Catch me I'm Falling

Discussion in 'Share Investing Strategies, Theories & Education' started by Tropo, 11th May, 2008.

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  1. Tropo

    Tropo Well-Known Member

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    Good reading.
    Enjoy :D
     

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    Tropo, 11th May, 2008
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  2. AsxBroker

    AsxBroker Well-Known Member

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    Hi Tropo,

    I agree with the naivety of the market and the media beatup.

    Though I disagree with buying an ETF as they actively choose what they want to buy as opposed to investing in the market index, an index fund would have given the result as described compared to an active fund manager

    I'm sure ETFs also pay their staff, even index fund managers do but obviously less as they don't have to make investment decisions based on stocks which they prefer over other stocks (or which ones to short if they short sell as well).

    Cheers,

    Dan

    PS Before making an investment decision speak to your registered Financial Planner or stockbroker.
     
    AsxBroker, 11th May, 2008
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  3. Simon Hampel

    Simon Hampel Founder Staff Member

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    Actually it's not that simple - most of the ETFs currently available in Australia are actually index tracking funds.

    So I don't think it's fair to say "ETFs are cheaper than Managed Funds" and likewise I don't think it's fair to say the converse either - it depends on the funds themselves.

    The argument is about "passive indexing" versus "active management" and not about ETFs versus Managed Funds.

    I'm currently negotiating with the ASX, Morningstar, and S&P to see what kind of prices I can get for all the data I need to be able to show this stuff on Compare Funds - and to work out how I can afford to pay the $$$ they all want :rolleyes:
     
    Simon Hampel, 11th May, 2008
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  4. AsxBroker

    AsxBroker Well-Known Member

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    Hi Sim,

    I agree, it is more about active vs passive investing.
    Passive is cheaper cost wise.

    Cheers,

    Dan
     
    AsxBroker, 12th May, 2008
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  5. tropic

    tropic Well-Known Member

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    This is off topic.

    I also wonder if passive funds pay less distribution?
    What I am trying to say is that with active funds they buy and sell so much that each year they pay distribution amount that is significantly larger that passive fund that don't buy and sell as much? They have to declare their capital gain.

    For example I have Platinum Asia fund that distribute earning/capital gain every year. It makes money management a bit harder because they might pay you $20K and you have to pay tax on while the unit price don't go up that much. I personally much prefer fund that don't pay distribution as much with appreciating unit price.
    I always have this issue with managed funds unlike direct share investing.
     
    tropic, 12th May, 2008
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  6. Simon Hampel

    Simon Hampel Founder Staff Member

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    In my experience that is usually the case - yes, and for exactly the reasons you mentioned ... portfolio churn from trading activities.

    Index funds and other long term buy-and-hold funds don't churn stocks unless they have to (for index funds it usually happens only a couple of times per year when the index get re-weighted).

    So mostly the distribution you get is dividend related - and that usually comes with the benefit of franking credits too.

    If you consider returns from an after-tax perspective (difficult to do in a general sense since everyone is in a different situation tax-wise), you will generally find that passively traded investments are more tax effective.

    This means that an actively managed or frequently traded portfolio will need to show higher overall returns to match the after-tax returns of a passively held portfolio.

    Note that it all depends on your situation - a fund like the NavraInvest funds do a lot of trading and distribute a lot of income which is taxable ... but if you are using that income to offset the holding costs of a negatively geared property portfolio (especially in a trust where those losses are quarantined), then tax doesn't necessarily come into the equation anyway.
     
    Simon Hampel, 12th May, 2008
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  7. tropic

    tropic Well-Known Member

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    Thanks Sim.

    I have been thinking about moving my fund from Platinum and buy more Australian shares. I have Platinum funds to diversify my investment with some overseas shares. Not sure what to do now and certainly prefer to get fully franked dividends.
    We don't gear that much so income/capital gain distributions from the funds affect our tax in a non favourable way.
     
    tropic, 12th May, 2008
    #7