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Learning, Sharing, and Teaching => Investor Alley => Topic started by: deborah on January 16, 2016, 09:25:02 PM

Title: Basic Australian Investing Thread
Post by: deborah on January 16, 2016, 09:25:02 PM
This is the thread where you ask all the questions you thought were too dumb to ask about Australian Investing.
Title: Re: Basic Australian Investing Thread
Post by: Flyingkea on January 16, 2016, 10:04:51 PM
Is there a list of abbreviations, and what they mean?
I can barely remember ETFs and what they are/do, let alone some of the more esoteric this I've seen.
Title: Re: Basic Australian Investing Thread
Post by: deborah on January 16, 2016, 10:32:23 PM
The ASX (Australian Securities Exchange - changed from the stock exchange in 2006) has a glossary of terms - see http://www.asx.com.au/education/glossary.htm
Title: Re: Basic Australian Investing Thread
Post by: Astatine on January 16, 2016, 11:07:18 PM
Is there a list of abbreviations, and what they mean?
I can barely remember ETFs and what they are/do, let alone some of the more esoteric this I've seen.

Oh good, it's not just me! I understand normal stocks (kind of) but outside that I was struggling.
Title: Re: Basic Australian Investing Thread
Post by: Astatine on January 17, 2016, 01:19:40 AM
What's an ETF? Is it the same concept as buying shares in a company? (I do feel a bit embarrassed how little I know afte all this time)
Title: Re: Basic Australian Investing Thread
Post by: deborah on January 17, 2016, 02:07:35 AM
From the ASX glossary

Exchange Traded Fund (ETF)

Investment fund designed to track the performance of an asset such as a share price index and which allows for applications and redemptions in the primary market on a daily basis either in-specie or in cash


Let's look at this one bit at a time.

So, an ETF can be something you buy on the stock exchange that follows the share index (for instance the ASX200) or some other index. The Vanguard funds sold on the stock exchange are ETFs. There are some that track things other than the stock exchange - for instance there are Vanguard ETFs that follow the bond "index" in exactly the same way.

Recently, in the Australian Investing thread:

A new site went live a few days ago called ETF watch. It's full of useful information about ETF's and LICs.

The guy who built the site says:

It is a database of all of the ETFs and most of the LICs available on the ASX.

It has been designed for investors to be able to filter a fund database and find funds that suit their needs. Some of the cool aspects i think are industry/region categorisations, historic performance, dividend yield, and LIC premium or discount to NAV/NTA (as well as 5 years worth of premium/discount history). There's also a blog and news feed and some general info on ETFs & LICs.

I've been poking around on it today and like what I see. I figured it's worth a share.

http://www.etfwatch.com.au/
Title: Re: Basic Australian Investing Thread
Post by: coin on January 17, 2016, 02:12:50 AM
Edit: deborah, you beat me to it!

If I could suggest a book to check out from the library - Money Makeover by Nina Dubecki and Vanessa Rowsthorn has some great information on investing.  Yes, it's aimed primarily at women but I think it's a great primer for anyone.  There are a few sections which are a bit old hat to the average MMM reader, but it's Australian focussed, provides details for further resources and is very good at encouraging you towards the idea of investing then showing you your options.  Oh, and it has cheesey limericks at the start of each chapter, which I find hilarious.
Title: Re: Basic Australian Investing Thread
Post by: povertystrickenbastard on January 17, 2016, 02:13:06 AM
What's a battle?
Title: Re: Basic Australian Investing Thread
Post by: faramund on January 17, 2016, 02:14:28 AM
An ETF is an exchange traded fund. Take Vanguard High Yield Fund, it comes in three flavours.

Wholesale managed fund (>$500000) and you directly buy/sell with vanguard
Retail managed fund (>$5000), and you directly buy/sell with vanguard (but with higher fees)
ETF, bought and sold on share market, with only share market minimums (commsec $500), and I think the lowest fees.

When buying the fund, you effectively get shares in around 40 high dividend companies. So when they pay dividends, vanguard passes them onto you.

If you look at https://www.vanguardinvestments.com.au/retail/ret/investments/etfs.jsp#etfstab ,
you can see a list of vanguard's ETFs. Each of them is a blend of a number of sub-companies or bonds.

There's a few other ETFs (http://www.morningstar.com.au/ETFs/PerformanceTable) but I stick with Vanguard, they seem to have the lowest fees.

Title: Re: Basic Australian Investing Thread
Post by: deborah on January 17, 2016, 04:01:46 AM
What's a battle?
I don't know. Do you have some context?
Title: Re: Basic Australian Investing Thread
Post by: nnls on January 17, 2016, 04:23:52 AM
Thanks for starting this thread Deborah :)

My first question is in regards to what we were talking about in the other thread. What are the advantages /disadvantaged of investing in vanguard via the ASX or direct with them on their website?

Title: Re: Basic Australian Investing Thread
Post by: coin on January 17, 2016, 05:10:21 AM
Thanks for starting this thread Deborah :)

My first question is in regards to what we were talking about in the other thread. What are the advantages /disadvantaged of investing in vanguard via the ASX or direct with them on their website?

Two things immediately spring to mind - flexibility and expense ratios, but here are my thoughts:

ETF advantages:

ETF disadvantages:

Managed fund advantages:

Managed fund disadvantages:

Note that my post-tax/non-superannuation investments are all in ETFs, so I am perhaps a bit biased that way.  Don't get me wrong, I think managed funds have their own place and can be very good, but the expense ratios have always been a big turn-off to me.[/list]
Title: Re: Basic Australian Investing Thread
Post by: nnls on January 17, 2016, 05:16:09 AM
    Thanks for starting this thread Deborah :)

    My first question is in regards to what we were talking about in the other thread. What are the advantages /disadvantaged of investing in vanguard via the ASX or direct with them on their website?

    Two things immediately spring to mind - flexibility and expense ratios, but here are my thoughts:

    ETF advantages:
    • Low(er) bar to entry - you can invest as little as $500
    • No buy/sell spreads - the only buying and selling fees you will pay are to your broker for doing the transaction
    • Expense ratios are generally lower than the equivalent managed funds (e.g. the VAS ETF has an expense ratio of 0.15% while the equivalent managed fund is 0.75% for your first 50,000
    • Flexibility - you can invest as little or as much as you want over time and have complete control over what % of your portfolio is bond ETFs, share ETFs, etc

    ETF disadvantages:
    • Flexibility - being able to invest as little or as much as you like can be a problem because a lot of people don't have the discipline to continue buying during a downturn or selling to rebalance during the boom times.
    • You have to decide your own asset allocations, which can take time/confidence
    • ETFs are probably a bit more effort than managed funds
    • Have to engage the services of a broker or online brokerage form (e.g. Nabtrade) to buy and sell ETFs.  There is no way around this as far as I know, and the brokers will charge fees to buy and sell.
    • You have to buy/sell your funds yourself, the market taking a dive a day or week after you buy in can be a little discouraging even if you know it doesn't matter in the long run

    Managed fund advantages:
    • Easy to set up and implement
    • Easy dollar cost averaging - when you transfer your money in, it's automatically invested and all managed for you
    • The funds often allow you the option of setting up automatic deposits - automation like this can be good if you like the hands-off approach

    Managed fund disadvantages:
    • High(er) bar to entry - most managed funds have a minimum investment of $5000.  You can get lower, but a lot of these come with clauses such as you having to put in $300 a month or similar via direct debit.
    • Further to the above point - I've heard in some situations if the market takes a dive and your fund goes under the minimum investment amount, they can ask you to top it up or set up a recurring transaction.  Probably not something to worry about, but definitely keep it in mind.
    • Buy/Sell spreads - they will charge you a fee every time you buy and sell.  E.g. Vanguard's lowest buy sell spread for any of its managed funds is 0.10%, which means you have 0.10% less to retire on.
    • Fees.  They're the ones doing all the management for your account, so they will skim more off the top than if you were buying an ETF.

    Note that my post-tax/non-superannuation investments are all in ETFs, so I am perhaps a bit biased that way.  Don't get me wrong, I think managed funds have their own place and can be very good, but the expense ratios have always been a big turn-off to me.[/list]

    Thank you for this :)
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on January 17, 2016, 11:41:16 AM
    Note that my post-tax/non-superannuation investments are all in ETFs, so I am perhaps a bit biased that way.  Don't get me wrong, I think managed funds have their own place and can be very good, but the expense ratios have always been a big turn-off to me.
    If you have an SMSF (Self Managed Superannuation Fund) like me, you could have your superannuation in EFTs as well. If you don't have an SMSF, Managed Funds are the way you would get indexes in Superannuation. Some WRAPs also have ETFs available.

    Both of these options for Superannuation are probably only for those with a reasonable amount in super. I am only mentioning them because I was someone who didn't know much about finance, and hated it, even though I actually had a reasonable stash. (I still think I don't know much, but over the last few years I have been learning.) There may be other people using this thread in a similar situation.

    To me, it doesn't really matter if you are mustachian and don't get your savings in the "right place" to begin with. Let us say that it takes you a year to sort out what you want to do. Rarely do investments earn more than 10% in a year, so you will only be 10% worse off if you take time to think it through. And you only have a small amount to invest compared to later on - if you are going to spend 10 years saving, in the first year you will only have 10% of what you will have saved over the 10 years. So, you will have lost maybe 1% of what you could end up with BEFORE you count how much your investments earn over the 10 years.
    Title: Re: Basic Australian Investing Thread
    Post by: syednaeemul on January 17, 2016, 03:16:03 PM
    Maybe it's suitable here: which is the recommended brokerage to use? And how do you set about financing it? Regular bank transfers?
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on January 17, 2016, 05:20:15 PM
    Maybe it's suitable here: which is the recommended brokerage to use? And how do you set about financing it? Regular bank transfers?
    My brokerage setup is not available to you, so I won't recommend it. As I am retired, I don't finance my brokerage. It gets money from dividends... So I don't know. I think this is a question for the Australian Investing thread - brokerage recommendations were discussed there on 28 December (see reply 1591 and subsequent discussion).
    Title: Re: Basic Australian Investing Thread
    Post by: stripey on January 17, 2016, 07:40:27 PM
    Thanks for starting this thread, Deborah! :)
    Title: Re: Basic Australian Investing Thread
    Post by: pancakes on January 18, 2016, 02:29:21 AM
    Thank you for posting, I most certainly need this thread.

    When I joined up I did so looking to start investing our savings and in that time all I have done is accumulated a bunch of cash.

    We are sitting on close to $180k in cash now and I think part of my paralysis is due to it being such a large sum and part because we've had a meh experience with a managed fund in the past. I don't want to invest all of it and certainly not all at once but I need to work out some kind of plan.
    Title: Re: Basic Australian Investing Thread
    Post by: happy on January 18, 2016, 03:51:15 AM
    Following
    Title: Re: Basic Australian Investing Thread
    Post by: nnls on January 18, 2016, 06:38:11 AM
    Note that my post-tax/non-superannuation investments are all in ETFs, so I am perhaps a bit biased that way.  Don't get me wrong, I think managed funds have their own place and can be very good, but the expense ratios have always been a big turn-off to me.
    If you have an SMSF (Self Managed Superannuation Fund) like me, you could have your superannuation in EFTs as well. If you don't have an SMSF, Managed Funds are the way you would get indexes in Superannuation. Some WRAPs also have ETFs available.

    Both of these options for Superannuation are probably only for those with a reasonable amount in super. I am only mentioning them because I was someone who didn't know much about finance, and hated it, even though I actually had a reasonable stash. (I still think I don't know much, but over the last few years I have been learning.) There may be other people using this thread in a similar situation.

    To me, it doesn't really matter if you are mustachian and don't get your savings in the "right place" to begin with. Let us say that it takes you a year to sort out what you want to do. Rarely do investments earn more than 10% in a year, so you will only be 10% worse off if you take time to think it through. And you only have a small amount to invest compared to later on - if you are going to spend 10 years saving, in the first year you will only have 10% of what you will have saved over the 10 years. So, you will have lost maybe 1% of what you could end up with BEFORE you count how much your investments earn over the 10 years.

    I was told by someone it wasn't worth having an SMF unless you had a largish amount in super, like above $200k?
    Title: Re: Basic Australian Investing Thread
    Post by: coin on January 18, 2016, 09:04:39 AM
    Note that my post-tax/non-superannuation investments are all in ETFs, so I am perhaps a bit biased that way.  Don't get me wrong, I think managed funds have their own place and can be very good, but the expense ratios have always been a big turn-off to me.
    If you have an SMSF (Self Managed Superannuation Fund) like me, you could have your superannuation in EFTs as well. If you don't have an SMSF, Managed Funds are the way you would get indexes in Superannuation. Some WRAPs also have ETFs available.

    Both of these options for Superannuation are probably only for those with a reasonable amount in super. I am only mentioning them because I was someone who didn't know much about finance, and hated it, even though I actually had a reasonable stash. (I still think I don't know much, but over the last few years I have been learning.) There may be other people using this thread in a similar situation.

    To me, it doesn't really matter if you are mustachian and don't get your savings in the "right place" to begin with. Let us say that it takes you a year to sort out what you want to do. Rarely do investments earn more than 10% in a year, so you will only be 10% worse off if you take time to think it through. And you only have a small amount to invest compared to later on - if you are going to spend 10 years saving, in the first year you will only have 10% of what you will have saved over the 10 years. So, you will have lost maybe 1% of what you could end up with BEFORE you count how much your investments earn over the 10 years.

    I was told by someone it wasn't worth having an SMF unless you had a largish amount in super, like above $200k?

    That's because the fees often don't make it worthwhile until you reach a large(r) balance for your super.

    If you had $50,000 in your super and it was managed by REST (an industry superfund) in their MySuper option, the fees amount to $437.20 a year.  If you had $50,000 in a self-managed superannuation fund, you would need to pay fees to set it up and keep it in compliance with the ATO and the average SMSF fees range from $1,500 to $5,000 per annum. 

    Even if your super did quite well and the fees are on the competitive end, it's possible any gains you make will get eaten up by fees.  Obviously that choice is up to the individual, what they're investing in and if they think that they will be able to make considerably more than they would in a non-self-managed fund.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on January 18, 2016, 11:35:26 AM
    I was told by someone it wasn't worth having an SMSF unless you had a largish amount in super, like above $200k?
    True - but how soon is someone here going to take to reach that figure?

    The average full time wage earner in Australia gets a total of $80,054.00 - and gets to keep $62,272.02. Their employer also pays $7605.13 superannuation to them. So, if you live on $30,000 a year (more than me), you can save $32272.02 a year. Including superannuation, that means you are saving $39877 a year - so, if half is going to super, and half outside super, you end up with more than $20,000 a year going to super (before tax contributions mean that you pay less tax). It doesn't take long at that rate to be worth thinking about an SMSF.
    Title: Re: Basic Australian Investing Thread
    Post by: Aussiegirl on January 18, 2016, 12:40:55 PM

    I was told by someone it wasn't worth having an SMF unless you had a largish amount in super, like above $200k?

    Disclosure - we have a SMSF, because we have real estate in our super.

    Even $200k now may not make it worth having a SMSF.  Some of the industry funds have introduced great self directed options to combate the flight of capital to SMSF.  Have a look at Australian Super as an example.   Their fees are quite reasonable.  Portfolio fee of $395/yr plus brokerage.  Heaps cheaper than a SMSF and will likely have enough investment options for the set and forget EFT strategy most here favour.

    I'm not sure what the average fees are for industry super funds (non self directed) so you'd have to do the maths to see when it was economically worthwhile moving from the standard fund to self directed.  I'd guess without doing the maths it would be $75-100k.

    If you have an SMSF (Self Managed Superannuation Fund) like me, you could have your superannuation in EFTs as well. If you don't have an SMSF, Managed Funds are the way you would get indexes in Superannuation. Some WRAPs also have ETFs available.

    The self directed industry funds have ETFs.    See the link below, Austarlian Suoer has a good range: https://www.australiansuper.com/~/media/Files/Investment/Member%20Direct/Member%20Direct%20Investment%20Menu.ashx

    Note: I'm not recommending Australian Suoer, it's just an example - there are a few others that offer self directed as well.
    Title: Re: Basic Australian Investing Thread
    Post by: Minion on January 18, 2016, 04:13:47 PM
    Following :)

    Any assistance with a spreadsheet to track ETF purchases / tax accounting would be great
    http://forum.mrmoneymustache.com/investor-alley/australia-dumb-vanguard-managed-fund-query/
    Title: Re: Basic Australian Investing Thread
    Post by: faramund on January 18, 2016, 05:08:07 PM
    This is what I use to track shares.

    It has 8 columns
    The first has the date of purchase
    The second is what the stock is, and what account it is (i.e. Vas-D is my account, VAS is my wife - its not case sensitive).
    The third is the number of shares bought
    The fourth is the total amount it cost (including brokerage costs)
    The fifth is unnecessary, but shows the per share cost
    The sixth (column G) is the running number of shares for that stock/account
    The seventh (H) is the running amount (this is sometimes referred to as base cost)
    The eighth (I) is also unnecessary, but shows the running per share cost.

    Note that I bold the last entry for each stock/account, just so I can easily recognise it.

    So each time I buy a new block of shares, say VAS-D, I'd add a new row, say under column 5, and then
    enter the purchase details into columns 1-4, and then paste the formulas from columns 5-8 down into the new row.

    If later on I sold all my VAS-D The amount I would have to declare for capital gains would be what I got from the shares, minus whatever is the last figure for that stock in the seventh column (H) (at the moment for VAS that would be 6653.43).

    You will probably notice the funny rows on the 30/6/15. With quite a few stocks, a component of their dividends is actually a capital gain - and the way they are to be recorded is as in the sheet, a reduction in the cost base (this means when/if you sell the stock - your capital gain will be bigger - but until then you don't pay any tax on it). In my experience, any stock that does this, will send you a tax statement at the end of each financial year - showing what your amounts are, and telling you what to do.

    Well, that went on a lot longer than I thought it would ...
    Title: Re: Basic Australian Investing Thread
    Post by: faramund on January 18, 2016, 05:19:09 PM
    Thank you for posting, I most certainly need this thread.

    When I joined up I did so looking to start investing our savings and in that time all I have done is accumulated a bunch of cash.

    We are sitting on close to $180k in cash now and I think part of my paralysis is due to it being such a large sum and part because we've had a meh experience with a managed fund in the past. I don't want to invest all of it and certainly not all at once but I need to work out some kind of plan.

    You don't have to invest it all at once - or even all of it ever. Given how large your cash amount is, its probably reasonable to invest in lots of maybe $10000 (so with a $20 trading fee at commsec or $15 at nabtrade, thats a 0.2 or 0.15% fee).

    So you could make a choice, and probably VAS is a good start - especially if you believe the strong market efficiency theory - but obviously other shares/ETFs are possible (I've had almost the same conversation with my father-in-law but he's started with a package of VHY shares as he wants a larger dividend stream).

    But its probably good to make a start, even with just making one trade. It will force you to find a broker, and set up your accounts and record keeping. Then, if all goes well, in some later week/month you could do the same thing again.
    Title: Re: Basic Australian Investing Thread
    Post by: Minion on January 18, 2016, 06:17:22 PM
    This is what I use to track shares.

    It has 8 columns
    The first has the date of purchase
    The second is what the stock is, and what account it is (i.e. Vas-D is my account, VAS is my wife - its not case sensitive).
    The third is the number of shares bought
    The fourth is the total amount it cost (including brokerage costs)
    The fifth is unnecessary, but shows the per share cost
    The sixth (column G) is the running number of shares for that stock/account
    The seventh (H) is the running amount (this is sometimes referred to as base cost)
    The eighth (I) is also unnecessary, but shows the running per share cost.

    Note that I bold the last entry for each stock/account, just so I can easily recognise it.

    So each time I buy a new block of shares, say VAS-D, I'd add a new row, say under column 5, and then
    enter the purchase details into columns 1-4, and then paste the formulas from columns 5-8 down into the new row.

    If later on I sold all my VAS-D The amount I would have to declare for capital gains would be what I got from the shares, minus whatever is the last figure for that stock in the seventh column (H) (at the moment for VAS that would be 6653.43).

    You will probably notice the funny rows on the 30/6/15. With quite a few stocks, a component of their dividends is actually a capital gain - and the way they are to be recorded is as in the sheet, a reduction in the cost base (this means when/if you sell the stock - your capital gain will be bigger - but until then you don't pay any tax on it). In my experience, any stock that does this, will send you a tax statement at the end of each financial year - showing what your amounts are, and telling you what to do.

    Well, that went on a lot longer than I thought it would ...

    Much appreciated, that makes sense. If you reinvested your dividends automatically, how do you track this? Do you add a line item to update the cost base on the day it takes effect?
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on January 18, 2016, 06:21:41 PM
    This is what I use to track shares.

    It has 8 columns
    The first has the date of purchase
    The second is what the stock is, and what account it is (i.e. Vas-D is my account, VAS is my wife - its not case sensitive).
    The third is the number of shares bought
    The fourth is the total amount it cost (including brokerage costs)
    The fifth is unnecessary, but shows the per share cost
    The sixth (column G) is the running number of shares for that stock/account
    The seventh (H) is the running amount (this is sometimes referred to as base cost)
    The eighth (I) is also unnecessary, but shows the running per share cost.

    Note that I bold the last entry for each stock/account, just so I can easily recognise it.

    So each time I buy a new block of shares, say VAS-D, I'd add a new row, say under column 5, and then
    enter the purchase details into columns 1-4, and then paste the formulas from columns 5-8 down into the new row.

    If later on I sold all my VAS-D The amount I would have to declare for capital gains would be what I got from the shares, minus whatever is the last figure for that stock in the seventh column (H) (at the moment for VAS that would be 6653.43).

    You will probably notice the funny rows on the 30/6/15. With quite a few stocks, a component of their dividends is actually a capital gain - and the way they are to be recorded is as in the sheet, a reduction in the cost base (this means when/if you sell the stock - your capital gain will be bigger - but until then you don't pay any tax on it). In my experience, any stock that does this, will send you a tax statement at the end of each financial year - showing what your amounts are, and telling you what to do.

    Well, that went on a lot longer than I thought it would ...

    Much appreciated, that makes sense. If you reinvested your dividends automatically, how do you track this? Do you add a line item to update the cost base on the day it takes effect?
    When you reinvest dividends you are buying an entirely new parcel of shares - you get information about how many you bought, what day you bought them on, and what you paid for them. So it is a completely new line.
    Title: Re: Basic Australian Investing Thread
    Post by: faramund on January 18, 2016, 08:34:06 PM
    This is what I use to track shares.

    It has 8 columns
    The first has the date of purchase
    The second is what the stock is, and what account it is (i.e. Vas-D is my account, VAS is my wife - its not case sensitive).
    The third is the number of shares bought
    The fourth is the total amount it cost (including brokerage costs)
    The fifth is unnecessary, but shows the per share cost
    The sixth (column G) is the running number of shares for that stock/account
    The seventh (H) is the running amount (this is sometimes referred to as base cost)
    The eighth (I) is also unnecessary, but shows the running per share cost.

    Note that I bold the last entry for each stock/account, just so I can easily recognise it.

    So each time I buy a new block of shares, say VAS-D, I'd add a new row, say under column 5, and then
    enter the purchase details into columns 1-4, and then paste the formulas from columns 5-8 down into the new row.

    If later on I sold all my VAS-D The amount I would have to declare for capital gains would be what I got from the shares, minus whatever is the last figure for that stock in the seventh column (H) (at the moment for VAS that would be 6653.43).

    You will probably notice the funny rows on the 30/6/15. With quite a few stocks, a component of their dividends is actually a capital gain - and the way they are to be recorded is as in the sheet, a reduction in the cost base (this means when/if you sell the stock - your capital gain will be bigger - but until then you don't pay any tax on it). In my experience, any stock that does this, will send you a tax statement at the end of each financial year - showing what your amounts are, and telling you what to do.

    Well, that went on a lot longer than I thought it would ...

    Much appreciated, that makes sense. If you reinvested your dividends automatically, how do you track this? Do you add a line item to update the cost base on the day it takes effect?
    When you reinvest dividends you are buying an entirely new parcel of shares - you get information about how many you bought, what day you bought them on, and what you paid for them. So it is a completely new line.
    Yes I do exactly this, but just to clarify. Say I get $43 in dividends, and I'm reinvesting all of it, and the shares are priced at $20, I record this as 2 shares worth $43  (not $40).. Most companies carry over any odd bits of money.. like that $3, so in the future I might next get $59 of dividends (and say the shares are still priced at $20), I would then record that as 3 shares worth $59.

    Sometimes I might get say $13 in dividends and a share might cost $20, so I'll record that as 0 shares for $20.

    These are all just simple examples, in each reinvestment case I just add a line, say how many shares I received and how much in dividends (I would have got in cash if I hadn't done reinvestment). I ignore the effect of any rolled over dividend funds.
     
    I've updated my file to show what's happened to my WBC funds that I did a lot of reivestment with (initially fully, but now just a little bit), and also my MTU shares (to show one of these 0 reinvestment cases)
    Title: Re: Basic Australian Investing Thread
    Post by: HappierAtHome on January 18, 2016, 08:47:54 PM
    This is a judgement free zone, right?

    Possibly a dumb question: if I buy into one of the managed funds (e.g. high growth) will Vanguard track all of this crap for me instead of my having to maintain a spreadsheet? Or is tracking it all in a spreadsheet pretty much non-negotiable for any equity investing?

    This is what I use to track shares.

    It has 8 columns
    The first has the date of purchase
    The second is what the stock is, and what account it is (i.e. Vas-D is my account, VAS is my wife - its not case sensitive).
    The third is the number of shares bought
    The fourth is the total amount it cost (including brokerage costs)
    The fifth is unnecessary, but shows the per share cost
    The sixth (column G) is the running number of shares for that stock/account
    The seventh (H) is the running amount (this is sometimes referred to as base cost)
    The eighth (I) is also unnecessary, but shows the running per share cost.

    Note that I bold the last entry for each stock/account, just so I can easily recognise it.

    So each time I buy a new block of shares, say VAS-D, I'd add a new row, say under column 5, and then
    enter the purchase details into columns 1-4, and then paste the formulas from columns 5-8 down into the new row.

    If later on I sold all my VAS-D The amount I would have to declare for capital gains would be what I got from the shares, minus whatever is the last figure for that stock in the seventh column (H) (at the moment for VAS that would be 6653.43).

    You will probably notice the funny rows on the 30/6/15. With quite a few stocks, a component of their dividends is actually a capital gain - and the way they are to be recorded is as in the sheet, a reduction in the cost base (this means when/if you sell the stock - your capital gain will be bigger - but until then you don't pay any tax on it). In my experience, any stock that does this, will send you a tax statement at the end of each financial year - showing what your amounts are, and telling you what to do.

    Well, that went on a lot longer than I thought it would ...
    Title: Re: Basic Australian Investing Thread
    Post by: faramund on January 18, 2016, 09:13:48 PM
    This is a judgement free zone, right?

    Possibly a dumb question: if I buy into one of the managed funds (e.g. high growth) will Vanguard track all of this crap for me instead of my having to maintain a spreadsheet? Or is tracking it all in a spreadsheet pretty much non-negotiable for any equity investing?


    Murdoch in  Reply 13 of http://forum.mrmoneymustache.com/investor-alley/australia-dumb-vanguard-managed-fund-query/ suggested that vanguard did it all for him, so I guess that's your answer.
    Title: Re: Basic Australian Investing Thread
    Post by: Astatine on January 18, 2016, 09:39:52 PM
    This is a judgement free zone, right?

    I hope so. I have many many (probably dumb) questions that I will be asking once I'm less distracted with stuff.

    Possibly a dumb question: if I buy into one of the managed funds (e.g. high growth) will Vanguard track all of this crap for me instead of my having to maintain a spreadsheet? Or is tracking it all in a spreadsheet pretty much non-negotiable for any equity investing?



    That was one of my questions too. I'm hoping the answer is yes (and maybe the answer is buried in Vanguard's documentation somewhere). I suspect we will probably pay more for the tracking because that's something that I always have good intentions about and never actually do.
    Title: Re: Basic Australian Investing Thread
    Post by: HappierAtHome on January 18, 2016, 09:52:45 PM
    This is a judgement free zone, right?

    Possibly a dumb question: if I buy into one of the managed funds (e.g. high growth) will Vanguard track all of this crap for me instead of my having to maintain a spreadsheet? Or is tracking it all in a spreadsheet pretty much non-negotiable for any equity investing?


    Murdoch in  Reply 13 of http://forum.mrmoneymustache.com/investor-alley/australia-dumb-vanguard-managed-fund-query/ suggested that vanguard did it all for him, so I guess that's your answer.

    I thought he was saying that Vanguard sent him the details of selling the retail fund and buying into the wholesale fund for his tax prep, not the entirety of his buy/sell activity... I should probably call Vanguard and ask.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on January 18, 2016, 10:12:13 PM
    It really depends. He had bought things and changed within a year or so. And he was changing from Vanguard to Vanguard. However, in the past I have had problems working out this information for managed funds that I have held for a long time. I suspect that this is partly because until 2000 or so, the way all the funds stored records was hopeless and they couldn't give you the information, and partly because they were held for a long time.

    I think it is worth while getting into the habit of keeping the records yourself.

    I am also sure that you need to record the actual price paid, rather than the dividend you would have received if you are participating in a dividend reinvestment plan.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on January 18, 2016, 10:22:24 PM
    If I buy into one of the managed funds (e.g. high growth) will Vanguard track all of this crap for me instead of my having to maintain a spreadsheet? Or is tracking it all in a spreadsheet pretty much non-negotiable for any equity investing?

    With regard to tracking your investments, if you include your brokerage account in your YNAB stuff (I think you have YNAB), can't it automatically say what you have spent each time, what day... all you need to do then is to add a column with the number of shares, and you have all the information you need.
    Title: Re: Basic Australian Investing Thread
    Post by: HappierAtHome on January 18, 2016, 10:33:45 PM
    If I buy into one of the managed funds (e.g. high growth) will Vanguard track all of this crap for me instead of my having to maintain a spreadsheet? Or is tracking it all in a spreadsheet pretty much non-negotiable for any equity investing?

    With regard to tracking your investments, if you include your brokerage account in your YNAB stuff (I think you have YNAB), can't it automatically say what you have spent each time, what day... all you need to do then is to add a column with the number of shares, and you have all the information you need.

    I don't have YNAB. But it's good to know that it can be used that way.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on January 18, 2016, 10:35:42 PM
    Dividend Reinvestment Plans

    With just about anything on the share market you can opt in or out of a DRP (dividend reinvestment plan). Instead of getting money when they issue a dividend, they can give you shares.

    Advantages:

    Disadvantages


    There are probably more.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on January 18, 2016, 10:36:34 PM
    If I buy into one of the managed funds (e.g. high growth) will Vanguard track all of this crap for me instead of my having to maintain a spreadsheet? Or is tracking it all in a spreadsheet pretty much non-negotiable for any equity investing?

    With regard to tracking your investments, if you include your brokerage account in your YNAB stuff (I think you have YNAB), can't it automatically say what you have spent each time, what day... all you need to do then is to add a column with the number of shares, and you have all the information you need.

    I don't have YNAB. But it's good to know that it can be used that way.
    I don't have it either, it was a question rather than a statement.
    Title: Re: Basic Australian Investing Thread
    Post by: faramund on January 18, 2016, 10:39:58 PM
    I am also sure that you need to record the actual price paid, rather than the dividend you would have received if you are participating in a dividend reinvestment plan.

    On the ATO web site (https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Shares,-units-and-similar-investments/Dividend-reinvestment-plans/) it says

    Each share (or parcel of shares) acquired in this way – on or after 20 September 1985 – is subject to CGT. The cost base of the new shares includes the price you paid to acquire them – that is, the amount of the dividend.

    I used to have TOL shares (before Japan Post took them over), and they used to have a policy that when reinvesting, they would round up any shares you were owed, so if you got $0.20 as a dividend, and shares were worth $15, you would get 1 share.   

    So I'd record that as 1 share, and the amount of the dividend which is $0.20.

    If you used the price per share, you would record it as 1 share, and $15, which seems to clash with the ATO definition.

    deborah, I've often wondered about this myself, and I have an old memory of getting something from a company, that said you could do it either this one, or the way you suggested, but from poking around the internet I couldn't find anything like that. Do you know of anything?

    Title: Re: Basic Australian Investing Thread
    Post by: JLR on January 19, 2016, 01:52:27 AM
    I sooo need this thread to help me pull the trigger.

    My main concern ATM is getting a good deal on fees. I was nearly ready to get some Vanguard through ANZ brokerage, but then wondered if over time I would be better off going directly through Vanguard. I couldn't decide, so just did nothing....
    Title: Re: Basic Australian Investing Thread
    Post by: faramund on January 19, 2016, 02:14:25 AM
    I've looked into this for a while, and it seems like getting Vanguard through the ASX (say with ANZ) is the lowest fee way of doing it (although if you have $500000, wholesale is only slightly worse). But you need to keep records of when you did with each share transaction, how much you paid, and how may shares you bought.

    If you're feeling hesitant, just buy some shares, and at least get started.
    Title: Re: Basic Australian Investing Thread
    Post by: faramund on January 19, 2016, 02:56:31 AM
    The other thing is:

    the difference between the different Vanguard funds isn't that big:
    maybe getting EFTs through the share market has the lowest fees,
    the wholesale ones are probably only about .1% worse then that,
    and the retail are only about 0.5% worse than the ETF.

    In comparison to just keeping money in a deposit, any of these, on average, will be better then some sort of term deposit.

    There's an old saying, that its time in market that counts, not timing the market. The most important thing, is to get in, and stay in the market, even if its only with a portion on one's available funds.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on January 20, 2016, 08:16:03 PM
    I am also sure that you need to record the actual price paid, rather than the dividend you would have received if you are participating in a dividend reinvestment plan.

    On the ATO web site (https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Shares,-units-and-similar-investments/Dividend-reinvestment-plans/) it says

    Each share (or parcel of shares) acquired in this way – on or after 20 September 1985 – is subject to CGT. The cost base of the new shares includes the price you paid to acquire them – that is, the amount of the dividend.

    I used to have TOL shares (before Japan Post took them over), and they used to have a policy that when reinvesting, they would round up any shares you were owed, so if you got $0.20 as a dividend, and shares were worth $15, you would get 1 share.   

    So I'd record that as 1 share, and the amount of the dividend which is $0.20.

    If you used the price per share, you would record it as 1 share, and $15, which seems to clash with the ATO definition.

    deborah, I've often wondered about this myself, and I have an old memory of getting something from a company, that said you could do it either this one, or the way you suggested, but from poking around the internet I couldn't find anything like that. Do you know of anything?


    I have talked to a couple of experts about this, and I think you are misunderstanding the intent of this paragraph:

    Each share (or parcel of shares) acquired in this way – on or after 20 September 1985 – is subject to CGT. The cost base of the new shares includes the price you paid to acquire them – that is, the amount of the dividend.

    Because this is just illustrative to a case where the dividend equals the price paid in a DRP (often a discounted price).  The ATO’s position is more clearly stated in the preceding paragraph which says:

    For capital gains tax (CGT) purposes, if you participate in a dividend reinvestment plan you are treated as if you had received a cash dividend and then used the cash to buy additional shares.

    So it is the price paid for the shares that is the cost base, not the dividend received.  And the dividend received is the income that is to be declared.
    Title: Re: Basic Australian Investing Thread
    Post by: faramund on January 20, 2016, 10:08:32 PM
    I am also sure that you need to record the actual price paid, rather than the dividend you would have received if you are participating in a dividend reinvestment plan.

    On the ATO web site (https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Shares,-units-and-similar-investments/Dividend-reinvestment-plans/) it says

    Each share (or parcel of shares) acquired in this way – on or after 20 September 1985 – is subject to CGT. The cost base of the new shares includes the price you paid to acquire them – that is, the amount of the dividend.

    I used to have TOL shares (before Japan Post took them over), and they used to have a policy that when reinvesting, they would round up any shares you were owed, so if you got $0.20 as a dividend, and shares were worth $15, you would get 1 share.   

    So I'd record that as 1 share, and the amount of the dividend which is $0.20.

    If you used the price per share, you would record it as 1 share, and $15, which seems to clash with the ATO definition.

    deborah, I've often wondered about this myself, and I have an old memory of getting something from a company, that said you could do it either this one, or the way you suggested, but from poking around the internet I couldn't find anything like that. Do you know of anything?


    I have talked to a couple of experts about this, and I think you are misunderstanding the intent of this paragraph:

    Each share (or parcel of shares) acquired in this way – on or after 20 September 1985 – is subject to CGT. The cost base of the new shares includes the price you paid to acquire them – that is, the amount of the dividend.

    Because this is just illustrative to a case where the dividend equals the price paid in a DRP (often a discounted price).  The ATO’s position is more clearly stated in the preceding paragraph which says:

    For capital gains tax (CGT) purposes, if you participate in a dividend reinvestment plan you are treated as if you had received a cash dividend and then used the cash to buy additional shares.

    So it is the price paid for the shares that is the cost base, not the dividend received.  And the dividend received is the income that is to be declared.

    Well, I just talked to the ATO, and they agree with you, and thus, I was wrong. That does make dealing with reinvested dividends slightly messier - but not too much I guess. Unless of course, you have a spreadsheet that you've been using for 15 years that needs to be updated .. mumble grumble.

    Although, mathematically the 2 approaches give almost the same result if the company doesn't round the number of shares you get, and if they round up, you end up giving the ATO slightly more money. So I might just leave it as it is.. I'll have to think about it.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on January 20, 2016, 11:00:41 PM
    If you don't keep records, the company usually has a lot of the information online for instance, Woolworths (ASX code WOW) has this page

     http://www.woolworthslimited.com.au/page/Invest_In_Us/Shareholder_Centre/Payments/Dividend_Payments/

    which says what the dividends were each time and the price of the DRP shares. I was missing records for a few years and was able to reconstruct what happened by using this information.
    Title: Re: Basic Australian Investing Thread
    Post by: faramund on January 20, 2016, 11:22:12 PM
    I do keep records, but each year's tax things are in a separate plastic bag, all jumbled together, so it would be a hassle to go through them.

    I think I only have to back change the rounding up shares, I think with the shares that carry over, all I have to do, is next time I get a reinvested dividend, subtract off whatever amount was carried over (which should cancel out whatever I had incorrectly added)

    So that's only one tricky case, AGL, I'll try looking up their website as you suggested - thanks for the idea.



    Title: Re: Basic Australian Investing Thread
    Post by: nnls on February 02, 2016, 04:24:08 PM
    Dividend Reinvestment Plans

    With just about anything on the share market you can opt in or out of a DRP (dividend reinvestment plan). Instead of getting money when they issue a dividend, they can give you shares.

    Advantages:

    • Set and forget - you automatically increase your holdings without thinking about it - so compounding kicks in.
    • You don't pay brokerage - just what the investments are worth the day they decide to do the reinvestment (not necessarily the day that the dividends are given out)
    • The investments are probably low priced (because they have just given out a dividend)
    Disadvantages

    • Your overall investments may get out of kilter. It may be better to get the dividends and work out where the money should go to rebalance your investments.
    • You end up with an enormous number of small parcels of your investment, so working out CGT can be a problem when you sell them.
    • They inevitably keep some of the money, because the dividend price isn't an exact number of shares (or whatever your investment is), so you are effectively losing interest on that money for six months (dividends are usually every six months)

    There are probably more.

    hi

    can you do dividend reinvestment if you go straight through ASZ shares to buy into vanguard or is that only if you go through them?
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on February 02, 2016, 07:13:00 PM
    Each investment available on the ASX may or may not have a DRP (dividend reinvestment plan), so to find out about Vanguard, I looked up Vanduard ETFs and ended up on this page -

    https://www.vanguardinvestments.com.au/retail/jsp/investments/all-products#/etf

    I then decided I was looking at VAS (as an example), and clicked on that PDF  and got

    https://static.vgcontent.info/crp/intl/auw/docs/etfs/profiles/VAS_profile.pdf?20160202|101500

    In the top corner it has a grey box with overall information (see attachment below) which says that it pays dividends quarterly, and has a DRP.


    Reading a similar retail fund fact sheet

    https://www.vanguardinvestments.com.au/retail/jsp/investments/retail?portId=8129##overview-tab

    It says right down the bottom that "Total returns are calculated after allowing for management and transaction costs. Returns assume reinvestment of all income distributions" - and thus I assume that you can do exactly the same thing with this managed fund.
    Title: Re: Basic Australian Investing Thread
    Post by: nnls on February 02, 2016, 07:54:31 PM
    Each investment available on the ASX may or may not have a DRP (dividend reinvestment plan), so to find out about Vanguard, I looked up Vanduard ETFs and ended up on this page -

    https://www.vanguardinvestments.com.au/retail/jsp/investments/all-products#/etf

    I then decided I was looking at VAS (as an example), and clicked on that PDF  and got

    https://static.vgcontent.info/crp/intl/auw/docs/etfs/profiles/VAS_profile.pdf?20160202|101500

    In the top corner it has a grey box with overall information (see attachment below) which says that it pays dividends quarterly, and has a DRP.


    Reading a similar retail fund fact sheet

    https://www.vanguardinvestments.com.au/retail/jsp/investments/retail?portId=8129##overview-tab

    It says right down the bottom that "Total returns are calculated after allowing for management and transaction costs. Returns assume reinvestment of all income distributions" - and thus I assume that you can do exactly the same thing with this managed fund.

    thanks Deborah
    Title: Re: Basic Australian Investing Thread
    Post by: Adventures With Poopsie on February 02, 2016, 09:03:32 PM
    Great thread deborah, thanks for starting!

    HappierAtHome, I wanted to try and answer your question. I own Vanguard through their website (managed fund type option) and reinvest all dividends. They provide me with the records at the end of the fy (usually it takes about a month for them to upload it) and I then provide this to my accountant. This is all my Vanguard info- and I buy in each fortnight, so I have a lot of transactions. When I used to do my own tax I didn't own Vanguard, so I am not sure about doing it on your own.

    I haven't actually sold any Vanguard yet, but I am pretty sure CGT will be calculated based on all the records Vanguard provides me with. Can anyone else shed any light on this?

    I have always been a bit confused about how they calculate CGT if you're a regular buyer- presumably you're buying shares on a variety of different days at a variety of different prices- so who is to say if the 10 shares you just sold were actually purchased in 2013 or in 2014?  This is possibly a really dumb question, but I'm unsure about it.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on February 02, 2016, 09:17:51 PM
    This is exactly why you are the only person who can work out your CGT. You can decide exactly which investments you are selling. You record it on your sheet.
    Title: Re: Basic Australian Investing Thread
    Post by: kaetana on February 04, 2016, 03:36:16 PM
    This is a really good thread, Deb. I sometimes get lost with all the speculation going on in the "advanced" investing thread. I invest mainly through my and my husband's super funds, and our strategy involves buying low-cost ETFs and rebalancing via new contributions when the deviation is greater than 5%. Anything else really goes over my head.

    Lately I've been reading about tax loss harvesting. What does this involve? From what I understand, I would have to sell when a particular stock's value had decreased, triggering a capital loss event, and then buy a similar security back to maintain my asset allocation. Is that it? I'm also wondering about the documentation required. I assume that since I mainly invest in super funds (and in property via our house), the fund will take care of all the taxes. However I assume that if I invested outside of super, I would have to keep records of all of this on my own and include it in my tax return? I'm not sure how to do that.

    On a separate note, I recently discovered an app called Acorns. It is an American app that has recently made its way to Australia. Basically, you hook up your bank account/credit card to it, and each time you make a purchase, it rounds the cost up to the nearest dollar and invests the difference for you. It looks like they invest in low-cost ETFs as well (like iShares, but no Vanguard). There are no fees for under-24s or students, and either $15 a year for balances under $5k or 0.27% for over $5k otherwise. The app's main selling point is that it is incredibly easy to set up and get started. I can see it would be good either for newbies who could benefit from a gateway drug into investing or for Mustachians who want a supplement to their regular investments. I'm using the app for "incidental investing" -- I fund this out of my "fun money" as a way to squeeze out a little more savings from money I would otherwise blow. I plan to use it for much smaller amounts.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on February 04, 2016, 04:01:09 PM
    In general tax loss harvesting has become illegal in Australia. The ATO ruled on this a couple of years ago - and the ruling was retrospective, so as I had been doing a variation of it, I adjusted a couple of years' SMSF tax returns and resubmitted them, paid some extra tax, and ceased doing it.

    What I was doing (which is not allowed), was selling shares after they had paid their dividend to me, and buying the same shares before they paid the dividend. This gave me two dividends, and two sets of franking credits, and because the shares were in the SMSF in pension phase they had no CGT. The franking credits also reduced the tax owed.

    If you sell investments and buy the same investments in the same year, the ATO gets pretty narky and can penalize you. Obviously, you COULD sell investments and buy similar ones and they wouldn't get narky. But if I was selling the IShares ASX200 and buying the Vanguard ASX200, with the same money, I might document why I was doing it, so that I could give it to the tax office if they had a query (I suspect they wouldn't, as they are different ETFs, but they would have exactly the same underlying investments - if both actually exist - so the ATO might query it).

    Title: Re: Basic Australian Investing Thread
    Post by: kaetana on February 04, 2016, 04:37:46 PM
    Okay. So does selling one ETF at a loss and buying a similar one still work to decrease taxes owed by offsetting capital gains? How often should that be done?
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on February 04, 2016, 05:00:02 PM
    Selling anything at a loss decreases the overall CGT you need to pay by offsetting the capital gains.

    Everyone gets a bit het up about capital gains, but really, the tax on capital gains is generally rather small, especially in a super fund, where, even in accumulation phase the tax is only 15%. So, say you buy something for $100,000, and sell it a year and one day later at $120,000. You have made $20,000, but because it has been kept for more than a year, you actually pay CGT on $10,000, and 15% of that is $1,500. And, if you are following the buy and hold scenario, you never sell so you never have a CGT event. And, if you wait until after your superannuation goes into pension phase, you don't pay any CGT - not even when your husband dies and you get his superannuation, because you are his wife.
    Title: Re: Basic Australian Investing Thread
    Post by: kaetana on February 04, 2016, 08:34:21 PM
    Okay, thanks, Deb. That makes sense. So really, tax loss harvesting wouldn't be that useful as we intend to live off the dividends from the hubby's super and are also following the buy and hold strategy.

    What about asset allocation? I'm interested in yours or other retirees' allocations in particular (if you don't mind sharing). Did you also increase your percentage of bonds as you approached retirement? At the moment, we're doing 30% bonds, 35% Australian shares, 33% global/US shares, and 2% cash (the minimum for the super fund) in my husband's super. Does that sound reasonable given we aim to be FI in ~10 years, with him quitting full time work in ~4 years and me in ~6?
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on February 04, 2016, 10:09:45 PM
    Allocation is something I struggle with. Maybe not struggle, as I feel that I have a semi-reasonable allocation for me, but that my allocation is probably unsuitable for anyone else.

    I do not have any property because I own my house, and that is already far too much exposure to the property market. I do not have bonds, as I have an indexed DB pension from the government, and that acts similar to bonds as a safety net. In fact, it supplies more than my base living expenses (not bad for being in the public service for only 10 years - but, unlike most, I put in as much as it would allow every year I was there). So the money in my SMSF is not necessary, and it is almost exclusively in shares because of where my other money is. Obviously, I need to keep some of it as cash because I need to take money out of the part of it that is in pension phase each year, but it gets enough in dividends that this is not an issue.

    This is probably similar to a number of other retirees on the forum who have overshot and retired much later than we could have. It took a lot of convincing for me to retire, because I was sure I didn't have enough.

    It is important for everyone to be comfortable with the risk associated with their own portfolio. There are a number of people in Australia who have portfolios that I would not be comfortable with. The fact that we had an employee share plan and I worked with the share department at my first workplace means I am probably more comfortable with shares than other people are.
    Title: Re: Basic Australian Investing Thread
    Post by: Minion on February 05, 2016, 05:23:05 PM
    I've been in the APS before (but not now), and am in the PSS. Looking to get back in one day and roll my external super back into it.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on February 05, 2016, 07:40:11 PM
    I've been in the APS before (but not now), and am in the PSS. Looking to get back in one day and roll my external super back into it.

    But why? It seems to me that rolling money into the PSS is a waste, because anything rolled into it doesn't count as part of the DB arrangements. It only earns money as per the PSS earnings and must be taken out as a lump sum - see https://pss.gov.au/storage/2-PSF13.pdf
    Title: Re: Basic Australian Investing Thread
    Post by: Minion on February 06, 2016, 05:26:02 PM
    I've been in the APS before (but not now), and am in the PSS. Looking to get back in one day and roll my external super back into it.

    But why? It seems to me that rolling money into the PSS is a waste, because anything rolled into it doesn't count as part of the DB arrangements. It only earns money as per the PSS earnings and must be taken out as a lump sum - see https://pss.gov.au/storage/2-PSF13.pdf

    Good point. Out of curiosity I should compare the PSS earnings to my Australian Super industry fund.
    Title: Re: Basic Australian Investing Thread
    Post by: nnls on February 19, 2016, 02:45:00 AM
    Each investment available on the ASX may or may not have a DRP (dividend reinvestment plan), so to find out about Vanguard, I looked up Vanduard ETFs and ended up on this page -

    https://www.vanguardinvestments.com.au/retail/jsp/investments/all-products#/etf

    I then decided I was looking at VAS (as an example), and clicked on that PDF  and got

    https://static.vgcontent.info/crp/intl/auw/docs/etfs/profiles/VAS_profile.pdf?20160202|101500

    In the top corner it has a grey box with overall information (see attachment below) which says that it pays dividends quarterly, and has a DRP.


    Reading a similar retail fund fact sheet

    https://www.vanguardinvestments.com.au/retail/jsp/investments/retail?portId=8129##overview-tab

    It says right down the bottom that "Total returns are calculated after allowing for management and transaction costs. Returns assume reinvestment of all income distributions" - and thus I assume that you can do exactly the same thing with this managed fund.

    thanks Deborah

    So probably a total noob question but how do I sign up for the dividend reinvestment plan? I am on this page  https://static.vgcontent.info/crp/intl/auw/docs/etfs/dividendplans/ETF_DRP_Policy.pdf?20160212|092500 (https://static.vgcontent.info/crp/intl/auw/docs/etfs/dividendplans/ETF_DRP_Policy.pdf?20160212|092500) and cant work out how to do it

    I am sure its super obvious and I will look like a moron when its pointed out to me, but please help
    Title: Re: Basic Australian Investing Thread
    Post by: Flyingkea on February 19, 2016, 03:08:00 AM
    I'm pretty sure you do it when you sign up for the account - you fill out the application paperwork, and one of the questions is "what do you want us to do with dividends?" And gives you a list of options. Not sure on how to do it once the account is set up - I think you can mail in a form
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on February 19, 2016, 06:07:04 AM
    So probably a total noob question but how do I sign up for the dividend reinvestment plan? I am on this page  https://static.vgcontent.info/crp/intl/auw/docs/etfs/dividendplans/ETF_DRP_Policy.pdf?20160212|092500 (https://static.vgcontent.info/crp/intl/auw/docs/etfs/dividendplans/ETF_DRP_Policy.pdf?20160212|092500) and cant work out how to do it

    I am sure its super obvious and I will look like a moron when its pointed out to me, but please help
    From the document...

    Quote
    Application to participate
    3.1 Applications
    An Investor may apply to participate in the Plan either in writing or by election through Vanguard’s appointed Registrar.
    Sounds like you could send them an e-mail - but they probably need an actual letter, signed by you with your account number on it.
    Title: Re: Basic Australian Investing Thread
    Post by: marty998 on February 19, 2016, 02:49:26 PM
    When you buy the ETF shares they send you welcome docs in the mail with a Computershare website link.

    The first thing they ask is for you to update your bank EFT details (they want this so they don't have to pay you a cheque for dividends).

    Only after that you get the option of switching to a DRP plan... just keep playing around with preferences and payment options till you find the screen. Can't recall off the top of my head exactly where it is.
    Title: Re: Basic Australian Investing Thread
    Post by: nnls on February 19, 2016, 03:36:21 PM
    When you buy the ETF shares they send you welcome docs in the mail with a Computershare website link.

    The first thing they ask is for you to update your bank EFT details (they want this so they don't have to pay you a cheque for dividends).

    Only after that you get the option of switching to a DRP plan... just keep playing around with preferences and payment options till you find the screen. Can't recall off the top of my head exactly where it is.

    Thank you, I knew it would be something simple
    Title: Re: Basic Australian Investing Thread
    Post by: Eucalyptus on July 21, 2016, 10:08:58 PM
    I have a question (that I feel dumb about) with regards to the tax effects of Salary Sacrificing Super, particularly on investment income

    Note: not asking whether to do it or not, just trying to understand the mechanism better and what happens.

    Ok, lets say you earn $85k/yr. You get the current min 9.5% Super contribution by your employer also put into your super. ($8075)
    That leaves $21925 out of the $30,000 allowable for concessional contributions (taxed at 15% not your top tax rate).
    Let say you contribute the max, so $85,000 - $21925, leaving your before tax income of $63075.
    This drops your effective top tax bracket from 37%, well into the 32% territory.
    Now what happens to your investment income outside of super? I'm talking your ETFs that you are carefully putting away to achieve early retirement/FI?
    Lets say its an "average" year. You have $100,000 in ETFs. They earn 7%. So, $7000 investment earnings.
    How does the ATO treat that, now, that you have reduced your income through salary sacrificing? Do they tax it at 32% or 37% and charge you for it on your tax return? Is your taxable income $85000+7000 or 63075+7000?
    If you had much more investment income (say 7% of $400k ETFs), would you thus be back into the next tax bracket? Ie, 63075+28000=$91075? Would you be charged 37% on the bit over $80,000, and 32% on the bit under, of that investment income?

    If I'm correct in assuming they treat your taxable income like this, then would Salary Sacrificing Super make sense, depending on where you are in the tax brackets in particular, as it would help reduce the effective tax you are paying on your investment income?

    Title: Re: Basic Australian Investing Thread
    Post by: faramund on July 21, 2016, 10:50:34 PM
    I have a question (that I feel dumb about) with regards to the tax effects of Salary Sacrificing Super, particularly on investment income

    Note: not asking whether to do it or not, just trying to understand the mechanism better and what happens.

    Ok, lets say you earn $85k/yr. You get the current min 9.5% Super contribution by your employer also put into your super. ($8075)
    That leaves $21925 out of the $30,000 allowable for concessional contributions (taxed at 15% not your top tax rate).
    Let say you contribute the max, so $85,000 - $21925, leaving your before tax income of $63075.
    This drops your effective top tax bracket from 37%, well into the 32% territory.
    Now what happens to your investment income outside of super? I'm talking your ETFs that you are carefully putting away to achieve early retirement/FI?
    Lets say its an "average" year. You have $100,000 in ETFs. They earn 7%. So, $7000 investment earnings.
    How does the ATO treat that, now, that you have reduced your income through salary sacrificing? Do they tax it at 32% or 37% and charge you for it on your tax return? Is your taxable income $85000+7000 or 63075+7000?
    If you had much more investment income (say 7% of $400k ETFs), would you thus be back into the next tax bracket? Ie, 63075+28000=$91075? Would you be charged 37% on the bit over $80,000, and 32% on the bit under, of that investment income?

    If I'm correct in assuming they treat your taxable income like this, then would Salary Sacrificing Super make sense, depending on where you are in the tax brackets in particular, as it would help reduce the effective tax you are paying on your investment income?
    I believe you are correct - but I am not 100% confident about my belief (which I guess is the same as your own level of belief). Up thread I voiced an opinion on something about tax - which other people disagreed with. So I rang ATO, and after I explained what I was asking, they were happy to tell me I was wrong. So maybe try calling them to get an absolute answer. If you do so, it would be good if you put in this thread what they said.

    Well... you should probably wait a bit before contacting the ATO, as maybe someone who actually knows something, might soon reply to your query.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on July 21, 2016, 11:03:01 PM
    I have a question (that I feel dumb about) with regards to the tax effects of Salary Sacrificing Super, particularly on investment income

    Note: not asking whether to do it or not, just trying to understand the mechanism better and what happens.

    Ok, lets say you earn $85k/yr. You get the current min 9.5% Super contribution by your employer also put into your super. ($8075)
    That leaves $21925 out of the $30,000 allowable for concessional contributions (taxed at 15% not your top tax rate).
    Let say you contribute the max, so $85,000 - $21925, leaving your before tax income of $63075.
    This drops your effective top tax bracket from 37%, well into the 32% territory.
    Now what happens to your investment income outside of super? I'm talking your ETFs that you are carefully putting away to achieve early retirement/FI?
    Lets say its an "average" year. You have $100,000 in ETFs. They earn 7%. So, $7000 investment earnings.
    How does the ATO treat that, now, that you have reduced your income through salary sacrificing? Do they tax it at 32% or 37% and charge you for it on your tax return? Is your taxable income $85000+7000 or 63075+7000?
    If you had much more investment income (say 7% of $400k ETFs), would you thus be back into the next tax bracket? Ie, 63075+28000=$91075? Would you be charged 37% on the bit over $80,000, and 32% on the bit under, of that investment income?

    If I'm correct in assuming they treat your taxable income like this, then would Salary Sacrificing Super make sense, depending on where you are in the tax brackets in particular, as it would help reduce the effective tax you are paying on your investment income?


    Your taxable income is now  63075+7000. Sort of...

    You would probably have some franking credits.  What are franking credits? When a company pays you a dividend, it can pay it pre or post tax. Pretax dividends don't have franking, whereas posttax dividends do. Australian companies pay 30% tax, so if you get 100% franking (which you won't), you would get 7000*30% = 2100 franking credits. This is subtracted from your final tax bill, but it is also added to your income.

    That means your taxable income is  63075+7000 +2100 = 72175 but the tax on this amount is reduced by 2100 after everything has been taken into account. This means the dividends haven't paid two sets of tax.
    Title: Re: Basic Australian Investing Thread
    Post by: englyn on July 21, 2016, 11:25:02 PM
    Ah, I forgot about this thread. Glad it's been revived.

    I need to go and track my share purchases better for CGT. I have so far only sold shares for which it's really clear (one-off lump sum purchase). Otherwise, I've been mostly paying an accountant to make the problem go away...

    I have two questions:
    1. If you get to choose which shares at what cost base you've sold, how would you track in a CGT spreadsheet which shares at which cost base got sold?
    2. I used to own a parcel of shares bought at $X per share in an account owned 50% by me and 50% by my ex. The entire parcel was transferred to me as part of separation settlement, at $Y per share. How the heck do I calculate the cost base? Did I 'buy' half the number of shares at $X and half the number at $Y?

    I also still feel a little dumb for not understanding how the dividend reinvestment plans work with respect to cost base, but I'll have a bash at it and read this thread several more times and see how I go.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on July 21, 2016, 11:49:05 PM
    1. Just say that you sold this parcel (or part of it) and the date you sold them.

    2. From the ATO site

    https://www.ato.gov.au/general/capital-gains-tax/in-detail/changes-in-family-circumstances/marriage-or-relationship-breakdown-and-transferring-of-assets/

    seems to indicate that the cost base for all the shares is $X.
    Title: Re: Basic Australian Investing Thread
    Post by: faramund on July 21, 2016, 11:58:07 PM
    1. Just say that you sold this parcel (or part of it) and the date you sold them.

    2. From the ATO site

    https://www.ato.gov.au/general/capital-gains-tax/in-detail/changes-in-family-circumstances/marriage-or-relationship-breakdown-and-transferring-of-assets/

    seems to indicate that the cost base for all the shares is $X.
    Deborah, I know last time I disagreed with you, I was in the wrong. But I only think that makes sense if there was no payment. Usually when money changes hands, it alters the cost base.

    So, Englyn I think you should use the half and half approach you said - but based on my track record with Deborah - you should probably listen to her.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on July 22, 2016, 12:41:16 AM
    1. Just say that you sold this parcel (or part of it) and the date you sold them.

    2. From the ATO site

    https://www.ato.gov.au/general/capital-gains-tax/in-detail/changes-in-family-circumstances/marriage-or-relationship-breakdown-and-transferring-of-assets/

    seems to indicate that the cost base for all the shares is $X.
    Deborah, I know last time I disagreed with you, I was in the wrong. But I only think that makes sense if there was no payment. Usually when money changes hands, it alters the cost base.

    So, Englyn I think you should use the half and half approach you said - but based on my track record with Deborah - you should probably listen to her.
    I agree with you Faramund as I also expected the cost base to change. I was quite surprised when I found this advice on the ATO site. But it is from the ATO site, and it does say that the cost base is transferred in these circumstances.
    Title: Re: Basic Australian Investing Thread
    Post by: englyn on July 22, 2016, 02:30:57 AM
    Thank you so much! I had looked for that on the ATO site previously and not found it. It does definitely apply and (now that I have read it like 4 times) does seem to say that cost base is transferred:
    Quote
    the first element of your cost base and reduced cost base will be the same as the cost base and reduced cost base of your spouse (or the company or trustee) at the time of the transfer.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on July 22, 2016, 06:07:03 AM
    Thank you so much! I had looked for that on the ATO site previously and not found it. It does definitely apply and (now that I have read it like 4 times) does seem to say that cost base is transferred:
    Quote
    the first element of your cost base and reduced cost base will be the same as the cost base and reduced cost base of your spouse (or the company or trustee) at the time of the transfer.

    You may also want to look at the other tabs (left hand side) especially the "conditions for marriage or relationship breakdown rollover" to make sure it applies to your case.
    Title: Re: Basic Australian Investing Thread
    Post by: Eucalyptus on July 22, 2016, 07:39:26 AM
    I have a question (that I feel dumb about) with regards to the tax effects of Salary Sacrificing Super, particularly on investment income

    Note: not asking whether to do it or not, just trying to understand the mechanism better and what happens.

    Ok, lets say you earn $85k/yr. You get the current min 9.5% Super contribution by your employer also put into your super. ($8075)
    That leaves $21925 out of the $30,000 allowable for concessional contributions (taxed at 15% not your top tax rate).
    Let say you contribute the max, so $85,000 - $21925, leaving your before tax income of $63075.
    This drops your effective top tax bracket from 37%, well into the 32% territory.
    Now what happens to your investment income outside of super? I'm talking your ETFs that you are carefully putting away to achieve early retirement/FI?
    Lets say its an "average" year. You have $100,000 in ETFs. They earn 7%. So, $7000 investment earnings.
    How does the ATO treat that, now, that you have reduced your income through salary sacrificing? Do they tax it at 32% or 37% and charge you for it on your tax return? Is your taxable income $85000+7000 or 63075+7000?
    If you had much more investment income (say 7% of $400k ETFs), would you thus be back into the next tax bracket? Ie, 63075+28000=$91075? Would you be charged 37% on the bit over $80,000, and 32% on the bit under, of that investment income?

    If I'm correct in assuming they treat your taxable income like this, then would Salary Sacrificing Super make sense, depending on where you are in the tax brackets in particular, as it would help reduce the effective tax you are paying on your investment income?


    Your taxable income is now  63075+7000. Sort of...

    You would probably have some franking credits.  What are franking credits? When a company pays you a dividend, it can pay it pre or post tax. Pretax dividends don't have franking, whereas posttax dividends do. Australian companies pay 30% tax, so if you get 100% franking (which you won't), you would get 7000*30% = 2100 franking credits. This is subtracted from your final tax bill, but it is also added to your income.

    That means your taxable income is  63075+7000 +2100 = 72175 but the tax on this amount is reduced by 2100 after everything has been taken into account. This means the dividends haven't paid two sets of tax.

    Awesome, thanks Deborah!

    So at some point in the future, it might make extra sense to salary sacrifice  some super...more so when I get into that next tax bracket. Plenty of time to wait until I make that decision...
    Title: Re: Basic Australian Investing Thread
    Post by: faramund on July 24, 2016, 10:40:06 PM
    Thank you so much! I had looked for that on the ATO site previously and not found it. It does definitely apply and (now that I have read it like 4 times) does seem to say that cost base is transferred:
    Quote
    the first element of your cost base and reduced cost base will be the same as the cost base and reduced cost base of your spouse (or the company or trustee) at the time of the transfer.

    You may also want to look at the other tabs (left hand side) especially the "conditions for marriage or relationship breakdown rollover" to make sure it applies to your case.
    I've been thinking about this more - and think, boringly, once again, deborah you are correct.

    This is because I've been thinking that because I assume englyn's ex never paid the ATO capital gains when the shares were transferred, consequently, the ATO would want to still use the original capital base.

    Thinking about it - even though englyn paid for the shares when they were transferred. I assume that was part of a greater overall settlement plan - which it seems that the ATO tries to stay away from the details of - and so just uses the original capital base.

    After all, even though englyn says it was for half of the shares - I'm sure the settlement could have been arranged in multiple ways - with maybe saying the shares were englyn's, some other things were her ex's and in the end there was some transfer of cash to equal it all out.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on July 24, 2016, 11:52:22 PM
    I do get things wrong, just like everyone else, so it is helpful to have a nay-sayer.
    Title: Re: Basic Australian Investing Thread
    Post by: englyn on July 25, 2016, 12:29:54 AM
    I did, thank you! I'm not going to post any more specifics on the public internets, but the whole parcel of shares was to transfer to me as part of the settlement, ex got other things as his share, and the situation does apply as per the conditions in the other tabs.
    Title: Re: Basic Australian Investing Thread
    Post by: Eucalyptus on August 03, 2016, 06:25:30 AM
    Ok, I'm too embarressed to ask in the main thread. But just want to double check my interpretation!

    With ETFs in Aus, if I fill out the form, and all my dividends get automatically reinvested as more shares in the ETF, do I have to put those dividends down on my tax return? Ie, will they count as income for the year? Or are they now capital growth/gains? And thus only taxable if I sell off some of the ETF shares?
    Title: Re: Basic Australian Investing Thread
    Post by: Trevor Reznik on August 03, 2016, 06:29:25 AM
    Ok, I'm too embarressed to ask in the main thread. But just want to double check my interpretation!

    With ETFs in Aus, if I fill out the form, and all my dividends get automatically reinvested as more shares in the ETF, do I have to put those dividends down on my tax return? Ie, will they count as income for the year? Or are they now capital growth/gains? And thus only taxable if I sell off some of the ETF shares?

    The fact you've chosen to forgo the dividend cash and reinvest them is not relevant, it's still dividend income which you need to put down on your tax return, the good news is you put down any franking credits too.
    Title: Re: Basic Australian Investing Thread
    Post by: Eucalyptus on August 03, 2016, 06:30:42 AM
    Ok, I'm too embarressed to ask in the main thread. But just want to double check my interpretation!

    With ETFs in Aus, if I fill out the form, and all my dividends get automatically reinvested as more shares in the ETF, do I have to put those dividends down on my tax return? Ie, will they count as income for the year? Or are they now capital growth/gains? And thus only taxable if I sell off some of the ETF shares?

    The fact you've chosen to forgo the dividend cash and reinvest them is not relevant, it's still dividend income which you need to put down on your tax return, the good news is you put down any franking credits too.

    Damn, that wasn't what I was wanting to hear
    Title: Re: Basic Australian Investing Thread
    Post by: Eucalyptus on August 03, 2016, 06:34:55 AM
    Ok, I'm too embarressed to ask in the main thread. But just want to double check my interpretation!

    With ETFs in Aus, if I fill out the form, and all my dividends get automatically reinvested as more shares in the ETF, do I have to put those dividends down on my tax return? Ie, will they count as income for the year? Or are they now capital growth/gains? And thus only taxable if I sell off some of the ETF shares?

    The fact you've chosen to forgo the dividend cash and reinvest them is not relevant, it's still dividend income which you need to put down on your tax return, the good news is you put down any franking credits too.

    Damn, that wasn't what I was wanting to hear

    So if I wanted to increase the ratio of capital growth to dividends, in order to reduce my total income, I would be better off say with more international ETFs as opposed to Aus ones, which typically have a higher amount of dividends?
    Title: Re: Basic Australian Investing Thread
    Post by: happy on August 03, 2016, 06:42:59 AM
    Ok, I'm too embarressed to ask in the main thread. But just want to double check my interpretation!

    Thats just what this thread is for!
    Title: Re: Basic Australian Investing Thread
    Post by: faramund on August 03, 2016, 06:07:04 PM
    Ok, I'm too embarressed to ask in the main thread. But just want to double check my interpretation!

    With ETFs in Aus, if I fill out the form, and all my dividends get automatically reinvested as more shares in the ETF, do I have to put those dividends down on my tax return? Ie, will they count as income for the year? Or are they now capital growth/gains? And thus only taxable if I sell off some of the ETF shares?

    The fact you've chosen to forgo the dividend cash and reinvest them is not relevant, it's still dividend income which you need to put down on your tax return, the good news is you put down any franking credits too.

    Damn, that wasn't what I was wanting to hear

    So if I wanted to increase the ratio of capital growth to dividends, in order to reduce my total income, I would be better off say with more international ETFs as opposed to Aus ones, which typically have a higher amount of dividends?

    That sounds like an ok argument - but make sure you understand franking credits - because of them Australian dividends are very attractive.
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on August 03, 2016, 06:08:01 PM
    Ok, I'm too embarressed to ask in the main thread. But just want to double check my interpretation!

    With ETFs in Aus, if I fill out the form, and all my dividends get automatically reinvested as more shares in the ETF, do I have to put those dividends down on my tax return? Ie, will they count as income for the year? Or are they now capital growth/gains? And thus only taxable if I sell off some of the ETF shares?

    The fact you've chosen to forgo the dividend cash and reinvest them is not relevant, it's still dividend income which you need to put down on your tax return, the good news is you put down any franking credits too.

    Damn, that wasn't what I was wanting to hear

    So if I wanted to increase the ratio of capital growth to dividends, in order to reduce my total income, I would be better off say with more international ETFs as opposed to Aus ones, which typically have a higher amount of dividends?
    I really don't know where to start on this statement.

    Australian shares have typically had more capital growth than international shares. However the ratio between capital growth and dividends depends upon the share sector. For instance, mining shares (the mining sector) tend to have low dividends because they put most of their profit into new mines (rather than dividends), and they are capital intensive. The banking sector, on the other hand, tends to generate money, so they put out big dividends. There are ETFs that are sector based, so you can invest in an ETF that will give you less dividends by investing in a sector (or set of sectors) that have low dividends.

    As much of the Australian share market is banks, our dividends tend to be higher. This is no bad thing because we get franking credits (see above for an explanation of these - you are basically allowed to reclaim the tax paid by the Australian company in your own tax return). These lower the tax we pay. You cannot get franking credits for international shares, so you pay much MORE tax on the international dividends than you do on Australian dividends.

    However, it is good to have both international shares and Australian shares. International shares are often up when Australian shares are down. The Australian share market is very small and (as mentioned in a previous paragraph) heavily biased towards only a couple of sectors, so you have a much bigger exposure to more of the world's productivity if you are in international shares. You are also exposed to currency variations by having international shares (unless you hedge), so when our currency goes down, your international shares are worth more. It is worth having some Australian shares (usually people talk about a 60/40 split) for currency risk in the opposite direction.

    And, I don't like being in dividend reinvestment plans, but that is another topic.
    Title: Re: Basic Australian Investing Thread
    Post by: Eucalyptus on August 03, 2016, 06:13:17 PM
    And, I don't like being in dividend reinvestment plans, but that is another topic.

    On that topic, is that so that you can choose where to send the dividends in order to rebalance your Assett Allocation more easily?
    Title: Re: Basic Australian Investing Thread
    Post by: deborah on August 03, 2016, 07:08:18 PM
    Dividend Reinvestment Plans automatically reinvest your dividends in the same shares (or ETF) that the dividend came from.

    The mechanics.

    You have some number of shares, and they pay a dividend - generally twice a year. Let us say that you have shares in XYZ (fictitious) which is always worth $50 per share (no capital gains), and you have 100 of them ($5000 worth). They pay $4.45 per share each time they give a dividend, so each dividend is worth $445. So the first time you get a dividend, they give you 8 new shares, and they keep $45 in their DRP account. You don't have access to that money, but you pay tax on having received it.

    The next time, your dividend is worth $445 + $35.60 = $480.60, with the $45 you didn't get last time, you have $525.60, so you get 10 shares, and you have not received $25.60 ... So every year you get two parcels of these shares which you have to keep track of separately for capital gains purposes. Very soon you have an enormous spreadsheet with all these little purchases of shares.

    Also, your share portfolio is getting unbalanced. The shares that pay more dividends will grow faster than the shares that pay less.

    The final thing is that you are locked into paying a particular price. The DRP price is whatever the market price is at the time of the dividend. This is usually slightly lower than at other times because they have just paid a dividend, so all the shares are worth that much less than they were a few days ago, but it may not be.

    On the other hand, DRPs are easy to set and forget. They don't charge brokerage, so they are a cheap way to buy very small parcels of shares.
    Title: Re: Basic Australian Investing Thread
    Post by: Eucalyptus on August 03, 2016, 07:13:07 PM
    Dividend Reinvestment Plans automatically reinvest your dividends in the same shares (or ETF) that the dividend came from.

    The mechanics.

    You have some number of shares, and they pay a dividend - generally twice a year. Let us say that you have shares in XYZ (fictitious) which is always worth $50 per share (no capital gains), and you have 100 of them ($5000 worth). They pay $4.45 per share each time they give a dividend, so each dividend is worth $445. So the first time you get a dividend, they give you 8 new shares, and they keep $45 in their DRP account. You don't have access to that money, but you pay tax on having received it.

    The next time, your dividend is worth $445 + $35.60 = $480.60, with the $45 you didn't get last time, you have $525.60, so you get 10 shares, and you have not received $25.60 ... So every year you get two parcels of these shares which you have to keep track of separately for capital gains purposes. Very soon you have an enormous spreadsheet with all these little purchases of shares.

    Also, your share portfolio is getting unbalanced. The shares that pay more dividends will grow faster than the shares that pay less.

    The final thing is that you are locked into paying a particular price. The DRP price is whatever the market price is at the time of the dividend. This is usually slightly lower than at other times because they have just paid a dividend, so all the shares are worth that much less than they were a few days ago, but it may not be.

    On the other hand, DRPs are easy to set and forget. They don't charge brokerage, so they are a cheap way to buy very small parcels of shares.

    Awesome, thanks that makes a lot of sense :-)
    Title: Re: Basic Australian Investing Thread
    Post by: englyn on August 03, 2016, 08:48:13 PM
    Thank you deborah!
    Title: Re: Basic Australian Investing Thread
    Post by: JourneyAnt on February 13, 2017, 04:33:55 PM
    Following :)

    Any assistance with a spreadsheet to track ETF purchases / tax accounting would be great
    http://forum.mrmoneymustache.com/investor-alley/australia-dumb-vanguard-managed-fund-query/

    There is also this (Canadian)

    XIRR seems more applicable than IRR

    XIRR is a more powerful function in Excel for calculating internal rate of return or annualized yield for a schedule of cash flows occurring at irregular intervals.
    Title: Re: Basic Australian Investing Thread
    Post by: mjr on February 13, 2017, 08:30:36 PM
    Also, your share portfolio is getting unbalanced. The shares that pay more dividends will grow faster than the shares that pay less.

    Careful with this.  Profitable companies can choose to not pay dividends but rather reinvest the surplus funds, which will result in capital growth of the shares, which has the same affect on asset allocation.  The issue with DRPs is that you don't get the choice of allocating the dividends to other classes if you wish to rebalance.