Australian Investing Thread

[misterhorsey]

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?

[Eucalyptus]

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.

[steveo]

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.

[steveo]

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.

[MrThatsDifferent]

Thanks Eucalyptus and Steveo for the encouragement and backing up the plan and massive thanks to Mr. Horsey!!!  You helped me get clarity and set up exactly what I need for my personality. It's a shame the Lifestrategy options aren't discussed more, but I get it. This was such a big deal for me to buy shares, something I thought only rich people could do, that I'm glad to have found a path that is simple, prosperous and effortless. You people are the best, so generous, supportive and wise. Thanks!

[iloveanimals]

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

[iloveanimals]

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 :)

[misterhorsey]

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!

[misterhorsey]

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.
 

[iloveanimals]

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!!!

[iloveanimals]

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.

[iloveanimals]

Hey was doing some reading on the ATO site and came across this for LIC's and CGT :

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??

[bigchrisb]

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.

[nofriends]

hi all

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)

[misterhorsey]

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!

[marty998]

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).

[stashgrower]

Scenario #1:

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.

[stashgrower]

Sorry, I didn't see how long my above post was until I hit the button! (Do you want me to move it to another thread??)

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.

[FFA]

Scenario 1 : House deposit or ex super sound like good options.
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.

[deborah]

Scenario 1 : Only enough into super to get low income super contribution - see https://www.ato.gov.au/Individuals/Super/In-detail/Growing/Low-income-super-contribution/?anchor=CalculatingyourLISC#CalculatingyourLISC - then house deposit or ex super.

[iloveanimals]

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.

[iloveanimals]

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!

[iloveanimals]

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.

[stashgrower]

Thanks, FFA and Deborah.

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/

[Rob_S]

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.

[marty998]

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.

[Rob_S]

I take your point and agree.

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.

[FFA]

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...

[steveo]

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.

[FFA]

Yeah I was also surprised VHY has better 5 years return than VAS. Although as Rob_S said for all intensive purposes, call them even. VAS is a bit ahead in the shorter 1 and 3 years periods.

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).

[steveo]

FFA - this is a theoretical argument and it doesn't really matter but my opinion is that I want dumb broad index options. VAS is not even ideal in my theoretical world but I use it because of the tax and currency benefits. If I was being perfectly rational though I think the best option would be VGS and VAF.

[marty998]

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.

[misterhorsey]

Good point Marty.  This is why this stuff can do one's head in.

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.

[nofriends]

I'm unconvinced on holding VHY as well. It follows a set of obscure rules and to me it is essentially a bet that those rules outperform the market over a certain period, and that in itself looks like it's going against the basic indexing principle.

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?

[iloveanimals]

Thanks everyone for the feedback on VHY vs VAS. I am yet to work out what works best for our situation.

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!

 

[iloveanimals]

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. :)

[kivex]

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.

[steveo]

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.

[nofriends]

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)?

[iloveanimals]

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.

[iloveanimals]

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

[iloveanimals]

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.

[Ozstache]

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:



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.

[Rob_S]

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/

[iloveanimals]

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/

Awsome Link! Just what I was after - don't feel so bad now - however your spend is very low!!! Great work man.

[iloveanimals]

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:



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.

[iloveanimals]

Ok so me and my wife are at an impasse.

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.

[misterhorsey]

My initial gut response is that you're still tweaking around the edges, adding greater complexity without a huge return.  But then I thought I'd actually model it for you to see if my gut instinct was right.

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.

[steveo]

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.

[cakie]

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:



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.

+1 doing our 2017 budget atm, and this is very helpful. Cheers!