Author Topic: Australian Investing Thread  (Read 1552680 times)

BRAFRA

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Re: Australian Investing Thread
« Reply #4350 on: January 16, 2019, 12:33:25 PM »
Long story short, I believe the Brazilian economy will do well over the next years after. Ibovespa is the Brazilian stock exchange. I plan to buy an ETF like iShares MSCI Brazil USD or Lyxor Brazil (IBOVESPA) UCITS EUR. The Lyxor scares is a synthetic (unfunded swap) so the iShares is my favorite at this stage.
Are you aware of any over vehicle or ETF to invest in Brazil?

marty998

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Re: Australian Investing Thread
« Reply #4351 on: January 16, 2019, 01:17:54 PM »
Vanguard dividends get paid today in case anyone has forgotten :)

Notch

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Re: Australian Investing Thread
« Reply #4352 on: January 16, 2019, 03:17:27 PM »
Vanguard dividends get paid today in case anyone has forgotten :)

And if you own the funds instead of the ETFs, distributions were already paid on the 9th Jan :P

FrugalUndercover

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Re: Australian Investing Thread
« Reply #4353 on: January 17, 2019, 03:56:01 AM »
Hi all - havenít made it through all of this threads pages, so apologies if this is a duplicate, but came across a zero* cost super option with rest super.  See:

https://www.rest.com.au/indexed-investment-options

And

https://barefootinvestor.com/a-super-fund-option-with-zero-fees/

*no investment fees, small admin fee 0.1% capped at $800

marty998

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Re: Australian Investing Thread
« Reply #4354 on: January 17, 2019, 01:55:39 PM »
Vanguard dividends get paid today in case anyone has forgotten :)

And if you own the funds instead of the ETFs, distributions were already paid on the 9th Jan :P

Hey no fair! How come yours get done quicker :D

Notch

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Re: Australian Investing Thread
« Reply #4355 on: January 17, 2019, 09:34:38 PM »
Vanguard dividends get paid today in case anyone has forgotten :)

And if you own the funds instead of the ETFs, distributions were already paid on the 9th Jan :P

Hey no fair! How come yours get done quicker :D

Maybe computershare holds on to the dividends for a week to earn some interest before passing it on xD

Wadiman

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Re: Australian Investing Thread
« Reply #4356 on: January 21, 2019, 06:52:51 PM »
Long story short, I believe the Brazilian economy will do well over the next years after. Ibovespa is the Brazilian stock exchange. I plan to buy an ETF like iShares MSCI Brazil USD or Lyxor Brazil (IBOVESPA) UCITS EUR. The Lyxor scares is a synthetic (unfunded swap) so the iShares is my favorite at this stage.
Are you aware of any over vehicle or ETF to invest in Brazil?

Hi - Investing in Brazil as an individual country may be a little too risky for many -you may want to consider a more diversified approach like choosing an emerging markets ETF.

IEM (iShares emerging markets) for example holds about 10% in direct Brazilian equities and is domiciled in Australia.

chasingthegoodlife

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Re: Australian Investing Thread
« Reply #4357 on: January 22, 2019, 12:35:44 PM »
Brafra- why do you this Brazil specifically is a great option right now?

Andy R

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Re: Australian Investing Thread
« Reply #4358 on: January 22, 2019, 07:11:24 PM »
Brafra- why do you this Brazil specifically is a great option right now?

You are asking the wrong question. You should be asking why they think they know more than the entire market and why they think this information has not been priced in.
The same question you would be asking someone who thinks they can time the market and that they know something the entire rest of the market doesn't and has not been priced in.
This argument can not be defended. The answer is arrogance.

In fact, let me ask you something. If a whole lot of people believed or agreed with someone who said something similar, would you jump on the bandwagon and believe it too just because a lot of people did? There are large groups of Aussies who think LIC's are somehow special and better than indexing. Literally every reason put forward has been shot down as either bullshit or a red herring, yet masses of people follow it "because they do, so it must be good".

At what point does the fundamental understanding of "they don't know more than the market" guide you away from the endless bullshit that is not indexing?

chasingthegoodlife

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Re: Australian Investing Thread
« Reply #4359 on: January 22, 2019, 09:30:40 PM »
Don’t disagree with your interpretation Andy, but was interested to hear their thinking. It’s a pretty niche position for an Aussie investor.

(For the record, I hold only VAS and VGS and do not intend to change this)

Korrywow

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Re: Australian Investing Thread
« Reply #4360 on: January 22, 2019, 11:16:29 PM »
New thread/subthread.
Would you recommend the Perth Mint to non-Aussie (foreign)investors who want to purchase physical precious metals? Or is it just another one of those Western Australian mining scams!? (joke).

totalfireban

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Re: Australian Investing Thread
« Reply #4361 on: January 22, 2019, 11:27:25 PM »
I came across MMM about 4 years ago and got hooked; read all of the articles and went away and started saving/investing as much as possible. Starting from basically nill savings..

Its been a great few years, my partner got on board, we started saving like crazy, investing some into ETFs and keeping some in ING savings accounts to work towards buying a PPOR. We kept expenses really low and were fortunate enough to be able to move in with partners parents while we saved. We both more than doubled our incomes over these years too.

This all happened to align perfectly with Sydney house prices increasing, meaning no matter how much we saved it would keep up with the increase in a modest 2/3 bed townhouse in western sydney we were after.

After a few years of this, we had to make the call, either move out and rent or purchase. End of 2017 we purchase a cheap townhouse, 650k to keep us within first home owner stamp duty concessions and put down 20%.

It was a good price and under market value but was unliveable as is and with me doing a significant portion of the work still cost about 70k to fully renovate.

This brings us to the present-
Both 30yrs old
A townhouse that owes us 720 but would probably sell for 700.. Our budget for a liveable 2 bed townhouse in 2015 when we decided to PPOR was 500k (which was ridiculous even then)
$250k p.a combined income
$90k ETFS
$~110k super
$50k in offset
-$465k owing on mortgage

$485k net assets or -$215k if you exclude the PPOR


Ill be honest, its tough coming back now a few years later and seeing how far away I am from FIRE… Put everything in to our jobs to increase income, cut expenses and didn’t increase lifestyle in line with salary but still end up worse of than those already own or purchased 2/3 years before.

I know I'm complaining, and we are lucky to have well-paying jobs and to have found MMM/FIRE advice in the first place, but it still BURNS to be on the wrong end of the housing cycle putting us back I don’t know how many years…

The other side of this is that life changes, we got married, would like kids in near future & would like to enjoy some of the money we earn (so have booked a holiday and bought good quality appliances and furniture for the home).

Basically, I've come back to 1) vent , 2) reset expectations and see what we should be doing financially going forward. Anyone else out there is in a similar situation?
« Last Edit: January 22, 2019, 11:29:01 PM by totalfireban »

mrmoonymartian

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Re: Australian Investing Thread
« Reply #4362 on: January 23, 2019, 12:29:15 AM »
New thread/subthread.
Would you recommend the Perth Mint to non-Aussie (foreign)investors who want to purchase physical precious metals? Or is it just another one of those Western Australian mining scams!? (joke).
Yes, Perth Mint is top quality and well priced locally. Only trouble might be your shipping cost compared to the Royal Canadian Mint or US mints. If importing small quantities is uneconomic you have plenty of dealers in the US who will sell you Perth Mint stuff.

Personally I think physical is unnecessary for a bit of diversification, but I understand people have their reasons. I do like the idea for small gifts.

Andy R

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Re: Australian Investing Thread
« Reply #4363 on: January 23, 2019, 12:46:09 AM »
$485k net assets or -$215k if you exclude the PPOR


Ill be honest, its tough coming back now a few years later and seeing how far away I am from FIREÖ Put everything in to our jobs to increase income, cut expenses and didnít increase lifestyle in line with salary but still end up worse of than those already own or purchased 2/3 years before.

I know I'm complaining, and we are lucky to have well-paying jobs and to have found MMM/FIRE advice in the first place, but it still BURNS to be on the wrong end of the housing cycle putting us back I donít know how many yearsÖ

The other side of this is that life changes, we got married, would like kids in near future & would like to enjoy some of the money we earn (so have booked a holiday and bought good quality appliances and furniture for the home).

Basically, I've come back to 1) vent , 2) reset expectations and see what we should be doing financially going forward. Anyone else out there is in a similar situation?

The thing is though, whether you FIRE with or without a PPOR, it is not as different as it may seem to you. If you were renting, you would still need a ton more assets not too dissimilar to the value of a house of which to draw from to get and pay for rent. It just feels like it's much worse because you may not have accounted for this.

But yes, it god damn sux. Why is the cost of shelter so many years of sacrifice! People on US forums commonly mention property valued at 300-350k USD. It's fucking ridiculous that the average Syd house is around a mil unless you want to live in a shoebox out in a high crime area and travel 4 hours a day to/from the city.

Anyway, yes I'm sure there are a shitload of people in a similar situation to you. You are not alone. Also there is an option to retire to a smaller city where rent/property is quite a bit cheaper if that suits you.

mjr

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Re: Australian Investing Thread
« Reply #4364 on: January 23, 2019, 01:11:00 AM »
$485k net assets or -$215k if you exclude the PPOR

If you exclude your PPOR, you should exclude your mortgage as well.  You're both 30 and have nearly a cool half million in assets.  Don't be hard on yourself.

chasingthegoodlife

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Re: Australian Investing Thread
« Reply #4365 on: January 23, 2019, 03:38:10 AM »
$485k net assets or -$215k if you exclude the PPOR

If you exclude your PPOR, you should exclude your mortgage as well.  You're both 30 and have nearly a cool half million in assets.  Don't be hard on yourself.

What he said. About both.

I’m 35 and most of my Melbourne circle of friends worry they will be priced out of the market forever.

My husband, in his 50s, bought his first house when his then-partner was on the dole and quit his own stable job as soon as he had the loan to play in his band and do odd jobs here and there.

My parents bought their bayside Melbourne family home for $30k.

You want to live in Sydney, you need somewhere to live. Your hard work and saving has delivered that for you (congratulations! Amazing achievement and you should be proud!). You may be 20k down on the value now but if you live there for 15 years this will mean nothing.

marty998

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Re: Australian Investing Thread
« Reply #4366 on: January 23, 2019, 04:15:40 AM »
$485k net assets or -$215k if you exclude the PPOR


Ill be honest, its tough coming back now a few years later and seeing how far away I am from FIREÖ Put everything in to our jobs to increase income, cut expenses and didnít increase lifestyle in line with salary but still end up worse of than those already own or purchased 2/3 years before.

I know I'm complaining, and we are lucky to have well-paying jobs and to have found MMM/FIRE advice in the first place, but it still BURNS to be on the wrong end of the housing cycle putting us back I donít know how many yearsÖ

The other side of this is that life changes, we got married, would like kids in near future & would like to enjoy some of the money we earn (so have booked a holiday and bought good quality appliances and furniture for the home).

Basically, I've come back to 1) vent , 2) reset expectations and see what we should be doing financially going forward. Anyone else out there is in a similar situation?

The thing is though, whether you FIRE with or without a PPOR, it is not as different as it may seem to you. If you were renting, you would still need a ton more assets not too dissimilar to the value of a house of which to draw from to get and pay for rent. It just feels like it's much worse because you may not have accounted for this.

But yes, it god damn sux. Why is the cost of shelter so many years of sacrifice! People on US forums commonly mention property valued at 300-350k 100-150k USD. It's fucking ridiculous that the average Syd house is around a mil unless you want to live in a shoebox out in a high crime area and travel 4 hours a day to/from the city.

Anyway, yes I'm sure there are a shitload of people in a similar situation to you. You are not alone. Also there is an option to retire to a smaller city where rent/property is quite a bit cheaper if that suits you.

Fixed that for you.

Abundant life

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Re: Australian Investing Thread
« Reply #4367 on: January 23, 2019, 08:10:31 PM »
I came across MMM about 4 years ago and got hooked; read all of the articles and went away and started saving/investing as much as possible. Starting from basically nill savings..

Its been a great few years, my partner got on board, we started saving like crazy, investing some into ETFs and keeping some in ING savings accounts to work towards buying a PPOR. We kept expenses really low and were fortunate enough to be able to move in with partners parents while we saved. We both more than doubled our incomes over these years too.

This all happened to align perfectly with Sydney house prices increasing, meaning no matter how much we saved it would keep up with the increase in a modest 2/3 bed townhouse in western sydney we were after.

After a few years of this, we had to make the call, either move out and rent or purchase. End of 2017 we purchase a cheap townhouse, 650k to keep us within first home owner stamp duty concessions and put down 20%.

It was a good price and under market value but was unliveable as is and with me doing a significant portion of the work still cost about 70k to fully renovate.

This brings us to the present-
Both 30yrs old
A townhouse that owes us 720 but would probably sell for 700.. Our budget for a liveable 2 bed townhouse in 2015 when we decided to PPOR was 500k (which was ridiculous even then)
$250k p.a combined income
$90k ETFS
$~110k super
$50k in offset
-$465k owing on mortgage

$485k net assets or -$215k if you exclude the PPOR


Ill be honest, its tough coming back now a few years later and seeing how far away I am from FIREÖ Put everything in to our jobs to increase income, cut expenses and didnít increase lifestyle in line with salary but still end up worse of than those already own or purchased 2/3 years before.

I know I'm complaining, and we are lucky to have well-paying jobs and to have found MMM/FIRE advice in the first place, but it still BURNS to be on the wrong end of the housing cycle putting us back I donít know how many yearsÖ

The other side of this is that life changes, we got married, would like kids in near future & would like to enjoy some of the money we earn (so have booked a holiday and bought good quality appliances and furniture for the home).

Basically, I've come back to 1) vent , 2) reset expectations and see what we should be doing financially going forward. Anyone else out there is in a similar situation?

Despite the timing of the purchase, you are doing really well. And you have time on your side to recover, providing you are happy in your PPOR and plan to stay for a few more years.

There's a lot to be said for being settled in your own home and not at the mercy of landlords selling out from under you and the resulting multiple moves.

BRAFRA

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Re: Australian Investing Thread
« Reply #4368 on: January 24, 2019, 11:02:31 PM »
Brafra- why do you this Brazil specifically is a great option right now?

You are asking the wrong question. You should be asking why they think they know more than the entire market and why they think this information has not been priced in.
The same question you would be asking someone who thinks they can time the market and that they know something the entire rest of the market doesn't and has not been priced in.
This argument can not be defended. The answer is arrogance.

I believe the new president and government that started in 2019 will do well. I spent 3 weeks in Brazil last month. The marge majority of the Brazilians I discussed with want to invest, move from their lazy government job to the private sector or start a business. They did not have these intentions with the previous socialist government that ruled the country for 15 years.
No scientific data, just a gut feeling like Mark Baum doing his investigation of the real estate market in the movie "The Big Short".

itchyfeet

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Re: Australian Investing Thread
« Reply #4369 on: January 26, 2019, 01:33:26 AM »
Happy Australia Day everyone.

I was just looking at my brokerage statement for 2018 and noticed that I am paying various fees amounting to about 0.3% of my portfolio. This includes the Vanguard fees from the various EFTs I am using, plus brokerage fees.

It got to wondering whether this is a bit high. I donít make too many trades. Maybe some are a bit small in size.

Do you all optimize fees below this level. Obviously the fees on VAS (0.14%) are lower than some of the other funds I am using (VWRD 0.25% and VDEM 0.25% - I get paid in USD and have kept some savings in uSD), and then thereís the brokers cut.

I havenít been using a low cost brokerage. I started out with using the brokerage that I felt had the easiest to use trading platform. I knew it was expensive (Saxo) at the Time, but am thinking it might be nice to try and optimize my fees a little, by opening am account with a low cost broker. I am not exposed to CGT whilst living in the Middle East, so now is the time to get my house in order, and get everything optimised.

I am also realizing that I have not been taking enough care in changing my USD salary back to AUD, and racking up some fees here too, so would appreciate any thoughts from you all on the cheapest/ best way to send money home to Aus.


Andy R

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Re: Australian Investing Thread
« Reply #4370 on: January 26, 2019, 03:32:42 AM »
Are you living overseas for a long time into the future?

On brokerage:
I use IB and have heard that the exchange rates for IB are incredibly low, so that would be worth looking into.
Buying on the ASX is 0.08% with a min of 6 AUD per trade.
If you have under 100k USD invested with them, there is a $10/month charge, but anything you have from trading is removed from this. And if you have over 100k USD there is no monthly charge.

On ongoing fund fees - only if staying a non-resident of Australia for the foreseeable future:
With no CGT payable, have you considered VTS/VEU? If you go 50/50, the overall MER is crazy low and it covers the entire investable world of developed, emerging, large/mid/small caps.
The downside for those funds for Aussie residents is that the fund is US domiciled and if you die while invested in that, they take an estate tax cut, but if you pay no CGT then you can always just sell it later on down the track. And I read someone commented elsewhere that Vanguard may be looking into the possibility of re-domiciling these 2 funds to Australia so then you would never need to sell facing that estate tax (but don't know if that will happen or not).
Oh you will need to check if your country of residence has a taxation treaty with the US like Australia does to make sure you pay 15% tax on dividends and not 30%, over wise VWRD over on the LSE might make more sense.

By the way, have you considered the other costs?
On international funds (if your country of residence has a tax treaty with the US) you pay around 15% tax on 2% dividends which means you are losing 0.3% (of an expected 8% long term return)
On VAS you pay 30% tax on 4% dividends which means you are losing about 1.2% (of an expected 8% long term return). And as a non-resident you get no franking credits.
That is a LOT of money to lose in tax by choosing Australian equities. It is like paying an extra 0.9% extra management fee, so I hope you have a good reason for choosing Australin equities over global equities.

Minion

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Re: Australian Investing Thread
« Reply #4371 on: January 26, 2019, 11:21:27 PM »
I'm also non tax resident in Australia as I'm working in Germany. Can vouch for IB, currency exchange rates are great and easy to use. Also no hassles when I moved from UK to Germany either.

MrThatsDifferent

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Re: Australian Investing Thread
« Reply #4372 on: January 28, 2019, 02:24:18 AM »
Hey all, been looking at some things and wonder if my thinking makes sense. Say youíre 50 and you FIRE with $600k in your non retirement investment account. Your strategy is to live off that money and any cash until youíre 60 and can access your Super. You also want to get some of youíre money into your Super so you can take tax free at 60. But, would you also want to contribute $25k from your post tax investment as a concessional contribution to your Super for the tax deduction each year until 60 or even 65?

Iím thinking that might make more sense than lump summing your money into super as non concessional. Thoughts? @deborah ?

deborah

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Re: Australian Investing Thread
« Reply #4373 on: January 28, 2019, 04:06:24 AM »
Several points:

You have until youíre 65 to put money into super - and if you work for 20 hours in one month of the year (say you get a job in a store as Santa before Christmas), you can do it until youíre 75, so thereís no hurry to do it before youíre 60.

There are a number of advantages to adding extra to super after 60 (and retirement). Capital gains is probably less, you know your interim money supply lasted (an emergency in the last year before you get your super wonít cause as many problems)...

Non concessional contributions are good for avoiding ďdeath taxĒ (if you leave your super to a non dependent the concessional portion gets taxed), but Iím not sure of other reasons to prefer them. In your situation, you may expect to have a dependent, so a concessional contribution may reduce the overall tax.

The early retirement Australia thread is probably of some use to you - https://forum.mrmoneymustache.com/australia-tax-discussion/early-retirement-australia/

MrThatsDifferent

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Re: Australian Investing Thread
« Reply #4374 on: January 28, 2019, 04:12:03 AM »
Several points:

You have until youíre 65 to put money into super - and if you work for 20 hours in one month of the year (say you get a job in a store as Santa before Christmas), you can do it until youíre 75, so thereís no hurry to do it before youíre 60.

There are a number of advantages to adding extra to super after 60 (and retirement). Capital gains is probably less, you know your interim money supply lasted (an emergency in the last year before you get your super wonít cause as many problems)...

Non concessional contributions are good for avoiding ďdeath taxĒ (if you leave your super to a non dependent the concessional portion gets taxed), but Iím not sure of other reasons to prefer them. In your situation, you may expect to have a dependent, so a concessional contribution may reduce the overall tax.

The early retirement Australia thread is probably of some use to you - https://forum.mrmoneymustache.com/australia-tax-discussion/early-retirement-australia/

Thank you Deborah!

marty998

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Re: Australian Investing Thread
« Reply #4375 on: January 29, 2019, 01:28:02 PM »
Hey all, been looking at some things and wonder if my thinking makes sense. Say youíre 50 and you FIRE with $600k in your non retirement investment account. Your strategy is to live off that money and any cash until youíre 60 and can access your Super. You also want to get some of youíre money into your Super so you can take tax free at 60. But, would you also want to contribute $25k from your post tax investment as a concessional contribution to your Super for the tax deduction each year until 60 or even 65?

Iím thinking that might make more sense than lump summing your money into super as non concessional. Thoughts? @deborah ?

There's not a lot of benefit to concessional contributions if you already have a low income (say $10,000 in work income, and $24,000 in dividends on a $600k portfolio). Franking credits will wipe out most of your tax liability, and making a deductible contribution to reduce your taxable income below $18,200 will actually cost you money (15% tax in super vs 0% outside).

Concessional contributions work well enough once you get to the 32.5% bracket, but as @deborah mentioned, watch out for the 15% death tax on the taxable component.

MrThatsDifferent

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Re: Australian Investing Thread
« Reply #4376 on: January 29, 2019, 06:45:42 PM »
Hey all, been looking at some things and wonder if my thinking makes sense. Say youíre 50 and you FIRE with $600k in your non retirement investment account. Your strategy is to live off that money and any cash until youíre 60 and can access your Super. You also want to get some of youíre money into your Super so you can take tax free at 60. But, would you also want to contribute $25k from your post tax investment as a concessional contribution to your Super for the tax deduction each year until 60 or even 65?

Iím thinking that might make more sense than lump summing your money into super as non concessional. Thoughts? @deborah ?

There's not a lot of benefit to concessional contributions if you already have a low income (say $10,000 in work income, and $24,000 in dividends on a $600k portfolio). Franking credits will wipe out most of your tax liability, and making a deductible contribution to reduce your taxable income below $18,200 will actually cost you money (15% tax in super vs 0% outside).

Concessional contributions work well enough once you get to the 32.5% bracket, but as @deborah mentioned, watch out for the 15% death tax on the taxable component.

Oh, so, what would you recommend? Just leave the money in taxable account or donít go below the $18k?

itchyfeet

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Re: Australian Investing Thread
« Reply #4377 on: January 30, 2019, 09:40:46 AM »
@Andy R , just to get back to your final point above.

Buying VAS is to get some AUD exposure as we will be returning to AUs in the next few years and will spend most of our savings there. I have a large exposure to VWRD All world ETF, but am nervous that the AUD could go on a run at some point and quickly wipe out a chunk of my savings (as measured in AUD). Taxes on the dividend portion of returns is a cost of this.

Happy to hear of better ideas how to protect myself from any strengthening of the AUD.

deborah

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Re: Australian Investing Thread
« Reply #4378 on: January 30, 2019, 09:53:33 AM »
No, this is the main reason everyone is advised to be a little more exposed to their own currency than its % of the world economy would dictate.

steveo

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Re: Australian Investing Thread
« Reply #4379 on: January 30, 2019, 02:15:31 PM »
No, this is the main reason everyone is advised to be a little more exposed to their own currency than its % of the world economy would dictate.

This is an interesting point. I wonder how best to do this and how big an issue it is.

A couple of topics that I'd like to hear everyone thoughts on are:-

1. How much international and how much Australian shares should we have ?
2. Do you hedge your International Share portfolio ?
3. Bonds - do you use international bonds or just Australian.

My portfolio is 50% international equities un-hedged, 30% Australian equities, 15% Australian bonds and 5% cash. It's pretty simple and I like it but at the same time I wonder if my Australian equities are too high.

mjr

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Re: Australian Investing Thread
« Reply #4380 on: January 30, 2019, 03:07:39 PM »
I regularly wrestle with how much to have in Australian equities.  Unsurprisingly, this results in an equities allocation of about 50/50 Australian and US markets.

Despite Australia being small globally, it's stable, has shown great returns and is in Australian dollars.  I wouldn't be chucking in huge dollars if I wasn't Australian but that's the point.

Plenty of counter arguments, which is why I have 50% unhedged in the US.  I don't see the AUD massively gaining ground.

The biggest risk to the ASX is regulatory.   If Bowen manages to get abolition of franking credits through parliament, then I'll be exchanging Australian shares for US ones in a heartbeat rather than let him steal my imputed tax.  I won't be the only one.

I have no bonds, they're at the bottom of the cycle and term deposits are paying about the same.  I have way too much in cash (~40%) which I'll trickle into equities the as I worry less about sequence of returns risk and I get closer to super preservation age.

Andy R

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Re: Australian Investing Thread
« Reply #4381 on: January 30, 2019, 07:11:56 PM »
No, this is the main reason everyone is advised to be a little more exposed to their own currency than its % of the world economy would dictate.

This is an interesting point. I wonder how best to do this and how big an issue it is.

A couple of topics that I'd like to hear everyone thoughts on are:-

1. How much international and how much Australian shares should we have ?
2. Do you hedge your International Share portfolio ?
3. Bonds - do you use international bonds or just Australian.

My portfolio is 50% international equities un-hedged, 30% Australian equities, 15% Australian bonds and 5% cash. It's pretty simple and I like it but at the same time I wonder if my Australian equities are too high.

Have a read of siamond's Investing in the World series. All in global equities has upside country risk. All home country equities has downside country risk.

I split it into 3
ē Home country equities
ē Global equities
ē Global equities currency-hedged

The first has concentration risk and downside currency risk, but hedges against upside currency risk
The second has upside currency risk, but hedges against downside currency risk and helps with diversification
The third has a cost of hedging (that goes beyond MER), but helps with upside currency risk and with diversification

So if someone wanted half of their equities in AUD, but did not want more than 25% in the highly concentrated Australian stock market, and they did not want more than 25% facing the cost of hedging, they could just go 50/25/25 in Global / VAS / VGAD.

The more I learn about investing, the more I realise portfolio construction and financial planning is more about managing risks than maximising the return. Upside currency risk, downside currency risk, SOR risk, risk of outliving your money, concentration risk, etc etc.


steveo

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Re: Australian Investing Thread
« Reply #4382 on: January 31, 2019, 01:49:50 PM »
Thanks for those comments above in relation to International shares and hedging. I read the links in relation to investing in the world. I don't have a definitive answer though and at the moment I'll stick with my portfolio.

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Re: Australian Investing Thread
« Reply #4383 on: January 31, 2019, 02:02:01 PM »
The biggest risk to the ASX is regulatory.   If Bowen manages to get abolition of franking credits through parliament, then I'll be exchanging Australian shares for US ones in a heartbeat rather than let him steal my imputed tax.  I won't be the only one.

This is a little silly. Firstly, no one is proposing to "abolish" franking credits. Secondly, if you sell, I'll happily buy them because my marginal rate is 39%. Thirdly, you're going to have to eat CGT when you swap out.

Shoot yourself in the foot if you like. I definitely won't stop you.

My investment time horizon is 30-50 years. I'm not going to keep chopping and changing every 3 years at minor variances in tax policy by the government of the day.
« Last Edit: January 31, 2019, 02:04:20 PM by marty998 »

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Re: Australian Investing Thread
« Reply #4384 on: January 31, 2019, 05:45:27 PM »
An entirely predictable response from you Marty, not that my post was unpredictable either.

OK, I missed "refund of excess " franking credits, but you knew what I meant.

My investment horizon is also 30-50 years, but I'm not going to stand idly by while an inept group of socialist politicians reduce my dividend income by ~20%.  If I'm going to take a hit, I'll make sure that they get none of it.


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Re: Australian Investing Thread
« Reply #4385 on: January 31, 2019, 06:27:28 PM »
An entirely predictable response from you Marty, not that my post was unpredictable either.

OK, I missed "refund of excess " franking credits, but you knew what I meant.

My investment horizon is also 30-50 years, but I'm not going to stand idly by while an inept group of socialist politicians reduce my dividend income by ~20%.  If I'm going to take a hit, I'll make sure that they get none of it.
Firstly, your dividend income won't take a 20% hit - where do you get that figure from? Secondly, we are one of the only countries in the world which HAS franking credits, so you won't get that extra income from anywhere else either. I agree with Marty that you appear to be shooting yourself in the foot. Or am I misunderstanding the situation?

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Re: Australian Investing Thread
« Reply #4386 on: February 01, 2019, 01:02:21 AM »
An entirely predictable response from you Marty, not that my post was unpredictable either.

OK, I missed "refund of excess " franking credits, but you knew what I meant.

My investment horizon is also 30-50 years, but I'm not going to stand idly by while an inept group of socialist politicians reduce my dividend income by ~20%.  If I'm going to take a hit, I'll make sure that they get none of it.

Lol.  "socialist politicians".  The ALP has no idea what socialism is.  Maybe look at your investments rather that your ideology when posting about investing in Australia.

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Re: Australian Investing Thread
« Reply #4387 on: February 01, 2019, 04:53:39 PM »
An entirely predictable response from you Marty, not that my post was unpredictable either.

OK, I missed "refund of excess " franking credits, but you knew what I meant.

My investment horizon is also 30-50 years, but I'm not going to stand idly by while an inept group of socialist politicians reduce my dividend income by ~20%.  If I'm going to take a hit, I'll make sure that they get none of it.

Oh dear. I supposed you've been asleep the last 20 years. Both the Howard, and the Abbott/Turnbull/Morrison governments have had higher tax to GDP ratios on average than the Rudd/Gillard/Rudd Governments.

I would prefer if both sides of politics had more discipline when it comes to spending, but you are not entitled to your own facts here. The Liberals have been pretty ordinary the last 6 years.

I might also add, dismissing the essential point as "you know what I meant" is exactly the sort of misinformation being bandied about that is scaring everyone. It destroys any ability to have a rational debate about the topic.
« Last Edit: February 01, 2019, 04:56:29 PM by marty998 »

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Re: Australian Investing Thread
« Reply #4388 on: February 01, 2019, 05:09:48 PM »
I guess one of the issues with the Australian index is the domination of this by banks and miners, and both of those sectors have headwinds on the horizon and probably will struggle for the medium term.

Iím actually keen on the idea of changing superannuation funds so I can have more of it in international equities, rather than the portfolios chosen by my fund.

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Re: Australian Investing Thread
« Reply #4389 on: February 01, 2019, 06:02:31 PM »
I suspect that the miners may do what they've been doing for a while, and actually prop us up while the banks are in the doldrums. The flow on from the problems with the banks is likely to reduce the value of the Australian dollar this year, making the miners more competitive on the world market, and bringing in more tax. But that depends upon just how much the world wide demand holds up.

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Re: Australian Investing Thread
« Reply #4390 on: February 01, 2019, 08:49:57 PM »


Firstly, your dividend income won't take a 20% hit - where do you get that figure from? Secondly, we are one of the only countries in the world which HAS franking credits, so you won't get that extra income from anywhere else either. I agree with Marty that you appear to be shooting yourself in the foot. Or am I misunderstanding the situation?

From my current ratio of franking credits to dividend income from my taxable portfolio.  Retirees who are heavily invested in back stocks in their SMSF, say, which are 100% franked will lose 30% of their dividend income.

As far as being one of the only countries in the world will franking credits, yep that's true.  But you can't take just one aspect of the tax system. Take the US.  In the US dividends are tax-advantaged, mortgages are tax deductible.  You can't just say that Australia's imputation is somehow flawed.  It's actually pretty bloody fair - shareholders pay their share of their income at their marginal rate.

We all know that US equities are much more slanted to capital growth than Australia's, which pay more dividends.  In the the presence of a distorting policy which targets franking credit refunds on dividend income, I'd be better off with US equities and their capital growth.  Under Bowen's plan, fully franked dividends are taxed at 30% from the first dollar for an SMSF in pension mode, despite the current law is for said person to not pay tax at all on their super pension.  So no, this is not shooting myself on the foot.

"Oh dear. I supposed you've been asleep the last 20 years."

Charming.  Thanks for getting insulting, it really helps positive discourse.

"Both the Howard, and the Abbott/Turnbull/Morrison governments have had higher tax to GDP ratios on average than the Rudd/Gillard/Rudd Governments."

Even if that's true and I don't care enough to look it up, so what ?  The policy about which I am talking is a purely redistributive socialist policy - aimed at low income share holders and SMSFs.  Rest assured I had a go at Morrison and his bank (bank shareholder!!) levy when that came out too.  Try and keep on topic, will you ?

The ALP defines itself in its constitution as a democratic socialist party.

"I might also add, dismissing the essential point as "you know what I meant" is exactly the sort of misinformation being bandied about that is scaring everyone. It destroys any ability to have a rational debate about the topic."

You and I have had a conversation on this topic before.  It was a simple omission on my part, not misinformation.  You want misinformation, listen to to Bowen proclaim how all pensioners will be exempt, when that is patently not true.
« Last Edit: February 01, 2019, 10:01:02 PM by mjr »

steveo

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Re: Australian Investing Thread
« Reply #4391 on: February 02, 2019, 01:12:51 AM »
I guess one of the issues with the Australian index is the domination of this by banks and miners, and both of those sectors have headwinds on the horizon and probably will struggle for the medium term.

Iím actually keen on the idea of changing superannuation funds so I can have more of it in international equities, rather than the portfolios chosen by my fund.

In my fund you can pick an option like this. So I don't pick a 70/30 option or whatever. I pick x percentage in international stocks and y percentage in cash etc.

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Re: Australian Investing Thread
« Reply #4392 on: February 02, 2019, 01:54:06 AM »


Firstly, your dividend income won't take a 20% hit - where do you get that figure from? Secondly, we are one of the only countries in the world which HAS franking credits, so you won't get that extra income from anywhere else either. I agree with Marty that you appear to be shooting yourself in the foot. Or am I misunderstanding the situation?

From my current ratio of franking credits to dividend income from my taxable portfolio.  Retirees who are heavily invested in back stocks in their SMSF, say, which are 100% franked will lose 30% of their dividend income.

As far as being one of the only countries in the world will franking credits, yep that's true.  But you can't take just one aspect of the tax system. Take the US.  In the US dividends are tax-advantaged, mortgages are tax deductible.  You can't just say that Australia's imputation is somehow flawed.  It's actually pretty bloody fair - shareholders pay their share of their income at their marginal rate.

We all know that US equities are much more slanted to capital growth than Australia's, which pay more dividends.  In the the presence of a distorting policy which targets franking credit refunds on dividend income, I'd be better off with US equities and their capital growth.  Under Bowen's plan, fully franked dividends are taxed at 30% from the first dollar for an SMSF in pension mode, despite the current law is for said person to not pay tax at all on their super pension.  So no, this is not shooting myself on the foot.
Thatís not quite correct. If youíre in indexed funds, or even if youíre not, and you have some miners, you will have some shares that arenít fully franked. If you only have bank shares in an SMSF youíre very poorly diversified!

But, youíre right that itís important to look at the probable total outcome. Where do you look at to find expected outcomes - given that historical data is from financial systems that are very different from those we have today?

As an example, when I went to university, it was almost impossible to get a personal loan and there were very few credit cards (you needed to be very well off to get one), so it would have been difficult to open up education to the masses without making universities free. Once credit became readily available, university education moved to being available via loans. The availability of credit has fundamentally changed our way of doing business, but there are many other changes - going off the gold standard and floating currencies, tariff reduction... As a result, I suspect that the historical data is just about useless as a prediction of future returns.

So how do you look at outcomes from a variety of countries, and where would you put your money?

steveo

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Re: Australian Investing Thread
« Reply #4393 on: February 02, 2019, 03:10:02 AM »
So how do you look at outcomes from a variety of countries, and where would you put your money?

You diversify. So you want the broadest index funds available. I think historical returns are the best guide of expected future returns but we don't know what will be successful - will banks die and recreational drug companies take over from drug cartels and become huge conglomerates that earn billions for their investors.

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Re: Australian Investing Thread
« Reply #4394 on: February 02, 2019, 05:45:23 AM »
@deborah , the way I look at this is that the game we are all playing is one of managing risk more than one of maximising returns.

FX risk is an additional risk to any portfolio that has to be carefully considered.
(Of course Aussie companies are operating internationally so your investment in most Australian companies is exposed to FX risk, but you can be sure that their CFOs are managing FX risk in some way on shareholders behalf, so in general Aussie companies returns will be less exposed to FX risk than if you buy shares in a foreign company where managementís performance is evaluated in USD or EURO or whatever).

I have decided that having the majority of my investments in Australian companies, with the added benefit of imputation credits, amd removing a lot of FX risk is less risky than investing overseas.

It was only a few years ago that the AUD was worth more than $1 USD and I can remember the AUD being worth less than 0.60c USD in the not too distant past. It is a big gamble to bet the AUD will not rise or fall materially against the USD when you need to draw on your stash.. Currencies are quite volatile in the short term.

The above being said, FX risk is not the only risk we need to take care of.

The Australian economy is also a risk. For this reason it does make sense to have something invested abroad. How much? For me, the answer is less than what I have invested in Australia as FX risk is a bigger risk (in terms of volatility) than the Australian economy. The Australian economy is less volatile than the AUD. %GDP growth or fall (yes itís been a long time) is less than what you see with currencies.

Aussie GDP is very unlikely to rise 30% in one year, particularly now the economy is more about services than agricultural production, but the AUD might (amd quite possibly multiple times during my retirement).

I do not know the statistically correct answer, but for me having 25-30% invested outside Australia is the upper limit of what I am comfortable with.

And, continuing with my risk mitigation approach, I donít want to bet on any one region of the world out performing all others, so for it makes sense to invest my foreign investments broadly through All World index trackers. Simple as that! Not too much thought or research 😬

For full disclosure, I do have a small amount in emerging markets.... I accept this does not align with everything I have said above, so I should sell it. Today this makes up 3.5% of my Net Worth, so I consider this my small speculative stake in humanity solving the problems of poverty in the developing world and will keep it for now.

I am pretty sure that there are mathematical models to prove my assessment of risk and risk mitigation is wrong, and as I become aware of such models Iíll probably revisit my investment thinking.

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Re: Australian Investing Thread
« Reply #4395 on: February 02, 2019, 12:40:19 PM »
The whole debate on refundable franking credits is farcical.  Most debate seems to be made on at best mis-information, and at worst relies on dogma, innumeracy and the politics of envy.

Refundable franking credits are one of the worlds most equitable* forms of taxing company profits.
(* if you believe progressive taxation is equitable).
The net effect of refundable franking credits is to tax company profits at an individual's marginal tax rate.  You have a high income, you pay more tax.  Have a low income?  Pay less tax.  Foreign investor?  Aus collects company tax at the company tax rate on the business activity in Australia.  How neat.

The system comes badly unstuck when a large portion of the population have a non-progressive, or indeed zero tax rate.  This problem is a lot bigger than people think - according to https://www.superannuation.asn.au/resources/superannuation-statistics at the end of September super funds held $1.7T of Australian shares.  The Australian total market cap was just shy of $2T.  So only 15% of the total market is held outside super funds, between individual investors and international investors.  I.e. the effective company tax rate that the government sees for Australia is probably under 15%, and depending on the ratio of pension to accumulation assets (which stat I can't find) is probably lower.

The fundamental problem here is that super pensions should never have been made tax free in the first place.  But rather than address that head on, both parties are trying to do other things to nibble around the edges - the libs tried to implement a cap of $1.6m cap, while shorten is trying to do it with the least political pain for him (pick on SMSFs, who mostly wouldn't vote for him anyway, and avoid upsetting your funding base from unions and industry super funds).   

Personally, I'm most upset about the modifications to franking, as it distorts an otherwise efficient and progressive system.  It also means that you are subject to different tax outcomes based on who manages your super, which is discriminatory.   

However, in practice, I've come to the conclusion that the impacts on me are going to be somewhat limited.  I have income in my own name that isn't franked that can use up most of the tax free threshold (REIT and international shares, and heaven forbid, potentially some earned income).  My expenses are never likely to be under the 30% tax rate either...  My SMSF has more potential impact as its mostly franked dividends.  While it's in accumulation, I can use my contributions to soak up the excess franking from $25k of gross dividends.  Beyond that I'll need to add more international and property/REITS into the super fund, to avoid further franking credits that can't be used - i.e. I'm keeping the level of franked income in there along the lines of what will result in a zero refund.  I'm currently 37 with a preservation age of 60 (at the moment), so that strategy will work longer than I expect the rules to stay constant.  Should the current rules still apply come triggering pension phase, I will have to consider putting the pension account with an APRA supervised fund, or changing investments.  However, as it will have 0% capital gains tax rates by then, this won't cost anything to implement. 

While I hate the policy and think it is dumb, I suspect that for those in accumulation, it may actually help.  I'm not currently getting franking credits refunded.  If the marginal return for pension investors is lower and Aus shares are in less demand and become cheaper relative to earnings, people like me may actually be better off.  Yep Mr Shorten, you are making someone with several million invested no worse off / possibly better off, while someone with a small sum invested will be worse off.  Kinda opposite of what you are claiming.  Nice policy...

Now, I could always dream that we might fix super once and for all...  One index driven fund with 2.7T under management and 5 basis points of costs.  Tax free on contributions and tax free on earnings.  Full marginal tax on anything drawn from the fund at the time of drawing.  Oh. Wait. There is a whole industry running super funds (looking at retail funds, industry funds and the professionals assisting smsfs here) who would need to look for a job.  And the tax revenue would be in the political never-never (i.e. several elections away!).   I'm glad I'm currently overseas and somewhat insulated from Australian politics, because the whole lot is entirely depressing!

Andy R

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Re: Australian Investing Thread
« Reply #4396 on: February 02, 2019, 08:39:59 PM »
@deborah , the way I look at this is that the game we are all playing is one of managing risk more than one of maximising returns.

Couldn't agree more.

However,

You mentioned FX risk and that since Aussie companies sell overseas that this mitigates FX risk. So just reading what you included in your text, you are correct.

The problem is in the information you failed to include

You failed to mention that diversifying is not solely or even mainly for the act of diversifying currency. It is for diversifying companies, sectors, investments.

If you were American, by your same reasoning, you would invest in Apple and not Samsung saying that they both have the same customer base so currency risk is not different, but if Apple customers realised they are paying more for a logo and branding or if their management went downhill, and the company went out of business, someone who invested only in Apple would be fucked. This is the reason to diversify between countries. It has nothing to do with FX risk. Another reason is diversifying industry. If you had 70% of your equities in Aussie equities, you would have 1/3 of your entire equities in 10 companies. and 1/3 of your entire portfolio in 2 sectors of a single market which is 2.5% of the worlds markets. You would also be very underweight in technology.

Every Thornhill proponent mentions your argument and every single one of them without fail leaves out the blindingly obvious part that I mentioned above - that international diversification is not in itself FOR currency diversification, it is for investment diversification so this argument is not only unhelpful but it detracts attention away from the real reason for international diversification which is downright dangerous.

There is actually a very simple solution to this problem.
1. Decide your portion of Australian currency to international you want (yes you can choose this rather than letting it choose you)
2. Decide your asset allocation (bonds to equities)
3. Decide how much is the maximum concentration risk you want in your home countries equities

Lets say you want
ē 70% in AUD assets
ē 25% in fixed income
ē max 30% in the concentrated Australian market


That comes out to

AUD based assets
ē 25% AUD fixed income
ē 30% VAS
ē 15% VGAD

Non-AUD based assets
ē 30% Global equities

You have now mitigated upside currency risk, downside currency risk, and the one you completely missed out on by following the Thornhill (non) argument, concentration risk.


For all the countries in the world, plenty of them are going to under perform the average (by definition of the word average) over any given period.
If I mention Japan, I'm sure you will say "but we're not like Japan", and when I mention Thailand, you will say the same. What about Netherlands? Not the same again? How many countries are you going to dismiss as being "not the same" ?
There is nothing stopping Australia from under performing over the next two decades, and with 70% in Australian equities you are resigning yourself to that very real possibility of decades of under performance.

Your first sentence was that your portfolio construction was based on risk mitigation and not maximising performance. Having a high percentage in the concentrated Australian market is not risk mitigation.

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Re: Australian Investing Thread
« Reply #4397 on: February 02, 2019, 10:06:43 PM »
Your first sentence was that your portfolio construction was based on risk mitigation and not maximising performance. Having a high percentage in the concentrated Australian market is not risk mitigation.

I think having too much invested in the Australian market is the riskiest thing you can do. I don't view foreign currency risk as being anywhere near the level of risk compared to having all your money tied up in the Australian economy.

The best answer I've heard (from a rational perspective and not statistical proof) to home country risk is to have zero securities assets within your home economy outside it's standard weighting. So if the ASX represents 2% of the world economy that is what you have. Over time foreign currency risk is going to be negligible whereas home country security risk could be an issue (ala Japan). You mitigate foreign currency risk by having cash and bonds in your home currency.

Your cash and bonds get you through the bad periods and having a diversified stock portfolio will maximise the longevity of your portfolio.

In stating all of that I don't do this. I only have 50% of my portfolio in the total stock market. I suppose I do intend to sell down the Aussie component of my portfolio first mainly because I view it as the riskiest part of my portfolio.

Andy R

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Re: Australian Investing Thread
« Reply #4398 on: February 02, 2019, 11:38:22 PM »
Your first sentence was that your portfolio construction was based on risk mitigation and not maximising performance. Having a high percentage in the concentrated Australian market is not risk mitigation.

I think having too much invested in the Australian market is the riskiest thing you can do. I don't view foreign currency risk as being anywhere near the level of risk compared to having all your money tied up in the Australian economy.

The best answer I've heard (from a rational perspective and not statistical proof) to home country risk is to have zero securities assets within your home economy outside it's standard weighting. So if the ASX represents 2% of the world economy that is what you have. Over time foreign currency risk is going to be negligible whereas home country security risk could be an issue (ala Japan). You mitigate foreign currency risk by having cash and bonds in your home currency.

Your cash and bonds get you through the bad periods and having a diversified stock portfolio will maximise the longevity of your portfolio.

Well, yea it is true that as you get older and closer to draw down, your fixed income portion will increase, which increases your home currency assets, but for an early retiree who needs a higher portion of equities, a global (unhedged) portfolio has currency risk, and even though it evens out over time, this time can be decades. The AUD was 0.50 USD in 2000 and more than doubled until 2011. That is a seriously long time, and compared to an AUD hedged version it has lost half it's value in AUD. And now almost 2 decades later is still 1.5x. Drawing down all this time in AUD is a pretty serious risk if you ask me.

If you don't want any home bias (which seems reasonable due to concentration risk), then it would be easy enough today to just go partly hedged with VGAD or IHWL. The total cost of this is around 0.3% for the hedging (only 0.03 is from the added MER, the rest is other losses associated with hedging), and then there is loss of franking credit, of which about half seems to be priced in, so about 0.6%. That total is quite expensive, but lets say you have 30% in bonds and half of your remaining in hedged, then the total cost to your portfolio isn't so much. The other alternative is to split that hedged portion into some VAS and the rest global hedged. I don't think the concentration risk is that bad for say 25 or 30% of your total equities, but if you really wanted to avoid it, then keeping it as global hedged for a modest fee seems more than reasonable.

steveo

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Re: Australian Investing Thread
« Reply #4399 on: February 03, 2019, 01:42:01 AM »
The AUD was 0.50 USD in 2000 and more than doubled until 2011. That is a seriously long time, and compared to an AUD hedged version it has lost half it's value in AUD. And now almost 2 decades later is still 1.5x. Drawing down all this time in AUD is a pretty serious risk if you ask me.

This is the risk but I'm not sure that it is a risk that needs to be mitigated against. I change my opinion on this but I just read the book Investing Dymystified and the author states to use an un-hedged position with world equities for the risky part of your portfolio and home currency domiciled government bonds as your safe assets.

Things aren't as simple as stating the AUD has dropped that much. There may be real structural changes but those changes will come with other benefits. I assume that swings from trading will even out over time.

I'm not sure on this issue and honestly to me there doesn't seem to be great data to back up anyone's opinion.

I suppose my view on investing is that I can't pick anything in relation to the future so I diversify as much as possible. I need some safe assets and these consist of bonds and cash which are in AUD. I also own my house so I have a lot invested in my home country. If I also have the ASX I seem massively invested in an economy that could under perform the rest of the world over the next 50 years. I do have about 30% of my portfolio in the ASX but I'm not convinced that is a rational approach. In stating that I figure it will do pretty well over time.