Australian Investing Thread

[englyn]

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.

[givemesunshine]

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:-

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.

[GT]

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.

[FFA]

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:-

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.

hi zinny1

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.

[Dropbear]

...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?

[givemesunshine]

Thanks FFA for the answer - all makes sense.

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!

[iloveanimals]

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.

[iloveanimals]

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.

[FFA]

Thanks FFA for the answer - all makes sense.

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!

Sorry was not very clear, I would first decide how much global I wanted. Then look at the sub-allocation within Oz.

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!

[FFA]

...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?

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.

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.

[iloveanimals]

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.

[givemesunshine]

Thanks FFA, totally clear. I will go 50/50 for the Aus/non-Aus exposure - now to decide between MVW or EX20 and what portion of my 50% Aus they might take up!

Thanks again - much appreciated.

[MrThatsDifferent]

Thanks for posting the question zinny, I was going to do the same thing. And thanks for the response FFA.  I'm a bit nervous about trying to do this on my own, as I barely understand it. I'm going to do the Vanguard retail funds, even though they will cost me a bit more potentially, at least I won't have to get too caught up in it and I can deposit money easily. Because of your feedback FFA, I think I'll just do the retail versions of VAS and VGS at 50/50.  Keep it very simple. I'll work to get $100k in each as quickly as I can and then I'll look at any other options. I wanted to dip my toe in online brokerage with AFI, but it seems like I'll just be repeating VAS. I'll focus on the two retail funds first.

The worst part is the constant second-guessing of your strategy.

[FFA]

Happy to help! Zinny1 please check out vaneck and betashares websites they have some research papers, worth a read before you decide. Of course they might be biased so reserve some skepticism.

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   

[givemesunshine]

Thanks for your help FFA - and to all the other contributors. Made my first EFT 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.

[marty998]

Thanks for your help FFA - and to all the other contributors. Made my first EFT ETF 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...

[qwerty8675309]

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!

[qwerty8675309]

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.

[starsky]

Hello,

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.

[iloveanimals]

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?

[marty998]

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.

[mjr]

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.

[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.

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.

[iloveanimals]

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 qwerty! will do more maths :)

[iloveanimals]

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?

[FFA]

...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.

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.

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.

[marty998]

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%

[iloveanimals]

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?

[marty998]

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.

[starsky]

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:)

[HappierAtHome]

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), 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) or is "high growth" in the context of the managed funds NOT the same thing as high yield?

[FFA]

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?

[HappierAtHome]

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.

[marty998]

Sorry Happier, just went out for my evening run.

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

[misterhorsey]

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.

[steveo]

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.

[iloveanimals]

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.

[FFA]

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 :)

[NotSure]

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.

[FFA]

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.

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.

[iloveanimals]

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!

[iloveanimals]

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.

[marty998]

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.

[potm]

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.

[marty998]

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.

[FFA]

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.

[Rob_S]

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!

[marty998]

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...

[NotSure]

Thank you FFA and marty998! I didn't even think about contributing after tax dollars to super, sounds interesting, will think about it. 540k in one lump sum is a scary thought, but 100k a year sounds more reasonable. :)

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.

[MrThatsDifferent]

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?

Thanks for any suggestions, just when I thought I had it all figured out, I'm lost again.