Australian Investing Thread

[stashgrower]

Mind if I pipe up? Not sure if my question above was too "uninteresting" or if I just got buried under the French discussion :D

[dungoofed]

haha sorry yeah I think ppl may have missed this. You're right, there is a bit of information scattered throughout this thread. There's another thread here with good discussion on Australian real estate vs shares:

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.

[dungoofed]

A bit more discussion here in this recent thread that might be relevant too:

http://forum.mrmoneymustache.com/investor-alley/australian-investor-where-do-i-start/

[stashgrower]

Thanks, dungoofed. Read both those before, but so good to re-read. I took in another layer the second time.

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.

[stashgrower]

ps - forgot to add that, yes, if I want the money for the house in a couple of years then *that* money shouldn't be in shares.

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.

[Aussiegirl]

(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. 

[frozzie]

Sorry about the french invasion Stashgrower :)

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.

[happy]

Stashgrower, if you are single, then the other option is to try the BigChris B method ( but I don't mean margin lending). That is to keep your living costs very low by  renting and then taking in flatmates. If you are smart they could subsidise your share of the rent.  Save like crazy and build a stash by investing at the risk level which suits you. BigChris is a very talented investor with a high income and a big appetite for risk: I wouldn't suggest you do what he has done, although he's made it work for him.  Just dollar cost average into index funds in an asset allocation that you are comfortable with risk wise.

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.

[BattlaP]

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.

[deborah]

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.

[stashgrower]

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.

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.

[Aussiegirl]

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!

[Juan Ponce de León]

Free money from the government is the best kind!

It's the aussie way.

[Juan Ponce de León]

Just got alerted to something on another forum that has me perplexed.  If Indexing is so good why do LICs like ARG and AFI beat the XJO index over the long term? 

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.

[steveo]

Trevor - that is an interesting one. I'd like to hear an answer on this.

[FFA]

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.

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.

[Juan Ponce de León]

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.

[FFA]

further to my previous post, you can check these, from their own websites :

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.

[steveo]

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.

[Juan Ponce de León]

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.

[FFA]

I've commented somewhere earlier in this thread on the DRP/SPP. Maybe i'm hung up on the NTA premium issue, but again it obviously makes sense for AFI/ARG to issue new shares even after 2.5% discount, they are getting 5+% premium to their underlying assets.

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.

[bigchrisb]

The systemic and sustained out performance is one of the reasons I hold a majority of my passive AU holdings in LICs rather than ETFs.  There are some pros and cons between LICs and ETF - my choice basically boils down to LICs if they are trading at or below NTA, and ETFs if the LICs are at a significant premium.

This thread is getting too large and cumbersome, the ETF/LIC out performance was discussed back on page 4/5.

[banksie_82]

Several people here aren’t going to like this, and will probably argue strongly against what I’m about to say, but just maybe it’s possible to outperform the index with active management, and by a material amount.

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.

[FFA]

hi banksie, I don't find your post controversial. I think regular posters in this thread are open to both LIC's and ETF's. In my earlier posts I fully acknowledge LIC's like AFI and ARG have a track record of outperforming the index. When you say by a material amount, well that part is debatable. I have put up the data from their own websites which shows long term it is <1% outperformance based on NTA over 5-10 years.

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.

[banksie_82]

FFA, I think you’re underestimating how ‘material’ a 1% difference in returns actually is, when compounded over a reasonable time frame.

$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.

[FFA]

sure banksie I agree 1% is worth chasing. I have commented elsewhere here about switching for fees a fraction of 1% so i'm certainly conscious of it. Sorry if I gave the impression of underestimating it. Although I did want to balance the impression given by the google graphs which I believe were substantially overestimating the case. The intention of my comments is to balance out the dialogue.

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.

[qwerty8675309]

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.

[pistolpete]

just wondering whether you guys would prefer 100k in vas or 100k in arg,afi or similar lic? or would you prefer a split of 50k in vas and 50k in lic due to lic trading at a significant premium hence you would put more money in the etf's?

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!

[dungoofed]

Hi pistolpete if those LICs were trading at a premium I'd purchase VAS instead. 

[AustralianMustachio]

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.

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

[FFA]

like Penrose stairs...

[dungoofed]

I have requested edit ability on the Bogleheads wiki.

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.

[FFA]

pistolpete, as per my earlier posts, I guess my view should be clear, but just in case :

if NTA premiums +>3% - 100k VAS
between 0 and 3% - 50/50
NTA discounts - 100k LIC

[dungoofed]

And we're live!

https://www.bogleheads.org/wiki/Investing_in_Australia

[dungoofed]

By the way, I'm just going to start typing and see what happens. Please apply for an account to become an editor, or put up suggestions in this thread of what you'd like to see in there.

I'm also going to give a heads-up to the folks on the actual Bogleheads forum, in case they want to get involved.

[stashgrower]

Good one, dungoofed :D

[dungoofed]

State of the market for Roboinvesting in Australia:

http://www.etfwatch.com.au/blog/2016-australian-robo-adviser-roundup

[Shaz_Au]

Thanks for your work on the Wiki dungoofed, looks good!

[dungoofed]

Thanks : ) Very slow going though, just need to keep the momentum up. Please feel free to get in there and bang out some content. Then watch as several editors come and make it more wiki-like.

It's awesome, actually. My first time involved with a wiki.

[slothman]

Great work dungoofed!

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?

[Wadiman]

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.

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.

[dungoofed]

Great work dungoofed!

Thanks!

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!!

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.

[steveo]

I wonder if the 3.5% includes a 1-2% fund fee.

[TJEH]

I hold VAS\VTS\VEU, in addition to some ASX listed blue chip equities that I bought before discovering indexing. Try as I might, I can't seem to get 100% comfortable  about the weight of the financials and resources within VAS. Obviously VTS and VEU give me diversification outside the ASX, but I'm still looking at possible ways to diversify within the ASX.

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.

[FFA]

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.

[FFA]

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.

[marty998]

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.

[potm]

Investments go into a trust, income split to a beneficiary company.
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.

[TJEH]

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).

[FFA]

Yeah that's where I've ended up. I'm considering trying MVS too for a bit more small cap exposure, after having early success with MVW.