ETF VAS vs STW .. or maybe even VAN?

Hey guys,

Long time lurker, first time poster. Just wanted to ask for some advice and stimulate some discussion as the forum has been pretty quiet lately.

I'm 20 years old, student with two part time jobs and have $10k to use in my first investment vehicle.

After some research, indexing applied to a core and satellite strategy has formed my current approach to investing. Thus I have several choices regarding my first investment:

- $10k into STW, with contributions of $2000 half yearly. All dividends will be reinvested.

-$10k into VAS, with the same strategy applied above.

-$10k into VAN (index fund), with contributions of $300 a month (DCA). All dividends will be reinvested.

BTW, my broker will be Netwealth if I decide on any of the 2 ETFs.

I'm not looking for a get rich scheme, just planning to hold the investment for a minimum of 6 years and if I don't desperately need to pull the funds out for any major purchase (deposit on first home, etc), then I can see myself keeping it until I retire.

Any thoughts ? Which would you choose ? What would you guys do in this situation and why ?

Feedback and critisism is definately welcomed

 

Hi Hellbent_

I would use only one asx200/300 ETF. No sense in doubling up. What is the VAN ticker for?



Johny.

 

Thanks for the response. I probably should have clarified it but my intention is to pick only one of the options above.

To go further into your point, are there any advantages or disadvantages of picking a fund that tracks the ASX300 instead of the ASX200 ?

If you dont mind me asking, have you held or do you currently have any these funds ? If so, how are you finding them ? Are you happy with the services the fund managers provide, are you planning to hold on to them, etc ?

The VAN ticker is the APIR code for the Vanguard Index Australian Shares Fund .. I think

 

The Asx200 is 95% of the Asx300. So the 300 has a bit more diversity.

I think it would be better to choose the ETF that has the highest volume. More buyers.



J.

 

I hold none of those ETF's but I do have an index portfolio. It's center is the ASX200.



J.

 

Sounds pretty similar to what I hope to achieve. How is an index portfolio going for you ? Is this strategy helping you achieve your goals ? And have you ever thought of going international with an indexing approach ?

Haha sorry for the barrage of questions, just curious and cautious I guess

 

You can only learn by asking questions.

This is my current portfolio. It gets rebalanced in May.

http://www.invested.com.au/2/johny-portfolio-ver-1-01-a-37186/

It is been tracking sideways for the past 3 months.

My Strategy is to keep ahead of inflation, while spending the distributions.

Since the crash I've had cashflow problems. 2010 will be better.

Australia is only 2% of the world market. Up to now we've been on top. Maybe not always.

I've found early threads(2007) of Compleks very useful. Boy could he ask questions!



Cheers, Johny.

 

Thanks for the info Johny, good to hear from those who have experienced their fair share.

Anyone else with feedback and suggestions ?

 

Thanks for the heads up, hahaha yeah got a bit lazy there.

The brokerage for a trade with a maximum of $5000 is $17.99 for Netwealth (the broker I'm planning to go with). So if I choose an ETF, I'm planning to put in $2000-3000 into the ETF half yearly. Does that sound like a reasonable amount or should I increase the amount considering the brokerage and bid/ask spread ?

BTW, is there any information on your Compare Funds site or on any site that shows the the bid/ask spread history of STW or VAS ?

Thanks heaps for the feedback and the info from the site, definately helps

 

Id go for the vanguard index fund - with DCA set up automatically
The hardest thing is not to stray and keep at it while you are young
The ETF's are only good for large lump sums - would never use for dollar cost averaging. The costs are prohibitive to DCA.

 

Thanks for the feedback. Definately means a lot knowing you have a similar strategy and a portfolio that I'd love to work towards.

I most definately want to keep improving both my (future) portfolio and most importantly my knowledge in this area and finding this site has definately helped me along the right path, especially while I'm young.

Would you have gone the indexing route when you were younger ?

In your experience, what are the things that make a young investor stray ?

 

I started off with a managed fund and DCA - colonial first state, and BT
at about the same age as you
But then realised to make money you have to leverage
Thats where property came in
Save for a deposit than go for it.

You'll stray from your strategy because of many things
deposit for house - you divert your shares into ur deposit
stock picking believing u can do better.
selling out when you make a profit.
needing the money for something else

Im now a believer in property and shares together.
Property can be safely leveraged
use the equity for more property and some shares.... / index funds

1. save for deposit
2. automatic savings into index fund

set this up as 2 goals
No one can say whether property or shares will have a good run in the near future....
Aim to have both.
Dont put big lump sums into shares at one particular point in time
otherwise you can get caught out with a situation like GFC
Id rather you DCA in over long period of time......

As Stephen Covey would say - begin with the end in mind.

Oh at your age id add goal 3
3. Buffer fund - save several months worth of income
Dont ever let your balance dwindle.

If you have the goal of both shares and property.
You dont sell the shares to fund the property.
Maybe put less into shares in the beginning, keep the DCA amount modest so that it doesnt impact on you much. Never stop the DCA.


Just some suggestions / ideas

Also when I first started work, someone wise told me to save a years worth of income by - living like you did the year before when you had no money.
Invest all of that and you will be set for life.

Perhaps even a donation fund
4. promise yourself to donate x amount of income eg 1-5% and stick to it for life - good kharma............

 

It appears you are wanting to make larger (relatively speaking) but "infrequent" investments. This is where ETF's are generally a much better option than unlisted funds which are more suited to small frequent contributions. I personally hate unlisted managed funds for numerous reasons but have no interest in getting into endless debates here over this topic. Do some research yourself, get to know your own risk profile and investment nature then come to your own conclusions.

You can minimise your brokerage by using only ONE ETF for a given broad index. STW is much larger and far more liquid than VAS and thus if I had to pick ONE of these I would choose STW. But given that I have investments across a number of structures (eg own name, SMSF and disc trusts) I do actually hold some VAS as well.

So in summary, if you are investing "relatively" larger amounts infrequently (and you are not trigger happy and prone to wanting to constantly fiddle with your portfolio) then perhaps consider ETFs. However for smaller frequent investments then perhaps an unlisted managed fund is the way to go. There are other factors to consider so do your research on the pros and cons of unlisted managed funds etc.

Cheers - Gordon

 

Hi. I am confused by your statement. Doesnt the VAN funds have a management expense of 0.75% for amounts up to $50,000 (and 0.50% for the next $50,000) ?

To me that would make an ETF a much more sensible investment. Managemnet costs are about 0.28%, and the brokerage cost of buying it online is in the order of 0.10%. So the all about cost is 0.38%, which is much better than 0.75%.

So even on a contribution strategy of $2000 per quarter / half year, ETF would work out much cheaper.

Am I missing somehting here ?

 

I guess it depends on how often you DCA.
eg if you do every month $300, then brokerage is >10%
Also with ETF's you have to login to etrade or whatever and place an order every x mths.... When its not automated, you wont do it, or try and time it.
Id prefer to DCA more often than 6monthly.....

 

Big, big thanks for the suggestions and thoughts, seems like a good approach having both paper and property investments.

I have definitely put some thought into property, both here and off shore (as my parents portfolio is mainly comprised of property). But since I have a while till I start full time work, for now my main focus is towards ETF's and index funds as an investment(s) that I can utilize when I retire (if I can hold on to it that long without any major withdrawals )

But like you said, I plan to save for a deposit for a first IP without withdrawing from the ETF or index fund. Is that realistic or in most cases have you guys had to have drawn from your paper investments to fund future investments, more specifically IPs ?

 

Thanks for the feedback, haha most risk profilers have me between a balanced and aggressive, and considering my age recommend investments with 'above average' risk. Before I got focused and into investing, I was set on property as my whole portfolio (seeing as thats the only vehicle that those around me invest in).

But like then, I still have much, much more to learn.

 

Hey dkmc, read your thread on the DFA funds, great read. Definitely well thought out and researched.

In relation to that - if you don't mind me asking - how is it going for you ? Are you pleased with DFA's performance and with them as a fund manager overall ?

And would you have gone to a financial planner when you were younger, even without full time work ? Maybe just for investment advice ?