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Discussion in 'Exchange Traded Funds (ETF)' started by Giallo, 15th Feb, 2019.

  1. Giallo

    Giallo Active Member

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    Hey guys,

    I'm looking to start my investing journey. A bit about me;
    - 27 years old
    - No debt, kids, spouse
    - Renting in rural town
    - $84k Cash
    - $57k Super with AustralianSuper in High Growth
    - Earn $90k per year

    Financial Goals;
    - Create a passive income stream from dividends which grows annually
    - Obtain growth in portfolio

    So suffering a bit of analysis paralysis but have decided to try and simplify AMAP.

    ASX (70%)
    $30k VAS
    $20k MLT

    INTERNATIONAL (30%)
    $20k VGS

    CASH
    $14k

    Plan:
    1. Buy ETFs/LICs each quarter (Around $12k)
    2. Reinvest all dividends
    3. Salary sacrifice $250pw
    4. Sleep, Repeat for next 30 years

    Questions/Things I'm struggling with;
    1. Should I do DRP or take cash and build dry powder before buying again?
    2. I know nothing about taxes or estate planning, is having this in my personal Commsec account fine as opposed to a trust?
    3. With super, I can select the DIY option, should I also select 70% AUS / 30% INT?
    4. Is my timeframe to achieve this goal realistic?
    5. Should I care about NTA or just buy when I can?
    6. Are these good investment vehicles for my goals? If not, what non-advice would you advise.
    7. Should I lump sum or DCA over the course of X months/years?

    That's all I can think of for now, if I'm forgetting things I'd love for you to tell me.

    James
     
    Last edited: 15th Feb, 2019
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  2. Hodor

    Hodor Well-Known Member

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    1. Is up to you and your preferences.
    2. Depends on potential changes in the future and who you have to distribute income to. A company and or trust structure should be considered early, which would add definite costs now above benefits for potential ongoing ones in the future.
    3. Sticking with the high growth is a form of manager diversification, what if you're wrong? The assets are growth and costs low.
    4. 12k a quarter is 48k a year over 30 years is 1.5m plus growth. Your living costs seem to be about 40k, I would expect you to cover your income early.
    5. I do with my portfolio, makes your VAS/MLT decision easier.
    6. Seem fine to me.
    7. DCA every quarter would be my choice.
     
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  3. Giallo

    Giallo Active Member

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    Thanks for the reply Hodor.

    What would be the benefits of setting up a trust structure? And what fees would it entail?

    I don't fully understand what you mean on point 3. Can you please elaborate on that a little more for me?

    On point 5, would it then look like this; Buy MLT when at discount, otherwise put money into VAS?

    DCA every quarter sounds reasonable to me.

    Don't intend to start a war debate on LICs & ETFs, but for the ASX portion of my portfolio, is VAS fine? Or would it be best to look at something like ARG or WHF which could be more suited to my goals?

    James
     
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  4. RS Gumby

    RS Gumby Active Member

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    VAS is a solid choice
     
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  5. Hodor

    Hodor Well-Known Member

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    You get to feel like a big shot.
    Also you can direct income to the entity with the lowest tax rate.
    You can use a company and pay tax at company rates, 30%.
    I'm not sure on costs, from memory about $1k a year, I didn't look too deeply.

    You are a novice and may make mistakes. Aus super has a good track record and charges peanuts for the service of quality management. If you are wrong about your investment strategy you don't have all your eggs in that basket.

    That's the most basic strategy.

    Gumby said it, VAS is completely fine.
     
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  6. Giallo

    Giallo Active Member

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    Ok I see. Seems like a lot of work, does it provide any other benefits? What are the downsides if I don't do this?

    I see, I'll leave it in High Growth then.

    Sounds good enough for me.

    Cool. Thanks @RS Gumby & @Hodor.

    Are there any holes you would pick in this plan?
     
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  7. twisted strategies

    twisted strategies Well-Known Member

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    Giallo,

    DRP or Cash doesn't nave to be a black or white decision

    you can PARTIALLY participate in a DRP ( and some DRP plans are rather erratic in their application )

    i sometimes deliberately choose a partial DRP ( say 50% cash ) because i don't want ( say ) WOW to completely dominate my holdings ( and a little cash to use on something cheap at the time )


    holes in the plan ??

    TIME and FATE

    in 2010 i planned to retire in 2020 , a medical condition stepped in and i retired 3 years early ( and the plan is really shaggy at the moment , but at least i got the plan started )

    so leave a little room for the unexpected ( either good or bad )
     
  8. Giallo

    Giallo Active Member

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    To understand fully, are you saying that I can allocate a percentage of dividends to be reinvested and the rest received as cash?
     
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  9. Hodor

    Hodor Well-Known Member

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    If you had a non working spouse. Or you were in a high tax bracket the benefits add up quickly. If you had 20k divided income then company vs personal name is a $1.4k saving every year before expenses.

    There are benefits around succession planning and asset protection.

    To move to one of these structures later likely includes capital gains tax etc. So you should plan for the end game of practical. And this could be your own name.

    Last i looked VGS and VAS didn't offer partial participation.
    DRP is effectively just automatic brokerage free buying.
     
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  10. Giallo

    Giallo Active Member

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    I don't have a spouse or kids but in the future with dividend income + wages I will be in high tax aa bracket so this could be a wise decision. Who would I see about setting one up? Also, how would I access funds? Would I need separate bank accounts for each trustee?

    Ah, I see. I've just looked at MLT and WHF and they both offer partial DRP.

    In regards to the asset allocation I've alloted, would you assume it's good for my goals?
     
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  11. Hodor

    Hodor Well-Known Member

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    You need to speak to a solicitor. There are lots of kinds of trusts.
    A good tax advisor should be able to take you through costs and benefits tax wise. You might need a company and trust(s).

    There are potential changes coming in this space too (minimum taxation and no franking refunds) which might affect your decision. Again speak to a good professional.

    Keep in mind I'm just a simple guy, this isn't an area of expertise
     
    Last edited: 16th Feb, 2019
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  12. Giallo

    Giallo Active Member

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    Hmm ok, I will find one in my area and let you know how I go.
     
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  13. austing

    austing Well-Known Member

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    Hi @Giallo, as per your request the other day I’ll try to add some thoughts but doubt I can do any better than @twisted strategies and @Hodor who have excellent knowledge..

    Firstly, are you intending to buy a home at some stage? Deposit?

    Next and one Twisted brought up is Time. You’ve stated that planned retirement is at 57 (30 years time). Are you likely to want to retire before that?

    You’re able to contribute up to $25K pa tax deductible into Super. Given the legilative risk it’s not wise to have everything in Super but taking advantage of the maximum concessional contribution given your somewhat higher salary might be worthwhile. Of course you can also make after tax Super contributions to further minimise tax on investment earnings and protect assets.

    If you’re not one of the “retire very early” types then it’s simply a matter of having at a minimum (but preferably much more to tax advantage of tax free threshold) enough assets to cover living expenses between when you retire till you can access Super. At this stage it’s 60 but in your future timeframe there’s the possibility it might be 65?

    I personally would stay with your current High Growth Super option. The DIY option will not only most likely lack diversification compared to the Growth option but potentially might miss out on Unlisted property / infrastructure? Would need to check. Also if Labor are successful in removing franking credit refunds the DIY Australian Super option may be negatively impacted unlike the pooled Balanced / Growth etc option’s.

    As for Discretionary Trusts I personally wouldn’t make any decision until it’s known what will happen with Labor’s policy on that. We had three Discretionary Trusts (one of these a Hybrid) at one stage but I’ve been getting rid of them (nearly there) to simplify our assets / taxation and reduce worry associated with legislative risks. They can be very advantageous given the right circumstances but not a decision to be taken lightly.

    I love the simplicity of your planned portfolio. The simple DIY portfolio outside Super and the well diversified more complex Super Growth portfolio managed by the Super fund are a nice overal balance. Close to set and forget.

    With DRP some don’t like it because each event needs to be recorded for tax purposes incase you sell. But if there’s only a few listed funds it’s probably not much of an issue. I haven’t ever used DRP myself.
     
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  14. Giallo

    Giallo Active Member

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    Thanks for your input @austing, I will try and answer as best as I can.

    To be quite honest, no. It's just me, I personally don't see myself getting married or having a family in the next 10 years so I'm quite happy to pay low rent (live in rural town) and build an income stream which could then pay off a property sometime in the future. Do you think it's worth looking into?

    I most likely will. I work a lot and am very frugal so I can see this happening. Do I want to though? I'm not sure. I've taken off long amounts of time in my early 20's to travel the world and as good as that was, I'm much happier being productive and in a routine. No fun living a free life if no one is there to share it with you. This could change though, I may hit a happy target by 45 and want to chuck it all in.

    I have considered bumping my contributions up, maybe to $350-$400pw but as you mentioned I may not be able to access it until 65. No male in my family (both sides) apart from my father has lived past 55 so as much as I know I should contribute, I still hold back and want to invest a good amount outside.

    Yeah this seems to be the best option for me. Safe and a good set and forget than for my unintelligent hands to tinker with.

    You mentioned to simplify taxation, don't trusts provide a way to minimise taxation as opposed to personal name holdings?

    Thanks @austing , to be honest I constructed it from reading the thread 'Does my portfolio look okay?' that all you guys commented on. Made me realise that for someone like me without the knowledge, this is still very effective.

    Oh I never knew that. I'm going to take a wild guess but would another benefit to not DRP also be to build up dry powder in boom times for dips?

    Just to touch on the buying home thing again, if I was to make this decision soon, would it be wise to keep my cash in HISA (ING) and invest new money according to my plan?

    Also, @Hodor you mentioned DCA each quarter with my current capital, would you recommend doing this over 1 year or longer?
     
    Last edited: 16th Feb, 2019
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  15. austing

    austing Well-Known Member

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    I personally wouldn’t buy a home unless I really wanted to own one and knew for sure I was going to be in that location for at least 7 years. With rent relatively cheap in a rural town growing one’s assets instead of owning a home could certainly appeal.
    Given that view then I can understand you wanting to keep a decent amount of wealth outside Super.
    Generally only if you have lower income family members or another entity eg company (taxed at 30%) to distribute income to. Complex area needing advice.
    Sharemarkets are not suitable for investing cash needed in the short to medium term.
     
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  16. Giallo

    Giallo Active Member

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    Think I'll stick with the rent/investing path then.

    How would one do this if they were single? Can you create random trustees to distribute wealth?

    Sorry I must have not worded myself correctly. I meant if this was the case, should I keep the 84k aside in a HISA and instead start my plan off fresh with my future wages.
     
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  17. austing

    austing Well-Known Member

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    Company as mentioned earlier. Broader members of the family but need advice on this and issues. Question for the likes of @Terryw but this stuff has been discussed endlessly here and in particular on PC forum. A search will yield heaps of info.
     
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  18. austing

    austing Well-Known Member

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    Comes comes back to timeframe.

    Here’s a current thread on Reddit (FIRE) that might be of interest as there are differing views.

    ETF vs house deposit : fiaustralia
     
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  19. Giallo

    Giallo Active Member

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    Ok thanks, I'll have a look around. :)
     
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  20. Giallo

    Giallo Active Member

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    Just had a read. Last comment struck to me, if I can put away $48k pa for investing I'm sure when I want to buy I can just pause my investing and put that years $48k towards a deposit.
     
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