DCA for VAS- Buy Now or Buy from LOC?

Discussion in 'Share Investing Strategies, Theories & Education' started by Intelligencer, 20th Jan, 2017.

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  1. Intelligencer

    Intelligencer Member

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    Good morning all!

    Wanting to start making frequent contributions into a fund like VAS/VASGX/QVE for the next 20+ years and reinvest the dividends. Think $100/wk would be a good start but as I'm also saving to buy my first IP in about a year, would it be better to wait until I have a LOC and then use that to buy $100/wk of VAS as those funds would be tax deductible?

    Is there a simple calc anywhere that I can put these figures into to see how much would be deductible?

    Also, if I buy now and then buy more with borrowed funds, would I need to have two separate accounts?

    Thanks :)
     
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  2. Hodor

    Hodor Well-Known Member

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    Some considerations are;
    - Ideally you want to keep as much cash as possible for a principle place of residence (PPOR) as this is non deductible debt so you might want to keep this in mind
    - A 20% deposit + costs is usually required to avoid loan mortgage insurance (LMI), though many are happy to pay LMI
    - Your loan on the IP will be tax deductible as well, is there any chance it might become a PPoR in the future?

    One thing with borrowed funds is to ensure they are clearly used for investment purposes, not moving them through a transnational account etc. Speak to your accountant.

    Do you mean two separate trading accounts or bank accounts linked?
     
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  3. Intelligencer

    Intelligencer Member

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    Thanks for the response @Hodor

    I don't have a PPoR at the moment and don't plan to buy one anytime soon (few IP's first). Not likely to buy an IP that will one day be the PPOR but always possible (mainly to take advantage of the 6 year rule).

    Happy to pay LMI and the cost for $450k at 88% is pretty reasonable to not spend another year saving up.

    Yes plan to have the set up crystal clear so don't mix up the borrowed funds. Have read a few stories about doing so and losing all deductions so will be very careful!

    Meant two separate trading accounts- as in would Account A be for VAS bought with my own money and then Account B for buying VAS with borrowed funds so as to ensure there's no mix up?
     
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  4. twisted strategies

    twisted strategies Well-Known Member

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    Intelligencer ,

    an interesting choice to prefer investment properties over a PPoR , but the life-styles of my younger associates (even those with young children ) do confront old logic ( for instance the career paths may easily lead interstate or internationally.

    good luck
     
  5. Hodor

    Hodor Well-Known Member

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    I forgot to ask about this

    You can't efficiently buy $100/week with ETFs/LICs/Stock. You would be better to save for 6 months and buy in $2500 lots to reduce brokerage costs or at the least 3 months ($1250). $5k costs as much to invest as $500 with the most commonly used online brokers (~$15-$20).

    3 months could work OK as VAS pays about 4% div, or ~1% quarterly (it isn't that smooth), however 1% of $1250 is $12.50, so getting your money in the market sooner has little net cost due to the extra dividend received.
     
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  6. Intelligencer

    Intelligencer Member

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    Ah yes, realized that when I read another of your posts stating the cost involved (many thanks for your forum contributions by the way!). I think I saw a BPay/direct debit option and thought they only charged an annual sum regardless of how often you trade. Guess I'm living in La La Land hoping for that :D

    Plus had read this but seems to be only for the US;
    Also read that some give a number of free trades . Possible to set up and account with each and max out the free trades one by one?!

    Good performance review to compare ETF's over last 6m, 1yr and 3yrs- ETFs Performance Tables

    For me property is the best way to build a decent sized asset base and when someone else and the taxman significantly contribute to that goal, then more power to me!

    Serviceability would be shot to pieces if we bought where we want to buy (Manly), even a $600k PPoR first in a place I really don't want to live so decided 3-4 IP's is the way to go.
     
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  7. Hodor

    Hodor Well-Known Member

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    You are probably thinking of Vanguard Retail/Wholesale managed funds. They offer similar products to their ETFs and a few different ones. The managed funds offer BPay options for regular contributions, unless you can go for a wholesale (minimum $100k with negotiation) fund the fees don't make it very attractive compared to the ETF IMO.

    Seems to be.

    Last I looked the Big 4 all had free trades when opening an account (~$500 give or take depending on who) the free trades have an expiry. If you don't make any trades in a certain period some brokers charge a fee, the periods, fees and conditions all vary. DRP doesn't count as a trade. Seems like a lot of work to avoid minimal fees in the short term.

    3 years is too short a time free to compare anything IMO. I like 20 year times frames, unfortunately not many products have been around for that length of time.
     
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  8. twisted strategies

    twisted strategies Well-Known Member

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    Hodor,

    a mistake i made with VAS is it can be 2 different products

    VAS ( ETF) which i hold

    or VAS an index managed fund ( which at one stage was , maybe still is ) that is the core of HVST ( pays monthly divs rather than 3 monthly and seems to be open ended ,that is you can inject cash regularly but only redeem at certain times )

    and another error i have discovered i have made is VAS ( is fund style varying from country to country but all overseen by Vanguard.)

    Vanguard , US is most unhelpful on info in this direction
     
  9. Hodor

    Hodor Well-Known Member

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    HVST is a different beast altogether. Moving capital around to catch dividends as they are paid from what I understand. It is only relatively new, I expect all this fiddling to result in poor total shareholder returns.

    VAS is the ETF, the Retail and Wholesale Australian share products have different identifiers.

    I am not sure how it all works in the background, however there was a small dividend payment last year from VAS for one quarter which someone explained was the result of a large investor removing their cash from VAS or one of the managed funds. Other discussions blamed the timing of some bank dividends changing (which are a large holding of VAS) hence the next dividend would be larger. I lost interested in reading/investigating further so I have no idea as to the truth of the mater and I never checked the next dividend to see.

    VAS is DRP'ed and forgotten about for the next 20 years. It did however highlight some potential dangers in the structure of ETFs, the closed structure of LICs is more appealing to me which won't face such challenges, especially in a market crash. VAS and other ETFs won't see much new money from me compared to LICs.
     
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  10. Hodor

    Hodor Well-Known Member

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  11. twisted strategies

    twisted strategies Well-Known Member

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    HVST at one stage was something around 70% VAS the index fund +3 of the big 4 banks + MQG ( which explained how they could do the task cost effectively

    however via INDIRECT exposure that looked not so unusual (which is how the website displays it )

    i am still expect a BIG dip and average down on this but also DRP hoping monthly DRP will reap long term magic

    and yes fees/MER is high( er )

    possibly more 'hands on' (and eyes on ) than many would like ( but say 2 extra shares DRPed 12 times a year can make a difference ).

    repeating for beginners .... ETFs need A LOT OF RESEARCH those tiny differences can maim or make the investment ( at LEAST as much research needed as interest rate equities .. especially medium risk corporate debt)

    ETFs do have their place but aren't God's gift to lazy investors ( as some managers will imply) and for goodness sake think extremely carefully before using them as collateral in a margin loan .


    HVST
    Name %
    APA Group 9.7 %
    Transurban Group 9.7 %
    Stockland 9.5 %
    GPT Group/The 9.3 %
    Sydney Airport 8.8 %
    Goodman Group 7.6 %
    Commonwealth Bank of Australia 4.4 %
    Westpac Banking Corp 3.4 %
    Australia & New Zealand Banking 2.8 %
    National Australia Bank Ltd 2.6 %
    As of close of trading 31/12/2016

    as quoted currently on their website

    Mgmt Costs** (% p.a.) 0.90% ( high but some actively managed LICs are much higher again )
    Distribution Frequency Monthly

    here NTA is almost meaningless expect as an entry/exit price indicator
     
  12. twisted strategies

    twisted strategies Well-Known Member

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    bought my VAS (the ETF) on market( most of it on one day during an epic plunge little buys at lower prices ) in 2011

    when the ASX ( XJO) dips below 4800 i will start calculating top-up prices again

    VAS is currently DRPed


    via DRP unit numbers have increased 27.8% over the period

    and SP gain 24.3% which 'grossed up ' with franking looks OK ( as salesmen intend it to )

    i also hold stablemate VHY which has performed better but higher risk ( and presents different timing opportunities )
     
  13. twisted strategies

    twisted strategies Well-Known Member

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    VHY rival SYI (i hold both ) did highlight one anomaly

    what it a major share-holding is taken-over ( in SYI's case that was TOL)

    normally all you get is a small temporary raise in div. ( the acquired share proceeds are used to mostly replace with an equivalent stock)

    SYI

    SPDRMSCIAUSELECTHDY ETF UNITS
    Change
    [​IMG]
    Balance Date Dividend Type Cents per share Ccy Franked % Ex-Dividend Date Books Close Date Pay Date
    30/12/2016 Interim 36.380 AUD 93.00 29/12/2016 30/12/2016 11/01/2017
    30/09/2016 Interim 47.890 AUD 91.00 29/09/2016 30/09/2016 11/10/2016
    30/06/2016 Final 21.820 AUD 0.00 29/06/2016 30/06/2016 11/07/2016
    31/03/2016 Interim 21.650 AUD 75.00 30/03/2016 31/03/2016 11/04/2016
    31/12/2015 Interim 39.150 AUD 94.00 29/12/2015 31/12/2015 11/01/2016
    30/09/2015 Interim 54.260 AUD 91.00 28/09/2015 30/09/2015 09/10/2015
    30/06/2015 Final 101.320 AUD 19.00 26/06/2015 30/06/2015 09/07/2015
    31/03/2015 Interim 22.210 AUD 72.00 27/03/2015 31/03/2015 10/04/2015
    31/12/2014 Interim 51.540 AUD 98.00 29/12/2014 31/12/2014 09/01/2015
    30/09/2014 Interim 41.000 AUD 85.00 26/09/2014 30/09/2014 09/10/2014

    not a common event , but can happen
     
  14. Intelligencer

    Intelligencer Member

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    @twisted strategies when do you expect the XJO to be sub-500 again?

    Think I'll try the $1,250/qtr and see how that works out. Commsec have no brokerage on first 10 trades so good a start as any. What platform do you guys use?
     
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  15. Hodor

    Hodor Well-Known Member

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    Commsec, for no real reason. If I started again I might look at others, as I just buy and hold it doesn't matter much to me.
     
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  16. twisted strategies

    twisted strategies Well-Known Member

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    i started with Commsec ( long story but mediocre outcome )

    but also Bell Direct ( i also hold BFG)

    neither is perfect for a beginner (imo)

    but the pair of them as a budget ( no ongoing fees/charges ) combination is workable each has different strengths and flaws .

    i am probably a bad (maybe the worst ) judge , i had planned ( was ready ) for a GFC replay in mid-2013.

    but the global economy is built on shaky foundations ( and looks to be a matter of time ) after May ( this year )looks more likely than before May .

    a possible correction ( not so big dip ) Feb.. March

    all that worry said, 'irrational exuberance ' ( buying at high valuations hoping earnings will catch up ) seems to be the fashion and the markets might still have 10% (plus ) gain in them.

    another point, VAS isn't the only game in town in this area , some other Vanguard stable-mates have their strong days .
    early on i bought VAS on a dip ,but a short time later ( months ) VHY dropped to a tempting price some bought bigger chunk of them ( buying extra VAS later and cheaper )

    watch the ASX top 20 LICs (VLC and ILC) for a time the big banks get smashed

    VLC ( bizarrely holds 30 stocks at last report )

    Top 10 holdings
    1. Commonwealth Bank of Australia
    2. Westpac Banking Corp.
    3. Australia & New Zealand Banking Group Ltd.
    4. National Australia Bank Ltd.
    5. BHP Billiton
    6. Telstra Corp. Ltd.
    7. Wesfarmers Ltd.
    8. CSL Ltd.
    9. Woolworths Ltd.
    10. Macquarie Group Ltd.
    The top 10 holdings represent 68.7% of the total ETF.

    that could really drop suddenly (to your benefit )

    MVB might suit you as well for a bank focused ETF ( MVB pays 4 MONTHLY .. 3 times a year )
     
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  17. twisted strategies

    twisted strategies Well-Known Member

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    current ETFs held

    VAS ( largest by $$value )

    in no particular order

    SYI , VHY , QFN, IHD and HVST ( the aim being to accelerate unit growth in the shorter term say3 years , but at higher risk )
     
  18. Simon Hampel

    Simon Hampel Founder Staff Member

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    If you're saving up for an IP - why not just put all of your money towards that goal first?

    But also don't assume that you will automatically have access to a LOC in the short term - you'll have to wait for growth and then apply for the LOC to access equity you've built up and it can take quite some time to do that, depending on what the market does where you've bought.

    Have you done the numbers and looked at what your net cashflow position is likely to be after buying an IP? Will you still have additional cashflow available for investing in ETFs or similar after purchasing?
     
  19. Intelligencer

    Intelligencer Member

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    Main reason being diversification but property will be the significant majority of the portfolio. Dipping my toes into shares so thought ~$6k/yr into something like VAS or VHY with DRP would work well as a set and forget and give the portfolio emergency liquidity if ever needed.

    Plan on doing doing the old buy, reno, hold thing for equity gains and access the LOC after about a year or so. While not expecting miracles, do expect reasonable value increase from the reno (both capital and rent gains) as there's quite a discrepancy between reno/unreno'd properties in the areas I'm monitoring.

    Net CF after buying the IP wil be around $600/wk so plenty left. Rather put my $'s into reno's and offsets but always good to have something else on the side (with no APRA regs!).

    @twisted strategies I've been waiting for a decent correction for 5 years now... all the money I would have otherwise invested has been frittered away :rolleyes: Soemthing is on it's way for sure but could easily be another 5 years.
     
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  20. Simon Hampel

    Simon Hampel Founder Staff Member

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    Cool - if you're able to add value, that can work really well.

    Similarly, if your portfolio is overall neutral-ish to positive then I think diversifying surplus cashflow into some equity based investments is a sensible approach.
     
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