First time australian share market

[Grogounet]

Hello
A newbie.
French familly living in Australia, en route to the FI journey.
The unit we re living in is almost paid off, we have one IP also.
I m now turning my head for the first time in investing in the share market.

Is there any alternative to vanguard for index fund? Or is Vanguard the best in Australia?
Which index funds do we suggest generally? I d like ideally a maximum of dividends to be reinvested automatically for the next 7-9 years.
Can we invest international through index funds with Vanguard? Same, do we have dividends that can be reinvested?

Dividends.
I tried to get my head around dividends and the difference between unfranked and franked. We plan to leave australia in around 10 years to travel the world and that s another reason to look at shares vs property:
The possibility not to pay tax (or only withold tax) by invest through shares...
Do you know if this is valid with index funds investing?

Thanks everyone !

[Grogounet]

Thanks very much Ozbeach !

I have to say, I m complitely lost now. The more research I do, the more I discover I really don t know anything about shares and how to invest in.

So, after my research, what you are suggesting is LIC (discovered this word today..)?

I m after:
The easiest way to put $ everymonth (if possible with automated transfer) of anywhere between $5k to $10k - I m with CBA and not sure if maybe Commsec would be easier then?
Ideally low fees (management and brockage)
I ve got absolutely no idea about the repartition to adopt (which EFT or which LIC) - How do you guys do your research on this?
Also, as mentioned, franking dividend investing would have to be part of my strategy in the long term when leaving australia
I would need to start doing by Sept max as this is when my mortgage would be repaid

I really try hard to understand but the more I read, the more lost I become hahaha

[marty998]

Companies pay either franked or unfranked dividends.

Basically a franked dividend is one where the company has already paid corporate income tax of 30%. An unfranked dividend is paid out of untaxed profits. The franking system is called dividend imputation (credits).

This is how it works.

- A company pays a franked dividend of say $70 to you.
- You receive cash of $70 and a "franking credit" of $30 which is assessable income for tax purposes.
- You need to declare $100 of income in your tax return.
- Tax is levied at your marginal rate (e.g. 37% + 2% medicare = 39%) = $39
- you receive a credit against assessed tax of $30
- your net tax payable for the dividend is $9
- your net cash position is $61 ($70-$9)

Notice how you finish with $61. The tax paid by the company isn't "real". In substance YOU pay the tax at your marginal rate.

The dividend imputation system essentially means that all income is taxed eventually in the hands of an individual at the individual's marginal tax rate.

The popularity of franked dividends comes down to the refundable nature of franking credits. If your marginal tax rate is zero, you get the full 30% credit back.

[Grogounet]

Thanks again,

Exactly this, i though I could just open an account, place my monthly investments into a index fund which would have dividends. Then, I was hoping in 10 years time, in EI, I could start living off dividends and using the benefits of franking.
Because I have much more interest in property, I never took the time to analyse all this.
And I really start to not feel confident in the (Sydney) property market ATM. Really want to wait at least 6 - 12 months for my next move. We might have to be moving ourselves due to relocation of school for the eldest. We ll see at that time.

So back to index funds, I now realise that it s a bit more complicated than what I would thought it would be. As I m also DYI investor, I m not looking at going to my bank and let them deal with it. I wanna be in control of the choice I make.
If I want to be in control, I need to understand. If I want to understand, I need to learn.
If I want to learn, I need to know where to learn.

And, ATM, it s a bit all over the place !

[Inquisitive1]

Indeed the ETF's & larger internally managed LIC's (BKI is another good one) are great vehicles for you to capture your share of the returns the equity market produces over time, DRP's clearly make it easy to compound the returns effortlessly. Franking, well it should be a 'wonder of the world'.

If you havn't read Jack Bogle's 'The little book of common sense investing' this would be a great place to start. Then you need to figure out if you are an active or passive investor, if you are not sure just stick to ETF's and have a think about an asset allocation that suits you, Bogle has some good ideas here too.

The ASX has some good resources to get a handle on the ones listed locally, http://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm
Just hit the ETP tab. VAS is the main Vanugard one and has the lowest MER, the SPDR (STW) is the other main one locally but has nearly twice the MER but it has a much tighter spread when buying/selling.

With bond yields historically quite low today equities are quite popular so it is probably wise to ease into the market over time.
Some valuations I do & maintain for MSCI indicies globally, the good news is the MSCI Australia & Singapore are looking ok to buy at the moment.
https://docs.google.com/spreadsheet/pub?key=0AoJNgi9AFTLydDJCLTV2UXdlRXdyUlkxQkNSZ1lqVkE&single=true

Cheers,

[Grogounet]

Thanks both,
I m making progress... Slowly but surely :-)

Ready a lot and some articles like the following:
http://forum.mrmoneymustache.com/welcome-to-the-forum/first-time-australian-share-market/

It means that ideally, I would choose an allocation like Argo or Afic for 50%
Then most probably 25% ASX
And 25% international

The only thing that I miss is timing. It seems, as real estate, that timing is important.
I have now some books also I will start to read this week end...

[Grogounet]

Sorry, wrong link !

http://www.mrmoneymustache.com/2012/02/17/book-review-the-intelligent-asset-allocator/

[Aussiegirl]

A good resource on allocation and it's impact on risk and return would be "The Ivy Portfolio".  Available from Amazon as Kindle ebook from Australia. If you don't want to buy the book there's a PDF paper on asset allocation by the author which can be down loaded for free.  Not quite a good, but a good primer.  You could use this strategy if you wanted a buy and hold ETF portfolio or it goes into market timing if you are happy to be a bit more hands on and disciplined. I use a similar strategy in our investment portfolios, with a bit of discretionary trading on the side to keep my interest. 

Another good resource for asset allocation using ETF's would be Paul Merriman.  He has his own website which has a lot of free stuff, plus he has quite sensible podcasts free through iTunes.   I've not read his books, so can't comment on those.

In Oz, we are starting to get a good range of ETF's from iShares, Vanguard and others.  Some of them are just secondary listings of the US based ETF, so there's a bit of paper work for US authorities, but it's relatively easy.   We've got (or have had recently) an ASX 200 fund, a small all ords fund, an S&P 500 fund, a global 100 fund, a Europe fund - haven't had metals, ag or bonds for a long while.  I don't include real estate in our portfolios as we have direct property investments.

I've read HEAPS of investment books over the years, but these 2 resources are what I refer my friends to if they ask the right questions.  Whether you do the buy & hold or the timing method, depends on your personality.  I like to be fairly hands on, plus I could not, under any circumstances, stomach a 50% fall in my portfolio.   Add to that the fact that these big falls in your portfolio  early into your retirement markedly decrease the chances of your money lasting as long as you do. 

[Grogounet]

Thanks Aussie girl
Really helpful
Started to read, will let you know how i go...

[mpcharles]

you can also invest in the VTS Vanguard Total US Market index from australia

ASX Code VTS

[Grogounet]

Made progress and now ready to rock n roll
Will invest in Index funds through Vanguard (australian, international, global, europe) and LIC - Most prob 50/50

3 questions for the Aussie guys:
Which online brockeage do you use? I heard Commsec a lot
What would be the rule to transfer effectively and minimize fees (looking at the most automated approach possible)
My understand from the above is that there is a minimum of transfer to avoid fees. Where to stack up your spare cash?

Cheers !

[Rustycage]

Which online brockeage do you use? I heard Commsec a lot
What would be the rule to transfer effectively and minimize fees (looking at the most automated approach possible)
My understand from the above is that there is a minimum of transfer to avoid fees. Where to stack up your spare cash?

I use Commsec and think it is excellent. I do believe there are also cheaper options out there but I cant comment on those

To minimise brokerage I wouldn't make any purchases (if we are talking ETFs) until you have a chunk of at least 5k to place in a single purchase at a time

My spare cash is offsetting a mortgage. The next best option is probably a high-interest bank account (U-Bank etc.)

[Grogounet]

Hi everyone. I can't believe it's been almost one year since I have last asked.
In between, PPOR is paid off and I have some $$ to invest every months.

I have opened a CMC Broker account.
I have elected to invest in LICs and also in shares, following Paul Merriman "best buy and hold" portfolio
My question might be silly but...
How do I buy the shares now? Just buy them on CMC? That's it? I remember receive a big PDF doco on signing but have misplaced it...
And I do buy shares monthly as I receive my salary?
I tried to get the MER and exact cost per annum of each share I have chosen but cannot find the info on ASX?

Taxes: How does it work? You declare dividends and CG every year?

The last question might be silly also but... We're trading in USD and EUR with international shares... What are the implications with the price fluctuations and parity between AUD/USD and AUD/EUR?
Would it not be best to invest directly there?

Thanks a lot

[Grogounet]

Haha... I was then trying to play around... and WTF is "limit price" "conditional order" !?
So you still have to buy and select at what price... hum...

And... silly boy, I have put any money on the cash account. So if I understand well, you put money on the cash account every month (could you automated transfer) and then decide what you buy? Right?

[marty998]

You need to have enough cash in your linked cash account on the day of settlement (2 days after your buy order is processed).

A limit order is an order to buy at a particular price (and no higher). For example

a) If the price of a share is $5.00 and you place an order to buy at $4.95, your order will sit in the queue and will not be processed until the price falls to $4.95
b) If the price of a share is $5.00 and you place an order to buy at $5.00 your order will be processed at $5.00 if there are enough sellers at that price.
c) If the price of a share is $5.00 and you place an order to buy at $5.05 your order will be processed at $5.00 if there are enough sellers at that price.

Do some reading :) Commsec has a number of tutorials.

[Leisured]

I do not have a LIC or an index fund, but as I understand it, these funds should allow you to contribute a certain amount each month, known as 'drip feeding'. 

The funds should send you a tax statement each year showing the dividends and capital gains they have mad over the year. These funds are known as 'look though', that is the dividends and capital gains flow through to the investors, after the fund has taken its management fee.

On your annual tax return, there are three items: Franked dividends, Unfranked dividends, and Franking credits. You add all three, and the tax office uses the Franking credit to assess how much tax you pay on your dividends. If all the dividends are Franked, you pay no tax on your dividends, if you are income is at the 30% top marginal tax rate. If your top marginal tax rate exceeds 30%, you pay the difference between that tax rate and 30%

Hope this helps.

[Grogounet]

Thanks both,

[Grogounet]

Cool, here I am, decided:
10% in ARG
10% in AFIC
16% in  VGE
16% in VEU
16% in VTS
16% in VEQ
16% in VAE

All EFT, unhedged
Have chosen CMC. Looking at buying hopefully a few $1000s per month
Any last advice before I press the "buy" button? :-)

I have taken note that I need to take a spreadsheet with the date, number of shares/units and cost for tax... need to keep track of tax deferred income, which will reduce the cost base of each unit. --> Taken from Marty998 in a previous post

[Wadiman]

Hi there -

Looking at your proposed portfolio I can see that you don't have any fixed interest (eg VAF or VIF) - have you considered this?  Bonds at times perform better than shares so good from a diversification point of view. 

Also - and others will have different views on this - but it may be worth considering a proportion in a gold etf (eg GOLD).  I have around 7% in my portfolio and it helps smooth out the volatility. 

Not trying to complicate things but you are missing a significant asset class (bonds) in your current allocation.

[marty998]

You may not get a lot of tax deferred income out of that portfolio. But if you are going to be buying every month you will end up with a lot of parcels so yes, a spreadsheet is a good idea for CGT tracking purposes :D

[Grogounet]

Hi there -

Looking at your proposed portfolio I can see that you don't have any fixed interest (eg VAF or VIF) - have you considered this?  Bonds at times perform better than shares so good from a diversification point of view. 

Also - and others will have different views on this - but it may be worth considering a proportion in a gold etf (eg GOLD).  I have around 7% in my portfolio and it helps smooth out the volatility. 

Not trying to complicate things but you are missing a significant asset class (bonds) in your current allocation.

You re a genius as I was to press this... how could I have forgotten bonds!!!
In Super, I have 33% index OZ, 33% Inter index and 34% index bonds...
I ll apply 30% again this time...

[Grogounet]

You may not get a lot of tax deferred income out of that portfolio. But if you are going to be buying every month you will end up with a lot of parcels so yes, a spreadsheet is a good idea for CGT tracking purposes :D

Thanks Marty.
What do you mean by tax deffered BTW?
Also, CGT comes only when sell, right?

[Grogounet]

Hi there -

Looking at your proposed portfolio I can see that you don't have any fixed interest (eg VAF or VIF) - have you considered this?  Bonds at times perform better than shares so good from a diversification point of view. 

Also - and others will have different views on this - but it may be worth considering a proportion in a gold etf (eg GOLD).  I have around 7% in my portfolio and it helps smooth out the volatility. 

Not trying to complicate things but you are missing a significant asset class (bonds) in your current allocation.

You re a genius as I was to press this... how could I have forgotten bonds!!!
In Super, I have 33% index OZ, 33% Inter index and 34% index bonds...
I ll apply 30% again this time...

With this in mind, I intend to do the following:


7% in ARG
7% in AFIC
11% in  VGE
11% in VEU
11% in VTS
11% in VEQ
11% in VAE

10% in VAF
20% in VCF

I can't believe how precious of a resource is this forum

[marty998]

You may not get a lot of tax deferred income out of that portfolio. But if you are going to be buying every month you will end up with a lot of parcels so yes, a spreadsheet is a good idea for CGT tracking purposes :D

Thanks Marty.
What do you mean by tax deffered BTW?
Also, CGT comes only when sell, right?

You said you needed a spreadsheet to keep track of tax deferred distributions (these are basically tax free income distributions from trusts (property and infrastructure - like Transurban, Sydney Airports, Dexus etc))... your nominated portfolio won't give you a lot of these.

CGT only when you sell... but you need to track every single parcel you acquire (dates, units and cost), whether by purchase or reinvestment.

[Grogounet]

Thanks Marty.

I have discovered also Interactive Brokers. And they are in Australia. Sounds almost unreal, you can invest in USD, EUR, with also the possibility to make transfers into your money of choice from dividends. Very useful since we don't know where we are going to FIRE!