Vanguard assistance

Discussion in 'Share Investing Strategies, Theories & Education' started by Al1979, 15th Jan, 2018.

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  1. Al1979

    Al1979 Well-Known Member

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    Hi Guys,

    I am looking at a few different index funds through Vanguard and need a little assistance. I am well schooled on property investing but this stuff is all new to me so be gentle.

    The ETF's I am looking at are

    Vanguard Australian Shares Index ETF (VAS)
    Vanguard MSCI Index International Shares ETF (VGS)
    Vanguard FTSE Emerging Markets Shares ETF (VGE)

    I have two questions regarding these ETF's that I am hoping someone can answer.

    1. Vanguard list three options with each of these funds. ETF, Retail and Wholesale. The retail version has a minimum investment of $5,000 however the ETF has no minimum. Are there advantages to have the retail fund over the ETF?

    2. I can easily see what the annual total return is of each fund however I cannot see where I can separate growth and yield. Is there an easy way to see this information?

    Thanks in advance for the assistance.
     
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  2. twisted strategies

    twisted strategies Well-Known Member

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    with ETFs ( all of them )

    the two important factors are

    1 RESEARCH

    2. TIMING

    i chose the ETF versions as i had no faith in my ability to time cash injections ( buying )

    however if you have $50K ( or $5k ) sitting in the bank and think you can pick the next market bottom ( or close enough to generate a big smile ) , don't let me stop you ( i'll even wish you luck )

    in 2011 i bought parcels of VAS as the market dipped

    from $59.70 down to $52.70 ( in a 9 month downward trend ) ( av. SP $57.48 after brokerage costs ) ( yes i am happy now but some were calling this approach .. absolute lunacy at the time )

    growth v. yield ?

    in my case 'growth ' might be seen as SP gain ( per share )
    VAS is up 34.8% since 2011
    yield ( because i use the DRP ) can be measured in extra units ( via the DRP )
    yield is 56.8% .( since 2011

    this is only indicative ( of what has happened in the past ) what we are trying to measure is a piece of string flapping wildly in the wind .

    VAS , VGE , and VGS are supposed to track each market focus accurately ( and pick up some divs in the process ) if the market drops so do these ( just as they rise in rallies )
     
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  3. Al1979

    Al1979 Well-Known Member

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    Thanks for the detailed response Twisted. I guess I am not really looking to "time" the market I am looking to buy parcels of each now and then continuously invest over the long term. Ride the ups and downs and just continue to hold.

    Rightly or wrongly it is my belief that I will be better off holding a group of low fee index funds that are in line with multiple different markets rather than managed funds or god forbid try and play the market myself.

    I have quite a lot of time on my side so I am happy to play the long game. I will also be hopefully using this structure to balance my whole investment portfolio down the track so it is not so real estate heavy going into retirement. In other words when I retire I want to take a large chunk of cash made in property and move it to index funds so I am not dealing with 20 different property managers while I am travelling.
     
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  4. Hodor

    Hodor Well-Known Member

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    Each of the ETFs are a class of the wholesale fund equivalent.

    You can use BPay with the wholesale and retail funds.

    ETF PDS documents etc have breakdowns for growth and distributions and are available on the website.
     
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  5. Al1979

    Al1979 Well-Known Member

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    Thanks Hodor, so with the retail / wholesale fund you avoid the brokerage fee by using Bpay?

    I will check out the PDS.
     
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  6. Hodor

    Hodor Well-Known Member

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    You are buying from Vanguard directly so no brokerage. MER's are the big difference. The retail product is relatively very expensive. Brokerage is once off, you have to live with the MER
     
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  7. twisted strategies

    twisted strategies Well-Known Member

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    Al1979 ,

    maybe i should clarify ' timing ' ( as relating to ETFs )

    i don't mean checking every 10 minutes on a trading day ( but it would be educational if you did , but not essential )

    say you are chasing VAS ( used as ab example because i follow and hold VAS )

    VAS tracks the ASX 300 ( XKO ) not exactly the same as the highly watched ( and reported in the media ) ASX 200 ( XJO ) but close enough to use as a guide guide in the morning/afternoon when you are not at work

    currently the XJO is around 6000 which is near 10 year highs ( only before the GFC was it higher ), for personal reasons i needed to rush my investment strategy ( i would love it to be set in stone and disaster-proof by 2020 , not a huge chance , now, but that is still the plan )

    now someone with patience and time could say buy some VAS when the XJO went below 5000 it should stay in that area for more than a week at a time when it does so you can see the current market price and put a buy order in at a 'ball park ' price ( it will still be cheaper than when the XJO is around 6000 , but not as cheap as it will if the market dips to 4000 as it might do in a full crash scenario ).

    single stocks can be entirely different in that respect a 10 second window can make a huge difference on rare occasions ..

    please learn the ways of the market , so you can make your own informed decisions ( that doesn't mean watching every minute of the day , but helping decode the media commentary )

    cheers


    PS i bought those VAS in 2011 when working on an 'at call basis ' ( not knowing what i would be doing in an hours time ), a lot of the time .. a minor reason i bought small parcels as the market trended down .
     
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  8. Al1979

    Al1979 Well-Known Member

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    @Hodor thanks for the tip. After doing the math I am better off in the ETF rather than the retail fund. I would rather pay $10 brokerage for every $1000 invested and then pay .14% for the next 20 years on it than pay no brokerage but .75% for the next 20 years.

    @twisted strategies thanks for the info it is extremely helpful. The plan is to invest a small amount now ($20k) and then tip $1,000 a month in so its not a huge amount. Once I feel more confident in the system I will tip more in but I need to crawl first. I plan to do this through good and bad with a long term approach so I am not sure I need to focus on timing too much.

    For planning purposes what average dividend should I work off? I often see people talk about an average yield of 6% so to generate $100,000 per annum gross they would need $1,670,000 in funds. I notice that VAS lists a dividend of 4% and other Vanguard products are listed at 2.2%. Is this the price you pay for security and to get a better dividend I would have to look at riskier options or am I missing something?

    I really appreciate all the help guys.
     
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  9. twisted strategies

    twisted strategies Well-Known Member

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    Al1979 ,

    *** For planning purposes what average dividend should I work off? ****


    i hate to sound alarmist but NONE ,,

    ( don't count your divs until they are paid .. or at least declared )

    all three ETFs you have used as examples are 'passengers ' that is reliant on the underlying shares to pay a div. first and then they pay you (less expenses )

    i am not saying this is a bad thing but suddenly companies can stop paying dividends ( and continue in business ) or they can quickly go out of business ( like Carrillion in the UK and that WILL have a ripple effect )

    IF you want a ( near ) certain income .. SOME REITS , , interest-bearing securities and some LICs who practice 'dividend averaging ' are a better option

    the LICs described , hold back some cash in the good years to to help augment the poorer years ( not all LICs do this only some ).

    up to now i don't need my portfolio income to be 100% cash i accumulate via the DRP ( a fair bit )
    BUT if i did ( since 2011 ) i might have been facing some tight moments ( say when ORG .. then a major holding stopped paying divs )

    average yields , forecast yields are the stuff of disappointments ( and the rarer happy surprise )

    i will let the veteran ( and officially retired ) members educate you here , 'expected income '

    one thing to note this is currently a low interest era , where i bought a block of land in 1975 at 21 i was paying 17.5% pa on a full mortgage ( paying down the principal + interest )

    interest rates are currently much lower now .

    sadly those low interest rates also affect yields ( and i suggest at higher risk than many suspect )

    one thing you haven't faced lately is genuine inflation ( where the investor is always trying to play catch-up ) and THAT is very hard to forward plan for ..

    i saw a news snippet saying health-care premiums will rise ( a fair bit ) again this year , power costs are expected to rise ... and soon it becomes a runaway train .

    but as you have noticed in the VAS figures the yield can be low .. AT THE CURRENT PRICE

    in the XJO were to fall to say ... 5500 your VAS should be trading around the $70 range and you yield is looking a bit better

    i bought VAS from $59.70 down to $52.70 as it slid in 2011 .. so VAS is still OK by me but less attractive to those buying this week .

    one cannot assume VAS ( or similar ETFs ) will lift their yields ( they only collect divs for you ) so the buyer must try hard for a good price

    BTW VAS ( and similar ETFs ) trade on their NTA ( the value of shares in the basket ) NOT yields , this can be a good or bad thing for you.

    also when trying to forecast your income ( from investing ) don't forget costs and taxes

    $100,000 a year ( in income ) will have an excited ATO official watching you

    there is lots of stuff to miss , that is why the better professionals have a career for life ( a good one is well worth their fees
     
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  10. Hodor

    Hodor Well-Known Member

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    Good plan.

    VAS, VGS and VGE should work really well long term, you are avoiding high fees and manager risk. By dollar cost averaging every month you are also cutting out trying to time the market. If you are purchasing that regularly (or even quarterly) taking the dividend rather than DRP makes sense, will make re-balancing easier and reduce trades for record keeping (though I believe this overhead is over stated)
    Have you set your asset allocations yet? Remember each of those investments is likely to show strength at various times, by maintaining your allocations through thick and thin you will take advantage of buying on weakness by default.

    6% spot yields aren't a free lunch, products that have higher yields usually tend to be lower growth (in price and dividends) for numerous reasons. You pay a premium for the expected future growth (which results in lower spot yield) with a long time line you want to take advantage of the growing dividends.

    VAS has franking credits attached, you only get this from Australian companies that pay tax here. Franking is something that confuses many, basically you get credit for the tax a company has already paid at their rate (30%).

    Even during the GFC dividends didn't go to zero across the board so those ETFs would have maintained some sort of payout. Retirees tend to keep at least a few years living expenses in cash so when payouts are slashed they have enough of a buffer to ride it out.

    Here is a comparision of STW (very similar to VAS, longer history) and AFI - (an LIC which "smoothed" dividends).
    STW SPDR S&P/ASX 200 FUND dividend history - Australian Company Share Dividend History, Forecasts, Ex-Dividend Dates for Share Investors
    AFI AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED dividend history - Australian Company Share Dividend History, Forecasts, Ex-Dividend Dates for Share Investors

    As you can see the AFI has kept their dividend quite stable. Old LICs like the three biggest (AFI, ARG and MLT) tend to pay stable dividends as demanded by their investors.

    Planning is difficult as we don't know the future. I certainly understand wanting to know how you are progressing. One way you can have a goal post is to work out the UNIT NUMBER of each share you need, this is one of the ways I monitor how I am progressing.
    Here are the 2017 dividends per share for VAS, VGS and VGE
    VAS $2.92 (plus franking)
    VGS $1.84
    VGE $1.05
    So if you need $50,000 from VAS based on your desired allocation you need to acquire just over 17,000 shares in VAS.
    This method is nice and simple, you don't need to adjust for inflation as the dividends should exceed inflation, you are always moving forwards to your goal.
     
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  11. Al1979

    Al1979 Well-Known Member

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    Thanks Hodor, Yeah I plan on investing through thick and thin and will rebalance on a quarterly basis as I invest.

    At the moment my planned allocations are

    40% - VAS
    40% - VGS
    20% - VGE

    So my plan would be say at the end of QTR 1 I have $10k to invest I would attempt to re balance with that $10k. So if VAS was sitting at 25% I would just keep pumping into that until it gets back up to 40%.

    Some might say 40% in the Australian market is high but I have a lot of confidence in Australia as a citizen and feel comfortable with a large exposure to it.

    Also thanks @twisted strategies I really appreciate your input.
     
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  12. twisted strategies

    twisted strategies Well-Known Member

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    no problem ,

    to offer a contrary view

    i prefer a heavier weighting on ASX listed shares ( that might have earnings globally or only locally )

    the logic being :-
    1. the ASX is closer to true value ( but still over-valued )

    2. ASX listed companies are easier to understand ( financials and tactics )

    3. the ASX listed companies are more likely to give accurate , up-to-date information

    i lack your confidence in the local regime ( and any likely replacement ) but the mess we are in is fixable ( several international messes may never be fixed , properly ).


    to me 'passive , does not mean buy and ignore ( you might see a signal to suggest buying more or waiting a little longer )

    just because i haven't bought VAS since 2011 doesn't mean i won't buy extra ( or reduce ) in the future ., ( i still look at them regularly )

    good luck , and happy investing
     
  13. Hodor

    Hodor Well-Known Member

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    Have you thought about structures for your assets? It'll cost now however potentially improve results long term (depending on your tax bracket).

    FWIW I think that a relatively high Australian weighting makes sense given the advantage of franking credits.
     
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  14. twisted strategies

    twisted strategies Well-Known Member

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    i wasn't going to assume Australian franking credits were going to continue ( just because they are a good thing for government , doesn't make them safe from the axe )

    but nice while they last ,agreed .
     

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