Portfolio/Financial Advice for a 20 year old Australian

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
amaryllisinbloom
Posts: 3
Joined: Wed May 05, 2021 11:03 pm

Portfolio/Financial Advice for a 20 year old Australian

Post by amaryllisinbloom »

Hi Bogleheads,

I've been a lurker on these forums for a while now and have learnt a lot, and thought it would be a good idea to get some fresh eyes from the experienced users here on my financial plan for the future now that I'm full-time in the workforce.

About me:

I'm 20, a fresh Australian university graduate who's been working for a few months on ~90kAUD + 9.5% super (australia's tax advantaged retirement account). Out of this, I plan to spend around ~15-20k of my post-tax income and invest the rest.

Goals: In all honesty I don't know what my goals will look like in 10 or 20 years or even further in the future, so it seems to make the most sense to maintain a healthy savings rate and relatively liquid investments (i.e not property) to maximise my options for the long term.

Desired Asset Allocation:
From research on bogleheads and passiveinvestingaustralia among others, my planned asset allocation is the following:
50% VGS (global large and mid caps)
20% VGAD (global large and mid caps hedged to AUD)
20% VAS (australian large caps)
10% VGE (emerging markets)

This gives me a 90/10 split on developed vs emerging, sufficient exposure to the local market (>20% VAS seems to be recommended against), and a 40/60 split on AUD/non-AUD assets.

In super I'm 100% in Sunsuper Unhedged International Indexes for relatively low fees and more exposure to international indexes, because I'm already exposed to emerging markets and AUD in my personal investments and my employment.

Further Information:

International Lifestyle: No current plans to move internationally but non-trivial chance this changes in the future

Currency: AUD

Emergency funds: ~3k in my checking account

Debt: ~30k of HECS (interest free education loan indexed to inflation), otherwise debt free

_______________________________________________________________

Current retirement assets

General investment account, taxable

~20k in a personal investment account (Selfwealth for flat fees brokerage + CHESS sponsorship)

~10k VGS
~4k VGAD
~4k VAS
~2k VGE

Retirement savings account, tax deferred (indicate account type, such as UK SIPP, Canadian RRSP, or French PEA)
~2k in Australian SunSuper 100% Unhedged International Indexes.

_______________________________________________________________
Questions:
1. Is there anything else I should be doing (financially) that I'm not currently doing?

2. Is my planned asset allocation sound?

3. Specific to Australians, but are there any better superfunds/ allocations I could be using? I'm not confident that my current super is optimal; perhaps I should be mirroring my personal asset allocation in my super or some other option?
andrew99999
Posts: 838
Joined: Fri Jul 13, 2018 8:14 pm

Re: Portfolio/Financial Advice for a 20 year old Australian

Post by andrew99999 »

Welcome to the forum.

Goals — Good work taking care of your future self. For your present self, maybe an idea to have a weekly spending account that you can spend on anything you like each week guilt-free, and additionally, saving up for a goal like a holiday, which you don't necessarily need to use, but that you have the money available if an opportunity comes up to enjoy yourself, while still knowing that your future self is being taken care of.

Asset allocation looks great to me.

Sunsuper is a great fund. You could mirror or just do all international. Neither option is bad. Just pick something you can stick to for decades.

Emergency fund — Are you living with your folks? If not, I would bump up the emergency fund.

HECS — Wouldn't pay down since it's an interest-free loan.

Super — I would consider bumping this up beyond the super guarantee. The tax savings are insane. I mean, it's just totally ridiculous. Even if you can save enough to retire early — unless you assume you will likely die by 60, you will need a few decades of expenses after age 60, and saving the portion to keep in super first before saving up the outside-super portion results in a faster time to financial independence. You don't need to max it out indefinitely — you want some flexibility for spending before retirement, but I would increase it.

Insurance — If you are a single person with no debt, you probably don't need term life (i.e. death) insurance, but if you had an unfortunate accident and were totally and permanently disabled, you would miss out on having enough money to live a more comfortable life, so I would seriously consider TPD insurance at the minimum. You might be ok initially purchasing it through super, but I would look to eventually get a policy through an advisor because the quality of insurance in super isn't so good, but better than nothing.

Overall, you're in an amazing position. Congratulations.
Topic Author
amaryllisinbloom
Posts: 3
Joined: Wed May 05, 2021 11:03 pm

Re: Portfolio/Financial Advice for a 20 year old Australian

Post by amaryllisinbloom »

Thanks for the response Andrew, I appreciate the advice.

Goals: As you can probably tell, I'm definitely the kind of person who struggles to spend money in the present. Having a separate account for spending money is a great idea, I hadn't considered that before.

Emergency Fund: Correct, I'm still living with my parents. I'm fortunate enough to enjoy a good relationship with my folks and that they live a short commute from my workplace; the plan is to live with them and build up a solid financial base before I reassess my options in a few years.

HECS: Agreed, the loan is extremely favourable so I pay the bare minimum.

Super: I sure hope I'm not dead by 60. I'm not yet sure if I'd like to retire early, but certainly being financially independent and not be dependent on my employer for survival is very appealing.

It has crossed my mind to increase my super contributions, but psychologically its pretty difficult to put liquid cash into super I can only access in 40+ years. The tax savings are definitely great though: my understanding is that I can get around 17.5% tax savings on the income in the higher tax bracket, and perhaps even more if my income increases in the next few years, which is nothing to sneeze at.

Insurance: I'll admit this isn't something that ever crossed my mind being a relatively young and healthy white collar worker with no dependents. From some preliminary research the fees seem to be very minimal for me though, so it may be worth it just for the peace of mind; I'll definitely look more into it.
andrew99999
Posts: 838
Joined: Fri Jul 13, 2018 8:14 pm

Re: Portfolio/Financial Advice for a 20 year old Australian

Post by andrew99999 »

The initial returns on super for the 32.5% tax bracket are 29.77%, not 17.5%

At the 32.5% tax bracket, you are paying 34.5%, including medicare.

Take your after-tax amount and gross it back up to a before-tax amount: 100 / (100-34.5)

Then take off the 15% tax when it goes into super: 85/100

So your actual return is

100/65.5 x 85/100
= x 1.29770992366
= 29.77% instant risk-free gain.

From then on, you then get to have earnings taxed at 15% instead of 34.5% on both the sum you would have had outside super, plus the additional 29.77% from the tax savings when added to super.

If that's not enough, for those last decades of retirement, you pay zero tax on earnings and capital gains.

You don't need to add contributions up to the max concessional cap, but for the sheer amount of free money, I would seriously consider bumping up your super above the super guarantee amount.
Topic Author
amaryllisinbloom
Posts: 3
Joined: Wed May 05, 2021 11:03 pm

Re: Portfolio/Financial Advice for a 20 year old Australian

Post by amaryllisinbloom »

You're right, I wasn't thinking about it in terms of post-tax income. That does make it more attractive, ~30% risk-free return on top of future tax benefits is pretty great. I'll definitely consider increasing my concessional contributions, thanks for the advice.
AlohaJoe
Posts: 5980
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Portfolio/Financial Advice for a 20 year old Australian

Post by AlohaJoe »

andrew99999 wrote: Thu May 06, 2021 12:02 pm Even if you can save enough to retire early — unless you assume you will likely die by 60, you will need a few decades of expenses after age 60, and saving the portion to keep in super first before saving up the outside-super portion results in a faster time to financial independence. You don't need to max it out indefinitely — you want some flexibility for spending before retirement, but I would increase it.
Just to hammer this advice home (for some reason a lot of young Australians have this "I don't want to lock my savings up in superannuation" attitude; way more than Americans do) -- we can do some simple envelope math.

At a first approximation, whatever your spending in retirement is going to be, you need to save 1/6th of that amount every single year from age 20 until age 60. If you want to retire on $45,000 a year then you need to put $7,500 just into superannuation every year. If you want to retire at age 50 then you need to put $15,000 a year into superannuation. If you want to retire at 40 then you need to put $31,000 a year into superannuation (the concessional max is $27,000 right now).

In other words, even for a pretty modest retirement of just $45,000 a year (and that's before taxes, so your actual take home is more like $38,000) you need to be contributing something around the concessional max your entire working life if you want to retire early.

If you want to spend more than $38,000 a year in retirement, then you need to save even more. If you didn't start saving the maximum amount from age 20, then you need to save more.

If you can't max out your superannuation in addition to saving a lot pre-tax (and, oh by the way, also paying off HECS and saving up for a house deposit and getting married and having children and....) then early retirement becomes less plausible.

That's just back-of-the-envelope math -- actually savings amount, investment returns, etc -- can change all of that. So this isn't a "set it and forget it plan". But like andrew9999 says, you are way better off maxing our your super contributions now and then deciding to dial them back than not just because of vague "liquidity" concerns.
Post Reply