ETF How to I buy ETF's, Index Funds without Broker?

Discussion in 'Shares & Funds' started by Sam Gallon, 24th Apr, 2017.

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  1. Hodor

    Hodor Well-Known Member

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    The old LICs have a similar MER as the cheapest ETFs and have significant out-performance vs the index when you get decent investment horizons (20+years).

    You can also purchase below (or above :eek:) net tangible assets - NTA - at times. Which you can't with ETFs. A strategy can be as simple as buy AFI when below or at NTA and buy VAS/STW when it is above.
    These things always get over complicated however when consistent purchasing is the biggest piece of the puzzle. Have a read of the Beginners guide to LICs if you want to get some more insight, there is a thread on this forum.
     
    Hodor, 28th Apr, 2017
    #21
  2. twisted strategies

    twisted strategies Well-Known Member

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    Sam ,

    LICs ( depending on which you buy ) can be boring and unexciting , or very educational , some put out regular share-holder letters , giving you not only portfolio movements but the reasoning behind such moves , and the managers opinions on the market in general .

    some LICs will even adjust their investment style when their ( normal ) style is struggling in the current market .

    ETFs like VAS and STW try to do nothing more than track their index ( and pay some divs on the way ) and NEVER try to beat the index , a LIC tries to have SOME good years but tries to soften the bad outcomes .

    each ( LIC , REIT and ETF ) has their strengths and weaknesses .

    i hold a mix of LICs , REITs and ETFs , i see no asset class as 100% superior over the others ( most of the time )
     
    twisted strategies, 29th Apr, 2017
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  3. JasonC

    JasonC Well-Known Member

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    One other advantage of LIC's, the largest/oldest Australian ones seem to pay 100% franked dividends. An index ETF (STW for example) has about a 75% franked dividend. There is a massive thread over on PropertyChat about LIC's if you are interested in learning more.

    Regards,

    Jason
     
    JasonC, 1st May, 2017
    #23
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  4. Sam Gallon

    Sam Gallon Member

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    Thanks everyone for your contributions!

    CMC seems to have the best rates for an online trading platform with less than 11 transactions per month. Brokerage Rates | Stockbroking Platform | CMC Markets.

    My question is... Do I pay management fees for something like CBA or are management fees for funds like VAS or VTS only?

    Is this correct?
    If I spent $1000 on CBA, I would be spending only $11 for Brokerage through CMC. Whereas if I spent $1000 on VAS, I would be spending $11 on Brokerage PLUS 0.14% per year for Vanguard management?

    If so, how do I get billed for the management fees? Obviously, CMC charge me through the account I have with them, but how do Vanguard charge me?
     
    Sam Gallon, 1st May, 2017
    #24
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  5. Simon Hampel

    Simon Hampel Founder Staff Member

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    Well, you can't really compare the two - they are vastly different beasts.

    CBA is a share. You own a small portion of the company. You get paid whatever the directors of the company decide to pay to shareholders. If for some reason, they decide not to pay a dividend, you don't get anything. They pay themselves first and then pay shareholders out of what's left.

    If you want to try and compare costs, the MER of a company is arguably a LOT higher than that of a fund manager (although I guess that's up for debate, since the fund manager is dealing with underlying shares).

    My point is - CBA is a single company and your returns are tied to the fortunes of that company. Companies (even really really big ones) can and do go bust, in which case you lose your entire investment. Whether that is likely to happen or not is the risk you need to factor in when buying individual shares.

    When you invest in a managed fund or ETF, the fees come out of the capital of the fund. It's not an extra expense to you directly - you never see that money because all unit price calculations occur net of fees.

    They take their fees and then they calculate how much the assets are worth, how many units have been issued, and then work out the unit price from that data. For most funds, this happens on a daily basis.

    It's slightly more complicated for an ETF because it has an associated share price which may vary slightly more than the underlying value of the units - but it's supposed to be close to that value (that's the job of the "market maker"), so for the most part, it works the same way as a managed fund.

    To summarise: you don't get "billed" for the ongoing management fees - all transactions happen after fees are taken into account, so it's largely transparent to you.
     
    Simon Hampel, 2nd May, 2017
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  6. Hodor

    Hodor Well-Known Member

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    Don't get confused. 100% franked dividends are a consequence of the structure and not an advantage, they don't appear from nowhere.

    ETFs are a trust and pass through franking credits, they don't pay tax. LICs pay tax at the company rate and you are entitled to the credit for this.

    If an LIC had the same holdings and MER as STW it would pay a lower net dividend that was 100% franked. The two dividends would be exactly the same once both are "grossed up".
     
    Hodor, 2nd May, 2017
    #26
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  7. JasonC

    JasonC Well-Known Member

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    Hodor,

    Thanks for explaining that. I hadn't thought about it detail enough. Always good to learn something new.

    Regards,

    Jason
     
    JasonC, 2nd May, 2017
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  8. SurfShark

    SurfShark New Member

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    Thanks for the insights @Simon Hampel. I have just started with the ETFs investment journey and find them immensely useful.

    Do you think the above concerns about losing money to AUD volatility and conversion costs apply to IVV as well ?

    Thanks in advance.
     
    SurfShark, 14th Mar, 2021
    #28
  9. mtat

    mtat Well-Known Member

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    There's currency risk in any international investment (VGS, IVV, VTS, VGE, etc.), which is why you would want to hold both non-AUD global based assets (e.g. VGS, IVV) and AUD based assets (Australian equities, or hedged international equities like VGAD, IHVV)

    Currency risk - personalising your AUD to non-AUD allocation - Passive Investing Australia
     
    mtat, 14th Mar, 2021
    #29
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