Investing in Australia

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retiremefast
Posts: 10
Joined: Sun Sep 22, 2019 4:37 pm

Investing in Australia

Post by retiremefast » Sun Sep 22, 2019 6:40 pm

Good day y`all,

How`s the life on this part of the world?
My name is Alex and I am a new boglehead user and I am eager to learn from the best how to make my way into the investing world. It may sound cliché but that is me and I will soon prove that I am on the right place at the right time.

About me: 34 years old, just migrated to Australia from Romania (Europe). With permanent residency received, I have (almost) full rights on living and working in this new country. Full time employed and married with no children, my wife and I, we are used to save money from our monthly income in case of need. With no Australian mortgage on our head, we are managing to "put aside" almost 30% from our NET monthly income, planning on stretching that to around 50%.

About my plans: as you are never too sure about what will the income be after the age of retirement, I am not keen on waiting to find out if any of the governments I payed taxes are going to give them back through retirement schema. Until today, we used normal Bank Saving Accounts and Deposits to cater out needs but with the interest rate falling each year, I came to understand that 2.2-2.3% which I have now (ING Savings Maximiser) is not gone do the trick. Discussing with friends and doing a bit of research, I found out about ETFs Investments which, based on my very basic understanding, should be a good option for long-term perspective. With this topic being still something I research and study, please bear with me (and my rookie mistakes):

Country of Residence: I was born in Romania (Europe) and now living in Australia (permanent resident)
International Lifestyle: My wife and I, we moved to Australia for a change in our life, hoping for the better. Our plan is to take everything in small steps, therefore every 5 years or so, we will analyze the progress done and plan for the next 5 to come. We are not excluding anything, form getting back to Romania to even moving to another country (like US or Canada)
Currency: AUD is the currency I have my accounts and income in Austrlaia, RON / EUR everything that I have back home (no income, just Savings)
Emergency funds: We have such a found (6 month of expenses) growing month by month. We have a "leftover mortgage" in Romania that we plan on closing down with the savings in the next 6-8 months to come
Debt: Nothing other than the mortgage above
Age: 34 (both my wife and I)
Desired Asset allocation: Not sure at the time. I read good things about long-term EFTs investment and I consider this a good option to start with. Splitting the entire budget into multiple EFTs will be an option to take (Australia or Worldwide)
- ETF VAS = Vanguard Australian Shares Index ETF (Australia’s 300 largest companies, aiming to track the performance of the S&P/ASX 300 index performance)
- ETF VTS = Vanguard US Total Market Shares Index (99.5% of the US stock market, aiming to track the performance of the CRSP US Total Market Index)
- ETF IVV = iShares S&P 500 ETF (The top 500 companies in the US, aiming to track the performance of the S&P 500 Index)
My Profile: low risk steady long-term passive investment
Budget: 3000-4000$ / month
Saving options:
- ING Savings Maximiser every month, entire saving budget
- Invest in ETFs every 3 months, around $10000
Time: 25 years+ without accessing the account(s). All the dividends (if there are any) will be re-invested.
Pension: There is 1 year worth of payment from my employer, 9.5% from the yearly pre-taxes income

The plan is to learn the ways of investment in ETFs for now, make myself comfortable doing this a lifestyle and try to obtain the most out of the Australian Market. VANGUARD and SP500 seems to be the more recommended options to go with
- What do you think about this?
- What are the investing platforms I should use? Some of the ones I cam across are:
1. CommSec - good platform, extensive experience in the investing area, fees https://www.commsec.com.au/support/rates-and-fees.html between 10$ and 0.20% by transaction value (based on the amount and platform used)
2. RAIZ - new player on the investment market, limited portfolio, fees https://raizinvest.com.au/fees between 2.5$/month and 0.275% (based on account balance)
3. IG - experienced trading platform with both mobile and internet options to invest, FEES https://www.ig.com/au/share-trading-charges-and-fees between $8 / 0.1% per trade + $50 per quarter subscription fee (based on number of transaction per quarter
4. CMC Markets - experienced trading platform with both mobile and internet options to invest, FEES https://www.cmcmarkets.com/en-au/stockb ... tes#shares between $9.90 or 0.075% and $11 or 0.10% per trade, whichever is the greater (based on number of trades per month)
I am inclined to go with IG https://www.ig.com/au as it seems to be the most balanced option.

As the above plan is to be applied for long-term, my main goal is to retire faster than usual (ideally around 55 or earlier) as long as I can be sure I can obtain a minimal of $7000 / month ($85000 per year) from dividends without touching the main active. The numbers are not set in stone.

Additional questions that I can think I this time (more to come):
- what are the main fees I should have in mind, for Australia?
1. Income Tax - if I understood correctly, this is up to 30% based on the investment return value per financial year as per "Shares and property" category (https://www.moneysmart.gov.au/investing ... rk-for-you)
2. Brokerage fees - that should be included in PDS provided before signing any contract
3. Future Value of Money - how can I apply this to my financial prognoses? I was thinking on applying a 3.5-4% Inflation Rate
- I know Australian Super is a good investment option, for the Retiring time that will come with 7%-11% performance rate (per year, on average 10+ years investment time) but will be restricted by the Retirement Age which seems to be an ever growing number. Currently 60 will be the margin (https://www.moneysmart.gov.au/superannu ... your-super)

I would let you have your morning coffee reading my story above. In the meantime, I will continue to study my options as well as Investments 101 (for Dummies).
Best of luck to y`all!
Last edited by retiremefast on Mon Sep 23, 2019 1:49 am, edited 1 time in total.

andrew99999
Posts: 512
Joined: Fri Jul 13, 2018 8:14 pm

Re: Investing in Australia

Post by andrew99999 » Sun Sep 22, 2019 8:20 pm

Welcome

Could you edit your post to include the items mentioned in the template please.
https://www.bogleheads.org/wiki/My_port ... ing_advice


As per the link above, before choosing funds, choose what you want to invest in.
Determine your proportion of
- Stocks to bonds
- Australian equities (if any) to global equities.

How likely are you to retire to Australia?
If unsure, it likely does not make sense to overweight Australian equities.
If you are likely to retire to Australia, then some Australian equities (VAS) and/or global equities AUD-hedged (VGAD or IHWL) may be useful to reduce currency risk in your portfolio.

For trades -
Selfwealth is $10 flat fee per trade, so will be cheaper than Commsec unless you invest very small amounts.
CMC is supposedly good also.
Commsec is fairly expensive.
RIAZ I believe is for people who are not serious and want to put spare change into their investments rather than make a proper investment plan.
PassiveInvestingAustralia.com

Topic Author
retiremefast
Posts: 10
Joined: Sun Sep 22, 2019 4:37 pm

Re: Investing in Australia

Post by retiremefast » Sun Sep 22, 2019 9:46 pm

andrew99999 wrote:
Sun Sep 22, 2019 8:20 pm
Could you edit your post to include the items mentioned in the template please.
https://www.bogleheads.org/wiki/My_port ... ing_advice
Will have a look and edit / template-ize my initial post. Apologise for rushing without studying the rules.

Retirement in Australia, that is soooo distant now. It's hard to say that, to be honest. Based on my post-retirement account size (income and properties) that will later on be analysed.
There are good chances to either go back to my home country or move to a country where cost of living is lower. There are a lot of factors to take into consideration, most of them being unknown at this time.

About taxation, I may start a comparison between Romania and Australia as well. I may open an investment account on my parents name if that will show some good gains in terms of cost-effective money management.

andrew99999
Posts: 512
Joined: Fri Jul 13, 2018 8:14 pm

Re: Investing in Australia

Post by andrew99999 » Sun Sep 22, 2019 10:28 pm

retiremefast wrote:
Sun Sep 22, 2019 9:46 pm
Retirement in Australia, that is soooo distant now. It's hard to say that, to be honest. Based on my post-retirement account size (income and properties) that will later on be analysed.
There are good chances to either go back to my home country or move to a country where cost of living is lower. There are a lot of factors to take into consideration, most of them being unknown at this time.

About taxation, I may start a comparison between Romania and Australia as well. I may open an investment account on my parents name if that will show some good gains in terms of cost-effective money management.
If there is a good chance you will not retire to Australia, then globally diversified equities makes the most sense.
Similarly if you have Australian properties, there is no need for the concentration risk of overweighting Australian equities and having a large amount of your investments in the same place as your properties, job, and future income.

These are the main options available in Australia for global cap weighting

VTS/VEU 50/50 (low fee, very diversified, but US domiciled)
VGS/VISM/VGE 75/15/10 (higher fee but not US domiciled)
IWLD/VGE 90/10 (low fee, not US domiciled, but IWLD is a fund of US funds, although IShares said they plan to switch to full replication when/if AUM reaches 150-200M)

VTS = total us market 0.03 MER
VEU = total ex-us market 0.09 MER
VGS = dev LC/MC 0.18 MER
VISM = dev SC 0.32 MER
VGE = em 0.48 MER
IWLD = dev LC/MC/SC 0.09 MER
PassiveInvestingAustralia.com

AlohaJoe
Posts: 4838
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Investing in Australia

Post by AlohaJoe » Sun Sep 22, 2019 10:44 pm

retiremefast wrote:
Sun Sep 22, 2019 6:40 pm
- I know Australian Super is a good investment option, for the Retiring time that will come with 7%-11% performance rate (per year, on average 10+ years investment time) but will be restricted by the Retirement Age which seems to be an ever growing number. Currently 60 will be the margin
I'd strongly urge you to reconsider this.

You are 34 and, assuming your wife is the same age, that means there is a 20% chance that at least one of you will be alive until age 100.

That means superannuation is available for 40 years of your retirement.

By comparison, there's only 26 years until you are eligible to withdraw from superannuation.

So a first cut analysis suggests that your superannuation fund needs to be 1.5x as big as your taxable account. And that's if you retired today. If you retire when you are 40 then your superannuation fund needs to be 2x the size of your taxable account.

That means for most people, they need to make the maximum annual pre-tax contribution to their superannuation, $25,000 a year. You should be doing that before you save anything in taxable (other than an emergency fund and housing deposit, that is) and ask about brokers.

What super fund are you using?

Topic Author
retiremefast
Posts: 10
Joined: Sun Sep 22, 2019 4:37 pm

Re: Investing in Australia

Post by retiremefast » Mon Sep 23, 2019 2:05 am

andrew99999 wrote:
Sun Sep 22, 2019 10:28 pm
If there is a good chance you will not retire to Australia, then globally diversified equities makes the most sense.
Similarly if you have Australian properties, there is no need for the concentration risk of overweighting Australian equities and having a large amount of your investments in the same place as your properties, job, and future income.
Can you elaborate why globally diversified equities makes the most sense. Initially I was targeting US SP500 and VANGUARD than I saw that from Australia its not that easy to use those to invest in .. hence, I opted out for the Aussie ones.
andrew99999 wrote:
Sun Sep 22, 2019 10:28 pm
These are the main options available in Australia for global cap weighting
VTS/VEU 50/50 (low fee, very diversified, but US domiciled)
VGS/VISM/VGE 75/15/10 (higher fee but not US domiciled)
IWLD/VGE 90/10 (low fee, not US domiciled, but IWLD is a fund of US funds, although IShares said they plan to switch to full replication when/if AUM reaches 150-200M)

VTS = total us market 0.03 MER
VEU = total ex-us market 0.09 MER
VGS = dev LC/MC 0.18 MER
VISM = dev SC 0.32 MER
VGE = em 0.48 MER
IWLD = dev LC/MC/SC 0.09 MER
I do appreciate sharing this with me. Will analyze it closer in the next days to come. I am trying to understand why VAS and IVV are not among yours?
Still being new to is, I understand that MER = Management Expense Ratio not sure about dev and em though.
How / Where should I obtain relevant data about this MER?
In addition to all of this, based on the current feedback, I am inclined to use any of this 2 Aussie options CMC or IG

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BeBH65
Posts: 1555
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Re: Investing in Australia

Post by BeBH65 » Mon Sep 23, 2019 3:24 am

retiremefast wrote:
Mon Sep 23, 2019 2:05 am
Can you elaborate why globally diversified equities makes the most sense. Initially I was targeting US SP500 and VANGUARD than I saw that from Australia its not that easy to use those to invest in .. hence, I opted out for the Aussie ones.
Australia is a few percent of the world market. Why would you leave all the rest aside.

You can have a look at the wiki page Stock_asset_allocation_for_non-US_investors#Worldwide_or_overweighting_a_region or country and the studies it references.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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asset_chaos
Posts: 1645
Joined: Tue Feb 27, 2007 6:13 pm
Location: Melbourne

Re: Investing in Australia

Post by asset_chaos » Mon Sep 23, 2019 3:30 am

There's a lot you're trying to get your head around. It's not likely you'll learn all things investing instantaneously. It's better to keep money in a safe savings account, than to make a rash and potentially costly investment before you have an investment plan that you understand and have confidence in. The Bogleheads wiki has pages about Investing in Australia. If you haven't seen those yet, suggest it's a reasonable, though necessarily incomplete, resource to start with.
Regards, | | Guy

Topic Author
retiremefast
Posts: 10
Joined: Sun Sep 22, 2019 4:37 pm

Re: Investing in Australia

Post by retiremefast » Mon Sep 23, 2019 3:33 am

AlohaJoe wrote:
Sun Sep 22, 2019 10:44 pm
I'd strongly urge you to reconsider this.
You are 34 and, assuming your wife is the same age, that means there is a 20% chance that at least one of you will be alive until age 100.
That means superannuation is available for 40 years of your retirement.
By comparison, there's only 26 years until you are eligible to withdraw from superannuation.
So a first cut analysis suggests that your superannuation fund needs to be 1.5x as big as your taxable account. And that's if you retired today. If you retire when you are 40 then your superannuation fund needs to be 2x the size of your taxable account.
That means for most people, they need to make the maximum annual pre-tax contribution to their superannuation, $25,000 a year. You should be doing that before you save anything in taxable (other than an emergency fund and housing deposit, that is) and ask about brokers.
I seriously doubt it I will go over 80, but hey, I do appreciate your confidence.
Joke aside, I understand your angle here, that is why the Super contribution (Salary Sacrifice + extra contribution) were not taken as good option to follow. At least not as Investment Tools, when you have better alternatives.
AlohaJoe wrote:
Sun Sep 22, 2019 10:44 pm
What super fund are you using?
I am using AustralianSuper and my wife is having SunSuper. We are both for under 1 year, working with this 2 companies

Topic Author
retiremefast
Posts: 10
Joined: Sun Sep 22, 2019 4:37 pm

Re: Investing in Australia

Post by retiremefast » Mon Sep 23, 2019 3:42 am

BeBH65 wrote:
Mon Sep 23, 2019 3:24 am
Australia is a few percent of the world market. Why would you leave all the rest aside.
My point exactly. Initially, as I was saying, I was not even paying attention to AUstralia as a market, but I came to understand that this is still a "vergin ground" which, in some special condition, makes everything a bit more "fertile" if you accept the risks that will come will that.
BeBH65 wrote:
Mon Sep 23, 2019 3:24 am
You can have a look at the wiki page Stock_asset_allocation_for_non-US_investors#Worldwide_or_overweighting_a_region or country and the studies it references.
That`s on my reading list for the night. Thank you for mentioning it.
asset_chaos wrote:
Mon Sep 23, 2019 3:30 am
There's a lot you're trying to get your head around. It's not likely you'll learn all things investing instantaneously. It's better to keep money in a safe savings account, than to make a rash and potentially costly investment before you have an investment plan that you understand and have confidence in. The Bogleheads wiki has pages about Investing in Australia. If you haven't seen those yet, suggest it's a reasonable, though necessarily incomplete, resource to start with.
Unfortunately, this is me, trying to control everything around myself. And by "control" I mean trying to understand the logic of how things are working / are designed to work so I can go ahead and squeeze the most out of it. I do like to listen to 10 advises and make my own mind, based on my judgement. So there is no wrong answer to any of my questions, nor too many replies for that matter.
That I had already bookmarked already .. will not increase priority :)

To @everyone, I am a DBA for my day-to-day job .. unfortunately (or happily) I am always thinking at least 2 fail-safe options / backups that can be activated in case of need.

andrew99999
Posts: 512
Joined: Fri Jul 13, 2018 8:14 pm

Re: Investing in Australia

Post by andrew99999 » Mon Sep 23, 2019 4:39 am

retiremefast wrote:
Mon Sep 23, 2019 2:05 am
Can you elaborate why globally diversified equities makes the most sense. Initially I was targeting US SP500 and VANGUARD than I saw that from Australia its not that easy to use those to invest in .. hence, I opted out for the Aussie ones.
Worth having a watching of these short videos
https://www.kroijer.com
retiremefast wrote:
Mon Sep 23, 2019 2:05 am
andrew99999 wrote:
Sun Sep 22, 2019 10:28 pm
These are the main options available in Australia for global cap weighting
VTS/VEU 50/50 (low fee, very diversified, but US domiciled)
VGS/VISM/VGE 75/15/10 (higher fee but not US domiciled)
IWLD/VGE 90/10 (low fee, not US domiciled, but IWLD is a fund of US funds, although IShares said they plan to switch to full replication when/if AUM reaches 150-200M)

VTS = total us market 0.03 MER
VEU = total ex-us market 0.09 MER
VGS = dev LC/MC 0.18 MER
VISM = dev SC 0.32 MER
VGE = em 0.48 MER
IWLD = dev LC/MC/SC 0.09 MER
I do appreciate sharing this with me. Will analyze it closer in the next days to come. I am trying to understand why VAS and IVV are not among yours?
Still being new to is, I understand that MER = Management Expense Ratio not sure about dev and em though.
How / Where should I obtain relevant data about this MER?
In addition to all of this, based on the current feedback, I am inclined to use any of this 2 Aussie options CMC or IG
They already contain IVV, VAS - and more.
The VTS part of VTS/VEU contains IVV and the VEU part contains VAS
The IWLD part of IWLD/VGE contains both IVV and VAS.
The VGS part of VGS/VISM/VGE contains IVV. VAS is missing from this so you can add it in at 2% but such as small amount that it won't make any noticable difference.

Dev = developed markets. There are 23 developed countries that you can invest in.
EM = emerging markets. There are 23 emerging countries that you can invest in.
By market cap it is around 90/10 developed to emerging.
retiremefast wrote:
Mon Sep 23, 2019 3:42 am
My point exactly. Initially, as I was saying, I was not even paying attention to Australia as a market, but I came to understand that this is still a "vergin ground" which, in some special condition, makes everything a bit more "fertile" if you accept the risks that will come will that.
This is called home bias. Everyone in every country thinks there is something special about their country.
retiremefast wrote:
Mon Sep 23, 2019 3:42 am
To @everyone, I am a DBA for my day-to-day job .. unfortunately (or happily) I am always thinking at least 2 fail-safe options / backups that can be activated in case of need.
For investing, fail safe options would go under "risk mitigation".
There are multiple ways to mitigate risk.
1. Diversify through 46 countries from all developed and emerging countries to reduce concentration risk of too much within any one market.
2. Diversify into bonds so that in a deep bear market you have some assets that are relatively safe and that often go up in a recession to counteract some of the fall in equities.
PassiveInvestingAustralia.com

Topic Author
retiremefast
Posts: 10
Joined: Sun Sep 22, 2019 4:37 pm

Re: Investing in Australia

Post by retiremefast » Mon Sep 23, 2019 8:08 am

andrew99999 wrote:
Mon Sep 23, 2019 4:39 am
These are the main options available in Australia for global cap weighting
VTS/VEU 50/50 (low fee, very diversified, but US domiciled)
VGS/VISM/VGE 75/15/10 (higher fee but not US domiciled)
IWLD/VGE 90/10 (low fee, not US domiciled, but IWLD is a fund of US funds, although IShares said they plan to switch to full replication when/if AUM reaches 150-200M)

VTS = total us market 0.03 MER
VEU = total ex-us market 0.09 MER
VGS = dev LC/MC 0.18 MER
VISM = dev SC 0.32 MER
VGE = em 0.48 MER
IWLD = dev LC/MC/SC 0.09 MER

They already contain IVV, VAS - and more.
The VTS part of VTS/VEU contains IVV and the VEU part contains VAS
The IWLD part of IWLD/VGE contains both IVV and VAS.
The VGS part of VGS/VISM/VGE contains IVV. VAS is missing from this so you can add it in at 2% but such as small amount that it won't make any noticable difference.

Dev = developed markets. There are 23 developed countries that you can invest in.
EM = emerging markets. There are 23 emerging countries that you can invest in.
By market cap it is around 90/10 developed to emerging.
Extremely valuable information for someone new to this, like I am.
Analyzing the above as well as documenting myself a bit better from this forum Wiki + WWW, I end up with the classic most advisable option: 3 Fund Portfolio choosing to invest in Vanguard ETFs:
- VAS (Australian Stock Market) | 0.5% MER (0.10%MF + 4*0.10%ER calculated for IG Broker) | 9.5% average RR
- VGS (International Stock Market) | 0.58% MER (0.18%MF + 4*0.10%ER calculated for IG Broker) | 12% average RR
- VGB (Bonds) | 0.6% MER (0.20%MF + 4*0.10%ER calculated for IG Broker) | 5% average RR

Choosing Vanguard for all 3 is due to stability, experience on the market and dividend auto-reinvestment program. I am still trying to understand if I can open an account directly with them and start investing or I should opt-out for a broker (in which case I would most-likely go with IG).
The lazy way to do it is 33% on each .. I am still exploring this option as I am not yet confident I will go with it.
I don`t know what to think about VGB average yearly RR, I suppose this is being chosen for low-risk point of view.
andrew99999 wrote:
Mon Sep 23, 2019 4:39 am
This is called home bias. Everyone in every country thinks there is something special about their country.
At this moment in time, I am not considering Australia my home, the same as I am not considering Romania my home. I really have to deal with this crisis and decide which is which.

Some study time needed to understand the Management Fee (MF) / Management Expense Ratio (MER)
Found Expense Ratio
Management Fee vs Management Expense Ratio

Reading this post Advice regarding portoflio[Australia] I may consider the Vanguard Wholesale managed funds.With planing to go in Trading somewhere 2nd half next year, the $100k margin is doable. There is this one in particular that seems to cater with most of my needs: Vanguard Australian Shares Index Fund
- 0.29% Management Fee / annum
- 0.11% Transaction Fee (I do anticipate having around 4-5 / annum)
- 7-8% average Return Rate / annum
Last edited by retiremefast on Mon Sep 23, 2019 9:15 am, edited 3 times in total.

andrew99999
Posts: 512
Joined: Fri Jul 13, 2018 8:14 pm

Re: Investing in Australia

Post by andrew99999 » Mon Sep 23, 2019 8:55 am

Yes VAS/VGS/VGB is the more classic bogleheads 3-fund portfolio promoted in the US section of the site.

The MER you posted is way out though, so not sure where you got that from. The MER is 0.10, 0.18, 0.20 respectively.

The problem is that this leaves out emerging markets as well as global small caps.
Small caps is arguable because whether it out performs or not is depending on start and end date and even over very long periods it's inconclusive.
But emerging markets is a great deiversifier.

I don't see a need to choose Vanguard over IShares if you are going with ETFs. Even though Vanguard the US company is structure to be owned by it's clients, Vanguard Australia and everywhere else outside the US is a for-profit company where the profits go back to the US company, so I don't see why there would be an issue with IShares. Not only that, Vanguard recently lowered the cost of VAS 1 day after IShares lowered their equivalent, so I'm unimpressed with the fact that Vanguard will only lower it in response to competition.

To buy and sell through Vanguard directly (ie managed funds instead of ETFs), you need 100k min to start investing. Their site says 500k but if you call them they will let you in with 100k.
The advantage of their managed funds is that you can setup auto BPay payments for those who prefer to just never look at their investments for behavioural reasons (many freak out seeing the value go up and down so much each month). That's the main benefit of the managed funds over ETFs.

As for proportions - this is your most important investment decision.

First decide on a stock to bond ratio.

Secondly decide on Australian vs global split. For this, once again I don't think it makes much sense to use Australian equities in your situation, but if you're going to do it, I would keep it fairly low due to concentration risk, say 20% of your equities maybe?

Regarding VGB (Australian government bonds) - you don't hold these for their return, you hold these so that
1. You have some funds to draw on in an emergency, recession, long drawn out bear market; and
2. So that you don't freak out seeing your life savings halve in value and panic-sell making the loss permanent.

You could use the more common VAF since it is so close to VGB and is more the "vanguard way", but to me government bonds makes more sense, since I am want to get maximum portfolio stability per dollar of bonds in times of equity crisis, and get my growth on the equities side.
PassiveInvestingAustralia.com

Valuethinker
Posts: 38954
Joined: Fri May 11, 2007 11:07 am

Re: Investing in Australia

Post by Valuethinker » Mon Sep 23, 2019 9:21 am

andrew99999 wrote:
Mon Sep 23, 2019 8:55 am
Yes VAS/VGS/VGB is the more classic bogleheads 3-fund portfolio promoted in the US section of the site.

The MER you posted is way out though, so not sure where you got that from. The MER is 0.10, 0.18, 0.20 respectively.

The problem is that this leaves out emerging markets as well as global small caps.
Small caps is arguable because whether it out performs or not is depending on start and end date and even over very long periods it's inconclusive.
But emerging markets is a great deiversifier.

I don't see a need to choose Vanguard over IShares if you are going with ETFs. Even though Vanguard the US company is structure to be owned by it's clients, Vanguard Australia and everywhere else outside the US is a for-profit company where the profits go back to the US company, so I don't see why there would be an issue with IShares. Not only that, Vanguard recently lowered the cost of VAS 1 day after IShares lowered their equivalent, so I'm unimpressed with the fact that Vanguard will only lower it in response to competition.

To buy and sell through Vanguard directly (ie managed funds instead of ETFs), you need 100k min to start investing. Their site says 500k but if you call them they will let you in with 100k.
The advantage of their managed funds is that you can setup auto BPay payments for those who prefer to just never look at their investments for behavioural reasons (many freak out seeing the value go up and down so much each month). That's the main benefit of the managed funds over ETFs.

As for proportions - this is your most important investment decision.

First decide on a stock to bond ratio.

Secondly decide on Australian vs global split. For this, once again I don't think it makes much sense to use Australian equities in your situation, but if you're going to do it, I would keep it fairly low due to concentration risk, say 20% of your equities maybe?
All fantastic advice. If your income and career are in Australian Dollars & the Australian economy you want as little as possible of your investments in Australian equities.
Regarding VGB (Australian government bonds) - you don't hold these for their return, you hold these so that
1. You have some funds to draw on in an emergency, recession, long drawn out bear market; and
2. So that you don't freak out seeing your life savings halve in value and panic-sell making the loss permanent.

You could use the more common VAF since it is so close to VGB and is more the "vanguard way", but to me government bonds makes more sense, since I am want to get maximum portfolio stability per dollar of bonds in times of equity crisis, and get my growth on the equities side.
Historically Australian government bonds have paid quite decent returns ;-). However with yields down at 1-2% that's probably not the case going forward.

The other thing to point out about bonds (what you say above is of course correct and wise) is that because the correlation of bonds with equities is not 1.0, empirically, there's a "free win" in being diversified.

That translates as historical experience that a 30% bond/ 70% equity portfolio has quite similar returns to a 100% equity portfolio (American data) but significantly reduced volatility.

andrew99999
Posts: 512
Joined: Fri Jul 13, 2018 8:14 pm

Re: Investing in Australia

Post by andrew99999 » Mon Sep 23, 2019 10:04 am

Valuethinker wrote:
Mon Sep 23, 2019 9:21 am
Historically Australian government bonds have paid quite decent returns ;-). However with yields down at 1-2% that's probably not the case going forward.

The other thing to point out about bonds (what you say above is of course correct and wise) is that because the correlation of bonds with equities is not 1.0, empirically, there's a "free win" in being diversified.

That translates as historical experience that a 30% bond/ 70% equity portfolio has quite similar returns to a 100% equity portfolio (American data) but significantly reduced volatility.
Yes they have done absurdly well.
Since 1970
• Aus bonds & cash 8%
• Aus & int'l stocks 10%
http://insights.vanguard.com.au/Volatil ... visor.html

For sure they won't do as well over the next 50 years, but corporate bonds don't make much sense to me for juicingreturns. I have heard it mentioned that if you have a lot of bonds, then some corporate bonds might make sense to increase the returns a bit, but if that is the case I would still rather just use some equities for that and keep corporate bonds for their safety and diversification, so it still doesn't make sense to me to use corporates for either safety or diversification.

Fully agree about the diversification, and few people appreciate the disproportionately high benefit relative to the cost of another 10 or even 20% in bonds towards the top end.
PassiveInvestingAustralia.com

Valuethinker
Posts: 38954
Joined: Fri May 11, 2007 11:07 am

Re: Investing in Australia

Post by Valuethinker » Tue Sep 24, 2019 3:15 am

retiremefast wrote:
Sun Sep 22, 2019 6:40 pm
Good day y`all,

How`s the life on this part of the world?
My name is Alex and I am a new boglehead user and I am eager to learn from the best how to make my way into the investing world. It may sound cliché but that is me and I will soon prove that I am on the right place at the right time.

About me: 34 years old, just migrated to Australia from Romania (Europe). With permanent residency received, I have (almost) full rights on living and working in this new country. Full time employed and married with no children, my wife and I, we are used to save money from our monthly income in case of need. With no Australian mortgage on our head, we are managing to "put aside" almost 30% from our NET monthly income, planning on stretching that to around 50%.

About my plans: as you are never too sure about what will the income be after the age of retirement, I am not keen on waiting to find out if any of the governments I payed taxes are going to give them back through retirement schema. Until today, we used normal Bank Saving Accounts and Deposits to cater out needs but with the interest rate falling each year, I came to understand that 2.2-2.3% which I have now (ING Savings Maximiser) is not gone do the trick. Discussing with friends and doing a bit of research, I found out about ETFs Investments which, based on my very basic understanding, should be a good option for long-term perspective. With this topic being still something I research and study, please bear with me (and my rookie mistakes):

Country of Residence: I was born in Romania (Europe) and now living in Australia (permanent resident)
International Lifestyle: My wife and I, we moved to Australia for a change in our life, hoping for the better. Our plan is to take everything in small steps, therefore every 5 years or so, we will analyze the progress done and plan for the next 5 to come. We are not excluding anything, form getting back to Romania to even moving to another country (like US or Canada)
Currency: AUD is the currency I have my accounts and income in Austrlaia, RON / EUR everything that I have back home (no income, just Savings)
Emergency funds: We have such a found (6 month of expenses) growing month by month. We have a "leftover mortgage" in Romania that we plan on closing down with the savings in the next 6-8 months to come
Debt: Nothing other than the mortgage above
Age: 34 (both my wife and I)
Desired Asset allocation: Not sure at the time. I read good things about long-term EFTs investment and I consider this a good option to start with. Splitting the entire budget into multiple EFTs will be an option to take (Australia or Worldwide)
- ETF VAS = Vanguard Australian Shares Index ETF (Australia’s 300 largest companies, aiming to track the performance of the S&P/ASX 300 index performance)
- ETF VTS = Vanguard US Total Market Shares Index (99.5% of the US stock market, aiming to track the performance of the CRSP US Total Market Index)
- ETF IVV = iShares S&P 500 ETF (The top 500 companies in the US, aiming to track the performance of the S&P 500 Index)
My Profile: low risk steady long-term passive investment
Budget: 3000-4000$ / month
Saving options:
- ING Savings Maximiser every month, entire saving budget
- Invest in ETFs every 3 months, around $10000
Time: 25 years+ without accessing the account(s). All the dividends (if there are any) will be re-invested.
Pension: There is 1 year worth of payment from my employer, 9.5% from the yearly pre-taxes income

The plan is to learn the ways of investment in ETFs for now, make myself comfortable doing this a lifestyle and try to obtain the most out of the Australian Market. VANGUARD and SP500 seems to be the more recommended options to go with
- What do you think about this?
- What are the investing platforms I should use? Some of the ones I cam across are:
1. CommSec - good platform, extensive experience in the investing area, fees https://www.commsec.com.au/support/rates-and-fees.html between 10$ and 0.20% by transaction value (based on the amount and platform used)
2. RAIZ - new player on the investment market, limited portfolio, fees https://raizinvest.com.au/fees between 2.5$/month and 0.275% (based on account balance)
3. IG - experienced trading platform with both mobile and internet options to invest, FEES https://www.ig.com/au/share-trading-charges-and-fees between $8 / 0.1% per trade + $50 per quarter subscription fee (based on number of transaction per quarter
4. CMC Markets - experienced trading platform with both mobile and internet options to invest, FEES https://www.cmcmarkets.com/en-au/stockb ... tes#shares between $9.90 or 0.075% and $11 or 0.10% per trade, whichever is the greater (based on number of trades per month)
I am inclined to go with IG https://www.ig.com/au as it seems to be the most balanced option.

As the above plan is to be applied for long-term, my main goal is to retire faster than usual (ideally around 55 or earlier) as long as I can be sure I can obtain a minimal of $7000 / month ($85000 per year) from dividends without touching the main active. The numbers are not set in stone.

Additional questions that I can think I this time (more to come):
- what are the main fees I should have in mind, for Australia?
1. Income Tax - if I understood correctly, this is up to 30% based on the investment return value per financial year as per "Shares and property" category (https://www.moneysmart.gov.au/investing ... rk-for-you)
2. Brokerage fees - that should be included in PDS provided before signing any contract
3. Future Value of Money - how can I apply this to my financial prognoses? I was thinking on applying a 3.5-4% Inflation Rate
- I know Australian Super is a good investment option, for the Retiring time that will come with 7%-11% performance rate (per year, on average 10+ years investment time) but will be restricted by the Retirement Age which seems to be an ever growing number. Currently 60 will be the margin (https://www.moneysmart.gov.au/superannu ... your-super)

I would let you have your morning coffee reading my story above. In the meantime, I will continue to study my options as well as Investments 101 (for Dummies).
Best of luck to y`all!
My simple take is invest in a global equity index fund or ETF - trying to get the lowest possible fees. Let the market figure out what the best allocation (between stocks and markets) for you.

Your income is in AUD so you are better to globally diversify as to equity & currency exposure as much as you can.

I think pretty much all investors should be between 20% and 80% in stocks. You are growth-oriented. So the high end: 70%-80% stocks. Wait until the next bear market - believe me when you have lost 50% of your portfolio (2008-09) in about 12 months, or 35% (2000-03) in 3 years, it is hard to hold your nerve.

As to bonds you either hold Australian government bonds (no credit risk - one presumes, no currency risk) or you decide that you might not retire in Australia and so you hold bond funds hedged to USD or EUR (or half in both). If you are viewing investment through an AUD portfolio value lens this can have bad effects - if AUD is rising your bond value will be dropping, even if in reality the bonds are worth the same in USD, say.

So hedging into AUD is probably preferred until you know where you are most likely to retire (perhaps in Romania? Lots of people in Canada worked their whole lives in Canada, and spend 6 months a year back in the Old Country- Portugal or whatever - staying in Canada 6 months + 1 day to qualify for provincial healthcare plans. (more people retire in Florida & Arizona, etc. aka "snowbirds").

Valuethinker
Posts: 38954
Joined: Fri May 11, 2007 11:07 am

Re: Investing in Australia

Post by Valuethinker » Tue Sep 24, 2019 3:33 am

andrew99999 wrote:
Mon Sep 23, 2019 10:04 am
Valuethinker wrote:
Mon Sep 23, 2019 9:21 am
Historically Australian government bonds have paid quite decent returns ;-). However with yields down at 1-2% that's probably not the case going forward.

The other thing to point out about bonds (what you say above is of course correct and wise) is that because the correlation of bonds with equities is not 1.0, empirically, there's a "free win" in being diversified.

That translates as historical experience that a 30% bond/ 70% equity portfolio has quite similar returns to a 100% equity portfolio (American data) but significantly reduced volatility.
Yes they have done absurdly well.
Since 1970
• Aus bonds & cash 8%
• Aus & int'l stocks 10%
http://insights.vanguard.com.au/Volatil ... visor.html

For sure they won't do as well over the next 50 years, but corporate bonds don't make much sense to me for juicingreturns. I have heard it mentioned that if you have a lot of bonds, then some corporate bonds might make sense to increase the returns a bit, but if that is the case I would still rather just use some equities for that and keep corporate bonds for their safety and diversification, so it still doesn't make sense to me to use corporates for either safety or diversification.
One thing I have learned here is that owning corporate bonds, even investment grade, adds equity risk. I have held corporate bond funds - the best of a bad choice in a pension. And, accidentally, it turned out to be a good move -- although I could also have just owned equity funds and done even better ;-).

So corporate bonds cut portfolio diversification. Larry Swedroe (& others) have driven that point, here.
Fully agree about the diversification, and few people appreciate the disproportionately high benefit relative to the cost of another 10 or even 20% in bonds towards the top end.
I did not realise it until someone pointed it out here. I ran with 100% equities for a *very* long time (even through the Crash). But ... tempus fugit ... if we survive, we creep towards retirement date, and volatility starts to be more than a conceptual item.

pseudoiterative
Posts: 1
Joined: Tue Sep 24, 2019 6:11 am

Re: Investing in Australia

Post by pseudoiterative » Tue Sep 24, 2019 7:22 am

g'day!

> investing platforms

I am an Australian resident. When I was getting started and learning about ETFs, I signed up for vanguard australia managed funds. This was a bit clunky and old fashioned (you needed to send them a fax to sell!), and the fees are higher than directly buying the corresponding ETFs with a low cost online broker, but it was simple. Removing choice removes a lot of options for making bad decisions while learning.

Once I had learned more about investing, and wanted to have more control - I switched to interactive brokers. Pretty low fees ( https://www.interactivebrokers.com.au/en/home.php ). It is simple to transfer in money using BPAY from an australian bank account to fund investments.

> 1. Income Tax - if I understood correctly, this is up to 30% based on the investment return value

This is not quite correct. Your income from investments is added to your other income (e.g. your salary), and the total taxable income is subject to income tax. If your total taxable income is less than AUD $18,200 then you will pay 0% income tax. On the other end of the scale, if your total taxable income exceeds AUD $180,000 then you pay roughly 30% tax on the first AUD $180,000 and every additional dollar of income after the first $180,000 will be taxed at a rate of 45% . There is also an additional small tax to fund the public healthcare system ("medicare levy"), up to 2%, and yet another additional small tax, up to 1.5%, for higher income earners who have not bought private heath insurance ("medicare levy surcharge").

There is a tax discount for income from long-term capital gains: if you hold a capital asset (e.g. real estate or shares) for at least 12 months between buying and selling it, as an individual investor you get a 50% discount on the income tax you would pay for that income.

Interest payments from bank accounts, bonds and dividends from stocks are not regarded as capital gains, so do not receive any discount and are subject to the normal rules for income tax. This means that it is more tax efficient to grow wealth from capital gains rather than from interest and dividends.

There is also a special rule about "franked" dividends:

Some dividends from australian stocks (not international stocks) are regarded as "franked", meaning that the company has already paid company tax of 30% to the australian government on the profits used to generate the dividends. If an investor receives "franked" dividends, the government regards it as if the investor has already paid 30% tax on that income, and this is subtracted from the income tax the investor would normally pay, depending on the investors tax rate. This makes some kind of sense from the perspective of avoiding double taxation.

E.g. if you already have a taxable income of AUD $200,000 and then receive a "fully franked" dividend payment of AUD $1,000 , then (ignoring the medicare levy etc) your marginal income tax rate on the dividend payment would be 45%, but because the government has already been paid 30% company tax on the AUD $1,000 from the company that issued the dividend, you only need to pay the government the difference between your income tax rate and the company tax rate, i.e. 15%=45%-30% tax.

This also works in the other direction: e.g. if you started with a taxable income of AUD $0 and then receive a "fully franked" dividend payment of AUD $1,000, then your marginal income tax rate is 0% so you only need to pay the government -30% = 0-30% tax, i.e. the government refunds you the company tax that was paid on that dividend.

This is a bit complicated but it does mean that, after considering tax, a "franked" dividend from an australian stock is worth more to you than the same dividend from an international stock.

On the other hand, a lot of other people in this thread sensibly point out that if the australian economy has trouble, then perhaps you could lose your australian job at the same time as the australian stock market crashes, so it might be a good idea to have a reasonably large asset allocation to investments that are not correlated with australia's economy.

> pension / superannuation

as others have pointed out, the australian government puts large tax incentives in place to invest in the "superannuation" pension scheme, but a downside of this is generally you cannot access this until you are 65.

given that you are required to put at least 9.5% of your gross salary into the superannuation scheme, as a default option i recommend the HOSTPlus "Indexed Balanced" superannuation fund -- it has a reasonable default asset allocation and very low fees compared to other super funds. This fund is also mentioned on the wiki https://www.bogleheads.org/wiki/Investi ... rannuation

Topic Author
retiremefast
Posts: 10
Joined: Sun Sep 22, 2019 4:37 pm

Re: Investing in Australia

Post by retiremefast » Tue Sep 24, 2019 9:14 am

@everyone replaying and sharing his/her POV on my story. I am honestly thanking you all at this moment. It is a mind-opening topic for me and I know I have a lot of ground to cover before I am able to understand all your advises + being able to start investing with a logic in my actions :sharebeer

Valuethinker
Posts: 38954
Joined: Fri May 11, 2007 11:07 am

Re: Investing in Australia

Post by Valuethinker » Wed Sep 25, 2019 3:40 am

retiremefast wrote:
Tue Sep 24, 2019 9:14 am
@everyone replaying and sharing his/her POV on my story. I am honestly thanking you all at this moment. It is a mind-opening topic for me and I know I have a lot of ground to cover before I am able to understand all your advises + being able to start investing with a logic in my actions :sharebeer
Don't overcomplicate your portfolio strategy.

Superannuation is one thing and you've received some good advice from Australian investors here. That will set a large part of your asset allocation.

In portfolio strategy you need a global equity index fund, and you need a bond fund. Then you set the percentages (I would suggest 20-30% in the bond fund) and go onto autopilot, rebalancing annually.

There is an argument around Australian franking which may make you want to have a greater than market weighting in Australian stocks. I would suggest though that you limit your Australian weighting to 20-30% of the total portfolio ie enough to get some significant benefit but still maintaining a tilt towards global exposure. The Australian stock market is not very well diversified - mostly financial stocks & natural resources stocks.

Topic Author
retiremefast
Posts: 10
Joined: Sun Sep 22, 2019 4:37 pm

Re: Investing in Australia

Post by retiremefast » Thu Oct 10, 2019 10:32 pm

Took me a while to get back as I wanted to cover as much as possible with my own study. There is still a lot that I don`t know, but looking back, I am happy with my progress so far. Bellow, I have synthesized my case, based on my research, my expectations and your valuable input:
Valuethinker
pseudoiterative
andrew99999


Case profile - revised:

Country of Birth: Romania (nationality)
Country of Residence: Australia (Permanent Resident)
International Lifestyle: 2025 will be the year we consider the possibility of living in US for 5 years. Probability for this to happen, at this time is 30%
Currency: AUD
Emergency Fund Account (EFA): 6 months, achieved in mid-2020. Will be hosted by an ING Savings Account with a 2.2% interest rate to a max of AUD 100k (everything above this will be transferred to Investment found)
Debt: Mortgage of EUR 20k (4-5% real interest rate) that will be closed in md-2020
Age: Almost 34
Australian Superannuation Fond: 9.5% of Gross Year Income paid by employer hosted by Australian Super that claims to have a growth rate of 9.x% per year, over minimum 10 years contribution.
Goal: Based on our savings account, we consider moving back to Europe (Romania) due to low cost of life comparing with Australia / US. Ideal early retirement is 50 (year 2035) or when we can achieve financial independence
Investing Plan: Total Family Income of AUD 10k / month out of which 10% to Emergency Savings, 30% to Investing Account, 60% to Monthly Expenses.
As soon as the above Debt is paid in full, will start investing with AUD 5k Initial Deposit and then continue with AUD 3k deposit per month (adapting and aiming for 45% of monthly family income)
Time Allocation: 20-25 years active investment (or until financial freedom is achieved)
Investment approach: on long term, medium risk investment with average steady growth rate
Desired Asset Allocation: 90% stocks / 10% bonds, that will be adapted every 5 years (bonds will grow up and stocks will shrink down)
  • 45% Vanguard U.S. Total Market Shares Index ETF (VTS)
    Expense Rate: 0.03% vs
    Performance since Inception (around): 13%
    Equity Yield / dividend (around): 1.8%, quarterly – to be reinvested
    Distribution reinvestment plan: Not Available
About Australian Superannuation (as retirement fund), at this moment I am using Australian Super with a Balanced portfolio which seems to aims towards a 9.65% performance (annual average, since inception) for the current 9.5% of annual gross income employer contribution. In terms of costs and fees, if my understanding is correct, I am paying for it:
  • Investment Fees: 0.6% per year, of total Super portfolio
    Administration Fees: flat $2.25 per week (around $118 per year)
    Insurance Fees: $22 per month (around $265) which I am now considering at cancelling (planning to go for a family package Private Medical + Life Insurance instead)
    Governmental Tax: 15% applied to yearly gross contribution (minus Insurance, where the case exists)
I am not yet considering the Salary Sacrifice option, but this can be a good option to limit the tax payed (there is a $25k concessional contribution cap per person that should have double benefits: lower the gross annual tax marginal rate as well as be subject of only 15% income tax ) and increase the retirement fund (that should be accessible after retirement age – 65)
Desired Online Brokerage tool would be Saxo Trader which seems to be a straight forward tool to use for some low fees as compared with the market. IG will come second but seems to be a good option for a later stage, when more experience will be accumulated.

Study materials:

Investing in Australia
Best Australian ETF for Australian Shares
Safe Withdrawal Rate (SWR)
Very good post with insightful advices for me as well (indirect)

Things to clarify:

1. Reinvestment of dividends (DRP) will help me lower the investment expenses by not paying extra brokerage fees, but they don’t work with the above equites chosen. That seems to add an extra $6.99 / buy transaction which seem to be bearable
2. Franking is a topic in which I should invest a bit of time to understand it and see how I can apply this on my case. As this is particular to Australian-based ETFs, is that really a thing to consider at this point? (seems to over-complicate life at this time)
3. Are there any things I should consider if I decide to live couple of years outside Australia? That means income will be in either US$ or maybe EUR. Other than exchange rate what should I consider? (not really planning a life-time movement, but we consider leaving 3-5 yeas in US, sometime in the future)
4. Retiring in Romania (as an example) but keeping everything in Australian Investment Market, will that be a problem?
Total Monthly Income, after reaching retiring age (65-67), I do hope to be around $6-7k and should be, ideally, just dividends + maybe 3.5% SWR, on the premises that I can move my total Super into investment portfolio and I will be able to switch everything to maybe 20% equites / 80% bonds/cash/other payment option? Is that something achievable?
5. Are there any broad/general tax minimizing impact for Australian market? (trying to anticipate the progress therefore need to be on the right track from the begging)
6. Is there a better way to work my investing portfolio based on everything I shared or the current direction is just about right for a beginner? Shifting later will that have any big impact? I do like to keep everything simple but I know myself and I am pretty sure I will go full-retard with reading / learning / listening advises as I am a control-freak 😊

I do thank each and everyone of you guys for helping and sharing your view!

andrew99999
Posts: 512
Joined: Fri Jul 13, 2018 8:14 pm

Re: Investing in Australia

Post by andrew99999 » Fri Oct 11, 2019 11:21 pm

Hopefully others will chime in because there was a lot of information there.

-----

Good work on the high planned savings rate.

-----

Super

For your super fund - don't spend time on what their historical returns were because over performance for 5 or 10 years very often results in under performance in the next period. Others may be able to go into a bit more on this, I don't have the time right now.

The fee of 0.6 is way too high if you ask me.

Also the Australian super funds will for sure have a lot of Australian equities in there which for someone less likely to retire to Australia doesn't make any sense.

I'd suggest looking at sunsupers indexing funds which is managed by Vanguard I believe and fees are low (I think around 0.09 for the funds and maybe the same again for other costs).

Here is a good thread on it, you don't need to recreate the Australian all-in-one funds as in the thread and just pick global cap weighted funds.
https://forums.whirlpool.net.au/archive/2635984

Fees for sunsuper
https://www.reddit.com/r/fiaustralia/co ... t_of_fees/

------

When choosing VTS/VEU, be aware of the US domicile issue.
Also be aware of how it may affect you in any other countries you move too.
Again, hopefully others can go into this a bit more and with some links.

------

Franking:

Franking credits - how much more are you really getting

Ceasing to be a resident

Non-residents or not planning on retiring to Australia

If you are going to leave, then upon leaving, you will want to "elect" to pay your capital gains to the ATO (simply by calculating the CGT and paying it in your final tax return), otherwise your capital gains will continue to grow even after you leave. Also you want to do this BEFORE you stop being a resident so that you can get the 50% CGT discount on shares held over 12 months, which will not be available if you sell down while a non-resident.

No problem investing into the ASX funds after you stop being a resident, provided you elect to pay CGT before you leave. You can then re-buy back into the ASX listed funds as a non-resident and there should be no additional taxes payable to the Australian government going forward compared to buying the Ireland domiciled funds.
PassiveInvestingAustralia.com

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