Australian that wants to invest in American Vanguard

[lolzmonster]

Hi all,

Looking to start investing into vanguard, still doing my research. At this risk of sounding silly,
is it possible to invest in the american vanguard index fund from australia...?

I'm asking this because everytime i look at the cost of vanguard in australia (0.7% i think..) compared to America's, my head explodes.
SO, is there any way for me to invest in the american one without being penalized or having to go through massive legal hoops?

[AZMustachian]

I used to work for Vanguard and unfortunately there isn't a way to invest in the American funds if you live in another country.  The funds are only registered for sale in the United States and they could get in big trouble with Australian regulatory authorities if they sold them over there.  The only thing you could do is move to the US for a while and open an account.  It could be kind of pain though trying to send international wires to fund the account or to withdraw money.

I checked out Vanguard Australia's website and the fees are definitely pretty high.  If they are still lower than what you can find elsewhere in Australia I would invest with them and tell all your friends to as well.  A big reason the fees on US funds are so low is that the Vanguard funds are so massive that they can find a lot of economies of scale to reduce costs.  I imagine expenses were probably even higher for the US funds when they started in the 1970s.  I think for the first couple years they even had sales loads.  Since Australia is a much smaller market I think costs probably won't ever be as low as the US funds but I imagine they could get a lot lower if Vanguard captured more market share.  I also noticed Vanguard has ETFs in Australia that have much lower expenses.  You would have to pay brokerage commissions to buy and sell them, but if you make fairly large purchases and aren't planning to sell for a long time then the ETFs could be a good option for you.

[bigchrisb]

I use the ASX listed vanguard ETFs for international exposure (VEU and VTS - same as VTI in the US).  With brokerage available for $10-$15, buy $10k at a time and you are looking at losing 0.15% to brokerage.  Given that the expense ratios are more than half a percent lower than the managed fun versions, I see it as a 3 month payback.  Even if you bought $1000 at a time, a one off 1.5% cost is a 3 year payback.

One area where this falls short is in their emerging market index, where the expense ratio for their ASX listed ETF is super high compared to the expense ratio on the US version.  If you want to buy the US versions, you can consider using an international brokerage - I've used interactive brokers in the past.  Took a bit of getting used to as a brokerage.

[lolzmonster]

Hmm okay, maybe i'll consider buying ETFs first to begin with then... any ideas for brokers that dont have ridiculous prices here in australia? I don't really care for the extra bells and chimes and what not. Just something to buy. I intend to hold for at minimum the next 10 years.

[Kaminoge]

I'm joining the thread because I'm interested in the answers and also to let you know that I emailed Vanguard US and asked them if there was anyway for a non-US person to invest with them and they told me no.

Like you I'm trying to decide how best to invest money in Australia.

[deborah]

Has anyone looked at iShares? They seem to have lower rates and a bigger diversity of EFTs.

[Lukim]

I have not tried Ishares but I heard or read somewhere that Ishares are not that liquid.  If you want to sell quickly you may have to put in your sell offer below the market quoted price and even then there may not be a lot of buyers.

But that is always a risk once you get outside the top 200 stocks on the ASX.

[Mr Mark]

I'm joining the thread because I'm interested in the answers and also to let you know that I emailed Vanguard US and asked them if there was anyway for a non-US person to invest with them and they told me no.
...

this is why I was so glad to finally get a US social security number. That day I opened my vanguard account. 

There must be tax and other legal restrictions, otherwise im sure vanguard know they could pick up a huge business in europe, and elsewhere!

[deborah]

See http://www.marcustoday.com.au/webpages/1332_free-advice.php?articleid=22792#content on EFTs.

It looks to me that VTS and IVV are tracking similarly, but that there is MORE liquidity in IVV than VTS - see below (charts from ASX).

[lolzmonster]

Oh okay i see now. Hmm yeah ill stick with ETFs for now anyway, I think VTS is still a much better decision to buy, and then ill figure out how to diversify later when ive saved up a bit more.

Thanks for all the help guys :)

[agent_clone]

I'm asking this because everytime i look at the cost of vanguard in australia (0.7% i think..) compared to America's, my head explodes.
SO, is there any way for me to invest in the american one without being penalized or having to go through massive legal hoops?

According to the ASX page (found at http://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm#ETF) Vanguard US Total Market Shares Index (VTS) has management fees of 0.05% and Vanguard Australian Shares Index (VAS) the fees are 0.15%.  You may have been looking at the managed funds page?  VTS has the same management fee as its US equivalent (I think their the same fund).

It should also be noted that for VAS the dividends are significantly higher compared per share cost than the US equivalent (this is as Australia tends to pay higher dividends but I don't think it has as high a growth if that makes sense).

Investing directly in the US would also likely mean that you have a currency conversion fee each time you want to trade.

[steveo]

According to the ASX page (found at http://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm#ETF) Vanguard US Total Market Shares Index (VTS) has management fees of 0.05% and Vanguard Australian Shares Index (VAS) the fees are 0.15%.  You may have been looking at the managed funds page?  VTS has the same management fee as its US equivalent (I think their the same fund).

I think that this is the answer - just use the ETF's not the managed funds. I'm not doing this yet as the first item on the list is to pay off my house however I intend to purchase ETF's once per year to minimise the brokerage costs. The ETF fees for Australian based Vanguard funds are pretty good.

[deborah]

I have a question - why would an Australian invest in American Vanguard?

If you invest in an Australian index, you have Australian domestic and international companies. The American Vanguard index is almost all international companies, rather than American domestic companies. The American small caps index is American domestic companies.

So which should I really be investing in?

[agent_clone]

You probably want most of your funds to be invested within the Australian indexes.  This reduces your risk with currency fluctuations.

At the moment the AUD is still historically quite high to the USD so it may not be a bad investment choice to go with VTS, but otherwise you would be better off with an index like VAS (or good LIC's such as Argo and AFIC) which as you stated are effectively both Australian and international companies.  For something like VTS your returns would be dependant on currency fluctuations.

So I guess I would say mostly Australian, and depending on how much money you have invested some in more direct international ETF's such as VTS and VEU?

[lolzmonster]

@ Deborah Well main reason was really to take advantage of low management costs since i don't really have much capital.

Plan now is to save a lump sum and invest in VTS and VAS every 6 - 12 months to invest so i don't get my growth killed by brokerage costs. Argo is looking attractive as well because of the Direct Share Purchase Plans. Anyone got an idea if you can do that with VTS or VAS? or is it only Dividend Reinvestment Plans :/

[wtjbatman]

I have a question - why would an Australian invest in American Vanguard?

If you invest in an Australian index, you have Australian domestic and international companies. The American Vanguard index is almost all international companies, rather than American domestic companies. The American small caps index is American domestic companies.

So which should I really be investing in?

Just want to clarify a few things, if you were talking about Vanguard Total Stock Market Index Fund (VTS). VTS is actually the entire U.S. equity market, which includes small caps, mid caps, large caps, and mega caps. With the U.S. stock market itself being the same size as the rest of the world's combined, having a healthy exposure to it (even if you live in another country) is probably a smart idea, just for the sake of diversification.

Now, one of the reasons the U.S. equity market is so big is many of the companies in the U.S. stock market are basically multinational companies with significant interests internationally. Which is one reason I don't have much of my portfolio in international only (ex-U.S.) stocks. I feel I get a lot of exposure from the U.S. stocks themselves.

[AustralianMustachio]

This old chestnut - wanting to do the MMM Vanguard strategy but living in Australia, not the US. This topic is probably stumping a few people I think, and is the very same topic I'm trying to get my head around. So far I'm still confused. I've read a few responses, here is one with an entertaining title:

http://forum.mrmoneymustache.com/investor-alley/australian-thinks-about-investing-in-vanguard-funds-head-explodes/

My question is - what is the difference between investing in a Vanguard ETF vs a Vanguard index fund? Say, in the example of the US total stock market index, or the Australian ASX top 300 companies. There is an index fund and an ETF for both of them. I understand they are sold differently (Index funds are mutual funds but ETFs are traded like other equities).

But aside from that the only difference I can see is the management costs, which are much lower for the ETFs. Making it a clear winner for the ETFs, in terms of investing as an Australian. Am I missing something? Are they set up completely different and have lots of other little differences in terms of dividends, etc?

[wtjbatman]

This old chestnut - wanting to do the MMM Vanguard strategy but living in Australia, not the US. This topic is probably stumping a few people I think, and is the very same topic I'm trying to get my head around. So far I'm still confused. I've read a few responses, here is one with an entertaining title:

http://forum.mrmoneymustache.com/investor-alley/australian-thinks-about-investing-in-vanguard-funds-head-explodes/

My question is - what is the difference between investing in a Vanguard ETF vs a Vanguard index fund? Say, in the example of the US total stock market index, or the Australian ASX top 300 companies. There is an index fund and an ETF for both of them. I understand they are sold differently (Index funds are mutual funds but ETFs are traded like other equities).

But aside from that the only difference I can see is the management costs, which are much lower for the ETFs. Making it a clear winner for the ETFs, in terms of investing as an Australian. Am I missing something? Are they set up completely different and have lots of other little differences in terms of dividends, etc?

I want to clarify that index funds are not automatically mutual funds. The term index fund just means that the fund follows a certain index (say "Total stock market" or "Large cap stocks"). Both types of funds (mutual and ETF) can be index funds. It helps to remember that "ETF" is short for Exchange Traded Fund. The differences are small for most people. With mutual funds you just invest your money (ex: $1000) and at the end of the day, after the NAV (Net Asset Value) is determined, that's how much of the fund you buy. Effectively that's that. With ETFs, since they are traded on the market and have shares with prices that fluctuate during the trading day, you don't just put $1000 into one, you actually buy X number of shares. There are also supposed to be some tax differences with how the two types of funds are managed that ultimately make ETFs a bit more tax efficient than mutual funds. Obviously that's a good thing in a taxable account, but doesn't matter if you're investing inside of a tax advantaged/retirement account.

For the majority of people, the focus should be on the expense ratio of the funds. If you have a mutual fund and an ETF, and both are U.S. Total Stock Market index funds, then look at whichever has the lowest expense ratio. That's the one I would buy.

[deborah]

My question is - what is the difference between investing in a Vanguard ETF vs a Vanguard index fund? Say, in the example of the US total stock market index, or the Australian ASX top 300 companies. There is an index fund and an ETF for both of them. I understand they are sold differently (Index funds are mutual funds but ETFs are traded like other equities).

But aside from that the only difference I can see is the management costs, which are much lower for the ETFs. Making it a clear winner for the ETFs, in terms of investing as an Australian. Am I missing something? Are they set up completely different and have lots of other little differences in terms of dividends, etc?

I want to clarify that index funds are not automatically mutual funds. The term index fund just means that the fund follows a certain index (say "Total stock market" or "Large cap stocks"). Both types of funds (mutual and ETF) can be index funds. It helps to remember that "ETF" is short for Exchange Traded Fund. The differences are small for most people. With mutual funds you just invest your money (ex: $1000) and at the end of the day, after the NAV (Net Asset Value) is determined, that's how much of the fund you buy. Effectively that's that. With ETFs, since they are traded on the market and have shares with prices that fluctuate during the trading day, you don't just put $1000 into one, you actually buy X number of shares. There are also supposed to be some tax differences with how the two types of funds are managed that ultimately make ETFs a bit more tax efficient than mutual funds. Obviously that's a good thing in a taxable account, but doesn't matter if you're investing inside of a tax advantaged/retirement account.

For the majority of people, the focus should be on the expense ratio of the funds. If you have a mutual fund and an ETF, and both are U.S. Total Stock Market index funds, then look at whichever has the lowest expense ratio. That's the one I would buy.

An ETF is something you get straight from the ASX, as a sort of "pseudo" stock - but it is still an index. Wikipedia has a list of the ones traded in Australia http://en.wikipedia.org/wiki/List_of_Australian_exchange-traded_funds with their expenses.

Because iShares were in the ASX with their funds before Vanguard, you will find that they have a more diverse selection AND there are more traded each day (about 3 times as many for options that are about the same). Other companies also beat Vanguard to the ASX (it was a comparative latecomer in Australia). So it is worth looking at the competitors in the ASX to see which is the most liquid, as the Australian market is different.

The funds (which are still each an index) are for people investing in a management fund outside the ASX. For instance, superannuation funds. Because they are a management fund (with financial advisers getting fees), they are more expensive for the same product. Some superannuation funds have Vanguard as an option (and before EFTs these were the only option), but you can also buy an EFT in a SMSF if you want to take advantage of the tax benefits within super. I suspect that FI people would not want their funds to be in super, and if they do, would prefer an SMSF anyway.

[Kaminoge]

I'm so glad I'm not the only one who gets confused by all this.

Thanks to those of you who are providing explanations, stuff to think about. It really is helpful.

[deborah]

However, there are ways to get into the sharemarket without having buy individual shares.

One shortcut is a managed fund, usually bought through a financial adviser, where it is all done for you. Since it does not trade on the ASX, you will not know how it is faring day to day unless you specifically ask. This might not be such a bad thing.

You can get the same thing in listed investment companies, or LICs, which also manage a share portfolio. You will know what the LIC is worth every second of the day, like any other share, and they are easy to get into and out of.

Their annual fee is also cheaper than a managed fund's.

But cheapest of all is an exchange-traded fund (ETF), a sort of cross between the two. LICs and managed funds are actively managed, whereas an ETF follows a predetermined index such as the ASX top 20.

One other thing is that managed funds and ETFs are always valued at what their portfolios are worth, but LICs can stray, and do most of the time, from their real value.

Extract from http://www.canberratimes.com.au/money/investing/the-abc-of-investing-20140513-386ch.html#ixzz31dYslRt0
 

[Big_Paul]

I've gone with Vanguard Au Lifestrategy hi growth retail managed fund. It's made up of lots of other index funds. So you get exposure to all strong world markets. US, emerging, Au etc. It rebalances itself. And it's easy to pay into. Over $100,000 the fees are 0.3%. I'm happy to pay this. I think the key to indexing is set and forget. Keep it simple. And let time do the rest. At 90% equities and 10% bonds it will be volatile but should garner most gains long term. Once I've hit the amount I need for FI I will move to a different balanced fund. A more stable one.

[LRS]

As an American who has recently arrived in Australia, I'm also somewhat taken aback at how high Vanguard's expenses are in Australia. AZMustachian's explanation for this makes plenty of sense - smaller market, less market share, fewer economies of scale to leverage into lower fees. But I wonder whether these problems are unique to Vanguard, as an American company trying to break into the Australian market. In other words, is there some other company with a Vanguard-like philosophy that is able to execute better than Vanguard, perhaps because it's bigger or has been in Australia for longer? After all, there's nothing magical about the Vanguard brand - if there's another company that offers low-expense diversified index funds, their product deserves a look.

[Kaminoge]

As an American who has recently arrived in Australia, I'm also somewhat taken aback at how high Vanguard's expenses are in Australia. AZMustachian's explanation for this makes plenty of sense - smaller market, less market share, fewer economies of scale to leverage into lower fees. But I wonder whether these problems are unique to Vanguard, as an American company trying to break into the Australian market. In other words, is there some other company with a Vanguard-like philosophy that is able to execute better than Vanguard, perhaps because it's bigger or has been in Australia for longer? After all, there's nothing magical about the Vanguard brand - if there's another company that offers low-expense diversified index funds, their product deserves a look.

Probably not because the problem is that the Australian market is going to be comparitively tiny even if you managed to capture 100% of it. We just don't benefit from economies of scale.

Especially since apparently  "as a result of the US Foreign Account Tax Compliance Act (FATCA)" they'll no longer let you invest even if you are Australian if you can't prove residence. So there goes my plans.