking credits you get in your hand, part this amount is lost due to a drop in share price.
If you mean that it is not black and white how much it is priced in, then yes, by the nature of not all of it being priced-in due to international shareholders who don't get franking credits, and with all the other information being priced in and changing constantly, it is impossible to tell exactly how much.
Post by: mjr on October 18, 2019, 02:58:45 AM
This amount (however much it is), means that for the franking credits you get in your hand, part this amount is lost due to a drop in share price.
Golly, so all the income I receive from dividends that I get in my hand, 100% is "lost" due to a drop in the share price.
Silly me, I thought that that money was worth something. Guess I'll completely ignore dividends from now on, they're worthless.
Post by: flaky on October 24, 2019, 08:16:09 PM
Can I run this general plan past you? I plan on buying both VEU/VTS in roughly equal measure to approximate the total world market until I approach retirement, how far away I am from retirement is still an entirely open question. I currently have low expenses. Over the last year, which is my first managing any investments, I invested roughly 25k which is above 50% of my after tax income. I make only the mandatory contributions to super, which is all invested in low-cost international equities (AUD hedged) too. I have submitted my W8-BENs on time and am happy to continue keeping it up to date.
My question relates to tax. I understand I should be approaching my tax agent to claim a tax credit, but I don't fully understand for what, how much I might get back based on my income or what documents to give them. Should I consider making pre-tax super contributions given my relatively low taxable income? If my income increases when should I start considering this?
Post by: mjr on October 24, 2019, 09:02:47 PM
If VTS/VEU, you'll be paying 15% withholding tax which you can claim as a foeign tax credit, subject to some restrictions/conditions if you try and claim more than $1000 a year. Dividend payment advices will show the amounts.
Regarding super contributions, there are plenty of articles around. We don't know your age, income, wealth inside and outside of super, housing situation, etc.
Big picture, you need housing and living expenses to cover to you until super preservation age age at least, assuming you want to retire early. So you'll want some tidy amount out of super. How you get there is up to you.
Personally, I got most of that sorted first and then started maxing out my concessional contributions and making non-concessional as well. But what worked for me may not be right for you.
You may want to look here as well http://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333550/#msg1333550 (http://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333550/#msg1333550)
Post by: retiremefast on October 27, 2019, 11:45:01 PM
Good day fellow Mustachians,
I have joined the Aussi investing culture with a FIRE plan in mind. It is a semi-RE as I am not excluding work 100% .. just part-time / project based consultancy instead of 9-5 daily enforcement.
My case is presented here: https://forum.mrmoneymustache.com/ask-a-mustachian/fire-in-australia (https://forum.mrmoneymustache.com/ask-a-mustachian/fire-in-australia)
Q1: anyway to contact an Admin to move it from "ask-a-mustachian" to "case studies" category?
I have joined the Aussi investing culture with a FIRE plan in mind. It is a semi-RE as I am not excluding work 100% .. just part-time / project based consultancy instead of 9-5 daily enforcement.
My case is presented here: https://forum.mrmoneymustache.com/ask-a-mustachian/fire-in-australia (https://forum.mrmoneymustache.com/ask-a-mustachian/fire-in-australia)
Q1: anyway to contact an Admin to move it from "ask-a-mustachian" to "case studies" category?
Quote
Gross Salary/Wages:
me (IT Consultant): AU$92k / year (9.5% Australian Super included)
her (Internal Auditor): AU$109k / year (10% Sun Super included)
Take-home total income (after taxes and Super): AU$ 138k
- no additional source of income outside salaries
Current expenses: AU$ 61k / year
1. Fixed expenses: AU$48.5k / year
Rent: AU$2.2k / month (AU$26.1k / year)
Utilities: AU$0.4k / month (AU$4.8k / year)
Transport: AU$0.3k / month (AU$3.6k / year)
Supermarket basket: AU$1k / month (AU$12k / year)
Romanian household): AU$0.2k / month
2. Casual / Temporary expenses: AU$12k / year
Mortgage (Romanian apartment): AU$0.5k / month. It is planned to be fully paid by July’20
Fun & Extras (Australian lifestyle): AU$@1k / month
Assets:
1. 3-bedroom apartment in Bucharest (capital of Romania). When it will be fully paid, we think on put it on the market for rent. Possible income would be AU$0.6k / month (AU$7.2k / year)
2. Romanian Savings Account (EURO) of EUR5.5k = AU$9k with no interest at the moment. Will be converted to RON to benefit from the 4% Bonus interest in the first 4 months after which, most likely, will be used to advance repay the mortgage.
3. Romanian Savings Account (RON) of RON28k = AU$10k with 1% annual interest (compound monthly) at the moment. Will be merged with EURO savings into 1 single account to benefit from the 4% Bonus interest in the first 4 months after which, most likely, will be used to advance repay the mortgage.
4. Australian Savings Account (AUD) of AU$19k with 1.95% annual interest (compound monthly)
Desired Asset Allocation:
Ideally, my aim is for a Vanguard Australia Growth ETF Portfolio with 80% Growth / 20% Income, that will be adapted every 5 years (Income will grow up and Growth will shrink down). Until reaching the CASH cap will be hit (AU$100k), no BONDS will be included. After that, only BONDS will cover the 10% of Income. We will start with AU$5k which will be adjusted as long as family income will go up with time
• 80% Growth
o 40% VAS (Vanguard Australian Shares Index ETF – Fact sheets) - AU$2k
Management Fee: 0.10%
Performance (since inceptions): 9.88% (4.68% distribution + 5.20% growth)
Equity yield (dividend): 4.1%[/li][/list]
o 40% VGS (Vanguard MSCI World ex-Australia Index International Shares ETF – Fact sheets) - AU$2k
Management Fee: 0.18%
Performance (since inceptions): 13.04% (3.49% distribution + 9.55% growth)
Equity yield (dividend): 2.4%
• 20% Income
o 10% VBND (Vanguard Global Aggregate Bond Index (Hedged) ETF – Fact sheets) - AU$0.5k
Management Fee: 0.20%
Performance (since inceptions): 5.3% (1.81% distribution + 3.49% growth)
Yield to maturity (dividend): 1.34%
o 10% CASH = ING Savings Maximizer 1.95% / year (max AU$ 100k) - AU$0.5k
Above plan being shared with you guys, I know that improvements can be made. Shoot .. but be gentile:
Q1: what are the flows that you can easily spot in the above plan?
Q2: most likely will use SelfWealth when I will go live with the plan. Will I be able to find VBND when I will decide to invest into BONDS? (currently playing around with SaxoTrader and VBND is not available. Will there be a better alternative?
Q3: as my current CASH savings will go on closing the mortgage, is it OK to just focus on CASH safetynet and put BONDS aside in the beginning? For sleeping better everynight, I was planning on raising AU$ 100k in our ING Savings Account and only after that to switch to BONDS and focus more on investing plan above. What do you think about this?
Q4: my income will most likely increase starting Feb.20 to around AU$110k / year which will bust our yearly NET income (after TAX and SUPER) to AU% 150k. That is the time when I will consider applying Salary Sacrifice to match our employers 10% paid into Super. This will lower our Tax Margins as well as will increase the Super allocation. Is there a better way to make our income tax-efficient?
Post by: marty998 on October 28, 2019, 01:03:52 AM
I don't understand what you need $100k cash for if you are not buying a house here.
Where in Australia are you located? Where do you want to live after you FIRE? You are looking at all the sexy investing stuff without planning your endgame, which is more important IMO. Once you know that, then you can figure out a roadmap for how to get there.
Post by: retiremefast on October 28, 2019, 04:16:17 AM
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?
Post by: marty998 on October 28, 2019, 02:23:55 PM
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.
Post by: deborah on October 28, 2019, 02:32:59 PM
Post by: retiremefast on October 28, 2019, 02:41:35 PM
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!
Post by: Reversifi on October 29, 2019, 12:52:48 AM
Thanks!
Post by: mjr on October 29, 2019, 01:58:53 AM
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 (https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=8206/?portfolio)
Post by: vinland on October 29, 2019, 03:50:33 AM
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
Post by: deborah on October 29, 2019, 04:07:42 AM
Post by: Andy R on October 29, 2019, 04:50:56 AM
Managing a windfall - Bogleheads (https://www.bogleheads.org/wiki/Managing_a_windfall)
6 Things To Consider When Investing A Lump Sum - Rick Ferri (https://www.forbes.com/sites/rickferri/2015/09/08/6-things-to-consider-when-investing-a-lump-sum/#6812648011d3)
The Lump Sum vs. Dollar Cost Averaging Decision - A Wealth of Common Sense (https://awealthofcommonsense.com/2018/05/the-lump-sum-vs-dollar-cost-averaging-decision/)
Post by: Wadiman on October 29, 2019, 06:33:35 PM
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
Post by: Reversifi on October 29, 2019, 06:53:24 PM
https://hostplus.com.au/self-managed-invest/your-tailored-investment-options/ifm
Post by: vinland on October 29, 2019, 07:09:08 PM
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!
Post by: vinland on October 29, 2019, 07:11:43 PM
Some advice for lump sum investing
Managing a windfall - Bogleheads (https://www.bogleheads.org/wiki/Managing_a_windfall)
6 Things To Consider When Investing A Lump Sum - Rick Ferri (https://www.forbes.com/sites/rickferri/2015/09/08/6-things-to-consider-when-investing-a-lump-sum/#6812648011d3)
The Lump Sum vs. Dollar Cost Averaging Decision - A Wealth of Common Sense (https://awealthofcommonsense.com/2018/05/the-lump-sum-vs-dollar-cost-averaging-decision/)
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!
Post by: Andy R on October 29, 2019, 07:29:09 PM
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.
Post by: Andy R on October 29, 2019, 07:34:53 PM
Some advice for lump sum investing
Managing a windfall - Bogleheads (https://www.bogleheads.org/wiki/Managing_a_windfall)
6 Things To Consider When Investing A Lump Sum - Rick Ferri (https://www.forbes.com/sites/rickferri/2015/09/08/6-things-to-consider-when-investing-a-lump-sum/#6812648011d3)
The Lump Sum vs. Dollar Cost Averaging Decision - A Wealth of Common Sense (https://awealthofcommonsense.com/2018/05/the-lump-sum-vs-dollar-cost-averaging-decision/)
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.
Post by: Reversifi on November 03, 2019, 07:03:17 PM
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?
Post by: JimmyMac on November 04, 2019, 03:36:17 AM
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.
Post by: marty998 on November 04, 2019, 01:16:40 PM
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.
Post by: Reversifi on November 04, 2019, 05:21:38 PM
Post by: mjr on November 05, 2019, 01:39:17 AM
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.
Post by: marty998 on November 05, 2019, 02:18:09 AM
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.
Post by: Alchemisst on November 12, 2019, 08:01:42 PM
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?
Post by: Reversifi on November 12, 2019, 08:11:03 PM
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/
Post by: lush on November 17, 2019, 05:43:37 PM
https://www.financialsamurai.com/forums/
A bit of a rip off right! But interested if anyone has found it useful.
Post by: marty998 on November 18, 2019, 01:22:36 PM
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.
Post by: happy on November 18, 2019, 01:55:30 PM
Post by: Reversifi on November 18, 2019, 08:05:39 PM
Content and community will determine if it sinks or swims.
Post by: Andy R on November 18, 2019, 08:46:25 PM
Post by: happy on November 18, 2019, 10:51:20 PM
Meh, it's an off the shelf product. https://simplemachines.org/Never said otherwise
Content and community will determine if it sinks or swims.
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
Post by: Andy R on November 19, 2019, 12:11:12 AM
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.
Post by: happy on November 19, 2019, 12:54:55 AM
Post by: mjr on November 21, 2019, 01:12:00 PM
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.
Post by: marty998 on November 21, 2019, 01:31:10 PM
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.
Post by: mjr on November 21, 2019, 01:47:29 PM
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.
Post by: lush on November 21, 2019, 08:32:14 PM
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/
Post by: mjr on November 25, 2019, 03:07:36 PM
Hartzer won't survive, the question is how much of the board will go with him.
and there we go...
Post by: marty998 on November 26, 2019, 12:07:04 AM
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 :)
Post by: Reversifi on November 26, 2019, 12:14:29 AM
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%
Post by: Slow_Loris on November 26, 2019, 09:24:23 PM
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.
Post by: Reversifi on November 26, 2019, 09:29:30 PM
Post by: Slow_Loris on November 26, 2019, 10:30:04 PM
Post by: deborah on November 26, 2019, 11:06:38 PM
Post by: Slow_Loris on November 26, 2019, 11:50:16 PM
Post by: marty998 on November 28, 2019, 04:36:11 PM
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).
Post by: Chris-93AUS on December 03, 2019, 09:14:41 PM
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!
Post by: Andy R on December 03, 2019, 10:07:21 PM
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.
Post by: Chris-93AUS on December 03, 2019, 10:29:18 PM
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!
Post by: marty998 on December 04, 2019, 02:28:19 AM
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 :(
Post by: Reversifi on December 04, 2019, 04:35:48 AM
Post by: mjr on December 04, 2019, 01:55:06 PM
I predict it'll be back up to record highs in 2 months.
Post by: Little Aussie Battler on December 04, 2019, 11:14:03 PM
Post by: mjr on December 05, 2019, 02:15:17 AM
Post by: chevy1956 on December 05, 2019, 02:37:53 AM
Post by: Alchemisst on December 06, 2019, 05:45:20 PM
Post by: mjr on December 06, 2019, 07:20:28 PM
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.
Post by: Andy R 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%
Post by: Alchemisst on December 08, 2019, 04:24:09 PM
Post by: mjr on December 08, 2019, 07:49:05 PM
Post by: Andy R on December 08, 2019, 08:05:25 PM
Just saying "rates are low therefore bonds are no good" is a overly simplistic. I've tried to cover a number of concepts here (https://www.passiveinvestingaustralia.com/cash-vs-bonds-in-your-portfolio). 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.
Post by: mjr 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.
Post by: lush on January 05, 2020, 09:49:18 PM
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
Post by: Alchemisst on January 06, 2020, 07:18:41 PM
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%?
Post by: itchyfeet on January 06, 2020, 08:30:59 PM
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.
Post by: Minion on January 06, 2020, 10:32:08 PM
Post by: Alchemisst on January 06, 2020, 10:58:13 PM
Post by: dominikm on January 07, 2020, 08:38:55 AM
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!
Post by: Minion on January 08, 2020, 01:12:06 AM
Post by: itchyfeet on January 08, 2020, 02:27:36 AM
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. 😆
Post by: dominikm 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/ (https://forum.mrmoneymustache.com/journals/dominik's-journey-to-$3mm-d/)
Post by: Alchemisst on January 08, 2020, 03:42:49 AM
Post by: Rob_S on January 08, 2020, 03:55:56 AM
Post by: Rob_S 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.
Post by: Alchemisst 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?
Post by: mrmoonymartian on January 09, 2020, 01:41:15 AM
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).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?
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.
Post by: lush 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.
Post by: mjr on January 09, 2020, 05:45:43 PM
Over the last 2 years. my VAS stocks have returned 6% (grossed up) in dividends and 8% capital gains. I'm popping champagne corks.
Post by: Andy R on January 09, 2020, 06:50:10 PM
Shame you can't get access to any of the other 27% by selling some.
Post by: mjr 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.
Post by: lush on January 10, 2020, 03:11:19 PM
Post by: mjr on January 10, 2020, 03:26:23 PM
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.
Post by: hm520 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
Post by: itchyfeet 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.
😂
Post by: lush 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.
Post by: misterhorsey on January 11, 2020, 05:21:08 PM
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.
Post by: mjr 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.
Post by: Andy R on January 11, 2020, 08:44:29 PM
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.
Post by: mjr 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.
Post by: lush on January 11, 2020, 09:16:11 PM
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.
Post by: mjr on January 11, 2020, 10:04:40 PM
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 ?
Post by: lush 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.
Post by: Andy R 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.
Post by: deborah on January 12, 2020, 01:15:22 AM
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?
Post by: lush 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
Post by: misterhorsey 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.
Post by: lush on January 14, 2020, 04:24:15 PM
Post by: Alchemisst on January 15, 2020, 02:22:14 PM
Post by: deborah 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.
Post by: Alchemisst 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
Post by: mjr 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.
Post by: happy on January 15, 2020, 07:01:29 PM
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.
Post by: mjr on January 15, 2020, 07:09:20 PM
Post by: happy on January 16, 2020, 03:47:57 AM
Post by: mjr on January 16, 2020, 02:08:06 PM
Post by: marty998 on January 21, 2020, 11:43:30 PM
Post by: mjr on January 22, 2020, 01:51:42 AM
On the plus side, I'm now within $10k now of the big 3. I crossed the big 2 in June 2018 ! Holy sheeet.
Post by: MrThatsDifferent on January 30, 2020, 12:24:11 PM
Post by: deborah on January 30, 2020, 12:34:09 PM
***Dumb question alert*** Will the Aussie dollar ever get better? During the gfc, it exceeded the USD. Are we ever going to see that again? And if it rises, do any of you do anything to take advantage of the better exchange rate before it drops again? I’m just thinking about how much more money I need if I want to live outside Australia while retired, and want the US and Europe as options not just SE Asia and Central America.It will get better. It will also get worse. As I travel overseas each year, I have some money in the money market that I use if it's better value than I can get when I'm traveling. So far, this strategy has paid dividends, but I realise it's market timing. If you plan to live in other places, you should adjust your investments so that your 'home bias' includes those places. That way you should be able to afford all the places you want to live, but will probably be slightly worse off than if you only had one country as your 'home bias'.
Post by: MrThatsDifferent on January 30, 2020, 12:44:04 PM
***Dumb question alert*** Will the Aussie dollar ever get better? During the gfc, it exceeded the USD. Are we ever going to see that again? And if it rises, do any of you do anything to take advantage of the better exchange rate before it drops again? I’m just thinking about how much more money I need if I want to live outside Australia while retired, and want the US and Europe as options not just SE Asia and Central America.It will get better. It will also get worse. As I travel overseas each year, I have some money in the money market that I use if it's better value than I can get when I'm traveling. So far, this strategy has paid dividends, but I realise it's market timing. If you plan to live in other places, you should adjust your investments so that your 'home bias' includes those places. That way you should be able to afford all the places you want to live, but will probably be slightly worse off than if you only had one country as your 'home bias'.
Thank you for responding. I’m a bit confused by what you mean. Say I live in Australia but want to move to Portugal to live. So, you’re saying I need European investments in my index portfolio? I use the Vanguard high growth Lifestrategy fund, don’t think I can change that. Is home bias Australia?
Post by: deborah on January 30, 2020, 02:00:24 PM
- our companies participate in other economies,
- we get more value from Australian shares because of our taxation rules,
- we need somewhere to live, so buy property here,
- we live in Australia, and are using Australian dollars, so need to have our investments giving us an Australian wage...
BUT it is still home bias.
If you plan to live in Portugal, Australia and the USA, you need to change your home bias to Portugal, Australia and the USA. How you do this is up to you. You can get a European index and an American index, you can buy property in your home countries...
Post by: mjr on February 06, 2020, 04:09:12 PM
On the plus side, I'm now within $10k now of the big 3. I crossed the big 2 in June 2018 ! Holy sheeet.
Took 16 days and plunged a couple of times, but as of right now the invested assets is north of $3m. That's a $400k increase in the 18 months since I stopped work.
Post by: chevy1956 on February 07, 2020, 02:18:44 AM
On the plus side, I'm now within $10k now of the big 3. I crossed the big 2 in June 2018 ! Holy sheeet.
Took 16 days and plunged a couple of times, but as of right now the invested assets is north of $3m. That's a $400k increase in the 18 months since I stopped worked.
That was good timing to retire. I'm worried it's going to come down when I retire. I do have bonds to draw down on at the start though.
Post by: mrmoonymartian on February 07, 2020, 06:28:33 AM
@Daniel S check out his latest update...
I don't know if this is a widespread concern, but one niggle for me at least with the latest update is that countries outside the US can't specify US for the international stocks any more, but are locked into WLD. In an ideal WLD, I would be able to select from more of the investment options you have data for, in a single portfolio (eg. domestic TSM + US SCV + EM + WLD REITS +...). But I would understand completely if the response is: "I'm afraid I can't do that, Dave".
Thanks for your hard work Tyler.
I agree that it would be great to see some US based assets added, converted back to $AUD. It looks like you've done this for SCV in Canadian portfolios. In Australia we have a reasonable variety of listed US markets ETFs available to choose from, and many people use them in their portfolios. We also have the option of buying NYSE ETFs directly through our local brokers.
https://portfoliocharts.com/2020/01/06/the-future-of-portfolio-analysis-has-more-history-than-ever/ (https://portfoliocharts.com/2020/01/06/the-future-of-portfolio-analysis-has-more-history-than-ever/)
Post by: Daniel S on February 07, 2020, 07:01:54 AM
@Daniel S check out his latest update...
I don't know if this is a widespread concern, but one niggle for me at least with the latest update is that countries outside the US can't specify US for the international stocks any more, but are locked into WLD. In an ideal WLD, I would be able to select from more of the investment options you have data for, in a single portfolio (eg. domestic TSM + US SCV + EM + WLD REITS +...). But I would understand completely if the response is: "I'm afraid I can't do that, Dave".
Thanks for your hard work Tyler.
I agree that it would be great to see some US based assets added, converted back to $AUD. It looks like you've done this for SCV in Canadian portfolios. In Australia we have a reasonable variety of listed US markets ETFs available to choose from, and many people use them in their portfolios. We also have the option of buying NYSE ETFs directly through our local brokers.
https://portfoliocharts.com/2020/01/06/the-future-of-portfolio-analysis-has-more-history-than-ever/ (https://portfoliocharts.com/2020/01/06/the-future-of-portfolio-analysis-has-more-history-than-ever/)
Thanks for this mrmoonymartian. Our prayers have been answered!
Post by: mjr on February 07, 2020, 04:18:30 PM
That was good timing to retire. I'm worried it's going to come down when I retire. I do have bonds to draw down on at the start though.
It was, that's for sure. But even if the share market comes a gutsa in the next couple of years, it's likely that a higher withdrawal rate will be ok on the reduced valuations.
Of course, my skiting at 9:10 resulted in the market turning so my total closed $7k underneath that magic number :-)
I don't plan on my withdrawal rate ever exceeding 3% on my curretn valuation. For now, I'm puttering along nicely at 1%, but that will change when I get less nervous (fingers crossed)
Post by: chevy1956 on February 08, 2020, 03:57:56 PM
I don't plan on my withdrawal rate ever exceeding 3% on my curretn valuation. For now, I'm puttering along nicely at 1%, but that will change when I get less nervous (fingers crossed)
Once you are at 3% you are good. You will end up filthy rich at this rate at least in terms of wealth to spending needs which to me is what it means to be wealthy. If you want to spend you should spend.
Post by: marty998 on February 26, 2020, 01:56:32 AM
5238 units of VAS @ $88.56, best part of half a million. The market did what it did and continued racing upwards to $91 and I sat there contemplating whether I should have let it run until closer to the property settlement before the red ink spilt this week. If I hadn't sold I'd be shitting bricks right now.
Bird in the hand allows me to sleep at night, have the cash sitting in the bank account staying deathly static while commsec has blood all over every page.
Stay the course and buy more if you can, but this little piggy is happy with his impeccable market timing :D
Post by: deborah on February 26, 2020, 02:18:39 AM
Post by: marty998 on February 26, 2020, 05:38:02 AM
Well done Marty!
Thanks. Dumb luck more than anything haha. At work we were in disbelief that the markets hadn't reacted to COVID-19 earlier than they did. Like we're supposed to have believed that China had it all under control?
Post by: MrThatsDifferent on February 26, 2020, 11:07:39 AM
Well done Marty!
Thanks. Dumb luck more than anything haha. At work we were in disbelief that the markets hadn't reacted to COVID-19 earlier than they did. Like we're supposed to have believed that China had it all under control?
What an interesting move, buying the investment property. Would you be able to walk us through your thinking? You’re going to get a tax hit for selling right? And then stamp duty and the costs of purchase? Do you believe the investment property will yield more than index funds? What’s convinced you that active management of property is financially smarter?
Not trying to challenge you, just learn as you’re one of the members whose views I value here.
Post by: itchyfeet on February 26, 2020, 11:09:11 AM
Well done Marty!
Thanks. Dumb luck more than anything haha. At work we were in disbelief that the markets hadn't reacted to COVID-19 earlier than they did. Like we're supposed to have believed that China had it all under control?
What an interesting move, buying the investment property. Would you be able to walk us through your thinking? You’re going to get a tax hit for selling right? And then stamp duty and the costs of purchase? Do you believe the investment property will yield more than index funds? What’s convinced you that active management of property is financially smarter?
Not trying to challenge you, just learn as you’re one of the members whose views I value here.
Good questions
Post by: mjr on February 26, 2020, 12:33:45 PM
Good luck with bailing on the markets when you did, but a wholesale shift from equities to (Sydney ?) based investment property is not something I would have considered.
Numerous articles in the Australian in the last week about terrible yield from property at the moment. Of course, this doesn't preclude capital growth, but then you get into the whole can't-sell-off-pieces for income in retirement when you need to.
That's assuming of course that said IP isn't in an SMSF.
I'm not sure only a 6% drop is worth buying more, but I do have to move some cash into my own SMSF soon, so this may be the time...
Post by: deborah on February 26, 2020, 02:42:50 PM
Post by: mjr on February 26, 2020, 04:42:29 PM
I sold substantially all of my equities portfolio in order to fund the purchase of an investment property.
I'm all for diversification. I have my PPOR and REITs, but a big chunk of physical real estate with mediocre income which will one day be hit with a big capital gain tax bill at the expense of equities is what I am querying.
Post by: itchyfeet on February 26, 2020, 07:28:53 PM
I have a very expensive house in Inner Sydney that I just can’t believe is worth as much money as it is. Rent yield is dismal especially after I pay a criminal amount of land tax and I can’t see who could possibly pay more for this house in years to come to make it a good capital gains play.
I also own a house in Brisbane that is worth roughly the same in real terms as when I bought it 6 years ago. The rent yield is ok I suppose, but after I take out all costs and allow for the odd weeks of vacancy every few years it’s only 3.5% which is less than Aussie dividend yields and comes with the inflexibility of a property investmemt.... This said, I am probably going to hold onto the Brisbane property for the time being as it does give me some diversification and a 3.5% rent yield mathematically means a 4% drawdown will last 40 years. Of course I will need to sell the place at some point when I need to turn the investment into something more liquid. Hopefully that is a ways down the line.
So on this basis I am keen to hear an alternate view on why now is a good time to buy.
Post by: marty998 on February 27, 2020, 12:21:38 AM
Well done Marty!
Thanks. Dumb luck more than anything haha. At work we were in disbelief that the markets hadn't reacted to COVID-19 earlier than they did. Like we're supposed to have believed that China had it all under control?
What an interesting move, buying the investment property. Would you be able to walk us through your thinking? You’re going to get a tax hit for selling right? And then stamp duty and the costs of purchase? Do you believe the investment property will yield more than index funds? What’s convinced you that active management of property is financially smarter?
Not trying to challenge you, just learn as you’re one of the members whose views I value here.
Good questions
A few answers:
- Yes the equities portfolio generated substantial capital gains, but as chance would have it, I had an equivalent amount of capital losses still carried forward from 2009-2010 (margin lending fucked my life lol). I'll have about $2k in CGT payable, not going to lose sleep over it.
- No getting around stamp duty, its an "inconvenience". You pay it (~$37,500), but consider it over the period I expect to hold this property (20 years or more) it's not so bad. Of course, you don't pay this for shares, so that's a plus in the shares column and a cross against property.
- Yields from property have always been terrible, that's nothing new, I'll be getting around 4.5% gross on this one. The flip side is leveraged capital gains, and leveraged gains that are relatively safer than shares, because it's unlikely I'll be forced to sell. I've bought into a relatively affluent area, that already experienced a 20% fall in value over the past 2 years, but is now on an upswing. Definitely have not paid top of the boom prices. I don't expect any issues with getting it rented - the apartment is a 4 bed unit which is rare and a huge positive, and an equivalent one in the complex was just leased for more than expectations within a week of it being advertised.
- Tax! I have aimed for a neutrally geared outcome on this property, but after capital works deductions I'll come out ahead tax wise. The share portfolio was going to result in a substantial ongoing tax bill with it generating significant dividends (and not all of it franked either). Selling up and buying the property will help a little bit tax wise.
- I still have funds ($250k) in offset on my PPOR. Can easily debt recycle this and put it back into shares if I want to. That money was always set aside as a deposit for a future PPOR, but its unlikely I'm going to buy a new home anytime soon.
I'm planning out the long term. I have 26 years until I can access super. If/when I FIRE, I won't need to sell any of the properties immediately - I'll likely have several years, if not decades worth of funds in offset accounts and well as in equities when I rebuild the share portfolio.
Too often people fall into the trap of thinking its a "bad time to buy now". However, when you look back 30 years you'd definitely wish you bought in 1990. Sure prices could go down in the next 2,3,5 years, but sure as shit they won't be at these "low" levels in 2050.
Post by: bigchrisb on February 27, 2020, 02:33:05 AM
I checked my numbers today - the stash is down $200k in a week. That's a steep decline.
Quick check - is it a bargain and should I start levering up? The stash is back to where it was at the end of last year (2 months ago). My journal notes at that point were struggling to comprehend the run-up we were experiencing. So, its not a bargain yet.
Looking further back (to drop another 10% from here), and my notes in March 2019 were:
"Not much to report, dividends flowing, reinvestment happening. Values on the rise. Busy hoarding cash and reducing debt at the moment, can't bring myself to purchase right now. Blown away by the quantity of dividends and special dividends at the moment.
"
So, a year ago I thought things 10% lower than today were expensive. Evidently, I am not yet at lever up and buy levels, and there is still a fair way to go before I will be.
One thing I am thinking about however is exchange rates. The Aussie dollar has fallen a lot. I'm currently earning in Euros - I had been keeping my earnings in an EU back account to use as splash money here. I'm now thinking about starting to repatriate some of it. I'm also going to change tack on my international shares - thus far I have always bought un-hedged international shares, because I wanted to diversify the currency risk. However, with the dollar low in my opinion, I'm now going to be buying new international shares in hedged form instead. I'm doing this via the SMSF due to the potential tax issues of hedged shares.
Interested if anyone else is making adjustments at the moment?
Post by: nofriends on February 27, 2020, 09:53:00 AM
A few answers:
- Yes the equities portfolio generated substantial capital gains, but as chance would have it, I had an equivalent amount of capital losses still carried forward from 2009-2010 (margin lending fucked my life lol). I'll have about $2k in CGT payable, not going to lose sleep over it.
Can you give any insight on the 2009-2010? were you over geared? 2009 was when the markets started to recover or were you in individual stocks back then not indices?
The reason i'm asking is i have a margin which is currently at below 10% LVR and thinking of gradually increasing it to approx 30% if this current correction continues.
Post by: itchyfeet on February 27, 2020, 11:57:36 AM
Interested if anyone else is making adjustments at the moment?
I hear you on the AUD. I have been earning USD for these past 5+ years and I still have 2012-2013 exchange rates in my mind. When I negotiated my salary in 2014 the AUD was already sliding and I used a 3 year average fx rate to support my salary request.
Since then the AUD has been generally weakening v the USD and I have always felt lucky to be earning USD. Consequently I have always been regularly changing a lot of my savings back to AUD. I do have several hundred Thousand in non AUD investments, but am really heavily weighted to AUD. Consequently I don’t feel any desire to change more to AUD not withstanding the moves this past month.
I do, however, feel fairly confident saying the USD will weaken once this Coronavirus uncertainty is behind us, so agree with your thinking and strategy.
I am not making any big moves, but the market moves this past week has given me pause for thought heading into FIRE. I do want to have a bit more cash available in my first years of FIRE in case I don’t want to sell equities. Hence, I will be focussed on paying down realestate debt and building up a war chest in the redraw facility. I am not too scared of short term interest hikes at the moment, so will stay somewhat leveraged. But not the $1M I have in debt today.
My big move will come when I finally sell out of Sydney, but honestly I am still a few years away from that.
Post by: marty998 on February 27, 2020, 01:42:58 PM
A few answers:
- Yes the equities portfolio generated substantial capital gains, but as chance would have it, I had an equivalent amount of capital losses still carried forward from 2009-2010 (margin lending fucked my life lol). I'll have about $2k in CGT payable, not going to lose sleep over it.
Can you give any insight on the 2009-2010? were you over geared? 2009 was when the markets started to recover or were you in individual stocks back then not indices?
The reason i'm asking is i have a margin which is currently at below 10% LVR and thinking of gradually increasing it to approx 30% if this current correction continues.
I was 50% geared going into November 2007. In individual stocks.... VAS wasn't around back then I don't remember... STW was the main index fund but I wasn't familiar with it. I was mostly in banks and a few REITS, which fell more than 50%, i some case 75% pretty quickly. The ones I was still in didn't rebound as much through 2009, and by early 2010 I only had a parcel of Westpac shares left.
Even when the gearing was reduced to 30%, you'd still be looking at a 4.0%+ loss every day the market fell 3%. Enough of those strung together and you start getting in strife very quickly.
My 2c, don't do it on margin - do it on a secured property loan.
Post by: mjr on February 27, 2020, 10:58:03 PM
How'd others do ?
Post by: deborah on February 27, 2020, 11:03:03 PM
-$250k for the week. Stings a bit :-)
How'd others do ?
You must have an awful lot of money in the stock exchange!
Post by: mjr on February 27, 2020, 11:48:34 PM
Less than I had on Monday...
Mate of mine had all of his dough + a big chunk of house equity in the market - $6m worth.
I bet he's smarting a bit too. I'd ask him, but he's on holidays at the moment - in China...
Winner
Post by: marty998 on February 28, 2020, 12:34:29 AM
A bit. $2.1m now.
Less than I had on Monday...
Mate of mine had all of his dough + a big chunk of house equity in the market - $6m worth.
I bet he's smarting a bit too. I'd ask him, but he's on holidays at the moment - in China...
Winner
Eh... but 6 months ago he would've had the same amount that he has today.
Post by: mjr on February 28, 2020, 12:44:57 AM
Post by: bigchrisb on February 28, 2020, 03:47:17 AM
Exactly! I suspect we now have enough of a drop for people to start panicking and flip the momentum and sentiment in the market. I'm not doing much, converting some euros and will buy some vgad in the super fund, but really only catching up on regular contributions.A bit. $2.1m now.
Less than I had on Monday...
Mate of mine had all of his dough + a big chunk of house equity in the market - $6m worth.
I bet he's smarting a bit too. I'd ask him, but he's on holidays at the moment - in China...
Winner
Eh... but 6 months ago he would've had the same amount that he has today.
Given I'm living and working overseas at the moment, I'm as interested in the exchange rate movements as anything else!
Post by: happy on February 28, 2020, 04:01:08 PM
Post by: Coco on February 29, 2020, 03:35:33 AM
However, with the dollar low in my opinion, I'm now going to be buying new international shares in hedged form instead. I'm doing this via the SMSF due to the potential tax issues of hedged shares.
Could you elaborate on the tax implications of hedged shares? I’ve not heard this mentioned anywhere before.
Post by: mjr on February 29, 2020, 12:29:20 PM
Post by: marty998 on March 03, 2020, 12:34:29 PM
Post by: bigchrisb on March 05, 2020, 04:01:19 AM
FX hedges used to hedge currency risk on foreign currency denominated assets are typically rolling three month FX forward contracts, which are realised on a much more frequent basis than the underlying asset. This causes a timing mismatch between the gains/losses resulting from the hedges and the gains/losses from the underlying asset. The effect is that a fund will frequently be forced to distribute gains resulting from FX hedges as those contracts are rolled every three months, even though the respective underlying asset may not have yet been realised
Pretty good summary. What it means for me is that vgad will have more volatility in distributions depending on what the exchange rate does. More turnover means more taxable income to report. Hence better to hold it in a low tax environment.
I also intend to sell and convert to vgs at some point in the future if the aud is stronger. Personally, I see unhedged as the long term hold, but may pick up a few extra percent until that point.
Post by: marty998 on March 06, 2020, 12:14:17 AM
Post by: mjr on March 06, 2020, 01:11:33 AM
Post by: oysters on March 06, 2020, 07:07:13 AM
Post by: mspym on March 06, 2020, 05:37:52 PM
Post by: bigchrisb on March 07, 2020, 11:58:37 AM
As for bargains, I see that the travel sector is getting hammered. Flybe collapsed in the UK. The one I'm watching at the moment is VAHHA, a listed note/bond from Virgin Australia. Its been smashed in the last couple of weeks, and is trading at 75c in the dollar.
It has a fixed face yield of 8% and lasts for 5 years (Nov 2024). What that means is that you are buying $140 in future cash flows for $75. A bargain, provided Virgin Australia does not go bust in the next 4 years an 8 months.
Given that they were already in some financial strife prior to the virus problems emerging in China , I don't see it as risk free by any means. But I am watching it, and am tempted to start to accumulate it over the next while. I see it as a similar mis-pricing, akin to the SVWPA pricing a few years ago - I did very well out of that (although SVW is much more diversified as a business than Virgin).
Post by: Richmond 2020 on March 08, 2020, 11:54:33 PM
Post by: Ozlady on March 09, 2020, 12:25:23 AM
Post by: bigchrisb on March 09, 2020, 12:39:21 AM
Post by: stylesjl on March 09, 2020, 01:26:34 AM
I have worked out that the dividend yield is now almost 5%. I mean supposing that yield doesn't decline from a pending recession.
Post by: mjr on March 09, 2020, 02:26:22 AM
The market is back to what it was a year ago. I didn't throw oodles of cash in then and I'm not doing so now (yet).
Post by: Bloop Bloop on March 09, 2020, 02:36:32 AM
On the other hand I'm a bit concerned about the effect the crappy economy is going to have on the stage 2/3 tax cuts, and I'm downright worried about tax hikes. Not every recession has to be dealt with by stimulus measures. We can just have a long drawn out period of stagnation and economic weakness.
Post by: marty998 on March 09, 2020, 05:08:26 AM
I'm back into accumulation at the moment. Mostly index etfs of one flavour or another. Also continuing to repatriate earnings from euros - exchange rate has shifted 10% in a short time.
Indeed it has. I would not have thought the Euro would be as strong as it is, with Italy so affected by the COVID-19 virus.
7.3% market fall today... extraordinary day for oil stocks - Santos down 25%, Oil Search 35%!
Post by: marty998 on March 09, 2020, 05:10:38 AM
On one hand I'm excited about the bargains to come.
On the other hand I'm a bit concerned about the effect the crappy economy is going to have on the stage 2/3 tax cuts, and I'm downright worried about tax hikes. Not every recession has to be dealt with by stimulus measures. We can just have a long drawn out period of stagnation and economic weakness.
Maybe one day there will be a special tax hike just for you Bloop :)
Don't know what conspiracy theory Facebook pages you are looking at but no one is talking about tax hikes.
Post by: Bloop Bloop on March 09, 2020, 06:29:39 AM
After the 2009 stimulus there was a tax hike (a deficit levy).
Then before the last election Labor promised to reinstate, and prolong, the deficit levy.
If there's going to be a big cash splash - which I don't even agree with - then the first thing that's going to be done is the institution of a deficit levy or the abolition of some of the high-income tax cuts.
Post by: bigchrisb on March 09, 2020, 08:45:06 AM
I'm of the view it has a way to fall yet. The upcoming recession hasn't hit yet, nor has the virus properly taken hold and made its effects felt on our health and subsequent behaviours.
The market is back to what it was a year ago. I didn't throw oodles of cash in then and I'm not doing so now (yet).
I put in about $100k at the end of 2018. I'm committing about the same at the moment - about $30k in the last couple of days, and moving money around to do some serious buying over the next few too.
Using VAS as a measure, the market is back to where it was a year ago, but also 5 years ago, in Feb 2015. I have no ability to pick the bottom, but we are certainly in the territory where I'm putting some dry powder to work. I intend to keep buying on the way down, with the expectation that the average prices will be OK.
Post by: marty998 on March 09, 2020, 11:44:49 PM
There's no playbook for an economic situation such as this. Stimulating the economy where production/supply has dried up, because the Chinese factories are closed, would ordinarily suggest inflation would break out.
The problem with that line of thinking is that the oil price has collapsed. Which has a deflationary effect, because the cost of transporting everything around has now gone down.
I'm just annoyed I filled up a full tank of petrol on Saturday :D
Post by: Reversifi on March 10, 2020, 08:03:14 PM
But my, doesn’t it make you a bloody pariah in the FIRE community if you dare to react to the market! I’ve been told I’m a fool. Buy and Hold, Buy and Hold! It’s like a Liberal party election slogan. OK I’m a fool, a fool that could buy back all my holdings for $32k less than two weeks ago (or add another 426 VAS ETFs) and still hit the divvie date at the end of the month.
But this trick is a two-parter. I must get back into the market at some point. Bought a small portion of VAS at $75 got some orders in at low $70s and high $60s. I’m of the opinion that there is going to be more pain for VAS and the wider Australian economy over the next 6 months.
So am I a fool?
(I'm maxing out super contributions each month so I'm DCA if it makes anyone feel better).
Post by: mjr on March 10, 2020, 08:10:21 PM
What if you had 10x the amount in the market and had to give up 25% of your gains in CGT ? Would you do the same thing then ?
One data point is meaningless. If you can reliably do it over many cycles, then you'll have something to crow about. Until then, not.
Post by: Reversifi on March 10, 2020, 08:26:07 PM
Edit: I also don't see what I did was luck in anyway. There were very clear market signals. It took a lot of inertia to get me to sell.
Post by: deborah on March 10, 2020, 08:50:10 PM
It’s been an interesting couple of weeks. I just couldn’t comprehend mid Jan why the markets weren’t freaking out about the virus. Markets were at peak and while I’m normally buy and hold I dumped $320k of VAS ETFs when they started to move. As I’d only moved into VAS last year in a big way my average VAS buy price was ~$85. Sold for $86 and with divvies I’m about $10k up (and I had some CGT losses I can offset).
But my, doesn’t it make you a bloody pariah in the FIRE community if you dare to react to the market! I’ve been told I’m a fool. Buy and Hold, Buy and Hold! It’s like a Liberal party election slogan. OK I’m a fool, a fool that could buy back all my holdings for $32k less than two weeks ago (or add another 426 VAS ETFs) and still hit the divvie date at the end of the month.
But this trick is a two-parter. I must get back into the market at some point. Bought a small portion of VAS at $75 got some orders in at low $70s and high $60s. I’m of the opinion that there is going to be more pain for VAS and the wider Australian economy over the next 6 months.
So am I a fool?
(I'm maxing out super contributions each month so I'm DCA if it makes anyone feel better).
If you’re buying the same thing as you’ve recently sold, you will probably be considered a trader by the ATO, and your income adjusted accordingly, so you will probably be paying more than CGT for that exercise. They crack down on those exercises no matter how small the package of the financial security concerned, especially if, as you say, you’ve sold and bought exactly the same thing within a dividend period. There was a time when that was ok for an investor to do, but that was a few years ago now. See https://www.morningstar.com.au/stocks/article/avoid-this-expensive-tax-time-mistake/168452 for example.
Post by: Reversifi on March 10, 2020, 08:56:25 PM
Post by: deborah on March 10, 2020, 09:57:45 PM
Post by: marty998 on March 11, 2020, 12:15:07 AM
So you got lucky and bailed out, once ?
What if you had 10x the amount in the market and had to give up 25% of your gains in CGT ? Would you do the same thing then ?
One data point is meaningless. If you can reliably do it over many cycles, then you'll have something to crow about. Until then, not.
One data point is ALL you need.
The sum total of every participant in the market doesn't matter in the slightest when you're only considering your own situation.
Post by: mjr on March 11, 2020, 04:09:04 AM
Post by: Richmond 2020 on March 11, 2020, 08:01:35 PM
Post by: Richmond 2020 on March 11, 2020, 08:06:20 PM
Post by: Bloop Bloop on March 11, 2020, 08:17:27 PM
Post by: Reversifi on March 11, 2020, 08:19:50 PM
Post by: mjr on March 11, 2020, 10:26:51 PM
Post by: stylesjl on March 12, 2020, 01:10:23 AM
Post by: middo on March 12, 2020, 05:27:40 PM
Post by: Little Aussie Battler on March 12, 2020, 07:25:24 PM
I am getting very tempted to just dump it all into the market and borrow to fund the renovation. With interest rates below 3% (and probably not going up any time soon) it's still a relatively cheap funding option.
I'll probably end up doing nothing, but 12 months from now I will either feel like a fool or a genius.
Post by: itchyfeet on March 12, 2020, 10:14:44 PM
Just bought $50k of VAS,
It was my first trade since 6 Jan.
Last trade was made at $85. This one at $66. Quite the difference!
Post by: mjr on March 12, 2020, 11:53:45 PM
I'm still planning on holding off for a month or so. But if I miss the bottom, big whoop !
Post by: itchyfeet on March 13, 2020, 01:12:26 AM
Fully committed now 🐖
Once I get my 2019 bonus and March salary next week, I’ll bundle it with the rest of the remaining cash I have to put another $50K into the market.
After that, if I want to put more in I’ll need to access my redraw, but I prefer to keep the 2 years of spending I have there in case of some emergency.... so I have just one more trade to make this month and then I’ll be sitting back with my fingers crossed 🤞
Post by: marty998 on March 13, 2020, 02:53:40 AM
Trigger was the RBA injecting $9 billion of liquidity into the financial system, and then in the last 15 minutes of trade a whole lot of short covering.
Never have I ever seen the index rise 12% in the space of 4 hours.
Post by: bigchrisb on March 13, 2020, 03:59:00 AM
For me, its a great opportunity - at the start of March I had about $500k available in cash and offset/redraw accounts. I've been buying heavily the last while - including $20k of VGAD last night and $50k of VAS. I still have about $300k left available, and it may well get put to work over the coming weeks and months if things keep deteriorating.
I see a massive short term disruption for sure, but the majority of people recover from it. I do wonder what kind of structural changes we are likely to see from it though. The ones on my mind are:
- Reviewing how we run global supply chains. I suspect we may see increased intervention in maintaining domestic supply chains. I'm not sure how to invest that theme though!
- The great work from home trial. Remote working has historically been technically feasible, but socially resisted. A lot is currently being forced - I do debate about what this means for future work patterns if it becomes accepted and we have a lasting step-change. That would have major structural impacts - office property would tank, location to CBD would become less relevant for residential property, and all things commuting (car industry, oil, toll roads) would take a hit. Winners would be nice places to live with good data services, web/cloud/communication providers. Taking it to extremes and geo-arbitrage becomes a bigger deal.
Interesting food for thought. In the meantime, I'm continuing to back up the truck for more index investments.
Post by: Bloop Bloop on March 13, 2020, 07:29:21 AM
Post by: Fresh Bread on March 13, 2020, 04:45:41 PM
It's not a mild virus for everyone, people have died in the thousands, there are older people on here reading your comment.
China has successfully dealt with it by using some fairly extreme curfew measures. There is a distressing video out of Iran on Twitter that shows what happens without adequate decision making and facilities to deal with the sick. In Italy doctors have had to choose who to ventilate and therefore save because they were too late with the lockdown.
I'm optimistic that we will flatten the curve in Australia so as to reduce loss of life and I'm happy with the stimulus package (Morrison looked like he'd swallowed a wasp when he announced it).
Post by: happy on March 14, 2020, 04:02:50 AM
Bloop Bloop that's a troll comment. One of the forum rules is don't be a dick.
It's not a mild virus for everyone, people have died in the thousands, there are older people on here reading your comment.
I'll bite.
Indeed, firstly, how a society treats its vulnerable is a measure of that society. Secondly there are now plenty of *young* immunocompromised folk (transplant recipients, leukaemia/cancer survivors, folk on corticosteroids for asthma and a variety of other common maladies) who are now objecting to the current tone of "don't worry only the sick and the old will die" message that is being promulgated.
Back to thread business. Even this conservative investor has converted some ( circa 15%) of her cash in super to a more aggressive allocation. Holding back because I think we've got further to go. How do I judge this? Well currently I'm using the toilet paper index. When toilet paper returns to the shelves I reckon we've hit the bottom ;)
Post by: marty998 on March 14, 2020, 06:37:51 AM
this mild flu thing
I have seen far too many of these kind of posts on Facebook and things said in person to me lately. Without exception, it is a comment made by healthy adults who feel they are strong enough to get over it.
This is an infectious disease that kills people. Knowingly carrying COVID-19, breaking quarantine and subsequently infecting someone is the same as knowingly carrying AIDS and infecting someone. One person upset that the Canberra marathon* had been postponed wrote on Facebook the same words you did - that he's healthy and most marathon runners are, so there should be no need to ban these events. It's incredibly selfish and short sighted not to understand you can be an asymptomatic carrier who goes onto infect others.
There is no stringent response from "the authorities". The PM wanted to go to the footy today, all whilst potentially being a carrier due to Peter Dutton testing positive. How many people would Scotty from Marketing have infected while there?
The actual response is coming from the bottom up, from sporting organisations and from businesses. The government doesn't really have a clue here. And the less said about China the better. Infections are going down because they are simply not reporting them. As is the case in Iran and Indonesia.
The Government may well have banned gatherings of 500 people. But each day I come into contact with 2000 on public transport, 3000 people in my building at work, a few hundred out in the shops and many more in other daily activities. Multiply it out across all of Sydney and you can see the problem.
*Fortunately I can sleep in a little bit and not go out for my 30km training run tomorrow. Unfortunately I'm now looking at a blank running calendar for the next few months. What's a boy to do with all his hard efforts and training now?
Post by: bigchrisb on March 14, 2020, 10:01:53 AM
It's a nasty disease. We have our fingers crossed that we are young and healthy enough for it to be a minor inconvenience. But many will die.
While I see a huge opportunity for investment because of panic, don't lose compassion for those less fortunate than you.
Post by: mjr on March 14, 2020, 03:04:22 PM
while I don't think we've hit bottom yet, just wanted to let you know that I'm NOT getting upset/riled/offended by what was clearly a throwaway comment from you regarding "mild flu".
Post by: Bloop Bloop on March 14, 2020, 06:21:41 PM
I also didn't say that I am callous to the vulnerable. A mild flu will hit the vulnerable hard, too - elderly people die from commonplace viruses. For the majority of the population, it is a mild flu. I am confident the eventual death toll will be less than that of a typical flu season and therefore I am confident that the economic impact will be short-term and limited.
Post by: mrmoonymartian on March 14, 2020, 06:40:12 PM
Is a HELOC the best way to lever up in Aus? I don't know if we are at bottom yet, but I'm starting to feel greedier than usual.
Post by: BattlaP on March 14, 2020, 08:26:34 PM
I also didn't say that I am callous to the vulnerable. A mild flu will hit the vulnerable hard, too - elderly people die from commonplace viruses. For the majority of the population, it is a mild flu. I am confident the eventual death toll will be less than that of a typical flu season and therefore I am confident that the economic impact will be short-term and limited.
You are spreading misinformation, stating in confidence things which even medical experts are not calling facts. In may in fact be that there are two separate strains - one mild, one more serious - and that we may see a second wave of more serious infections. It may be that greater exposure can lead to more serious cases and it is in fact the case that some otherwise healthy people have fallen seriously ill and even died.
I'm glad you're feeling confident, but it is a confidence borne, of necessity, out of ignorance - because these things just haven't happened yet and not even people that have trained their entire careers to deal with pandemics of this nature are making claims anywhere near as bold as yours.
Post by: deborah on March 16, 2020, 02:07:13 AM
https://www.washingtonpost.com/graphics/2020/world/corona-simulator/
of a virus, under several different simulations. They are interesting from an investment perspective, because they indicate that the more effective our social distancing rules are, the fewer people will initially get it, and possibly, the longer the actual problem period will last. Each scenario would have different financial effects if it's as many of the population (and as effective) as the graphic indicates.
Post by: marty998 on March 16, 2020, 04:53:48 AM
Rather sobering fact talked about on ABC’s 7:30 tonight in that there are only 2000 ICU beds in all of Australia. As a healthcare worker I can only hope more extreme and stringent social distancing/containment issues are mandated and implemented by government sooner rather than later.
They're already rationing ICU beds in Italy - people over 60 are being turned away.
You can expect the same thing to happen here, there's a rush on ordering of ventilators but even still, there won't be enough if there is a spike in infections.
Post by: marty998 on March 16, 2020, 02:21:11 PM
I totally hear you Marty as just out of personal interest I’ve been following this pretty close for weeks now and reading different studies (yes I’ve got rather weird interests....lol) on all different aspects of this pandemic. It’s heartbreaking what’s happening in different countries as they attempt to deal with this. I think though to have it very publicly on record the actual number of icu beds in Australia should be a pretty sobering stat for all Australians and the government how terribly serious this is and it really is at crisis point (especially with flu season about to hit).
Economically it’ll be pretty interesting to see how this all shakes out and where things do end up bottoming out on the Australian and international markets. Glad we are one of the very fortunate ones who are able to slowly drip feed in as the markets tank and eventually recover :-) Sadly for a lot in the community, economically this is going to be a disaster and I do feel for them :-(
Yep - I hate seeing people cheer at a market drop. The wholesale destruction of wealth and hard earned savings of millions of hard working people is nothing to cheer about.
All things considered, more of the $17 billion stimulus should have been spent on the Health System. Wanna stimulate the economy? Hire more doctors and nurses and invest in hospital equipment.
This is a health crises first and an economic one second. They're trying to fix the latter (effect) before treating the former (cause).
Post by: chevy1956 on March 16, 2020, 04:19:27 PM
This is a health crises first and an economic one second. They're trying to fix the latter (effect) before treating the former (cause).
I care about the economic impact but to me it's way overdone. We should be able to accept lower growth for 6 months to a year. It shouldn't be catastrophic. The health crisis though is really important. Let's work through that and the economy will come back.
Post by: Dropbear on March 16, 2020, 08:18:24 PM
https://www.ubs.com/au/en/asset-management/funds-and-prices/exchange-traded-funds.html (https://www.ubs.com/au/en/asset-management/funds-and-prices/exchange-traded-funds.html)
UBS announced on Friday 13 March that MONY, DIV, ETF, UBE, UBJ, and UBU index funds will be terminated from the ASX on Monday 11 May.
---
Can I please ask you all for your review of how this affects me?
When I first started ETF investing a couple of years ago, I bought some UBU along with several other ETFs as part of my broad initial strategy. Since then, my strategy has been simplified to focus more on VAS and VGS (which were also there from the beginning), but to date I still hold UBU.
Currently I'm coasting in a semi-FIRE state, about 60% to being FIRE - I've been pursing a research project and have a reduced income to report this financial year. I have an emergency fund for 2+ years of living. However, the project is now on hold due to the virus disruptions, so it might be good if I can return to work.
When the markets started dropping due to Covid-19, I thought I would hold all my ETFs as I planned.
However, it appears that I am now being forced out of UBU. The timing is terrible - currently showing the lowest price it has been in quite some time. However, as of now, I'm still 25% up over the 4 or so years that I've been holding it.
Can I please ask:
1 - What are my options? Am I correct in thinking that I will have to leave UBU (whether I sell out at some point or wait for termination in May) and realise whatever profit or loss has accrued at that point? Are there no other options for remaining invested in the US market and continuing to ride out the storm?
2 - What are your bets for timing - selling now verses selling later or terminating? (Sorry, we're not usually the types to be discussing market timing like this!) Or does timing matter at all, because if I sell UBU and buy an equivalent holding at current prices, have I effectively remained invested through the crash, so as to sufficiently benefit from any future recovery?
3 - Is this issue just one of the risks associated with investing, or are there any other lessons for me or others to be learnt here please?
Thanks!
Post by: mjr on March 16, 2020, 11:45:16 PM
2 - I think it's still going to fall, but that's clearly market timing so what the hell do I know ? Given that you don't have a choice, best bet is to reinvest as quickly as possible - hopefully not going to make a lot of difference whether you liquidate now or in 2 months.
3 - It's a risk investing with managed funds/etfs for sure. Only way to minimise the risk is go wth the big funds with the big players
Post by: marty998 on March 17, 2020, 04:28:46 AM
However, UBS has to liquidate the entire fund. It may not be possible for them to do this if some stocks (especially those at the very bottom of the index) are illiquid, or they judge it to not be in the best interests of unit holders to sell immediately and crash the share price of those stocks at the bottom.
Waiting till the very end also means you will pick up a share of the final tax components of the fund upon liquidation, including capital gains and (most likely) losses. You might choose to crystallise your losses now (and use them in this tax year) by selling out on market, rather than wait till the wind up of the fund which could spill over into 2021 tax year.
I'd get out now, reinvest whatever proceeds you have in your other assets in your allocation (VAS and VGS)
Post by: Abundant life on March 17, 2020, 12:22:32 PM
I've been with St George's direct shares for a few years now and hold a modest portfolio of an LIC and TLS. I login regularly to check on them (so I haven't forgotten my password!)
I'd like to at least see how they are going and invest in ETF's while the market is down. However last week when I couldn't log in I was able to phone them and they explained they were having 'technical problems'.
Since then I still can't log in and now the website says they're experiencing high call volumes. I tried to call at various times of the day, the last time waiting on the line for over 15 minutes, then gave up. I sent them an email but have heard nothing back. Am I the only one this is happening to?
Post by: deborah on March 17, 2020, 12:53:46 PM
Post by: Juan Ponce de León on March 17, 2020, 02:23:02 PM
Post by: Dropbear on March 17, 2020, 08:18:58 PM
1 - Yep, you have to bail.
Thanks mjr
Post by: chevy1956 on March 17, 2020, 08:48:33 PM
Post by: bigchrisb on March 18, 2020, 07:08:11 AM
Post by: marty998 on March 19, 2020, 06:20:40 AM
The RBA basically just printed $90 billion to hand to the banks and say "here, throw it at the economy". Anecdotally I am already hearing of job losses and wage cuts. Interest rates at zero aren't going to help if you have no income :(
The cap raisings have started. Webjet in a trading halt (definitely a raising), and Flight Centre also in a TH (no details as yet).
I didn't think it would be so soon but here we are.
One saving grace is that the environment is loving it. Clear blue skies and clean air to breathe :)
Post by: Bloop Bloop on March 19, 2020, 04:38:56 PM
Post by: Ozlady on March 19, 2020, 04:52:58 PM
Post by: middo on March 19, 2020, 05:28:49 PM
We were probably heading for a recession anyway, and this has just brought it on much sooner. But growth was always going to be an issue when the Government was proudly proclaiming their financial genius of removing around $50,000,000,000 per year from the economy to reduce the deficit. That's $2000 per person in Australia, which is about how much consumer spending was contracting by.
In the 1970's, no one thought it unreasonable to have higher taxes than we do now, and our services were less. Maybe we need a rethink of our priorities as a society.
Post by: Little Aussie Battler on March 19, 2020, 06:34:16 PM
How the heck are we ever going to pay back the deficit.I assume a 2-5% budget repair levy that will last for years.
The quicker we limit the spread and impact of this virus, and stop the panic (or, at least, change the media narrative), the faster the real economy and market will recover.
I'm not sure that there is a better answer at this point.
Post by: chevy1956 on March 20, 2020, 07:39:54 PM
How the heck are we ever going to pay back the deficit.I assume a 2-5% budget repair levy that will last for years.
The quicker we limit the spread and impact of this virus, and stop the panic (or, at least, change the media narrative), the faster the real economy and market will recover.
I agree. I think this virus is a real problem but the economic impacts could be much worse.
Post by: marty998 on March 22, 2020, 05:48:09 AM
How the heck are we ever going to pay back the deficit.I assume a 2-5% budget repair levy that will last for years.
The quicker we limit the spread and impact of this virus, and stop the panic (or, at least, change the media narrative), the faster the real economy and market will recover.
I agree. I think this virus is a real problem but the economic impacts could be much worse.
I think you're fucked Bloop. Time to leave the country.
Oh wait ;)
Post by: Bloop Bloop on March 22, 2020, 08:34:51 AM
Post by: marty998 on March 22, 2020, 05:59:24 PM
I think there's no doubt that my financial trajectory has just been lopped by a fairly large margin. I'll suffer a modest dip in income due to some of the economic turmoil and then I'll forego the juicy tax cuts that were meant to roll out (since they're undoubtedly off the table) and I'm planning for a significant tax rise or a permanent deficit levy. A triple whammy. At least I have my health, and that's the more important thing. When the country / world is in significant turmoil your thoughts can only turn to taking life one day at a time and being grateful for what you do have, and trying to make others' situation better.
That’s a healthy attitude (no pun intended).
Whilst I’ve escaped the fall in equities for the most part, I still have my job and income.
However I’m expecting a hit to the property market soon. That’ll bite, but long term things will recover eventually.
Post by: chevy1956 on March 23, 2020, 04:59:15 AM
Post by: Dropbear on March 24, 2020, 05:37:25 AM
Obviously for everyday types (either low income or just living-week-to-week) it's a terrible option to cash out their super after the market has slumped, and also to forgo the compounding effect that would otherwise happen with it. So it will probably hit youth, women, and the disadvantaged the hardest.
But what about for the mustachian? What if they take $10-20k out of their super (let's assume they've chosen the index option inside super) and re-invest it in the index outside super? Pay more income tax on it while you're still in the working phase, sure, but now that money is unlocked and ready for FIRE...
For me, I'm thinking it would probably be better to leave it in super, because if I'm fortunate enough to live to retirement age then it'll probably be marginally more value by then. But given the American mustachians have all sorts of paths for shifting their retirement accounts around, I wonder if anyone is thinking of taking the opportunity to do the same thing here?
Post by: Dropbear on March 24, 2020, 05:47:26 AM
If the government is reluctant to give people that much money directly, then I like this zero interest loan concept much better than the government's own super cash-out option!
How super could soften the financial blow of coronavirus
https://theconversation.com/how-super-could-soften-the-financial-blow-of-coronavirus-134134 (https://theconversation.com/how-super-could-soften-the-financial-blow-of-coronavirus-134134)
There was also a great comment:
Would we be able to take out these interest free loans on our super to invest in our super?
Post by: Alchemisst on March 24, 2020, 08:20:07 PM
As the USD has increased to the AUD the Unhedged etf's have not fallen as much as much as VGAD, I am considering selling some and buying the hedged VGAD as the AUD is currently less than 60 cents and I don't see it staying this low long term.
Is this a good idea or am I just making a prediction?
Post by: bigchrisb on March 25, 2020, 01:48:59 AM
I have some Vanguard Total U.S stock market (VTS), Vanguard world ex U.S (VEU) and total world hedged to Australian currency (VGAD).
As the USD has increased to the AUD the Unhedged etf's have not fallen as much as much as VGAD, I am considering selling some and buying the hedged VGAD as the AUD is currently less than 60 cents and I don't see it staying this low long term.
Is this a good idea or am I just making a prediction?
You are making a prediction. However, I'm also making the same prediction on forex, and have switched to buying VGAD instead of VGS, and have been sending € earned over the last 9 months into $AUD. Currency markets were really dislocated a week or so ago - I managed to send some € home at 51.5 - its since bounced back to about 55. Given that both Europe and the US are major infection centres, and also some of the most integrated economies, I see no rational reason for these currencies to be stronger.
Long term I prefer to hold unhedged international shares, both for diversification and due to the higher turnover/tax issues of hedged. Hence I will sell my VGAD back to VGS at some point, but not sure how I will force myself to do it. I suspect it will be if the AUD gets to above 0.8 against the USD. An arbitrary line in the sand, but at least one I can try to commit to and force the action (and realise a 33% relative currency gain, if it plays out).
Post by: Alchemisst on March 25, 2020, 06:09:13 PM
Post by: Wadiman on March 25, 2020, 08:11:52 PM
Post by: mjr on March 26, 2020, 01:03:13 AM
But what about for the mustachian? What if they take $10-20k out of their super (let's assume they've chosen the index option inside super) and re-invest it in the index outside super? Pay
It's really hard to get money into super, I can't imagine that anyone who's fair dinkum about retiring early would care about $20k taken out of super and reinvested in taxable accounts.
Post by: Dropbear on March 26, 2020, 02:31:46 AM
It's really hard to get money into super, I can't imagine that anyone who's fair dinkum about retiring early would care about $20k taken out of super and reinvested in taxable accounts.
Haha, good point.
Post by: Dropbear on March 26, 2020, 02:49:29 AM
It's relatively new and small, but has outperformed VGS over its first year for the same 0.18% management fee. It appears that VESG also has a higher weighting towards tech, financials, and health care than VGS, perhaps this is as a result of having lower (non-renewable) energy holdings?
Has anyone done any deeper exploration of it? I'm interested if it might be a reasonable way to add some weight towards greener or smarter businesses, while still being a broad-based and cheap index fund?
Post by: Fresh Bread on March 26, 2020, 05:40:15 AM
Post by: oysters on March 28, 2020, 04:19:24 AM
I have a big chunk in the wholesale fund. It's very new yes, we got into it to avoid fossil fuel extraction although there's still processing in there IIRC. You'd know more than me about performance as I'm too scared to look.
The ethical funds are doing much better than VAS and the S&P500 don't worry.
Post by: Dropbear on March 28, 2020, 05:15:41 AM
I have a big chunk in the wholesale fund. It's very new yes, we got into it to avoid fossil fuel extraction although there's still processing in there IIRC. You'd know more than me about performance as I'm too scared to look.The ethical funds are doing much better than VAS and the S&P500 don't worry.
Further to the ethical fund questions - is it worthwhile holding both ethical and general funds for diversification reasons (VESG and VGS for ethical and general versions of international ex-Australia Vanguard funds respectively), or is it safe enough and potentially lucrative to switch out of VGS and into VESG?
Post by: Fresh Bread on March 28, 2020, 04:25:42 PM
I have a big chunk in the wholesale fund. It's very new yes, we got into it to avoid fossil fuel extraction although there's still processing in there IIRC. You'd know more than me about performance as I'm too scared to look.The ethical funds are doing much better than VAS and the S&P500 don't worry.
Further to the ethical fund questions - is it worthwhile holding both ethical and general funds for diversification reasons (VESG and VGS for ethical and general versions of international ex-Australia Vanguard funds respectively), or is it safe enough and potentially lucrative to switch out of VGS and into VESG?
We have both. I think it is something like 40% international/40% Aussie /20% ethically conscious. As I said, I'm not looking - not until we are coming back out the other side.
I think should we suddenly be confident enough to invest some cash (our other income streams are looking sketchy right now!) then it will go in the ethical fund.
I think we did a spreadsheet to identify what was excluded from the fund but memory is fuzzy so must have been my husband. Will look. Definitely remember there being some sketchy companies that are still included, but you have to draw the line somewhere, otherwise you'd only be investing in B-Corp ones and I still want to be in an index fund.
Separate question / similar topic:
I've been meaning to change my super to an ethical. Is it a bad idea to move it while the market is down or doesn't it make any difference? My husband's instinctive answer was not to, but if I'm just switching not cashing in, it's fine, yeah?
Post by: deborah on March 28, 2020, 04:52:59 PM
Post by: MrThatsDifferent on March 30, 2020, 01:56:16 AM
Post by: deborah on March 30, 2020, 02:03:50 AM
I have a mate who reckons himself a stock expert and thinks we should convert our supers to bonds and then convert it back when things stabilize. Does this make sense? Should we be doing this?What does your investment plan say?
Post by: chevy1956 on March 30, 2020, 04:06:39 AM
I have a mate who reckons himself a stock expert and thinks we should convert our supers to bonds and then convert it back when things stabilize. Does this make sense? Should we be doing this?
This is why you need an investment plan. I don't have one written down but you need to take decisions like this out of your hand. People will always come up with advice like this. Sometimes they will be right. That doesn't mean you will make money from their advice. Sometimes they will be wrong.
Work out your investment allocation in Super and stick to it. I'm 100% stocks.
Post by: Adventures With Poopsie on March 30, 2020, 09:48:06 PM
Nabtrade has been patchy on the high volume days. I've been able do most of what I wanted eventually. I'm accumulating, about 250k committed thus far and have about the same available. Wife and I also keeping 2 years expenses in cash accounts in case offsets freeze up.
Chris, can you explain what you mean about offsets freezing up? Can't say I have heard of it and am using the offset heavily for our EF/spending so would love to hear your thoughts!
Post by: MrThatsDifferent on March 31, 2020, 07:08:32 AM
I have a mate who reckons himself a stock expert and thinks we should convert our supers to bonds and then convert it back when things stabilize. Does this make sense? Should we be doing this?What does your investment plan say?
I’m just DCA and have my super in index funds and outside investments in Vanguard Lifestrategy. I wasn’t planning on changing a thing, I just wanted to understand why he’d would be recommending that course of action? I’m going to ride this out.
Post by: bigchrisb on March 31, 2020, 09:47:18 AM
Nabtrade has been patchy on the high volume days. I've been able do most of what I wanted eventually. I'm accumulating, about 250k committed thus far and have about the same available. Wife and I also keeping 2 years expenses in cash accounts in case offsets freeze up.
Chris, can you explain what you mean about offsets freezing up? Can't say I have heard of it and am using the offset heavily for our EF/spending so would love to hear your thoughts!
The bond markets have been crazy (as in GFC crazy) and were starting to freeze up until some pretty major central bank intervention. Our banks, and particularly the second tier lenders are heavily dependent upon there being liquidity in these markets. I'm not worried about loss of the money in an offset or redraw, but I am worried about access being suspended for a period of time, or pre-payments not being released for redraw.
So I've made sure that my emergency fund cash is actually cash deposits - even though I'll lose a percent or two in interest. I'm talking $30k kind of numbers. The bulk of my investable cash is still in the offset.
Post by: Adventures With Poopsie on March 31, 2020, 06:51:50 PM
Post by: marty998 on April 07, 2020, 02:30:58 AM
During March, the Vanguard ASX 300 ETF (VAS) went from 56 million units on issue to 64 million units on issue.
Seems we are the type to never let a crisis go to waste.
Post by: mjr on April 07, 2020, 02:56:40 AM
Post by: chevy1956 on April 07, 2020, 04:00:42 PM
Post by: UnleashHell on April 08, 2020, 05:27:59 AM
THE TOP IS IN!
Post by: happy on April 08, 2020, 05:44:40 PM
the s&p dropped yesterday.
THE TOP IS IN!
Troll ;). There's a whole thread for that!
Post by: paulsta234 on April 10, 2020, 07:26:10 PM
Just reading lots and formulating my plan.
I just want to buy as much VTS as I can.
Just wondering everyones opinion on currency risk investing in US ETF?
Is there even any currency risk as VTS is managed by vanguard australia and is in AUD not USD like VTI?
thanks
Post by: Andy R on April 10, 2020, 08:13:09 PM
I just want to buy as much VTS as I can.
Just wondering everyones opinion on currency risk investing in US ETF?
Is there even any currency risk as VTS is managed by vanguard australia and is in AUD not USD like VTI?
You could always split it with some IHVV (AUD-hedged S&P500). VTS is around 75% S&P500 anyway, so close enough.
Post by: mjr on April 12, 2020, 03:28:43 PM
Just wondering everyones opinion on currency risk investing in US ETF?
Is there even any currency risk as VTS is managed by vanguard australia and is in AUD not USD like VTI?
You'd best do some more reading.
VTS is just NYSEARCA:VTI cross-listed to the ASX. Although we buy it on the ASX with Australian dollars, it moves in line with the price of VTI in US dollars. So, yes, there is currency risk.
I personally don't really worry about currency risk - in the long term it all evens out. That said, I wasn't shovelling money into VTS when the AUD was 57 US cents either.
Post by: Plagel on April 13, 2020, 11:50:13 PM
Got $5000 to drop on either VGS or VAS. Which would you recommend?
Post by: Bloop Bloop on April 14, 2020, 12:07:53 AM
Post by: Notch on April 14, 2020, 01:31:42 AM
Hey all, long time lurker, first time poster so please be kind.
Got $5000 to drop on either VGS or VAS. Which would you recommend?
VAS. It's at 2016 prices, while VGS is at 2019 prices.
Post by: mjr on April 14, 2020, 02:18:06 PM
VAS. It's at 2016 prices, while VGS is at 2019 prices.
The price of an asset in a rational market represents the market's best estimate of the value and growth prospects. Saying that VAS is a better buy because it's at 2016 prices cf VTS and 2019 prices completely ignores the reasons *why* VAS is at 2016 prices.
Post by: Notch on April 15, 2020, 02:14:16 AM
VAS. It's at 2016 prices, while VGS is at 2019 prices.
The price of an asset in a rational market represents the market's best estimate of the value and growth prospects. Saying that VAS is a better buy because it's at 2016 prices cf VTS and 2019 prices completely ignores the reasons *why* VAS is at 2016 prices.
Do you rebalance your investments, or maintain an asset allocation?
Post by: mrmoonymartian on April 15, 2020, 02:28:21 AM
What do you mean 'or'? You rebalance 'to' maintain an asset allocation.VAS. It's at 2016 prices, while VGS is at 2019 prices.
The price of an asset in a rational market represents the market's best estimate of the value and growth prospects. Saying that VAS is a better buy because it's at 2016 prices cf VTS and 2019 prices completely ignores the reasons *why* VAS is at 2016 prices.
Do you rebalance your investments, or maintain an asset allocation?
Post by: Notch on April 15, 2020, 02:30:21 AM
What do you mean 'or'? You rebalance 'to' maintain an asset allocation.VAS. It's at 2016 prices, while VGS is at 2019 prices.
The price of an asset in a rational market represents the market's best estimate of the value and growth prospects. Saying that VAS is a better buy because it's at 2016 prices cf VTS and 2019 prices completely ignores the reasons *why* VAS is at 2016 prices.
Do you rebalance your investments, or maintain an asset allocation?
Jeez, I was just asking the same kind of question twice, to make a point.
Post by: mrmoonymartian on April 15, 2020, 03:11:15 AM
Ah I see. Tautology, not exclusive disjunction. Carry on.What do you mean 'or'? You rebalance 'to' maintain an asset allocation.VAS. It's at 2016 prices, while VGS is at 2019 prices.
The price of an asset in a rational market represents the market's best estimate of the value and growth prospects. Saying that VAS is a better buy because it's at 2016 prices cf VTS and 2019 prices completely ignores the reasons *why* VAS is at 2016 prices.
Do you rebalance your investments, or maintain an asset allocation?
Jeez, I was just asking the same kind of question twice, to make a point.
Post by: mjr on April 15, 2020, 05:35:19 PM
Do you rebalance your investments, or maintain an asset allocation?
I do. I also look to vary said allocation somewhat if I see evidence of weakness in one of the allocations relative to another.
Post by: Dropbear on April 15, 2020, 09:04:43 PM
Hey all, long time lurker, first time poster so please be kind.
Got $5000 to drop on either VGS or VAS. Which would you recommend?
There's been lots of discussions earlier on in this thread about how Australians might include both Australian and ex-Australian investments in their investment allocation, so I recommend looking for more info on this topic if you would like to. In short, it's up to each person to determine their appropriate split. 50/50 (or similar) appears to be a common approach, while some skew it to increase their exposure one way or the other.
$5k is a good amount to get started. So if you're interested in both these funds and can invest in one of these now, then can you rouse up some funds to put in the other one and form a more diversified position as soon as you can?
Post by: BattlaP on April 19, 2020, 03:44:50 PM
If they're not charging any withdrawal fees or tax, could I not just basically move $40k altogether (both me and my Mrs) from my super to my non-super investment accounts, thereby increasing the flexibility of the money and slightly reducing regulatory risk for future super changes? (at the slight cost of the vanguard spread fee I guess)
Or is the answer just always "don't touch it"?
Post by: happy on April 19, 2020, 03:52:40 PM
Or is the answer just always "don't touch it"?
I can't answer the first part of your question, but I found myself wondering why you would want to do this, then realised I know nothing about your individual circumstance. The best ratio of super:non-super investments depends so much on things like your age, how much you already have in super, when you are going to retire etc etc as well as your personal views on the long term stability of the super system.
Post by: mjr on April 20, 2020, 12:40:10 AM
My comments there and here are "Given it's so hard to get large sums into super these days, why would you want to voluntary take some out" ?
I mean, it's at most $20k. People want to move $20k out of a low-tax environment into a taxable account just to get access to $20k earlier ?
I'm 54, retired and still shovelling $25k p.a. into super and plan to until I'm 60 at least.
If your income is already permanently low such that you're better off tax-wise to move money out of super, then sure, but that's no early-retirement situation in which I'd want to be...
Post by: bigchrisb on April 20, 2020, 01:50:38 AM
I'm seeing this question discussed on other fora as well.
My comments there and here are "Given it's so hard to get large sums into super these days, why would you want to voluntary take some out" ?
I mean, it's at most $20k. People want to move $20k out of a low-tax environment into a taxable account just to get access to $20k earlier ?
I'm 54, retired and still shovelling $25k p.a. into super and plan to until I'm 60 at least.
If your income is already permanently low such that you're better off tax-wise to move money out of super, then sure, but that's no early-retirement situation in which I'd want to be...
I'm in the same camp. I'm younger (38), but am looking for all the ways I can get money IN to super, not out. If I needed the liquidity to get through the short term, then I'd be looking strongly at it.
The way I look at it, I expect my taxable income to be above the $37k tax band for the rest of my life. Why would I move money from a 15%/0% environment to a 34.5% tax environment if I didn't need it? The same logic would hold true (but less strongly) if I was looking at the $18k tax band. Of course, the various tax offsets/credits may have minor impact, but for me won't change the outcome.
I am however enjoying the pain that the industry super funds are having for being too arrogant about liquidity. I'm following the HostPlus drama unfold in particular, as they are likely to be one of the most impacted. Will be interesting to see what the impact on buy/hold/accumulate members is in the long run. Its one of those moments when the control of a SMSF comes to the fore!
Post by: marty998 on April 20, 2020, 02:00:34 AM
I'm seeing this question discussed on other fora as well.
My comments there and here are "Given it's so hard to get large sums into super these days, why would you want to voluntary take some out" ?
I mean, it's at most $20k. People want to move $20k out of a low-tax environment into a taxable account just to get access to $20k earlier ?
I'm 54, retired and still shovelling $25k p.a. into super and plan to until I'm 60 at least.
If your income is already permanently low such that you're better off tax-wise to move money out of super, then sure, but that's no early-retirement situation in which I'd want to be...
I'm in the same camp. I'm younger (38), but am looking for all the ways I can get money IN to super, not out. If I needed the liquidity to get through the short term, then I'd be looking strongly at it.
The way I look at it, I expect my taxable income to be above the $37k tax band for the rest of my life. Why would I move money from a 15%/0% environment to a 34.5% tax environment if I didn't need it? The same logic would hold true (but less strongly) if I was looking at the $18k tax band. Of course, the various tax offsets/credits may have minor impact, but for me won't change the outcome.
I am however enjoying the pain that the industry super funds are having for being too arrogant about liquidity. I'm following the HostPlus drama unfold in particular, as they are likely to be one of the most impacted. Will be interesting to see what the impact on buy/hold/accumulate members is in the long run. Its one of those moments when the control of a SMSF comes to the fore!
It's really not going to have that much of an impact on the Industry Funds, even Hostplus. There's really not going to be much pain, if anything, getting rid of all the low balance members will actually help reduce admin costs and improve returns in the medium term.
The Industry funds have a huge amount of cash stockpiled (ask me how I know). Hostplus, per the front page of its website says they have $6 billion as of 1 April, and remember they still get the 9.5% in from the people who are still working.
If all 600,000 registered with the ATO to withdraw their Super withdrew the maximum and if all of them are with Hostplus, the fund will still be ok.
Post by: Ozstache on April 20, 2020, 02:04:28 AM
"Given it's so hard to get large sums into super these days, why would you want to voluntary take some out" ?
One reason is if you wanted to transfer some super from one partner who has hit the transfer balance cap to the other who has not. A tax free withdrawal then a tax deductible contribution, plus more overall pensionable super for a couple sounds like a win to me.
Post by: bigchrisb on April 20, 2020, 02:24:49 AM
I'm in the same camp. I'm younger (38), but am looking for all the ways I can get money IN to super, not out. If I needed the liquidity to get through the short term, then I'd be looking strongly at it.
The way I look at it, I expect my taxable income to be above the $37k tax band for the rest of my life. Why would I move money from a 15%/0% environment to a 34.5% tax environment if I didn't need it? The same logic would hold true (but less strongly) if I was looking at the $18k tax band. Of course, the various tax offsets/credits may have minor impact, but for me won't change the outcome.
I am however enjoying the pain that the industry super funds are having for being too arrogant about liquidity. I'm following the HostPlus drama unfold in particular, as they are likely to be one of the most impacted. Will be interesting to see what the impact on buy/hold/accumulate members is in the long run. Its one of those moments when the control of a SMSF comes to the fore!
It's really not going to have that much of an impact on the Industry Funds, even Hostplus. There's really not going to be much pain, if anything, getting rid of all the low balance members will actually help reduce admin costs and improve returns in the medium term.
The Industry funds have a huge amount of cash stockpiled (ask me how I know). Hostplus, per the front page of its website says they have $6 billion as of 1 April, and remember they still get the 9.5% in from the people who are still working.
If all 600,000 registered with the ATO to withdraw their Super withdrew the maximum and if all of them are with Hostplus, the fund will still be ok.
Yes, and as per their 2019 annual statement, they had 2bn. So, when asset prices have been totally smashed, they have not only increased the percentage allocation to cash, but total cash balances too. That's exactly the opposite action than I want for my super. If I were a long term holder of assets in this fund, who will effectively pay for it by reduced returns, I'd be very frustrated.
Post by: mjr on April 20, 2020, 03:13:14 AM
One reason is if you wanted to transfer some super from one partner who has hit the transfer balance cap to the other who has not. A tax free withdrawal then a tax deductible contribution, plus more overall pensionable super for a couple sounds like a win to me.
I did ask for a reason and yep, this is one, but I don't know that I'd be OK with a person who has accumulated $1.6m in super using a mechanism designed to help people desperate for money to wangle a tax deduction and skirt a contribution cap.
Of course, I know that no one is asking me if I'm ok with it :-)
Post by: marty998 on April 20, 2020, 03:19:38 AM
I'm in the same camp. I'm younger (38), but am looking for all the ways I can get money IN to super, not out. If I needed the liquidity to get through the short term, then I'd be looking strongly at it.
The way I look at it, I expect my taxable income to be above the $37k tax band for the rest of my life. Why would I move money from a 15%/0% environment to a 34.5% tax environment if I didn't need it? The same logic would hold true (but less strongly) if I was looking at the $18k tax band. Of course, the various tax offsets/credits may have minor impact, but for me won't change the outcome.
I am however enjoying the pain that the industry super funds are having for being too arrogant about liquidity. I'm following the HostPlus drama unfold in particular, as they are likely to be one of the most impacted. Will be interesting to see what the impact on buy/hold/accumulate members is in the long run. Its one of those moments when the control of a SMSF comes to the fore!
It's really not going to have that much of an impact on the Industry Funds, even Hostplus. There's really not going to be much pain, if anything, getting rid of all the low balance members will actually help reduce admin costs and improve returns in the medium term.
The Industry funds have a huge amount of cash stockpiled (ask me how I know). Hostplus, per the front page of its website says they have $6 billion as of 1 April, and remember they still get the 9.5% in from the people who are still working.
If all 600,000 registered with the ATO to withdraw their Super withdrew the maximum and if all of them are with Hostplus, the fund will still be ok.
Yes, and as per their 2019 annual statement, they had 2bn. So, when asset prices have been totally smashed, they have not only increased the percentage allocation to cash, but total cash balances too. That's exactly the opposite action than I want for my super. If I were a long term holder of assets in this fund, who will effectively pay for it by reduced returns, I'd be very frustrated.
Is it possible to resolve how they increased the cash holdings by $4bn? A lot of it could be the 9.5% + franking credit refunds.
If you're in the balanced option you might feel some drag on future returns, but if you've chosen 100% equities then you're not going to notice any change long term.
Post by: mjr on April 20, 2020, 01:31:03 PM
Nice work Eucalyptus!
As for bargains, I see that the travel sector is getting hammered. Flybe collapsed in the UK. The one I'm watching at the moment is VAHHA, a listed note/bond from Virgin Australia. Its been smashed in the last couple of weeks, and is trading at 75c in the dollar.
It has a fixed face yield of 8% and lasts for 5 years (Nov 2024). What that means is that you are buying $140 in future cash flows for $75. A bargain, provided Virgin Australia does not go bust in the next 4 years an 8 months.
Given that they were already in some financial strife prior to the virus problems emerging in China , I don't see it as risk free by any means. But I am watching it, and am tempted to start to accumulate it over the next while. I see it as a similar mis-pricing, akin to the SVWPA pricing a few years ago - I did very well out of that (although SVW is much more diversified as a business than Virgin).
bigchrisb - did you end up buying some ? I had a look when you mentioned it, but knew immediately that it was too risky for me.
Post by: bigchrisb on April 20, 2020, 10:47:47 PM
Post by: potm on April 21, 2020, 11:42:15 PM
I hope if there is a massive blowup one day that my investments in the all listed share options with sunsuper aren’t impacted. I’m hoping they are not able to take a little from one area to prop up another.
Post by: Andy R on April 22, 2020, 02:17:38 AM
But yes it's a problem, as Neil Woodford and investors found out last year.
I once mentioned this elsewhere to be met with "but this is super and you won't get lots of outflows because people are only allowed to access it a bit at a time".
Sounded reasonable. Still a no from me back then. Illiquid assets are often less correlated simply due to not being able to price them rather than actually falling in value less. If you have a product that nobody is buying and nobody is selling because they have taken it off the market to avoid selling at a loss, the value is no longer the last comparable price. Not only that, unlisted products are not under the scrutiny of ASIC. They also tend to have high fees. Alternatives sound good in theory, but in practice you better know what you are buying, and for 99% of people they won't know anything about it, and in that case it's just safer to not use it in my opinion. I'm thrilled that indexing is an easily available option.
Post by: bigchrisb on April 22, 2020, 06:44:26 AM
I wouldn't call it a ponzi scheme.
If the definition of a ponzi scheme is paying some investors from the new contributions of others, then yes, that's whats being proposed. Super is much more opaque than it should be - which means no-one really knows what the outcomes are going to be. Hence my interest in watching this space.
I'm also thrilled that indexing is now widely available and cheap. That's where the bulk of my money is going these days.
Post by: mymatenate on April 24, 2020, 05:21:53 PM
But what about for the mustachian? What if they take $10-20k out of their super (let's assume they've chosen the index option inside super) and re-invest it in the index outside super? Pay
It's really hard to get money into super, I can't imagine that anyone who's fair dinkum about retiring early would care about $20k taken out of super and reinvested in taxable accounts.
I'm still wondering whether it might be a reasonable idea.
We are already retired, and so our tax bill is very low on our largely passive income.
We're doing more of an Early Retirement Extreme style FIRE, so our net worth is a little on the lower side, and $20k ($40k for the both of us) represents a not-completely-insignificant contribution to our stash.
The preservation age (the age at which you can first access your super) has recently been upped from 55 to 60. Will they up it again in the next ~25 years? The higher it goes, the greater the likelihood that you might drop dead soon after finally being able to access it, and having little time to enjoy it.
Perhaps taking into account the risk that we may not be lucky enough to live into our nineties or even eighties, and/or the risk of some sort of financial system meltdown (hyper-inflation? monetary system collapse? etc) within the next 25-35+ years, it might be better to get your hands on at least some of that money now...?
Post by: happy on April 24, 2020, 07:04:21 PM
I am 61 and retired, but still trying to get as much into super as I can (by gradually shifting some assets around), whilst withdrawing the minimum amount. So taking 20k out makes no sense to me at all. Totally different scenario to bigchrisb, but taking it out makes no sense for either of our situations.
Post by: mymatenate on April 27, 2020, 02:14:33 AM
Post by: travelbug on April 27, 2020, 05:20:36 PM
Have been buying VAS though.
Post by: DrowsyBee on April 27, 2020, 06:22:58 PM
NAB trading halt and the reduction of the dividend payout is a bit of a blip. I have been watching these to buy more, but 30c per share dividend is much lower that expected, even if the price is pretty good buying.
Have been buying VAS though.
On the subject of NAB, I can't fathom how their profit was down 51% because of COVID-19. The effects of it came in late-February thru March? What am I missing here?
Post by: Little Aussie Battler on April 27, 2020, 07:06:42 PM
I think that top-line revenue was relatively flat (perhaps down a little), which would be in line with your comments around the timing of C-19 impacts.NAB trading halt and the reduction of the dividend payout is a bit of a blip. I have been watching these to buy more, but 30c per share dividend is much lower that expected, even if the price is pretty good buying.
Have been buying VAS though.
On the subject of NAB, I can't fathom how their profit was down 51% because of COVID-19. The effects of it came in late-February thru March? What am I missing here?
The drop in NPAT would be the result of taking a big collective provision against future credit losses, plus whatever else McEwan managed to push through to tank the result - usually by bringing forward costs like amortisation in order to make the subsequent recovery (and hence his performance) look better. Standard behaviour for a new CEO.
Post by: DrowsyBee on April 27, 2020, 09:36:36 PM
Post by: marty998 on April 27, 2020, 09:48:54 PM
The relevant accounting standard is IFRS9, specifically regarding Expected Credit Losses (ECL).
Previously, the accountants would look at the loan book a point in time and assess which loans were bad and which ones were likely to go from arrears to default. This meant that "bad earnings news" would only be taken well after the event, which we saw in the GFC meant a lack of trust between banks. No one knew which loan books were good and which were bad.
The ECL provisions of the standard* require banks to assess continuously what is the probability of default over the life of the loan (not just now). This means the collective provisions of the banks are much higher than they used to be, and are likely to be much higher than required. When times return to normal, you might find some of the provisions reverse (assuming things don't get worse from here).
The banks also like to play around with software amortisation costs. They do take a hit now so that future earnings look a lot better.
* On transition to the new standard a couple of years ago in 2018, each of the banks took about a $1billion charge to opening retained earnings, so the value of the provision for bad debts could be increased to what it needed to be under the new rules. You will find it in the fine print of the 2018 annual reports under "changes to accounting standards", and also as a line item in the Statement of Changes in Equity.
That extra billion dollar hit did not go into the profit results, so also did not impact anyone's bonus calculations.
Accounting generates some interesting outcomes sometimes.
Post by: DrowsyBee on April 29, 2020, 04:26:21 PM
Post by: marty998 on April 29, 2020, 09:19:00 PM
Somehow I have to explain that rental occupancy costs are not "rent expense" anymore but are now in depreciation and interest expense lines, and that we have a building on our balance sheet that we do not own. I yhen also have to explain the deferred tax impacts of these fictitious make believe P&L items.
And accountants wonder why the profession is not trustworthy...
Post by: DrowsyBee on April 30, 2020, 06:31:05 AM
Tl;dr become an accountant or a lawyer, you’ll always have a job.
Post by: Alchemisst on April 30, 2020, 06:01:12 PM
Post by: Andy R on April 30, 2020, 08:12:17 PM
What bonds do you guys have? I currently have VAF and a little VCF, thinking maybe I should diversify and get some global bonds instead of just VAF?
Depends on your strategy.
If you're using bonds to lower volatility and for preservation of capital and you get your returns from your equity, then government bonds make the most sense to avoid credit risk, and in that case I doubt the Australian government (or the government of pretty much any developed country) is going to default, and I'm not convinced you need to diversify internationally.
If you use a very low portion of growth assets (eg an irrational fear of stocks might be one reason, can't think of other reasons) and you need to boost your returns, then some corporate bonds would be the choice, and in that case you really want to diversify to lower idiosyncratic risk and going international makes sense.
Since you decided on using 2 funds with one of them a corporate bond fund, why not just remove the corporate bonds from VAF and go with VGB?
Post by: Murdoch on May 01, 2020, 03:51:19 PM
In The Australian Vanguard funds, I assume CPU for the quarterly dividends means 'Cents Per Unit'?
I'm changing from the Growth Index to a heavier Shares fund and trying to work out how much dividends payments will change.
Other places I read suggest CPU may be a percentage of the individual shares price rather than a flat 'cents per unit' number.
I couldn't find an answer on the website.
Can anyone clarify please?
Cheers
Murdoch
Post by: mjr on May 02, 2020, 02:18:52 AM
"As at 31 March 2020, the gross distribution of 2.7025 cents per unit comprised 2.0039 of net (cash)
distribution plus 0.6986 by way of franking credits and foreign tax credits."
Post by: deborah on May 02, 2020, 02:55:10 AM
Post by: Murdoch on May 02, 2020, 04:53:36 AM
Post by: MrThatsDifferent on May 02, 2020, 03:18:29 PM
Here’s my thinking on why next year should be the best window:
—Because of COVID, there will be lots of stock on the market
—there will be lots of people who won’t be cashed up to buy next year
—they’re predicting a 10-20% drop in house prices
—seems like they’re going to abolish stamp duty
My hope and thinking is that places that are $850-950k now come down to $750-850k, which would give me my desired 2 bed/2bath with car within 20 min walking to the CBD (a boy can dream).
Do you all see this as well? If there was a time to jump in, Will that be then?
Would love your thoughts @marty998 and @bigchrisb @deborah
Post by: marty998 on May 02, 2020, 06:03:53 PM
Admittedly I exchanged contracts at the end of January just before SHTF but I'm still ok with the decision. Vendors are renting it back from me until mid September @ $800 a week, which basically means I'm positively geared.
I don't think I'll have any issues renting it for that amount or more afterwards. Plenty of families will be interested in a 4 bed unit in a nice complex located 5-10 minutes from a train station, major hospital, selective school, shopping centre and the beach.
Having just dropped $37,752 in stamp duty I'll be annoyed if I start getting charged land tax but what can you do? The rules change all the time. You've got to expect that and be willing to adapt. If you bitch and moan and complain like a a lot of people do then all you're left with is nothing but a head-ful of anger and no portfolio because you refuse to take action.
$40 grand is small change when you're playing a long game and eventually have an investment portfolio that goes up and down by that amount every day.
Specifically on your questions
- there is currently a shortage of stock as sellers hold off, and banks extend repayment holidays - people are not being forced to sell right now.
- there are alway investors cashed up to buy - like me :)
- It depends where. Some areas might go down, some areas might go up.
- Abolishing stamp duty might allow people to spend more, and push prices up.
Post by: MrThatsDifferent on May 02, 2020, 07:14:08 PM
Post by: marty998 on May 02, 2020, 07:26:36 PM
Cash is probably the best place for it to be frank.
Post by: MrThatsDifferent on May 02, 2020, 11:39:35 PM
Post by: happy on May 03, 2020, 02:47:52 AM
When repayment holidays end and if levels of unemployment remain high as might be expected then the Sydney market may cool, say somewhere between September and end of 2020 and if the economy really goes as badly as many fear in 2021 it could go even lower.
If I were buying in Sydney, I'd be following and researching prices in my preferred suburbs from now on. Once we get open houses again go to as many as you can be bothered with. I would also keep an eye on auction clearance rates, and know how many properties were usually on the market in my preferred postcode.
Keep watching the market and the economy and you should get a feel of the trends. Be ready. Have an idea of the price point you are willing to jump in...its the same as the stock market, pretty hard to predict the bottom.
That being said the Sydney market continues to surprise me with its ability to rise. I do think though, if its ever going to drop substantially the next 6-12 months look like it could be it.
Post by: MrThatsDifferent on May 03, 2020, 06:02:27 AM
Post by: bigchrisb on May 04, 2020, 02:13:18 AM
Hi, I’ve asked a question on the main board to get a wide perspective, but I’d love to get your thoughts on something I’m trying to work through: will next year be the best time to buy a property in Sydney? And if so, should I pause my investing to save cash to grab the opportunity?
Do you all see this as well? If there was a time to jump in, Will that be then?
I wouldn't trust me on predicting the residential property market - I've thought it was irrationally over-valued since the mid 2000s. If I keep calling a bust, I'll eventually be right!
Instead, what have I been doing:
- I begrudgingly bought a house in 2014 (Canberra) wanting to own a place to live in. I did everything I could to optimise the price and purchasing process, but at the end of the day I bought the house that I wanted to live in. The way it turned out, I ended up lucky, and its appreciated about 40% since.
- When I bought, the house represented 32% of my total assets (I had a lot of leverage/debt, particularly after the house buy!). I used the opportunity to debt-recycle fairly quickly, using the home loan to refinance margin loan debt (lower rates and lower chance of the debt being called.
- Since buying I have ended up married and started a family. The house is currently rented out while I'm overseas, but my wife and I are debating about upgrading houses when we return. We don't expect a lot of impact from COVID on this, as we are in Canberra (public sector jobs fairly secure), and we currently own two places (one house, one apartment), and selling both would be in the ballpark of the kind of places we want to buy.
Don't get your hopes up on stamp duty having a big impact. Canberra started the stamp duty/rates phase over shortly after I bought. I paid just under $30k in stamp duty in 2014. The same price house would be $23k now. So a stamp duty saving of $7k one off.
Over the same time, my rates have increased from $2300 to $4300 ($2k increase) and my land tax (currently rented out) from $4200 to $6700 ($2.5k increase). So, the increase in annual costs has been $4500. i.e. the reduction in stamp duty in my situation is equivalent to 1.5 years of the additional taxes. I don't intend to sell my house every 18 months, so for me, the change stinks. As an economist, I support it - its efficient and hard to avoid. Much better than transaction taxes or company taxes.
As to your situation, if it were me I'd not get too worked up about the timing - if the right place for you comes up, and you want to buy it to live in, do so. I'd educate myself about the markets I'm interested in - focus on figuring out what kind of place you actually want. In terms of the savings, if you genuinely expect to spend it in the next couple of years, it doesn't belong in shares.
Post by: marty998 on May 04, 2020, 02:32:19 AM
Over the same time, my rates have increased from $2300 to $4300 ($2k increase) and my land tax (currently rented out) from $4200 to $6700 ($2.5k increase). So, the increase in annual costs has been $4500. i.e. the reduction in stamp duty in my situation is equivalent to 1.5 years of the additional taxes. I don't intend to sell my house every 18 months, so for me, the change stinks. As an economist, I support it - its efficient and hard to avoid. Much better than transaction taxes or company taxes.
If they implemented the land tax on all properties, not just investment and commercial, then it wouldn't have to be so high...
Post by: MrThatsDifferent on May 04, 2020, 05:39:53 AM
Post by: bigchrisb on May 05, 2020, 12:54:35 AM
https://www.abc.net.au/news/2020-05-04/westpac-will-not-take-cash-from-home-loan-accounts/12213408 (https://www.abc.net.au/news/2020-05-04/westpac-will-not-take-cash-from-home-loan-accounts/12213408)
Also a good AFR writeup, but its behind a paywall, so I haven't linked it.
A timely reminder that there is cash and there is "cash". I wouldn't be surprised to see more of this happening, particularly from second tier lenders.
People haven't lost money, as its been applied to the principal. But they have lost access to it, which hurts. If your emergency fund, or your dry powder was being kept in a redraw with ME, you have just been screwed.
I took action a while ago and made sure that my investable cash was in genuine offset accounts (as opposed to redraw accounts). And for good measure, I've got 12 months spend in real bank accounts, spread over a couple of different banks. In the past, I was happy for this to sit in my offset account, but but now I'm prepared to give up a couple of percent interest for better security of access to my emergency fund.
Hope none of you have been adversely impacted by this.
Post by: marty998 on May 05, 2020, 05:34:24 AM
I see ME Bank is the first to freeze mortgage re-draws.
https://www.abc.net.au/news/2020-05-04/westpac-will-not-take-cash-from-home-loan-accounts/12213408 (https://www.abc.net.au/news/2020-05-04/westpac-will-not-take-cash-from-home-loan-accounts/12213408)
Also a good AFR writeup, but its behind a paywall, so I haven't linked it.
A timely reminder that there is cash and there is "cash". I wouldn't be surprised to see more of this happening, particularly from second tier lenders.
People haven't lost money, as its been applied to the principal. But they have lost access to it, which hurts. If your emergency fund, or your dry powder was being kept in a redraw with ME, you have just been screwed.
I took action a while ago and made sure that my investable cash was in genuine offset accounts (as opposed to redraw accounts). And for good measure, I've got 12 months spend in real bank accounts, spread over a couple of different banks. In the past, I was happy for this to sit in my offset account, but but now I'm prepared to give up a couple of percent interest for better security of access to my emergency fund.
Hope none of you have been adversely impacted by this.
My understanding of this was that they've swept redraws into the mortgage to the extent of how far ahead of the normal mortgage payoff you were.
For example, if you were 29 years into a 30 year loan, and you have $300,000 in re-draw, they've now stopped you from re-borrowing $300,000 (because then your repayments would be over $25,000 a month, and that would be irresponsible).
Call it a bug in the legacy IT systems that the available re-draw didn't reduce in line with the normal pay-off schedule. Commbank fixed it 2 years ago (to similar outcry of "bad bank stealing people's money").
It wasn't true then and it isn't true now.
Post by: DrowsyBee on May 05, 2020, 07:06:34 PM
Post by: Andy R on May 05, 2020, 09:07:10 PM
Post by: DrowsyBee on May 05, 2020, 09:28:25 PM
Post by: bigchrisb on May 06, 2020, 06:34:16 AM
To get my holding back, I need to be allocated $12k under the spp, so can handle a scaleback to 40%. I'll buy the balance back on market after any scaleback is announced.
Will be interesting to see where it lands. Anyone have any view on the ATOs treatment of share purchase plans under the wash sale rules for capital losses?
Post by: sirdeets on May 07, 2020, 05:33:14 PM
Post by: middo on May 07, 2020, 08:17:32 PM
I see ME Bank is the first to freeze mortgage re-draws.
https://www.abc.net.au/news/2020-05-04/westpac-will-not-take-cash-from-home-loan-accounts/12213408 (https://www.abc.net.au/news/2020-05-04/westpac-will-not-take-cash-from-home-loan-accounts/12213408)
Also a good AFR writeup, but its behind a paywall, so I haven't linked it.
A timely reminder that there is cash and there is "cash". I wouldn't be surprised to see more of this happening, particularly from second tier lenders.
People haven't lost money, as its been applied to the principal. But they have lost access to it, which hurts. If your emergency fund, or your dry powder was being kept in a redraw with ME, you have just been screwed.
I took action a while ago and made sure that my investable cash was in genuine offset accounts (as opposed to redraw accounts). And for good measure, I've got 12 months spend in real bank accounts, spread over a couple of different banks. In the past, I was happy for this to sit in my offset account, but but now I'm prepared to give up a couple of percent interest for better security of access to my emergency fund.
Hope none of you have been adversely impacted by this.
My understanding of this was that they've swept redraws into the mortgage to the extent of how far ahead of the normal mortgage payoff you were.
For example, if you were 29 years into a 30 year loan, and you have $300,000 in re-draw, they've now stopped you from re-borrowing $300,000 (because then your repayments would be over $25,000 a month, and that would be irresponsible).
Call it a bug in the legacy IT systems that the available re-draw didn't reduce in line with the normal pay-off schedule. Commbank fixed it 2 years ago (to similar outcry of "bad bank stealing people's money").
It wasn't true then and it isn't true now.
There is a report in The Age that ME Bank has reversed this decision.
Post by: MrThatsDifferent on May 07, 2020, 10:50:27 PM
I see ME Bank is the first to freeze mortgage re-draws.
https://www.abc.net.au/news/2020-05-04/westpac-will-not-take-cash-from-home-loan-accounts/12213408 (https://www.abc.net.au/news/2020-05-04/westpac-will-not-take-cash-from-home-loan-accounts/12213408)
Also a good AFR writeup, but its behind a paywall, so I haven't linked it.
A timely reminder that there is cash and there is "cash". I wouldn't be surprised to see more of this happening, particularly from second tier lenders.
People haven't lost money, as its been applied to the principal. But they have lost access to it, which hurts. If your emergency fund, or your dry powder was being kept in a redraw with ME, you have just been screwed.
I took action a while ago and made sure that my investable cash was in genuine offset accounts (as opposed to redraw accounts). And for good measure, I've got 12 months spend in real bank accounts, spread over a couple of different banks. In the past, I was happy for this to sit in my offset account, but but now I'm prepared to give up a couple of percent interest for better security of access to my emergency fund.
Hope none of you have been adversely impacted by this.
My understanding of this was that they've swept redraws into the mortgage to the extent of how far ahead of the normal mortgage payoff you were.
For example, if you were 29 years into a 30 year loan, and you have $300,000 in re-draw, they've now stopped you from re-borrowing $300,000 (because then your repayments would be over $25,000 a month, and that would be irresponsible).
Call it a bug in the legacy IT systems that the available re-draw didn't reduce in line with the normal pay-off schedule. Commbank fixed it 2 years ago (to similar outcry of "bad bank stealing people's money").
It wasn't true then and it isn't true now.
There is a report in The Age that ME Bank has reversed this decision.
What a betrayal of trust, I’ll never use them.
Post by: Wadiman on May 18, 2020, 05:46:14 AM
Wondering if anyone has read and digested this: https://www.amazon.com.au/Living-Off-Your-Money-Retirement/dp/0997403403
I’m about two years out from FIREing and am starting to think about the mechanics of withdrawing living expenses - he makes some very interesting points and outlines strategies worth looking into (in my view). I haven’t purchased the book yet but plan to do so.
Bestest
Post by: mrmoonymartian on May 18, 2020, 06:13:02 AM
1. Write book about living off your money
2. Sell book for $60 per paperback and $86 per hardback on amazon
3. Profit!
Post by: Andy R on May 18, 2020, 07:38:33 AM
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.
Post by: Wadiman on May 20, 2020, 07:45:30 PM
Post by: oysters on May 22, 2020, 08:21:52 AM
https://www.bogleheads.org/forum/viewtopic.php?t=277543 (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.
Post by: chevy1956 on May 22, 2020, 04:38:16 PM
Post by: Andy R on May 22, 2020, 07:58:42 PM
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.
Post by: chevy1956 on May 24, 2020, 03:31:40 AM
https://earlyretirementnow.com/
Post by: Little Aussie Battler on May 26, 2020, 10:09:20 PM
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?
Post by: mrmoonymartian on May 27, 2020, 02:03:54 AM
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
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.
Post by: middo on May 27, 2020, 02:13:06 AM
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
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.
Post by: mrmoonymartian on May 27, 2020, 02:50:25 AM
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.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
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.
Post by: marty998 on May 27, 2020, 05:44:54 AM
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.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
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.
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.
Post by: middo on May 27, 2020, 06:26:45 AM
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.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
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.
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!
Post by: mrmoonymartian on May 27, 2020, 06:35:52 AM
Quick, buy Virgin Aerospace Services! It's going to go ballistic!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.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
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.
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!
Post by: Alchemisst on May 28, 2020, 08:05:41 PM
Post by: Andy R on May 28, 2020, 09:54:24 PM
• 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 (https://www.wisdomtree.com/-/media/us-media-files/documents/resource-library/whitepaper/currency-hedging_wp.pdf) goes into it on page 6
Post by: Alchemisst on May 28, 2020, 10:49:52 PM
Post by: Andy R on May 28, 2020, 11:05:56 PM
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)
Post by: marty998 on June 05, 2020, 05:40:16 AM
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.
Post by: marty998 on June 08, 2020, 07:14:14 PM
Post by: mjr on June 25, 2020, 10:06:04 PM
Post by: bigchrisb on June 26, 2020, 07:05:34 AM
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.
Post by: Rob_S on June 27, 2020, 03:21:45 AM
Post by: marty998 on June 27, 2020, 05:25:10 PM
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.
Post by: Richmond 2020 on July 01, 2020, 03:56:45 PM
Post by: annsie on July 09, 2020, 08:24:06 PM
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 😊
Post by: annsie on July 09, 2020, 08:42:19 PM
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?
Post by: mspym on July 09, 2020, 08:44:39 PM
I found the investment order.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.
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?
Post by: mrmoonymartian on July 09, 2020, 11:23:57 PM
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.
Post by: annsie on July 10, 2020, 05:45:49 PM
Post by: Arapiles on July 13, 2020, 10:43:52 PM
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!
Post by: marty998 on July 14, 2020, 03:40:42 AM
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.
Post by: Juan Ponce de León on July 14, 2020, 04:11:39 AM
Post by: marty998 on July 14, 2020, 04:46:22 AM
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.
Post by: Arapiles on July 14, 2020, 05:15:23 PM
Post by: Richmond 2020 on July 14, 2020, 08:15:05 PM
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.
Post by: Andy R on July 14, 2020, 10:32:45 PM
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.
Post by: Arapiles on July 15, 2020, 03:20:27 AM
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!
Post by: Andy R on July 15, 2020, 04:39:02 AM
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.
Post by: Arapiles on July 15, 2020, 05:01:41 AM
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.
Post by: nofriends on July 27, 2020, 07:08:33 PM
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.
Post by: turboslob on August 01, 2020, 06:21:57 PM
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.
Post by: mspym on August 01, 2020, 06:31:27 PM
Post by: Andy R on August 01, 2020, 09:48:12 PM
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.
Post by: MrThatsDifferent on August 02, 2020, 03:59:08 AM
Post by: turboslob on August 02, 2020, 04:46:09 PM
@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).
Post by: MrThatsDifferent on August 03, 2020, 02:06:28 AM
Post by: Notch on August 05, 2020, 04:26:53 AM
@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.
Post by: Arapiles on August 05, 2020, 05:42:44 PM
Post by: MrThatsDifferent on August 08, 2020, 02:47:55 PM
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?
Post by: Wadiman on August 08, 2020, 11:25:44 PM
Post by: MrThatsDifferent on August 09, 2020, 12:17:39 AM
Post by: MrThatsDifferent on August 09, 2020, 12:31:19 AM
Post by: Wadiman on August 09, 2020, 01:18:41 AM
Post by: MrThatsDifferent on August 09, 2020, 02:55:33 AM
Post by: marty998 on August 09, 2020, 05:33:52 AM
Thank you Wadiman. So what do you do when the offset equals the remainder of the loan? Did you pay it off completely or do you just keep the money in the offset and keep paying the mortgage?
I had a full offset for 5 years against my PPOR while I procrastinated what to do. It was going to be a house deposit for when I get married, have babies yadda yadda, but since that hasn’t happened I bit the bullet, paid the loan down to 2c, and am redrawing it to buy shares. Paying it down to a sufficiently small amount and reborrowing it has now changed the purpose So I can claim the interest on tax, without the problem of it being a mixed purpose loan.
Can’t sit around waiting for life to happen... I’ve lost years of potential investment earning by not doing this sooner.
Post by: MrThatsDifferent on August 09, 2020, 02:47:51 PM
Thank you Wadiman. So what do you do when the offset equals the remainder of the loan? Did you pay it off completely or do you just keep the money in the offset and keep paying the mortgage?
I had a full offset for 5 years against my PPOR while I procrastinated what to do. It was going to be a house deposit for when I get married, have babies yadda yadda, but since that hasn’t happened I bit the bullet, paid the loan down to 2c, and am redrawing it to buy shares. Paying it down to a sufficiently small amount and reborrowing it has now changed the purpose So I can claim the interest on tax, without the problem of it being a mixed purpose loan.
Can’t sit around waiting for life to happen... I’ve lost years of potential investment earning by not doing this sooner.
Thank you @marty998 . I’d like to learn from your hindsight. Is it ok if I PM you for more details, unless you’re ok explaining what you did here? I’m a bit slow with this stuff and need the steps broken down to understand it.
From what I am reading, you:
1. Had an offset account, and put in enough money to equal what you owed
2. You left it like that for an additional 5 years
3. You then paid off the loan entirely except for 2c (not sure if that’s really 2 cents of something else?)
4. But when you paid off, you actually put that money in a redraw account, so you could access it
5. You then pulled money out of your redraw account, used that money to buy shares
6. Because of using the money for shares you’re able to claim the interest (of the PPOR or shares?) on your taxes for a deduction
Happy if you could sort my understanding. If you had to do all again, knowing what you know now, what would be your steps and strategy? I definitely want to learn from people and don’t know anyone who is mustachian strategic with money here.
Big thank you in advance for any insights and sharing your experience.
Post by: marty998 on August 09, 2020, 03:59:16 PM
Paid down $250,000.00. I didn’t put it in a redraw account as such. CBA loans don’t work that way.... the money is always simply just available to take out of the loan account whenever you want. I guess you could call it redraw by another name.
The bank sent me a note asking if I wanted to close the loan or keep the loan open (now with $257,500 available).
Have pulled $25,000, going to draw more over the coming months.
Post by: marty998 on August 09, 2020, 04:02:09 PM
I wouldn’t feel comfortable telling you what to do without knowing all your circumstances.
Post by: Juan Ponce de León on August 09, 2020, 05:36:26 PM
So you've drawn the 25K and you're paying interest on it, have you bought the shares yet?
I think what I would do is buy some shares and say the settlement is $10,054.12 and then I would draw $10,054.12 on the loan and ship it straight over to pay the settlement bill. That way it's pretty concrete paper trail that the money was used to buy shares.
Post by: MrThatsDifferent on August 09, 2020, 09:43:59 PM
Your circumstances are going to be different to mine @MrThatsDifferent.
I wouldn’t feel comfortable telling you what to do without knowing all your circumstances.
Thank you very much @marty998 I understand, that all makes sense. I’m a long way from executing any of this, so have plenty of time to discuss when things are more concrete. I just think having an offset account is such a brilliant thing. I want to use it well but don’t want to miss out on the market.
Post by: turboslob on August 10, 2020, 12:24:54 AM
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.
Just to close the loop on this, my initial assumption was wrong. It seems that once you're in a wholesale fund you're paying the lower rate (.029% at time of writing).
Calcs I did to confirm was:
Looked at old statement, paid about $41 per month fees with value ~166k
41 * 12 ~=500 per annum
So, interest rate should be 166000 * x = 500
x=500/166000 = ~0.03%
To sum up, I won't be moving out of the wholesale fund if I'm almost paying the same as ETFs, and enjoy the ability to put in a small amount every pay or two.
Thanks for the help; I should've just looked at a statement to begin with....
Post by: MrThatsDifferent on August 15, 2020, 04:45:56 PM
I have $300k for death, $300k for disablement and $3000/month income protection. I paid $664 for the year for that insurance, $67.07 a month. Is it worth it? I’m a SINK. If I die, my estate will already have enough for anyone that inherits. Income protection is tough to claim. Seems like a waste of money. Am I missing something? Should I drop it?
Post by: Andy R on August 15, 2020, 08:53:10 PM
Post by: marty998 on August 15, 2020, 09:53:58 PM
Should I cancel my insurance in my super?
I have $300k for death, $300k for disablement and $3000/month income protection. I paid $664 for the year for that insurance, $67.07 a month. Is it worth it? I’m a SINK. If I die, my estate will already have enough for anyone that inherits. Income protection is tough to claim. Seems like a waste of money. Am I missing something? Should I drop it?
Death cover is a waste for you. Income protection is also a waste IMO. As Snoop Dogg would say “Drop it like it’s haaaawt”
Post by: MrThatsDifferent on August 16, 2020, 06:26:13 PM
Post by: bigchrisb on August 17, 2020, 09:24:59 AM
Tpd policies are notoriously harder to claim.
Unless you are FI, YOU are dependent on your future earnings. If you have
Post by: MrThatsDifferent on August 18, 2020, 12:58:57 PM
I've had a trauma claim paid, and was pretty glad to have the coverage. Even then it was traumatic to claim, taking a year to actually get paid. Ok so the pun is bad, but hopefully the point made.
Tpd policies are notoriously harder to claim.
Unless you are FI, YOU are dependent on your future earnings. If you have odorous net worth and no (planned) dependants, then ditch death cover for sure.
Hey @bigchrisb you’re who I think about regarding this knowing that you claimed this. I don’t think I even have trauma in my super. Hope to never want to claim this. TPD feels like a waste of money but hate to take that chance during a pandemic.
Post by: lazycow on August 19, 2020, 07:57:12 PM
Post by: marty998 on August 21, 2020, 02:44:46 PM
OK, I need to start reading from the beginning! Hopefully all my questions have been answered already, but my husband and I are early 50's, mortgage-free with a decent amount of cash ($600K +) and around $200K in super (he is self-employed). Still debating whether we buy a rental property locally and invest in ETFs, or buy 2 properties. Will report back in a few days when I've read all your wise words!
This should be an easy answer. The answer is a third option.
Each of you use the $300k non-concessional “bring forward” contribution rules and place the money in super.
Let it sit and compound for 10 years.
Withdraw tax free pensions for life, with no admin hassle.
Post by: lazycow on August 22, 2020, 01:35:24 AM
OK, I need to start reading from the beginning! Hopefully all my questions have been answered already, but my husband and I are early 50's, mortgage-free with a decent amount of cash ($600K +) and around $200K in super (he is self-employed). Still debating whether we buy a rental property locally and invest in ETFs, or buy 2 properties. Will report back in a few days when I've read all your wise words!
This should be an easy answer. The answer is a third option.
Each of you use the $300k non-concessional “bring forward” contribution rules and place the money in super.
Let it sit and compound for 10 years.
Withdraw tax free pensions for life, with no admin hassle.
Thanks for that Marty998. I hadn't considered that. It would be a great option, however *whispers* my husband doesn't believe in Superannuation. Am I allowed to say that?
Post by: Andy R on August 22, 2020, 02:29:48 AM
It would be a great option, however *whispers* my husband doesn't believe in Superannuation. Am I allowed to say that?
You're husband is an idiot. It's free money ffs.
Post by: deborah on August 22, 2020, 02:42:07 AM
Post by: Arapiles on August 22, 2020, 05:41:00 PM
Post by: marty998 on August 22, 2020, 10:12:08 PM
I'm also curious as to his reservations.
Probably believes the nonsense about the government “raiding” super accounts and changing the rules all the time* and blah blah blah.
The current government certainly hasn’t done anything to support or promote community understanding of what superannuation is and why it is important.
Even if they have no policies on it, or are ideologically opposed to it, they should not leave it to providers with vested interests to ‘educate’ the public.
Such are the times. Not many places you can go for unbiased facts., and the websites that you can go to are not well known.
*The really ridiculous trope I hate is the belief that people “need certainty” to invest / contribute to super. Two things wrong with that view. The world doesn’t owe anyone a guaranteed return, and since when has anything in life ever been certain (see 2020 lol).
Post by: Juan Ponce de León on August 23, 2020, 01:09:53 AM
Post by: chevy1956 on August 23, 2020, 11:39:52 PM
I'm also curious as to his reservations.
Probably believes the nonsense about the government “raiding” super accounts and changing the rules all the time* and blah blah blah.
The current government certainly hasn’t done anything to support or promote community understanding of what superannuation is and why it is important.
Even if they have no policies on it, or are ideologically opposed to it, they should not leave it to providers with vested interests to ‘educate’ the public.
Such are the times. Not many places you can go for unbiased facts., and the websites that you can go to are not well known.
*The really ridiculous trope I hate is the belief that people “need certainty” to invest / contribute to super. Two things wrong with that view. The world doesn’t owe anyone a guaranteed return, and since when has anything in life ever been certain (see 2020 lol).
When it comes to understanding how to invest people are clueless. I work for a big Bank. One of my friends is a general manager earning big dollars. He was telling us how he was joining some investment scheme investing in the property market. We also have our own Super fund with low fees and index options.
It's like free money is over here but because it's too easy they do something else.
Post by: jk5954 on August 24, 2020, 04:57:58 AM
I'm also curious as to his reservations.
Probably believes the nonsense about the government “raiding” super accounts and changing the rules all the time* and blah blah blah.
The current government certainly hasn’t done anything to support or promote community understanding of what superannuation is and why it is important.
Even if they have no policies on it, or are ideologically opposed to it, they should not leave it to providers with vested interests to ‘educate’ the public.
Such are the times. Not many places you can go for unbiased facts., and the websites that you can go to are not well known.
*The really ridiculous trope I hate is the belief that people “need certainty” to invest / contribute to super. Two things wrong with that view. The world doesn’t owe anyone a guaranteed return, and since when has anything in life ever been certain (see 2020 lol).
When it comes to understanding how to invest people are clueless. I work for a big Bank. One of my friends is a general manager earning big dollars. He was telling us how he was joining some investment scheme investing in the property market. We also have our own Super fund with low fees and index options.
It's like free money is over here but because it's too easy they do something else.
They really really are! My brother-in-law's (my wife's brother) family is terrible with money. Things like constantly needing to borrow money from his parents whenever the smallest unexpected bill hits, and anything money or budget related is too hard.
I bought them a copy of The Barefoot Investor thinking it might at least teach them a thing or 2 or point them in the right direction. Next thing I hear is that they have gone and seen a financial advisor who has advised them to start a SMSF and buy an investment property through it. Which they did.
At least it allows me to say to my wife, 'This is why we do some things, so that we don't end up like them.'
Post by: MrThatsDifferent on August 25, 2020, 02:29:09 PM
I’m curious, as I try to navigate thinking about home ownership:
1. How much deposit did you have for your first home?
2. Did you take advantage of any first home buyer’s schemes?
3. How long did that take you to accumulate?
4. Did you put your investments on hold or firehosed your money for the deposit?
5. What, if anything, would you do differently or better now?
Thanks any and all that share any insights.
Post by: middo on August 25, 2020, 07:18:08 PM
2. No first home owners scheme back then.
3. It took us about 9 months to accumulate, as we were both working and saved every single cent.
4. We didn't have any other investments. I didn't even really know about investing (other then property) until 5 years ago. :(
5. Nothing to buy the house. I would do the same. But I would watch my lifestyle creep and learn about investing before I turned 45 in hindsight...
Post by: lazycow on August 25, 2020, 10:47:39 PM
I should have checked with my husband before posting, as he actually does not have anything against Super, just leery of putting every available cent into it. Anyway, interesting replies, thank you. I will continue to educate myself in any case.I'm also curious as to his reservations.
Probably believes the nonsense about the government “raiding” super accounts and changing the rules all the time* and blah blah blah.
The current government certainly hasn’t done anything to support or promote community understanding of what superannuation is and why it is important.
Even if they have no policies on it, or are ideologically opposed to it, they should not leave it to providers with vested interests to ‘educate’ the public.
Such are the times. Not many places you can go for unbiased facts., and the websites that you can go to are not well known.
*The really ridiculous trope I hate is the belief that people “need certainty” to invest / contribute to super. Two things wrong with that view. The world doesn’t owe anyone a guaranteed return, and since when has anything in life ever been certain (see 2020 lol).
@marty998 I would love to be directed to reputable sites where I can get unbiased facts!
Post by: marty998 on August 26, 2020, 02:56:58 PM
This is a good place to start 🙂
Post by: annsie on September 20, 2020, 03:11:15 AM
Can I back up a bit please to better understand the thinking of having trauma instead of personal income insurance? I’m a SINK, no debt. Thank you!
Post by: mrmoonymartian on September 20, 2020, 04:04:14 PM
Hi,
Can I back up a bit please to better understand the thinking of having trauma instead of personal income insurance? I’m a SINK, no debt. Thank you!
If you lose your job you can get back on your feet straight away. If you lose a leg that's going to be a lot harder to do.
Post by: Andy R on September 20, 2020, 10:43:14 PM
Hi,
Can I back up a bit please to better understand the thinking of having trauma instead of personal income insurance? I’m a SINK, no debt. Thank you!
If you lose your job you can get back on your feet straight away. If you lose a leg that's going to be a lot harder to do.
You're mixing up TPD and IP
Insurance Insights: The difference & overlap between TPD, Trauma and Income Protection cover (https://www.reddit.com/r/AusFinance/comments/i7imzo/insurance_insights_the_difference_overlap_between/)
Income protection
Temporary income replacement for when you're unable to work due to partial or total disability.
Total and Permanent Disability
Lump sum (to replace money you are unable to ever earn again)
Trauma insurance
Lump sum, designed to cover out-of-pocket medical expenses above those rebated by Medicare & individuals health insurance. Most often claimed for cancer (highest), stroke, cardiac arrest and bypass surgery.
Term life insurance is the 4th type of life insurance, which people without dependants may not need.
And thankfully we don't have 'whole of life' insurance in Australia.
Post by: MrThatsDifferent on September 21, 2020, 10:11:31 PM
Post by: Andy R on September 23, 2020, 01:23:29 AM
Income protection doesn’t generally cover redundancy though or being terminated.
You're right. Edited the above.
Cheers.
Post by: annsie on September 23, 2020, 03:54:49 AM
Post by: middo on September 23, 2020, 06:56:59 AM
Post by: mjr on September 23, 2020, 02:42:58 PM
My advice to her would be to save as much as she can - she'll have plenty of need to spend money to set herself up in the next 5 years - too short a time horizon for any risky investments.
Post by: mspym on September 23, 2020, 03:04:20 PM
So my daughter at 23 is about to start her first full time job, on 80+K per year. She has asked me for advice about investing, salary sacrifice and all things money. My first thought is the 25K super max out, then what?She's probably in the right spot for The Barefoot Investor approach.
Post by: marty998 on September 25, 2020, 02:20:59 PM
So my daughter at 23 is about to start her first full time job, on 80+K per year. She has asked me for advice about investing, salary sacrifice and all things money. My first thought is the 25K super max out, then what?
I agree with mjr that she needs capital.
For better or worse, such is life. It’s gives options that are simply unavailable to those without it.
Having said that, I would still advise her maxing out her super up to $25k (to an industry fund, AusSuper, SunSuper, AwareSuper.... doesn’t really matter which to be honest, they all invest similarly) and if you have the means to do so, top up her wages with a cash gift to compensate as an incentive, that goes into a savings account for a property.
An early start with Super will make up for the years when she is not working due to children etc. It’s so important for women to have a decent level of super... the stats on older women in poverty are horrendous. Her future self will be grateful.
Post by: dondon on September 28, 2020, 11:31:52 PM
So my daughter at 23 is about to start her first full time job, on 80+K per year. She has asked me for advice about investing, salary sacrifice and all things money. My first thought is the 25K super max out, then what?Having said that, I would still advise her maxing out her super up to $25k (to an industry fund, AusSuper, SunSuper, AwareSuper.... doesn’t really matter which to be honest, they all invest similarly) and if you have the means to do so, top up her wages with a cash gift to compensate as an incentive, that goes into a savings account for a property.
Maxing out supper at early age should have disproportionally larger effect than anything else - assuming decent compounding over very long period of time
Post by: mspym on September 29, 2020, 01:13:20 AM
I've been told off om here before for recommending maxing out Super at this age but yeah, this is one of those things that could really counteract the effect of any time off for children/slowly widening wage gap due to structural and unconscious bias.So my daughter at 23 is about to start her first full time job, on 80+K per year. She has asked me for advice about investing, salary sacrifice and all things money. My first thought is the 25K super max out, then what?Having said that, I would still advise her maxing out her super up to $25k (to an industry fund, AusSuper, SunSuper, AwareSuper.... doesn’t really matter which to be honest, they all invest similarly) and if you have the means to do so, top up her wages with a cash gift to compensate as an incentive, that goes into a savings account for a property.
Maxing out supper at early age should have disproportionally larger effect than anything else - assuming decent compounding over very long period of time
Post by: Andy R on September 29, 2020, 04:59:45 AM
I've been told off om here before for recommending maxing out Super at this age
Based on what?
Post by: MrThatsDifferent on September 29, 2020, 02:11:58 PM
Post by: middo on September 29, 2020, 02:51:39 PM
I’d agree that maxing our super at her age will be the best way forward. She probably wouldn’t even need to do much else than that. She can then learn to live off what’s left. Also, she’ll be be able to withdraw some for a home if she wants to. I second the Barefoot Investor boo, it’s a good one for young people. Also, if you get her to stick to paying off credit cards every month and avoiding after pay, she’ll be set.
Thanks everyone for your advice. She has always been good with money, only has a debit card, no debt and a bit of cash in the bank as a student, so is doing OK.
I will look into the super for home deposit scheme as it mat make locking up her money more palatable.
Post by: Murdoch on October 04, 2020, 08:05:50 PM
Couldn't find it posted elsewhere, so please re-direct me if it this is already discussed.
I've just caught up on the changes to Vanguard in Australia.
The move to this new platform will incur a 0.2% AUM fee. This is on top of the fee from whatever fund you are invested in.
For the lower cost funds, this essentially doubles your management costs.
I've just been advised that I can still make Wholesale BPay purchases into funds I don't current have money within, but only until the 16th October.
After that to open any new fund it'll need to be through the new platform/software.
I don't think this is in keeping with Vanguards stated ethos of lowest cost investing.
Is anyone else a bit put out by this?
Murdoch
Post by: chevy1956 on October 04, 2020, 08:24:53 PM
I assume this just makes the ETF option a better option.
It doesn't sound like the best low fee option to me.
Post by: Murdoch on October 04, 2020, 08:34:47 PM
Agreed. I've previously been happy with the slightly raised management fee for ease of use.
They are now enforcing the $100k in any single Wholesale fund option, so you can't split your money across several.
Minimum investment goes up to $5k, so BPay of $100 aliquots is now gone. Many will need to save a lump sum now.
AUM goes up.
On the plus side, you aren't automatically transitioned across.
If you currently hold Wholesale funds the current arrangements continue.
I've only got the International Shares fund, so can thankfully just keep BPay'ing into that unless I'm forced over in the future.
I'll retain the current management fee of the fund only and won't incur the new platform fees as I'll just sit on the legacy system.
Bit of a bummer.
I have previously been a fan of the simplicity and low purchase options, which in my view made up for the very slightly higher management fee.
With both those now gone and the managed funds having a 0.2% premium, I would no longer advocate starting this option with them as I don't think it stacks up.
Disappointing.
Post by: Andy R on October 05, 2020, 01:54:19 AM
Nevertheless, I'd stick with ETFs. The main advantage of VPI over ETFs is that you can put in very small amounts, but you can't even set it up in an automated way.
For putting in very small amounts, have you had a look at OpenTrader? They offer $5 brokerage for up to $2,500. They are the retail arm of the wholesale broker (OpenMarkets) that SelfWealth, Riaz, and Six Park use, so I expect it to be ok, although they said their web interface is still being improved.
For set-and-forget (the main advantage of Vanguard's wholesale/retail funds while they were available), might be worth looking at a new brokerage under beta testing called Pearler. You can setup auto direct credit to auto take your money out periodically, and you can set your ETF allocation and have it auto purchase the most underweight to your allocation. So that is the closest thing to a real set and forget (and you get the tax efficiency of ETFs over managed funds). Although as I said, they are still under beta testing.
Post by: SpInvest on October 24, 2020, 10:47:52 PM
I bought them a copy of The Barefoot Investor thinking it might at least teach them a thing or 2 or point them in the right direction. Next thing I hear is that they have gone and seen a financial advisor who has advised them to start a SMSF and buy an investment property through it. Which they did.
[/quote]
I would hazard that that 'financial advisor' is not really a proper adviser - any advisor worth their salt wouldn't recommend this type of strategy! ASIC would be all over them.
Post by: marty998 on November 18, 2020, 03:10:36 AM
A month without a post here!
Not even a broken ASX on Monday causing a stir!
Post by: deborah on November 18, 2020, 03:41:53 AM
Post by: Murdoch on November 19, 2020, 04:24:12 AM
Harder for investors with many houses as presumably more holding costs now, but easier to trade housing as transactional costs go down.
Harder for new owner occupiers to afford their home as annual costs will go up, but easier to get into the market.
Seems both right and left wing news reports are applauding the change though, and if proves successful with voters may be adopted by other states.
Not overly interesting but Marty998 seems bored:)
Post by: marty998 on November 19, 2020, 06:12:43 AM
Having just forked out a significant amount of duty this year I’ll be holding onto that property a very very long time now.
They should have should made a decision and brought it in now. The uncertainty over the next few months will quell the market quite dramatically.
Post by: deborah on November 19, 2020, 12:58:55 PM
Post by: Murdoch on November 19, 2020, 06:31:44 PM
Marty, I've also paid a lot in stamp duty on our property this year. Glad I won't also be paying an annual holding cost forever.
QLD will be slow to move in this direction I suspect though.
If you're a buy and hold property investor and could make deposit and stamp duty costs I suspect that stamp duty would be preferred over land tax. If you buy and flip housing though, getting rid of stamp duty very much in your interest.
Post by: deborah on November 19, 2020, 07:20:46 PM
I don’t really follow property here, and it’s difficult to tell. We’re a small market, very dependent on the ups and downs of Federal government public service numbers. During the time, we’ve had the “move public servants out of Canberra” National party push. As well, we had over 1000 Mr Fluffy houses demolished (a loose asbestos insulation scheme in the 1960s and 70s) since 2015. They’re being rebuilt, mainly as two houses on smaller blocks instead of the original single house, and the last of them will probably have been constructed next year. These thing would both have influenced the market significantly, especially when all the Mr Fluffy home owners moved out at about the same time before the demolitions.
We haven’t been outliers in the quarterly housing market statistics, so I guess it’s not really affected the market.
Post by: Richmond 2020 on November 24, 2020, 01:44:03 PM
Don’t know about you, but I’m laying low and keeping with my current investments.
I think that maybe most posters on this thread have now set their course and are happy with their asset allocations and investment strategies. Hence not a lot of people around these traps with questions.
It’s been one hell of a sharemarket rally through November. My share portfolio is up approximately $20k for the month to $205k.
I guess it will take a while for the dividends to bounce back though.
Post by: Richmond 2020 on November 24, 2020, 04:10:14 PM
Post by: Alchemisst on December 03, 2020, 06:04:57 AM
Post by: marty998 on December 04, 2020, 06:08:42 PM
No real difference in returns to the balanced option.
If the $A keeps rising on the back of another commodities boom I’ll rotate into some international stocks. Seems an easy long term win in that respect.
Post by: bigchrisb on December 05, 2020, 10:45:50 AM
The gradual rate increases have caused a number of howls over the years - certain corners of the real estate market have decided that they’ve been targeted. Currently, both pensioners and first home buyers are exempt from stamp duty. They’ve changed when you actually pay stamp duty to after purchase rather than before.The devil is in the implementation. I'm a supporter of an annual housing tax, and oppose stamp duty in theory. But I've been hard hit by the implementation.
I don’t really follow property here, and it’s difficult to tell. We’re a small market, very dependent on the ups and downs of Federal government public service numbers. During the time, we’ve had the “move public servants out of Canberra” National party push. As well, we had over 1000 Mr Fluffy houses demolished (a loose asbestos insulation scheme in the 1960s and 70s) since 2015. They’re being rebuilt, mainly as two houses on smaller blocks instead of the original single house, and the last of them will probably have been constructed next year. These thing would both have influenced the market significantly, especially when all the Mr Fluffy home owners moved out at about the same time before the demolitions.
We haven’t been outliers in the quarterly housing market statistics, so I guess it’s not really affected the market.
I bought my house in 2014 for $770k, and paid about $30k in stamp duty.
I'm now paying $11,300 a year in combined rates and land tax. (It's rented out while I'm overseas). Rates and land tax in the first year i owned it were
$6.5k
Stamp duty buying it today, if you paid $770k would be $23.4k. In reality, house prices have boomed, and as stamp duty is linked to sale cost, buying the same place now (approx $1.2m) would incur stamp duty of $50k.
So for someone in my situation the changes really do stink.
Post by: Alchemisst on December 23, 2020, 05:11:42 AM
Post by: deborah on December 23, 2020, 08:55:07 AM
16 x annual pension
towards your transfer balance cap. If you expect to be near your transfer balance cap, this may be a problem, especially if both of you have residual defined benefit pensions that, when added together may break the transfer balance cap after one of you dies.
Depending on the pension, it can be worth more or less. Is it indexed to inflation? Does it have a residual benefit - for instance, some public service DB pensions give 65% to your widow(er), whereas some give nothing, and some give a lump sum... The thing you need to look at is its value to you, which might be completely different.
Most pensions are pretty poor value to a FIREee, because they look at your income in your last years of work at the company and work out the pension amount from that. Anyone who leaves early is penalised, and many have a different (more generous) calculation if you reach retirement age.
On the other hand... Some of them assume that you retire at 55, and can give you an earlier retirement stream than most super. They can also be worth more if you’re retrenched. If they’re indexed to inflation or cost of living, they can provide a certain income, no matter what investments do. So if you’re not retiring particularly early, they can be really good value.
Post by: Model96 on December 27, 2020, 10:16:42 PM
Does anyone know how to compare defined benefit super to a normal accumulation? I'm trying to work out whether its better to switch. From an estimate calculation I guessed that 100,000 in defined benefit would be worth about 9k per year at retirement. However if that 100k were transferred to a normal super account/ indexed at a estimate 7% return per year after inflation you would end up with 400k after 20 years and 800k after 30 years, using the 4% rule you would be able to withdraw 32k at retirement after 30 years. This makes the accumulation method seem much more beneficial. Am I missing anything here?
Defined Benefit Super, whether a pension type or lump sum type, is vastly superior to any accumulation fund because it is guaranteed payment based on your final salary and years of service.
I have never met a happy person that switched from a defined benefit fund to an accumulation fund!
IMO Keep paying into your defined benefit Super, if that Super doesn,t allow 'extra' contributions then there is nothing stopping you putting more into another fund.
Post by: marty998 on December 29, 2020, 03:05:21 PM
Does anyone know how to compare defined benefit super to a normal accumulation? I'm trying to work out whether its better to switch. From an estimate calculation I guessed that 100,000 in defined benefit would be worth about 9k per year at retirement. However if that 100k were transferred to a normal super account/ indexed at a estimate 7% return per year after inflation you would end up with 400k after 20 years and 800k after 30 years, using the 4% rule you would be able to withdraw 32k at retirement after 30 years. This makes the accumulation method seem much more beneficial. Am I missing anything here?
Defined Benefit Super, whether a pension type or lump sum type, is vastly superior to any accumulation fund because it is guaranteed payment based on your final salary and years of service.
I have never met a happy person that switched from a defined benefit fund to an accumulation fund!
IMO Keep paying into your defined benefit Super, if that Super doesn,t allow 'extra' contributions then there is nothing stopping you putting more into another fund.
I have a family member that switched out of a DB fund (forcibly, there was no choice to stay in it once retirement was reached). Her fund has grown much faster % wise in retirement even whilst drawing a pension than it ever did in accumulation mode (and she was sal sacrificing into it to top it up).
She stayed in the fund for 27 years being constantly told that it was "the best thing". But looking back, she probably would have done better with an accumulation fund that had uncapped investment growth potential.
Post by: Model96 on December 30, 2020, 01:30:30 AM
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!
Post by: lazycow on December 30, 2020, 04:17:44 AM
My son has just turned 18 and he wants to start investing (yay!)
He has just over $1000 saved and wants to put it into ETFs (Vanguard?) and I have no idea how to go about it. He'd like to add to it on a semi-regular basis as he has a part-time job while he finishes school next year.
I have looked online for help but I think I just need someone to literally talk me through it as if I was 5 years old. Or at least point me to a site/page that has an idiot-proof step=by-step guide. He banks with the Commonwealth Bank, if that helps. I don't quite understand what sort of fee/payment he will need to make up front and frankly, am the most put off by making that decision for him.
Once I set him up, I want to invest some of my savings, but as he has by far the lesser amount, I think it is less intimidating for me to start small!
Post by: marty998 on December 30, 2020, 01:41:49 PM
I usually suggest $4-$5000 is the minimum to start with, any less and it’s not really worth the trouble of admin and tax and and CGT record keeping.
I went through the set up for my young cousins earlier in the year, but they had $30k each and it’s their “old-lady-never-ever-sell” money, so it’s slightly different circumstances.*
Commsec will charge $10 for trades under $1000 if you open an account and pay for trades using a Commonwealth Direct Investment Account (CDIA). accounts can be opened online pretty easily if you are an existing CBA customer.
Application link here:
https://www.commsec.com.au/accounts/share-trading.html
Your son will need all the usual personal details, plus you need to provide a tax file number. Apply for an “Individual” account, not a joint, company, trust etc
Upon completing the application, your son will get:
- A new CDIA bank account (you’ll see it in NetBank)
- An 8 digit Commsec client number - I forget if they advise you it immediately, or if you get an email, or you might be able to jump from NetBank to Commsec and view your profile details.
- Write down the password you set up too.
- In the mail, the ASX CHESS will send confirmation of your son’s Holder Identification Number (HIN). This starts with X and has 11 digits. This is a really important number which identifies your son as the owner of any share purchased on the ASX.
- For my cousins I got them to buy Vanguards Australian Shares Fund (code VAS). It is a fund that contains the top 300 listed companies in Australia, weighted by value.
Goes without saying your CDIA needs to be funded with sufficient cash to pay for the shares - cash is swept to pay for shares two business days after purchase (and paid to you two days after selling).
Once purchased, the share registry Computershare will send a letter asking you to set up a few details. Not every company uses Computershare, but Vanguard does.
You can set up a login/account with Computershare and advise or change
-Bank details to pay distributions and dividends into
-Whether you want to reinvest dividends
-Advise your TFN so that tax is not deducted from dividends
- View distributions and annual tax statements
Computershare is a bitch of a website to navigate. You don’t have to pay to access your distribution statements, but they try and force you on to a page where they want you to pay for it. You just need to navigate around it.
Hope this helps! Happy investing!
*I told my cousins Afterpay (@$8) was shit because it was losing $100 million a year and is practically insolvent without ongoing capital raising.
That was a bad call. But we did buy VAS at $70 a pop so it’s been a good start for them nonetheless.
Post by: lazycow on December 30, 2020, 06:23:31 PM
The Reddit AusFinance sub is filled with teenagers trying to start with $1000. The general consensus is to go with SelfWealth for the cheap brokerage, but even at $9.50 a trade that is still going to be a relatively high 1% cost.
I usually suggest $4-$5000 is the minimum to start with, any less and it’s not really worth the trouble of admin and tax and and CGT record keeping.
I went through the set up for my young cousins earlier in the year, but they had $30k each and it’s their “old-lady-never-ever-sell” money, so it’s slightly different circumstances.*
Commsec will charge $10 for trades under $1000 if you open an account and pay for trades using a Commonwealth Direct Investment Account (CDIA). accounts can be opened online pretty easily if you are an existing CBA customer.
Application link here:
https://www.commsec.com.au/accounts/share-trading.html
Your son will need all the usual personal details, plus you need to provide a tax file number. Apply for an “Individual” account, not a joint, company, trust etc
Upon completing the application, your son will get:
- A new CDIA bank account (you’ll see it in NetBank)
- An 8 digit Commsec client number - I forget if they advise you it immediately, or if you get an email, or you might be able to jump from NetBank to Commsec and view your profile details.
- Write down the password you set up too.
- In the mail, the ASX CHESS will send confirmation of your son’s Holder Identification Number (HIN). This starts with X and has 11 digits. This is a really important number which identifies your son as the owner of any share purchased on the ASX.
- For my cousins I got them to buy Vanguards Australian Shares Fund (code VAS). It is a fund that contains the top 300 listed companies in Australia, weighted by value.
Goes without saying your CDIA needs to be funded with sufficient cash to pay for the shares - cash is swept to pay for shares two business days after purchase (and paid to you two days after selling).
Once purchased, the share registry Computershare will send a letter asking you to set up a few details. Not every company uses Computershare, but Vanguard does.
You can set up a login/account with Computershare and advise or change
-Bank details to pay distributions and dividends into
-Whether you want to reinvest dividends
-Advise your TFN so that tax is not deducted from dividends
- View distributions and annual tax statements
Computershare is a bitch of a website to navigate. You don’t have to pay to access your distribution statements, but they try and force you on to a page where they want you to pay for it. You just need to navigate around it.
Hope this helps! Happy investing!
*I told my cousins Afterpay (@$8) was shit because it was losing $100 million a year and is practically insolvent without ongoing capital raising.
That was a bad call. But we did buy VAS at $70 a pop so it’s been a good start for them nonetheless.
Brilliant! Thank you so much @marty998. That is exactly the info I have been looking for. I will get him to trawl the Reddit subs as well. It is scary starting out (as are most things!) but my husband and I are almost FI (a combination of luck, frugality, downsizing property, small inheritance) and we didn't go the investment route, so this is all completely new to us.
Post by: Alchemisst on January 03, 2021, 07:21:14 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%
Post by: Model96 on January 04, 2021, 07:32:15 AM
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.
Post by: Alchemisst on January 05, 2021, 06:19:14 AM
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.
Post by: Model96 on January 05, 2021, 04:31:04 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...
Post by: z3170501 on January 14, 2021, 03:29:29 PM
Our situation is a husband and wife with two children under 10. We have stable jobs ($150k and $60k). Own home outright, no other debt. No significant other assets outside of super. One of our super is defined benefits which will pay a reliable income stream in retirement. The other has around $160K (low-cost industry fund).
We propose to implement salary sacrifice from the lower income spouse to boost concessional contributions to $25k.
With remaining spare income, we have decided to invest in a simple ETF portfolio (having read Barefoot, MMM, Firebug, etc). The purpose of this investment is not to fund retirement (our super will do that adequately). The purpose is to build up in investment portfolio indefinitely (to leave to children, etc).
Unlike many, we are not motivated to retire early.
Questions:
- In terms of portfolio mix, what are people’s rationale for holding different classes of underlying asset (e.g., how are people deciding what ratio of domestic share : US share : other international share : bond, etc). I have read the Barefoot Idiot Grandson suggestion, and also commentary of it on Reddit and elsewhere.
- What are people’s thoughts on using a discretionary trust for investing (hassle vs benefits). I understand the potential tax benefits. But the major benefits don’t accrue until the taxable income of the lowest earner exceeds $180k (or there are newly minted adults who can take advantage of the tax-free threshold). Otherwise, the benefit is the difference between 32.5% and 37% - not nothing, but also not startling on small amounts of income. You also lose the benefit of successive CGT-free transfer of assets upon death (let’s say 45 years, per succession), vs presumably triggering CGT consequences upon termination after a trust vests (80 years).
Thoughts?
Post by: Andy R on January 14, 2021, 07:33:56 PM
We propose to implement salary sacrifice from the lower income spouse to boost concessional contributions to $25k.
Are you already maxing out the higher income earners concessional contributions (cc)? If not, look into doing that and using contributions splitting where you increase the higher-income spouse's ccs, then make a transfer to the lower-income earner. This would be useful because marginal rates for a 150k salary are 37% and can therefore get 22 of that 37% back in tax deductions. In contrast, particularly below 45k on the lower-income earner side, the marginal tax rate is only 19%.
You can transfer up to 85% of the concessional contributions to lower-income earner (it counts to the lower-income earners non-cc cap).
Also note that there is a "bring forward' rule with cc introduced a couple of years ago, so if the higher income earner has unused cc amounts from the 2018-19 year onwards, they can be used.
- In terms of portfolio mix, what are people’s rationale for holding different classes of underlying asset (e.g., how are people deciding what ratio of domestic share : US share : other international share : bond, etc). I have read the Barefoot Idiot Grandson suggestion, and also commentary of it on Reddit and elsewhere.
I prefer low-cost indexing because I can't predict what will happen in the future.
I prefer something starting with a global weighted index.
I don't mind a bit of Aus shares, but there is a lot of concentration risk with almost half of the index made up of 10 companies and 2 sectors, limiting the amount of risk I can tolerate. The idiot grandson portfolio has 70%, which has more risk than I would consider sensible. Take a look at how many other individual countries have had very rough patches.
Also while VTS/VEU have lower expense ratios, there is tax drag (https://www.bogleheads.org/forum/viewtopic.php?p=5483365#p5483365) which results in a cost being fairly similar to Australian domiciled funds minus the pain in the US-domiciled issues with VTS/VEU.
Post by: z3170501 on January 14, 2021, 08:37:02 PM
Are you already maxing out the higher income earners concessional contributions (cc)?
Thanks for the detailed reply!! I may need to look into this. The higher-income superannuation is defined benefits, so there are no actual concessional contributions, only notional. I will need to look at what the notional amount is currently determined to be.
Quote
If not, look into doing that and using contributions splitting where you increase the higher-income spouse's ccs, then make a transfer to the lower-income earner.
Quote
You can transfer up to 85% of the concessional contributions to lower-income earner (it counts to the lower-income earners non-cc cap).
Where do you make the transfer from? From the excess concessional contributions or just from the higher income spouse’s superannuation account or direct spouse contributions? Higher income spouse does have a largely redundant accumulation account with minimal funds in (around $8k) it that could be used if either of the former.
Is it desirable to make non-concessional contributions within the super environment, as opposed to direct investment outside of super? I thought the major benefit was within the concessional contribution limits?
Quote
Also note that there is a "bring forward' rule with cc introduced a couple of years ago, so if the higher income earner has unused cc amounts from the 2018-19 year onwards, they can be used.
I assume this is also true of the lower income spouse. That is, might as well bring forward any concessional cap shortfall from the last two years as well (that is, let’s say, an additional $40k of concessional contributions that could be made).
Quote
I prefer low-cost indexing because I can't predict what will happen in the future.
This is exactly what we’re thinking. And also because we are lazy!
Quote
I prefer something starting with a global weighted index.
I don't mind a bit of Aus shares, but there is a lot of concentration risk with almost half of the index made up of 10 companies and 2 sectors, limiting the amount of risk I can tolerate. The idiot grandson portfolio has 70%, which has more risk than I would consider sensible.
This is what I need to understand more. Making decisions based on the different attributes of the ETFs. (E.g., how does one appropriately make the decision of ratio between VAS, VTS and VEU - just to pick an example of an equity only portfolio)
Quote
Take a look at how many other individual countries have had very rough patches.
I take it you are suggesting quite a few!
Quote
Also while VTS/VEU have lower expense ratios, there is tax drag (https://www.bogleheads.org/forum/viewtopic.php?p=5483365#p5483365) which results in a cost being fairly similar to Australian domiciled funds minus the pain in the US-domiciled issues with VTS/VEU.
So, in the alternative to those two funds, something like IVV for VTS - but not aware of anything similar and Aussie domiciled for VEU?
Post by: Andy R on January 14, 2021, 09:08:32 PM
Thanks for the detailed reply!! I may need to look into this. The higher-income superannuation is defined benefits, so there are no actual concessional contributions, only notional. I will need to look at what the notional amount is currently determined to be.
Ah right. Defined benefit works differently and I don't have much understanding how they work with the caps and contribution splitting. My apologies.
Quote
Where do you make the transfer from? From the excess concessional contributions or just from the higher income spouse’s superannuation account or direct spouse contributions? Higher income spouse does have a largely redundant accumulation account with minimal funds in (around $8k) it that could be used if either of the former.
Is it desirable to make non-concessional contributions within the super environment, as opposed to direct investment outside of super? I thought the major benefit was within the concessional contribution limits?
It is transferred from the higher income spouses fund to the lower income spouses fund, but it has to be done in the following financial year for the previous financial year.
Yes, concessional contributions have a much bigger financial benefit, but with contribution splitting, if the higher earner has unused concessional contributions available, they can contribute and get the tax deduction, and then transfer to the spouse, so you get the tax deduction from the higher income earner. It is just counted additionally as a non-cc for the receiving spouse going towards their 100k/yr cap.
As above, I'm not sure how this plays in with defined benefit super.
Quote
I assume this is also true of the lower income spouse. That is, might as well bring forward any concessional cap shortfall from the last two years as well (that is, let’s say, an additional $40k of concessional contributions that could be made).
Yep, but once you bring down enough for the lower income spouse to be at 45k taxable income, any further and you are only saving 4%. Better than nothing, but not much.
Quote
So, in the alternative to those two funds, something like IVV for VTS - but not aware of anything similar and Aussie domiciled for VEU?
I would just stick with:
• VGS (global large/mid caps)
• VGE (emerging markets).
• Optionally VISM (global small caps).
• Optionally Australian shares (VAS).
Emerging markets is about 10% by global weight.
If you use VISM, then the MSCI split between VGS and VISM is 85:15.
So for the global part, if going by cap weighting, either:
• VGS/VGE 90/10
• VGS/VISM/VGE 76.5/8.5/10
If you wanted, say, 20% Australian equities, that would be
• VAS/VGS/VGE 20/72/8 (I'd round to 20/70/10)
• VAS/VGS/VISM/VGE 20/61.2/10.8/8 (I'd round to 20/60/10/10)
They are all Australian domiciled.
The cost is similar to VTS/VEU after taking into account tax-drag.
Easier at accounting time than VTS/VEU.
No risk of forgetting to send in your W8BEN form and having the US take 40% of your assets from your heirs.
Post by: Andy R on January 14, 2021, 09:12:36 PM
Post by: deborah on January 14, 2021, 09:27:35 PM
Post by: z3170501 on January 15, 2021, 01:48:02 AM
Yes, concessional contributions have a much bigger financial benefit, but with contribution splitting, if the higher earner has unused concessional contributions available, they can contribute and get the tax deduction, and then transfer to the spouse, so you get the tax deduction from the higher income earner. It is just counted additionally as a non-cc for the receiving spouse going towards their 100k/yr cap.
As above, I'm not sure how this plays in with defined benefit super.
Ok, got it! There is room in the higher income concessional contribution cap, by reason of how the defined benefits fund works. Therefore, if the ‘split’ contribution is treated as a non-concessional contribution in the spouse’s fund (it seems to be treated as a rollover), it is not further taxed. This is good, because there is no particular interest in building another super fund for the higher income spouse (the defined benefit fund will deliver an acceptable income stream). So the higher income earner’s concessional contribution ‘shortfall’ is otherwise wasted (each year). Rather than a sum being taxed at 32.5% or 37%, it could be taxed at 15% (together with the earnings thereon). So, if the concessional contribution shortfall in the higher income earner is, say, $12,000 - the tax will be, roughly, $1,800 rather than $3,900 or more (a saving of at least $2,100).
What seems unbelievable is that, if correct, it also leaves the lower income earner’s concessional contribution cap unaffected (I can’t understand the policy for that).
Based on the above, there is a question of whether $2,100 (plus the tax benefit of earnings thereon) is a good price to pay for not being able to access the $12,000 (plus earnings thereon) for 20 years. I presume, given that it is difficult to see how the $12,000 could otherwise ‘earn‘ 17.5% in the first year, it leans heavily towards being a fair price to pay!
I am also not sure how this would play into the $1.6m transfer balance cap - which i know almost nothing about!!
Quote
I would just stick with:
• VGS (global large/mid caps)
• VGE (emerging markets).
• Optionally VISM (global small caps).
• Optionally Australian shares (VAS).
Emerging markets is about 10% by global weight.
If you use VISM, then the MSCI split between VGS and VISM is 85:15.
So for the global part, if going by cap weighting, either:
• VGS/VGE 90/10
• VGS/VISM/VGE 76.5/8.5/10
If you wanted, say, 20% Australian equities, that would be
• VAS/VGS/VGE 20/72/8 (I'd round to 20/70/10)
• VAS/VGS/VISM/VGE 20/61.2/10.8/8 (I'd round to 20/60/10/10)
They are all Australian domiciled.
The cost is similar to VTS/VEU after taking into account tax-drag.
Easier at accounting time than VTS/VEU.
No risk of forgetting to send in your W8BEN form and having the US take 40% of your assets from your heirs.
This piece of information is very much appreciated. I will look into each of those funds, and make sure i understand them properly and what you have told me.
Also, if you are talking about succession planning, it may be worth consulting someone on the pros and cons of setting up a company/trust combination and investing in there for tax benefits.
Yes, this is probably true. I have concerns about a bucket company arrangement. They seem particularly on the nose with the ATO at the moment.
As far as I know anyone can contribute to more than one superannuation fund. When I was in a defined benefit fund, I contributed to it plus another fund to max out my super contributions. Initially, I had problems because there were only certain funds that my workplace would allow me to contribute to, and HR needed a letter from a financial planner to confirm that it was OK for me to contribute more of my own money to super, but after a fair bit of tooing and froing, it happened.
Absolutely. In fact, now the employer doesn’t even need to be involved. Anyone can make personal contributions and claim a deduction (same outcome as salary sacrificing, almost).
Post by: Andy R on January 15, 2021, 07:45:47 AM
What seems unbelievable is that, if correct, it also leaves the lower income earner’s concessional contribution cap unaffected (I can’t understand the policy for that).
It has already taken up the higher earners concessional contribution, so it makes sense not to take up the spouses.
Based on the above, there is a question of whether $2,100 (plus the tax benefit of earnings thereon) is a good price to pay for not being able to access the $12,000 (plus earnings thereon) for 20 years. I presume, given that it is difficult to see how the $12,000 could otherwise ‘earn‘ 17.5% in the first year, it leans heavily towards being a fair price to pay!
It's the same question about whether to contribute to super or not - it's a question of massive tax deductions vs losing the flexibility of having access to it before preservation age.
Quote from: z3170501 link=topic=21335.msg2774187#msg2774187
I am also not sure how this would play into the $1.6m transfer balance cap - which i know almost nothing about!!
The transfer balance cap, currently 1.6m per person, is the max that you can move from an accumulation account (taxed at 15%) to a pension account (tax-free) when you reach preservation age. Any remaining must remain in an accumulation account being taxed at 15%. If the higher income person is likely to exceed the transfer balance amount, it is useful to move some to the spouse with the lower balance so that the combined amount that can be moved into an account-based pension in retirement is maximised.
Another way to move funds to the lower account balance spouse is when you reach preservation age and take out 300k and contribute it to the spouse with less super as a non-concessional contribution during the period they are still able to contribute to super, but you also might want to reserve this 300k for use as a "re-contribution strategy", which you can search for but basically is a way to reduce the tax payable by your non-dependants when you die (which includes adult children), so it may be worth taking advantage of contribution splitting in the meantime.
Post by: z3170501 on January 15, 2021, 04:50:36 PM
It has already taken up the higher earners concessional contribution, so it makes sense not to take up the spouses.
Yes, but it effectively could double the tax deduction / salary sacrifice (same thing) available to the family group. In effect, it is the same as streaming income to a lower rate family member. Who am I to complain!
Quote
It's the same question about whether to contribute to super or not - it's a question of massive tax deductions vs losing the flexibility of having access to it before preservation age.
Yes, indeed. We had figured that, with maxed our concessional contributions to the lower income spouse, and the defined benefits fund, that both would near the $1.6m transfer balance cap - and that we would invest any remaining funds outside of super. But based on this discussion, restricted access aside, it is hard to see how the rate of return of any identical external investment could beat the effect of the lower tax rate inside superannuation.
The only succession benefits that immediately come to mind are the lower CGT discount for a super fund (33% vs 50%) and the CGT rollover for deceased estates. Re: the latter, if a deceased held EFTs directly, they would rollover to a beneficiary without giving rise to a capital gain. However, I’d be highly surprised if an industry fund would do an in-specie distribution to a dependent, and the would potentially be tax payable on some part of that distribution.
Quote
The transfer balance cap, currently 1.6m per person, is the max that you can move from an accumulation account (taxed at 15%) to a pension account (tax-free) when you reach preservation age. Any remaining must remain in an accumulation account being taxed at 15%. If the higher income person is likely to exceed the transfer balance amount, it is useful to move some to the spouse with the lower balance so that the combined amount that can be moved into an account-based pension in retirement is maximised.
Another way to move funds to the lower account balance spouse is when you reach preservation age and take out 300k and contribute it to the spouse with less super as a non-concessional contribution during the period they are still able to contribute to super, but you also might want to reserve this 300k for use as a "re-contribution strategy", which you can search for but basically is a way to reduce the tax payable by your non-dependants when you die (which includes adult children), so it may be worth taking advantage of contribution splitting in the meantime.
I’ll keep both of these things in mind. Particularly the first. Re: the latter, given the rate of change with superannuation, I’d be very surprised if there weren’t significant changes before our retirement (20 years away).
I think it would also be worth better understanding how superannuation benefits interact with a potential testamentary trust. Even with recent law change, they are still one of the last major tax minimisation structures - distributions of excepted trust income to minors (taxed as if they were adults).
Post by: mjr on January 16, 2021, 02:45:06 AM
Post by: Juan Ponce de León on January 16, 2021, 03:24:42 AM
Tax drag is associated only with VEU. Put the money all into VTS and get the 0.03% MER. Europe is a socialist basket-case anyway, you won't catch me putting money into their economy. The US is more than enough for global exposure.
It's true, europoors ruin everything.
Post by: Alchemisst 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
Post by: Model96 on January 24, 2021, 06:10:54 PM
Post by: Abundant life on January 27, 2021, 10:58:35 PM
'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?
Post by: Andy R on January 28, 2021, 04:28:28 AM
Here is some more info on it: The problem with pooled funds (https://www.passiveinvestingaustralia.com/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!
Post by: flaky on February 24, 2021, 07:48:08 PM
Post by: Andy R on February 25, 2021, 04:31:50 AM
I only know the US resources such as earlyretirementnow.com (https://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.
Post by: Richmond 2020 on April 01, 2021, 05:13:36 PM
Post by: marty998 on April 01, 2021, 08:24:23 PM
I gather the lack of excitement and enthusiasm here about it is because everyone's pockets are groaning under the weight of massive gains on property at present.
Post by: chevy1956 on April 01, 2021, 08:49:27 PM
Payment date 20 April.
I gather the lack of excitement and enthusiasm here about it is because everyone's pockets are groaning under the weight of massive gains on property at present.
We own our PPOR but never really think about how much it is worth. I always check our ETF & Super balances though. Market returns matter more to me at this point. I don't care too much about dividend payouts but they are nice. I'd love to have enough dividends being paid out to never sell my portfolio but I'm already retired so I doubt I'll get to that level.
Post by: urbanista on April 03, 2021, 12:16:51 AM
Post by: Model96 on April 03, 2021, 08:28:19 AM
Anyone increasing their concessional contributions to 27,500 x 2 = 55,000 ? That's $1200pa tax cut for us. Sweet.
First thing we'll do after July 1 for sure!
Post by: Richmond 2020 on April 03, 2021, 03:06:38 PM
Payment date 20 April.
I gather the lack of excitement and enthusiasm here about it is because everyone's pockets are groaning under the weight of massive gains on property at present.
I think you’re right. This thread has been dead lately.
I am still keenly watching dividend news as we rely on dividends, and cash generated from investment properties to top up my wife’s salary. I retired and became a stay at home dad recently and we use these income sources to help us bridge the gap until I can claim my defined benefit pension.
Post by: marty998 on April 03, 2021, 06:41:21 PM
Anyone increasing their concessional contributions to 27,500 x 2 = 55,000 ? That's $1200pa tax cut for us. Sweet.
First thing we'll do after July 1 for sure!
I need to rework my salary sacrifice contributions.... maths is hard haha
Post by: Murdoch on April 06, 2021, 07:20:47 PM
More positive news out today with IMF predictions of further growth for Australia. Whether or not it comes true is another matter.
Australia seems to be slowing the amount of cash pumping into the economy, whilst the US continues to print cash and is hinting at another economic stimulus later this year. If the US dollar devalues in coming months or years, what effect (if any) would this have on the AUD and our own economy?
Post by: mjr on April 06, 2021, 10:34:36 PM
Post by: Murdoch on April 06, 2021, 11:14:23 PM
If the US experienced serious inflation, and the Aus gov isn’t pouring excess AUD into the economy we’d probably see AUD go up against USD. At least in theory. Has this happened historically? The high AUD valuation to USD around 2010 wasn’t due to inflation so much was it?
What effect would high US inflation it have on our economy and market though?
Post by: Juan Ponce de León on April 07, 2021, 03:19:21 AM
Post by: turboslob on April 07, 2021, 04:24:55 AM
I hold VDHG (paid quarterly) and got >3% dividends for the quarter, and usually it's the EOFY which is the big one. Did I miss something?
Post by: lush on April 07, 2021, 05:26:32 PM
Post by: mjr on April 07, 2021, 08:43:01 PM
Post by: Richmond 2020 on April 08, 2021, 03:14:17 PM
Were dividends extra special recently?
I hold VDHG (paid quarterly) and got >3% dividends for the quarter, and usually it's the EOFY which is the big one. Did I miss something?
I’m not sure but maybe partly due to the relaxation of the temporary regulations that were imposed on the banks forcing them to slash dividends when COVID broke out.
Post by: LonerMatt on April 16, 2021, 02:38:06 PM
Hello everyone: reluctant investor, non-savvy, median wage earning ignoramus here. Looking for some advice and speculation from you all.
What I'm curious about is what the hell is going on with property prices. Obviously I know they are rising, obviously I know most of the COVID predictions were wrong and obviously I know negative gearing means investment $$$ in property. What I don't know is should I accept our reality of low interest rates and high prices and just buy a place to live or should I keep taking advantage of stagnant rental prices and not worry too much.
I was reading yesterday that the median house price in Melbourne is now $1,000,000 which is, you know, quite a lot of money. My partner and I have the same cyclical conversation where we think we'd like to buy a place, we look at what's available that suits our wants/needs then the price is so high that we just get depressed. On the other hand we're getting a bit more dew eyed about having our own space, we usually rent cheaper places, even though each place where we've lived has been super nice there have always been some flaws that kept the price quite reasonable.
We've got to a point where we have about a $400k deposit but our appetite for debt is not high, neither of us likes the idea of taking about a $800,000 loan or something, so we've tentatively set a $500-$600k hard stop on any mortgage. This now gets us into 'median' price range. Additionally, we really don't want to do a 'property ladder' thing again, our appetite for debt and buying/selling is really low - that may be a dumb choice but it's where we stand for now (ofc if we bought somewhere and then, 5-10 years later realised it wasn't workable we'd sell and move, but I digress).
I think our ideal would be a 3 bedroom smaller place 7-10km from the CBD with something of a garden, we're not especially picky about a lot of things other than appetite for debt and the desire to not be constantly doing property flips.
I guess this is a long rambley explanation to wonder out loud: should we just keep saving and waiting until it's a buyer's market? Or should we move at a time that suits us regardless of the insane pricing?
Post by: GT on April 16, 2021, 04:04:38 PM
Post by: LonerMatt on April 16, 2021, 04:31:51 PM
Post by: middo on April 16, 2021, 04:38:41 PM
Post by: Model96 on April 16, 2021, 05:25:57 PM
What to do about housing? What the fuck will happen?
Hello everyone: reluctant investor, non-savvy, median wage earning ignoramus here. Looking for some advice and speculation from you all.
What I'm curious about is what the hell is going on with property prices. Obviously I know they are rising, obviously I know most of the COVID predictions were wrong and obviously I know negative gearing means investment $$$ in property. What I don't know is should I accept our reality of low interest rates and high prices and just buy a place to live or should I keep taking advantage of stagnant rental prices and not worry too much.
I was reading yesterday that the median house price in Melbourne is now $1,000,000 which is, you know, quite a lot of money. My partner and I have the same cyclical conversation where we think we'd like to buy a place, we look at what's available that suits our wants/needs then the price is so high that we just get depressed. On the other hand we're getting a bit more dew eyed about having our own space, we usually rent cheaper places, even though each place where we've lived has been super nice there have always been some flaws that kept the price quite reasonable.
We've got to a point where we have about a $400k deposit but our appetite for debt is not high, neither of us likes the idea of taking about a $800,000 loan or something, so we've tentatively set a $500-$600k hard stop on any mortgage. This now gets us into 'median' price range. Additionally, we really don't want to do a 'property ladder' thing again, our appetite for debt and buying/selling is really low - that may be a dumb choice but it's where we stand for now (ofc if we bought somewhere and then, 5-10 years later realised it wasn't workable we'd sell and move, but I digress).
I think our ideal would be a 3 bedroom smaller place 7-10km from the CBD with something of a garden, we're not especially picky about a lot of things other than appetite for debt and the desire to not be constantly doing property flips.
I guess this is a long rambley explanation to wonder out loud: should we just keep saving and waiting until it's a buyer's market? Or should we move at a time that suits us regardless of the insane pricing?
Houses in my area in Sydney have been appreciating over $2000 a week for over a decade, and more than $1000 for half a century. Demand for housing will always be high during good times and bad due to immigration, and as we see now expats returning have raised demand even during a pandemic.
If you live in Australia, buy a home as soon as you can, it's the best start to investing you can possibly give yourself.
Post by: chevy1956 on April 16, 2021, 09:19:54 PM
If you are planning on holding the home for a number of years then any short term fall in value won't really matter. The cost of the loan compared to rent, and the opportunity cost of investing in housing are issues, but you still need to live somewhere. I would suggest like any investment, trying to time the market is a bit of a mugs game for the average home buyer. Buy something you think will work for 10+ years and live there.
Houses in my area in Sydney have been appreciating over $2000 a week for over a decade, and more than $1000 for half a century. Demand for housing will always be high during good times and bad due to immigration, and as we see now expats returning have raised demand even during a pandemic.
If you live in Australia, buy a home as soon as you can, it's the best start to investing you can possibly give yourself.
Just quoting these two for truth. We bought our house about 11 years ago now. I was extremely concerned about the cost as it was too high and it had to come down. I don't intend to move for a while yet.
Post by: deborah on April 16, 2021, 09:41:57 PM
Post by: LonerMatt on April 17, 2021, 12:52:49 AM
1. We're planning on buying for the next 5-10 years, minimum
2. Inner Melbourne so definitely subject to fluctuations but hopefully not as boom-bust as rural towns or newly minted suburbs
Post by: Fresh Bread on April 17, 2021, 02:13:55 AM
Sounds like you should just buy in. Everyone has a story, but we bought in Sydney in hot markets twice and were fearful but after a plateau the prices took off again. The house has doubled in value in almost 10yrs but the apartment has not. We no longer own the apartment.
We used a buyer's agent to get the house, I'd strongly recommend that in a hot market, it cost $10k for a 1.2m house and we wouldn't have got it otherwise (inside knowledge, relationship with the selling agent etc etc).
Post by: LonerMatt on April 17, 2021, 02:42:43 AM
Post by: Fresh Bread on April 17, 2021, 02:47:07 AM
Post by: mjr on April 17, 2021, 03:23:44 PM
Also, you might lay off negative gearing (which by the way, I don't use and never have), it's not the problem.
Post by: Murdoch on April 17, 2021, 04:34:00 PM
If you want a place to live that is your own, and you'll commit to it long term then just dive in I reckon.
If you hate debt, then get a fixed low interest rate for the first few years and dedicate all your efforts and extra hustle into getting it down to comfortable levels. This may not be the best financial decision on maths, but if they psychology plays into your personal approach then it may be a good approach.
Good luck:)
Post by: Andy R on April 17, 2021, 10:33:38 PM
Well if it's just for a year or two you can rent it out while you're away. I did that with my UK house then moved here permanently. It actually wasn't hard to sell it remotely.
From 2020, if an Australian citizen sells as a non-resident, they lose the CGT-free status - for the entire time they lived in it while it was in Australia before they left.
Post by: MrThatsDifferent on April 18, 2021, 03:30:23 PM
Well if it's just for a year or two you can rent it out while you're away. I did that with my UK house then moved here permanently. It actually wasn't hard to sell it remotely.
From 2020, if an Australian citizen sells as a non-resident, they lose the CGT-free status - for the entire time they lived in it while it was in Australia before they left.
But if you move back you’re not a non-resident anymore, correct?
Post by: LonerMatt on April 18, 2021, 07:22:33 PM
Or you could consider buying your first house as a median wage earner a bit further out than 7-10km from the Melbourne CBD where the prices are probably less insane ?
Also, you might lay off negative gearing (which by the way, I don't use and never have), it's not the problem.
1. Not going to fly with the Mrs, I don't think ownership is enough of a lure to see her 10km out. Usually she's pretty flexible but on location she knows what she wants and it's priority #1 for her.
2. It's certainly a problem
Almost my entire adult life the property market has looked overpriced and ready for a regression to the mean (I'm late 30's).
If you want a place to live that is your own, and you'll commit to it long term then just dive in I reckon.
If you hate debt, then get a fixed low interest rate for the first few years and dedicate all your efforts and extra hustle into getting it down to comfortable levels. This may not be the best financial decision on maths, but if they psychology plays into your personal approach then it may be a good approach.
Good luck:)
Thanks - the psychology does matter a lot for sure.
Post by: mjr on April 18, 2021, 10:49:42 PM
People against negative property are usually advocating for an exception to this foundation principle just for existing real estate - usually with arguments that it is "unfair" and "costing the taxpayer".
Inner-city Melbourne lefties who couldn't possibly buy their first house 10km out are typical examples.
Post by: chasingthegoodlife on April 19, 2021, 03:35:18 PM
I think there will always be a strong demand for single family homes in inner Melbourne (one of Australia’s biggest urban centres, not dependent on any one industry). High rise apartments or housing estates on the fringe are riskier perhaps, but with what you want to buy I don’t think you’ll see a sharp drop and trying to time a slight dip might waste a lot of your time for no result.
What suburbs are you thinking about? With your criteria I’m guessing maybe western around Sunshine or northern around Coburg/Fawkner? Have lived in and love both of those areas myself. Don’t know where you live now but it’s worth spending a bit of time investigating the suburbs you’re interested in and thinking about what you value.
Oh and get clear on your joint appetite for renovation. If you plan to rent it out for a period in the near future to work overseas, you want something in good repair.
Post by: LonerMatt on April 19, 2021, 06:57:43 PM
1. Surburbs: Footscray/West Footscray (not as far as Sunshine as the increased commute for both us would be quite bad), Brunswick West/East, Coburg, Ascot Vale/Flemington, Northcote/Thornbury. Obviously we're not going to pay for the nicest places in those suburbs (outside our budget of ~$1m), but there are a dozen places we've seen online that fit the bill (though may go for over the estimate at auction ofc). We're looking at 2-3 bedrooms, a bit of a front or back yard, 15 minutes from some form of PT and bike friendly.
2. We've discussed renovation and we don't want to buy a 'fixer upper' as a primary place to live in, my partner travels for work 150-200 days of the year so coming home to a whole place being renovated isn't something that we'd like to do for now (though in the future who knows), a room or two needing an update, or cosmetic changes are fine, as is maintenance, just not a bombshell where it's really just the land value (for example, one spot I saw on a browse yesterday clearly hadn't been lived in for 5-10+ years).
Over our lives we've lived in: Newport/Williamstown, Carlton, Parkville, Brunswick and Ascot Vale, so we're sticking to places we know well, that are close to family and friends and don't blow our commute out to really unpleasant levels. If we can't afford the sort of place we want in the sort of places where our lives are good then that's fine, renting is far from a bad deal :)
Post by: marty998 on April 22, 2021, 07:20:25 PM
Loan repayments are $2399 a month (rate is 2.59%).
The interest component is barely $1300 a month... I can’t believe I’m getting $800 a week rent for it.
Who said property has to be negatively geared lol.
I vote for owning rather than renting (landlord shooting himself on the foot here telling renters to buy)
Post by: LonerMatt on April 22, 2021, 07:55:34 PM
Post by: timn on May 10, 2021, 11:57:33 PM
Been following this forum for a while, and after some advice.
After reading about the debate between ETFs and index funds, I started initially with Vanguard's retail high growth fund, and am now part of it's wholesale high growth fund over the last few years. Of particular concern to me then, was that I would be influenced by watching prices and holding off on buying, so instead the fund allowed me to set up a 'set and forget' regular small amount to bpay over, and avoid having to look at prices if I were to purchase ETFs myself.
However it seems I've become a bit more resilient than I initially thought, and would like now to consider a mixture of VAS/VEU/VTS (mainly for a bit more control and tax efficiency - please correct me if I'm wrong though).
Would you advise selling off the growth fund units and moving to them to above combination, or just holding onto them as they are without adding anything further to the fund?
Cheers
Post by: marty998 on May 11, 2021, 04:33:58 AM
Standard advice is just to "open SelfWeath account, buy VDHG/VTS/VEU/VAS" but its soooooo much more complicated than that.
If you are going to sell and you have are up substantially because of the gains this year, do it after 1 July so you delay the CGT bill for another year.
Post by: turboslob on August 17, 2021, 01:09:48 AM
I own a small amount of a share (APN Property Group) which paid out a dividend of more than 80% of its share value. What are potential causes of such a spike?
Just trying to understand what the potential causes may be for such a dividend (100% franked too).
Thanks, Slob.
Post by: Juan Ponce de León on August 17, 2021, 02:16:20 AM
G'day. Hoping to understand dividends a little better.
I own a small amount of a share (APN Property Group) which paid out a dividend of more than 80% of its share value. What are potential causes of such a spike?
Just trying to understand what the potential causes may be for such a dividend (100% franked too).
Thanks, Slob.
From a quick look at the announcements APN has been taken over by Dexus Property Group and will cease quotation on the ASX. Basically you got paid out I think.
Post by: turboslob on August 17, 2021, 05:21:34 AM
From a quick look at the announcements APN has been taken over by Dexus Property Group and will cease quotation on the ASX. Basically you got paid out I think.
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Thanks - that makes sense.
Post by: lush on September 13, 2021, 12:22:22 AM
Post by: mjr on September 13, 2021, 03:53:08 PM
Post by: mspym on September 13, 2021, 04:25:30 PM
https://community.ato.gov.au/t5/TaxTime/Deduction-for-managed-trust-quot-indirect-fees-quot/td-p/9127 (https://community.ato.gov.au/t5/TaxTime/Deduction-for-managed-trust-quot-indirect-fees-quot/td-p/9127)Thank you! I had no idea this community exists and you may have just saved me another 2 days of attempting to translate the ATO jargon into something I understand.
Post by: lush on September 13, 2021, 05:12:24 PM
https://community.ato.gov.au/t5/TaxTime/Deduction-for-managed-trust-quot-indirect-fees-quot/td-p/9127 (https://community.ato.gov.au/t5/TaxTime/Deduction-for-managed-trust-quot-indirect-fees-quot/td-p/9127)Thank you! I had no idea this community exists and you may have just saved me another 2 days of attempting to translate the ATO jargon into something I understand.
Ditto - thanks so much mjr!
Post by: mjr on September 27, 2021, 06:24:29 PM
Post by: Richmond 2020 on September 29, 2021, 07:39:32 PM
Check out those VAS dividends! $1.41Yeah noice. Was expecting an increase but that’s huge.
Post by: Vinkyb on October 04, 2021, 08:25:30 PM
Post by: Minion on October 05, 2021, 04:53:04 AM
Post by: Vinkyb on October 05, 2021, 06:25:43 AM
Post by: Wadiman on November 20, 2021, 06:02:10 PM
Anyhoo, if anyone is still active here - interested in thoughts on direct corporate bonds - i'm looking at investing part of the proceeds from my future PPOR sale into a diversified portfolio of mainly investment grade bonds via FIIG. Anyone gone down this route? I will be targetting a return of circa 4% and a total portfolio of circa $250k with staggered maturities. I plan to hold most bonds to maturity to be certain (well 90% certain) of getting back the capital.
Thanks!
Post by: superannuationfreak on November 27, 2021, 01:13:45 AM
Anyhoo, if anyone is still active here - interested in thoughts on direct corporate bonds - i'm looking at investing part of the proceeds from my future PPOR sale into a diversified portfolio of mainly investment grade bonds via FIIG. Anyone gone down this route? I will be targetting a return of circa 4% and a total portfolio of circa $250k with staggered maturities. I plan to hold most bonds to maturity to be certain (well 90% certain) of getting back the capital.
What are your goals for this money? E.g. Just part of overall FIRE funds or a future ppor?
To get 4% yield to maturity (or yield to worst) we're taking a fair amount of risk, without looking too hard I'd guess barely or sub investment grade today.
How much can you afford to lose, and how much liquidity might you need? This proxy is an exaggeration but can you manage a 20% fall in value? https://www.spglobal.com/spdji/en/indices/fixed-income/sp-australia-high-yield-corporate-bond-index/#overview
You're also not really saving in fees, the buy-sell spread for retail will take a chunk too.
Post by: Wadiman on November 27, 2021, 07:15:13 PM
The funds would be used to replenish my cash stash (three years equivalent) over time for living costs.
I'm pretty confident that portfolio could be weighted to be at least 80% investment grade at get close to 4% YTM overall.
I wouldn't be selling (generally speaking) until maturity so that does reduce risk and costs.
Post by: MustacheAndaHalf on November 28, 2021, 01:25:51 AM
https://forum.mrmoneymustache.com/australia-tax-discussion/
That might be a better place to ask about accountants, supers, etc.
Post by: Wadiman on November 28, 2021, 07:35:51 PM
Have posted over there.
Post by: Richmond 2020 on March 29, 2022, 04:09:44 PM
Check out those VAS dividends! $1.41Yeah noice. Was expecting an increase but that’s huge.
Wow another big quarterly dividend from VAS! $2.00 a share.
Post by: Richmond 2020 on June 27, 2022, 10:27:13 PM
Post by: theninthwall on June 28, 2022, 09:32:43 AM
Post by: mspym on June 28, 2022, 05:17:52 PM
Post by: GT on June 29, 2022, 12:02:16 AM
Paying out some of the price-gouging profits as dividends.
All that Jobkeeper that was taken in bad faith.
Post by: Notch on June 29, 2022, 08:27:36 PM
Post by: chevy1956 on June 29, 2022, 08:46:56 PM
This is why I hold my Australian equities allocation inside my superannuation.
I'm retired and I don't have enough in VAS to pay taxes. Wifey and myself can earn a lot of dividends before it impacts our taxes. If anything we should get a nice rebate.
Post by: marty998 on July 10, 2022, 01:33:54 AM
Paying out some of the price-gouging profits as dividends.
All that Jobkeeper that was taken in bad faith.
Not entirely true. This quarter's dividends are supersized due to the BHP/WPL corporate shenanigans.
There isn't enough jobkeeper in listed companies to have made a material difference. It was mostly (very large) private companies that heavily abused the goodwill of taxpayers.
Post by: Richmond 2020 on July 16, 2022, 07:19:59 PM
This is why I hold my Australian equities allocation inside my superannuation.
I'm retired and I don't have enough in VAS to pay taxes. Wifey and myself can earn a lot of dividends before it impacts our taxes. If anything we should get a nice rebate.
I’m in a similar position of loving the dividends. I retired early to raise the kids while the wife works for a couple more years. Our VAS holdings are mostly in my name so no tax implications for me.
Post by: mjr on September 28, 2022, 09:50:57 PM