Guide a newbie ......

Discussion in 'Share Investing Strategies, Theories & Education' started by B. S., 4th Dec, 2017.

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  1. B. S.

    B. S. New Member

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    Hi all

    Here is my scenario.
    The kids' grandparents gave them $5000 each. Kids are 6 and 10 years old.

    I am looking at investing the $10,000 in the kids names for a period of atleast 7-10 years.... to be available when they are in uni / for marriage / car purchase etc etc.

    Do not have much exposure to whats out there, but found these new Diversified ETF's by Vanguard.
    Vanguard Diversified Index ETFs

    Ideal scenario would be to pick the Growth (VDGR) or High Growth (VDHG) ETF and set them up in kids names so I am not liable for taxes.
    If its too complicated to setup in kids names, I'd set it up in mine or wife's names, with the earnings to be reinvested back into the fund. But then we would have to pay taxes.

    I am looking at setting the ETF and then not touch it or worry about it for the entire duration of 7-10 years. I won't be contributing once its setup with $5000 - or is it a good idea to say put $20 each month into them (I can't afford more than that atm)
     
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  2. twisted strategies

    twisted strategies Well-Known Member

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    welcome .

    i am NOT familiar with these products but do hold Vanguards VAS and VHY ( from the same provider )

    i see the fact-sheet claims they have a DRP ( called DRIP in the US )
    Vanguard Diversified Index ETFs

    Dividend Reinvestment Plan - DRIP ( DRP in Australia )

    Dividend Reinvestment Plan - DRIP

    both VAS and VHY ( in my holdings ) are reinvested like this

    see if a DRP participation helps you achieve your plan

    PLEASE RESEARCH YOUR INTENDED ETF TARGETS EXTREMELY CAREFULLY ( the tiny details of difference can ruin or make your plans )

    each of these beasties is different in IMPORTANT ways ( even from the same provider )

    probably saving any extra cash you want to contribute in a bank until there is a good buying moment is a better way to go

    • VDHG
    • $50.410
    • -$0.33 (-0.65%) ( down today )
    Warrant Details
    Highest price traded during the last 52 weeks
    52 Week High ($) 50.770 52 Week Low ($) 50.190

    i see these are called 'warrants ' ( checking on brokerage fees for these would be very wise )

    (assuming can be dangerous )

    PS it isn't just you ( being a novice ) it IS hard and tricky for many of us ( especially when every dollar counts )


    good luck and TAKE CARE
     
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  3. Hosko

    Hosko Well-Known Member

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    Good on you. Best thing as one of the great coaches said "Do something", which is exactly what you are intending to do.
    Unfortunately there is nothing that I can offer on what is a good fund or bad fund. Me - I'd be content putting it into a couple of ASX shares that pay a reasonable divi and reinvest this and then when you wake up in 10 years time you will have more shares than what you started with.
    Do it in your name, not the kids and take the tax hit on the way through.
     
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  4. PeterT

    PeterT Active Member

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    Yes, good on you! Put that sort of lump sum to work early on, and your kids should thank you later!

    I was not aware of these new Vanguard ETFs; seems like they have only been listed on the ASX for a couple of weeks, so no historical track record obviously, but the idea of one product that diversifies across numerous asset classes is sound. And my personal view is that you should have some international exposure if your main goal is growth.

    I do note, without offering financial advice, that the (very reasonable) management expense fees for these ETFs (0.27% per year) are about the same as for Acorns (0.275%) - which has the additional advantage that you can, if you want, invest additional small amounts (like the $20 a month you suggested, or even your "roundups"), whenever you want, for no additional transaction costs along the way. Acorns most aggressive portfolio has exposure to Asian (24%), European (7%) and US (5%) equities, with the rest in Australian equities and fixed income - so a bit less international exposure than the high growth Vanguard ETF you mention. But maybe enough? The other thing with Acorns is that you can switch to one of the other (5) portfolios, at any time and without transaction costs, if you go cold on the idea of having that much international exposure (and the currency risk that goes with it).

    If you are happy with purely Australian equity exposure, then Whitefield (WHF) is a Listed Investment Company that has what is called a Bonus Share Plan. From my reading, this seems to be like a Dividend Reinvestment Program but without the dividend having to be declared as income along the way. The quid pro quo seems to be that you don't get franking credits, because the reinvested income isn't classified by the ATO as a dividend. Do your own research (ideally by contacting Whitefield directly maybe), but my reading of the BSP documentation is that this might be a suitable way to invest for kids (even if not in the actual kid's names).

    [Do any other forum members have views on suitability of WHF's BSP for this purpose?]

    Whatever you decide to do, I think you'll need to do this in the name of an adult, and hence pay tax on any income earned along the way.

    But well done to you, for your forward thinking!

    [None of the above is intended as financial advice. Do your own research]
     
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  5. Hodor

    Hodor Well-Known Member

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    They are a class of the equivalent wholesale fund, there are some differences (and recent allocation changes). Still that is where to look for a reasonable understanding of what to expect.

    Acorns have a much higher expense ratio, you pay the admin (0.275% as you stated) AND the underlying expenses of the funds you select - it's all in the PDS. So you can expect around .5% to .8% fees.

    For someone that can't save a couple of thousand for whatever reason I can see some value to acorns. buy the underlying investment or similar and save the dollars of you can.
     
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  6. PeterT

    PeterT Active Member

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    Good spot Hodor.


    There are indeed the expense ratios of the underlying ETFs to consider. So in the interests of full transparency, let’s factor those in. Amongst the possible Acorns portfolios, the total weighted expense ratios range from 0.22% to 0.29% (the highest being for the aggressive, international growth portfolio I referred to in the original post). So if you add in the annual charge of 0.275% (for amounts over $5k) then the grand total expense ratio is in the range 0.50% to 0.57%. This is higher, no argument, so thanks for pointing that out and allowing me to correct it.

    Still, considering there are no transaction costs, for any number of additional investments, and regardless of how small those additional investments are (and $20 a month is small), the extra 29bps still seems pretty modest. I think you need to be making significantly larger additional investments (assuming brokerage is MAX($10, 10bps) ) before the dollar amount of any saving in your transaction costs becomes lower than Acorns’.


    (Not advice. DYOR)
     
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