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New to investing.Help with an index fund.

Discussion in 'General Investing Discussion' started by Jimmy, 14th May, 2018.

  1. Jimmy

    Jimmy New Member

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    Hey guys, I'm new to investing. I am quite young and want to start investing a little bit of money continuously and watch it grow. I did a bit of research and found the Vanguard U.S. Total Market Shares Index ETF (VTS) which has a 0.04% management fee and above 10% returns per year. I understand that I subject myself to currency fluctuations but surely it has to be better than the 5-6% that you get from the Australian market right? My questions are:

    (1)-> What is the smartest way to invest in this fund given that I want to buy shares continuously in equal intervals (say monthly). The problem I have here is that nab trade (I signed up with nabtrade) has a price of $15 per trade so every month I would be paying $15. Is there a way to avoid this?

    (2)->Is there anything big I am missing or misunderstanding about this fund? (i.e. why the low management fee and high return i.e. what is the catch?)

    (3)->How does tax work when buying overseas? Do I pay income tax on my earnings only in Australia?
    (4)->Do I pay tax only when I attempt to retrieve my earnings? And if so is there a smart way to retrieve your earnings without paying large amounts of tax? The reason I ask this question now even though I intend to reinvest all of my earnings for a long time is that if there is something I should do before investing that will allow me to retrieve my funds as 'tax free' as possible then it would be awesome to know.

    Sorry for the many questions. Any help would be greatly appreciated.
     
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  2. Luke83

    Luke83 Member

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    for point 1- Buy less often to save some money and /or find a cheaper broker ( Selfwealth charges 9.50 per trade). Remember you need to pay to Sell these also.

    I am only new also so i wont even try to answer the other ones in case my current understanding of things is wrong.
     
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  3. twisted strategies

    twisted strategies Well-Known Member

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    welcome to InvestChat Jimmy ,

    first please define 'returns ' as important to you

    returns ( as important to me ) is the yearly dividend yield after taxes and franking credits ( rather than share price increase/decrease )

    Vanguard was ( but maybe are no longer ) offering index funds which you buy direct from Vanguard ( i think the minimum was $10K a time ) BUT you can't sell those on market only back to Vanguard .. they are similar to ( BUT NOT IDENTICAL ) the ETF equivalent

    Vanguard - Vanguard Total Stock Market Index Fund Admiral Shares

    i prefer the ETFs but your money so your choices

    in Vanguard i hold VAS and VHY ( ETFs ) and participate in the DRP scheme , this may or may not suit you

    Dividend Reinvestment Plan - DRIP

    The Perks Of Dividend Reinvestment Plans

    if you buy a US domiciled shares you are also liable for US taxes ( or exemption )
     
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  4. monk

    monk Member

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    The U.S. market has run hard for years now and could very well continue for a while yet.Remember past performance is no guarantee of future returns. If you want o/s exposure perhaps look at VGS which is domiciled in Australia,thus not exposed to U.S. taxes etc.,though this etf is not U.S. only but world-wide. Perhaps a look at VGS and VAS as TS has mentioned could give you a balance plus you can re-invest dividends & receive franking credits being Oz based. Just a thought,I don't own either as I'm more into LIC's but If I was starting again I would think about these two which I may add when market corrects.
     
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  5. Jimmy

    Jimmy New Member

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    Thank you so much everyone for your help!!
    So what exactly is the 10% that I am seeing as average return per year? Is this the growth of the share price? And if I decide to keep it and not sell it AND reinvest dividends I am not paying taxes on it yet right?

    So I cannot reinvest dividends with VTS? Am I paying US taxes even if I do not sell it?
     
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  6. monk

    monk Member

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    10% return would be a combination of growth plus dividends,you'd likely pay US tax on dividend(income) & possibly here as well, regardless of whether you re-invested div's or not,same as here.Yes,pretty sure you can reinvest div's in VTS.
     
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  7. twisted strategies

    twisted strategies Well-Known Member

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    most funds ( LICs and ETFs ) class yearly returns . as unit ( share ) price rise/decrease + any dividends ( or capital return ) paid out .. and 'grossed up ' includes any franking credits and tax imputation .

    sorry if this sounds dodgy to you , but i have a less polite opinion of such definitions ESPECIALLY when such 'returns' are used to assess performance fees/bonuses

    i don't hold VTS ( and have never fully researched them , either ) so i just don't know if Vanguard has a reinvestment plan for VTS ( and either retail or managed fund level )

    DRP shares ( as far as i understand it are still classed as income , but you save on the buying costs and MIGHT get them at a cost lower than the current value ( less likely on ETFs than LICs )
     
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  8. Hodor

    Hodor Well-Known Member

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    No way to avoid brokerage, you can minimise it by making less regular purchases or finding a cheaper broker.

    That is not the long term average of the Australian market. Over 30 years if the indexes VTS and VAS represent on a total returns basis have been similar. The future could be anything

    Management fee is low because it is a massive fund (economies of scale and all that) and Vanguard has a low fee etho. VTS is an unhedged index fund so its performance is strictly based on what the US market does along with the USD/AUD exchange rate.

    You are really (unintentionally) cherry picking data.

    It's Not Really A Lost Decade

    Although the S&P500 is different to the index VTS tracks it is a major component.

    Investment Products
    Check the fact sheet, there is no DRP so you need to reinvest yourself.

    You need to fill out a tax form every few years. There are some other things to think about too. Many people don't find it too burdensome, been lazy I don't look at US domiciled funds so can't really help.

    Yes DRP is counted as income. ETFs won't give a discount to share price like some LICs.
     
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  9. Jimmy

    Jimmy New Member

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    Okay thank you everyone for your help it is really appreciated.

    Just another quick question, if I want to buy shares from two different funds is there a way to count that as only one trade and only pay the amount I would pay for a single trade?
     
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  10. twisted strategies

    twisted strategies Well-Known Member

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    not if buying on market ( the ASX likes it's slice as well )

    HOWEVER if dealing with Vanguard directly ... well you never know your luck ( until you ask them )
     
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