Author Topic: Australian Super allocation?  (Read 2577 times)

misterhorsey

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Australian Super allocation?
« on: September 08, 2016, 08:58:11 PM »
I've been meaning to switch my super for sometime from it's current indexed home at Plum-NAB (The Golden Egg). It was originally a vanguard fund, then through some black magic vanguard retreated from it and its now re-emerged as an MLC managed fund (ugh).  Still charging 0.37% for now.

Anyway, the fund du jour amongst many Australian mustachians seems to be SunSuper, chiefly due to its 0.09% fee for the Australian index option, and the International unhedged option, as well as the ability of allocate assets as per your own allocation.  I briefly considered Host Plus for their ridiculously low 0.04% balanced option but I prefer the flexibility of SunSuper's DIY asset allocation.

So now I'm not sure how much to allocation to each pile. I've drunk the kool-aid on how shares outperforming everything in the long run, but there are some persuasive arguments to suggest that there should be some allocation to fixed interest/bonds which smooths out volatility and ultimately equals a 100% equity position, or even betters a 100% equity position.

And then there's Australia (3% of world economy, concentrated in banks and holes in the ground) v Rest of World (97%).  How much to sink into this crazy resources/financial sector/residential property obsessed content, or how much to stash away elsewhere if the good times end.

Any suggestions on allocations? And reasons why? I've prepared a few straw examples we can toss around.

1) Aus Shares 50% / International shares 50%
2) Aus Shares 40% / International shares 40% / Fixed interest 20%
3) Aus Shares 30% / International shares 60% / Fixed interest 10%
4) Aus shares 20% / International shares 80%

My life circumstances is that I'm 40.  Do not own my own house. 4% withdrawal rate is telling me I can pull out $30k per annum at the moment. Currently living on around $23k per annum. Would probably want more passive income. And want to live on more. But also focused on trying to get to FI.

So will have the super for another 20 years without touching it.  Of course, by that stage, the robots may have vanquished us.

https://www.youtube.com/watch?v=zkv-_LqTeQA

Thanks in advance for your suggestions, thoughts!

bigchrisb

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Re: Australian Super allocation?
« Reply #1 on: September 08, 2016, 10:02:12 PM »
I've gone the self managed route. My expense base isn't as low as sun-super.

I look at the asset allocation across my total portfolio, then hold the sector allocations in the right tax basket.  Australian shares have more income than international shares. For this reason, my super is mostly higher yielding Australian stocks.  Better to have the taxable income in the low tax environment, and the lower income stuff in my personal name.

Your video link was hilarious!

Trevor Reznik

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Re: Australian Super allocation?
« Reply #2 on: September 09, 2016, 12:11:06 AM »
Your video link was hilarious!

Kevin was a complete jerk!

misterhorsey

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Re: Australian Super allocation?
« Reply #3 on: September 09, 2016, 01:50:11 AM »
Your video link was hilarious!

My posts are so long winded I need to give something back. Glad you enjoyed!

Thanks for the insights as well.  I'll have a rethink with a whole of portfolio approach (der!).

It may mean I should go far more international as my current investments have a strong home bias - but the fact that super is a low tax environment should suggest it should be more Australian, with dividends and such.  Aaagh. Confusion.
« Last Edit: September 09, 2016, 04:01:47 AM by misterhorsey »

Trevor Reznik

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Re: Australian Super allocation?
« Reply #4 on: September 09, 2016, 02:38:08 AM »
I actually take the opposite approach.  Using a lot of leverage with a margin loan so I need the dividend income to pay for the interest expense.  It's very tax effective as I can prepay the next years interest in advance each june to bring forward the tax deduction.  So each year as my portfolio/debt grows I have more interest and more franking credits to claim and roll the excess divs and ever increasing tax returns back into paying down the loan.

Due to the home bias with the leveraged portfolio I have an international bias inside my super account, but honestly I am hoping to make super a non-factor in my retirement.  In 13 years I'll be 50 years old and hope by then, give or take a few years, to have built a decent enough dividend income stream that the super just becomes a non event, a little bit of a bonus to draw on in old age but ultimately wasn't needed.

misterhorsey

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Re: Australian Super allocation?
« Reply #5 on: September 09, 2016, 04:06:50 AM »
Yes, Kevin is an a-hole!  He'll be first against the wall when Skynet takes over.

I think the opportunity for me to have a margin loan has passed as I'm teetering on the brink of saying farewell to a steady wage for a little while.  I contemplated it as a strategy for a while but couldn't get my head around it sufficiently to execute.

I was hoping that super would be a non-event for me, and it still may be.  But I have included it in my current net worth calcs, which has led me to think I can FIRE in some capacity, soonish, or  partially at least, so I've become a lot more interested in taking more of an interest in it.

marty998

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Re: Australian Super allocation?
« Reply #6 on: September 09, 2016, 05:59:54 AM »
I briefly considered Host Plus for their ridiculously low 0.04% balanced option but I prefer the flexibility of SunSuper's DIY asset allocation.

That 0.04% can't possibly be true for a balanced option. Fund managers don't even charge that low to manage a cash option, let alone Equities, Infrastructure, Property and Alternatives.

Not buying it. They are only disclosing the admin cost and not the full management fee cost which is coming out of the investment returns. Treat it with a planet-killing-asteroid size grain of salt.

misterhorsey

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Re: Australian Super allocation?
« Reply #7 on: September 09, 2016, 07:01:13 AM »
They certainly don't make it easy to find out fee information. The whole lack of transparency on super gives me the shites.  It's like a protection racket.  Overpaid fund managers skim off a few 1 or 2 per cent here and there and spend it on Porsches and cocaine as if its wizz fizz.

Anyway, here is the section on fees.  I was wrong about the 0.04%.  It's actually 0.02%!

https://pds.hostplus.com.au/6-fees-and-costs

There is a separate admin fee of $1.50 per week/$78 per annum.

But you're suggesting their effectively acting as a wrap account?  Charging the 0.02% as their administration fee, but the management fee of whatever index it's invested i is baked into the returns? 

I actually did call their phone support to ask them what indexes their index options were based on, and who managed it, but they couldn't tell me.  Said they'd call me back but didn't.

If your suspicions are correct, you'd think they'd be obliged to disclose it?

I'm adding your asteroid sized salt grain to my apocalyptic robot take over nightmare scenario  Thanks for that!

marty998

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Re: Australian Super allocation?
« Reply #8 on: September 09, 2016, 03:25:49 PM »
Knowing what I do about the industry I would suggest it is virtually impossible to get an exact indication of fees paid. The nature % based fees being deducted from mandates to fund managers, and then additional costs such as brokerage, commissions and fees paid in "fund of funds" means determining an actual % may not be able to be done.

I suspect if you want to minimise fees entirely you go the member direct route and buy the shares yourself.

superannuationfreak

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Re: Australian Super allocation?
« Reply #9 on: September 09, 2016, 07:18:29 PM »
Note I work for an industry fund which isn't HostPlus.  You can decide if this means I have useful information or an incentive to obscure it.

On large amounts an industry fund can get index fees that low.  I've seen the management agreements (for my own fund).  I don't know the particular arrangements they have in this case but HostPlus is a genuinely large fund at a global level.  The fee may not include brokerage costs if they hold individual shares/bonds and the manager buys on their behalf but nor will any other such fund.  For a passive option I would expect those costs to be low.

On a personal level, my mostly-retired Mum's risky assets are in that fund (she also has extra cash and fixed income reflecting my parents' risk profile).  I have personally used SunSuper for the ability to balance out a whole-of-portfolio asset allocation so consider that an excellent option if you want to customise (particularly if you want a larger chunk of international to balance out other Australian holdings).

misterhorsey

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Re: Australian Super allocation?
« Reply #10 on: September 10, 2016, 02:19:57 AM »
Thanks Super'freak.

I used to work in a firm where colleagues had the joy filled task of preparing all those management agreements, the trust deeds, the prospectuses etc etc.  What fun. They did take their work very seriously and I have some degree of faith in the robustness of the underlying agreements.  Now whether or not management of a particular fund manages things transparently, or in accordance with the terms of each agreement is another matter.  But it's interesting to get your insight that the scale allows them to get the fees that low.

I think I've decided on SunSuper for the same reason that you've mentioned, and BigChris mentioned.  I just did a quick assessment of my net worth and it's currently split approximately 70/30 in favour of Australia, which is not enough international exposure for me.

I'll gradually increase international exposure via index funds as I slowly sell out of my overwhelming Australia direct share holdings, but this may take a few years to do so (due to CGT considerations - and residual faith in certain holdings).

Now if I went 100% international in my super it would adjust my current portfolio allocation to 58% Australian and 42% international. Seems a rather dramatic thing to do.  Yet if it wasn't for the differing tax treatment, and diversification were the only criteria, then it's still looking like its overweight Australian. Maybe I should. Any thoughts?

Also, nobody got time for a fixed interest component to smooth out volatility?

marty998

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Re: Australian Super allocation?
« Reply #11 on: September 10, 2016, 04:27:14 AM »
Yes. I am currently 75% in fixed interest as I got nervous after seeing equities shoot up in July and then seeing a pretty ordinary reporting season.

US down a bit on Friday so in the short term I've done well getting out of Aus Equities at 5,600 (again), as we will fall in sympathy on Monday below 5,300.

I will progressively go back in over the next 6-8 weeks, assuming we stabilise somewhere around 5100-5200