[AUS] Planning for flexible international retirement. Help?

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1dangerousmind
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Joined: Sun Dec 01, 2019 7:37 pm

[AUS] Planning for flexible international retirement. Help?

Post by 1dangerousmind » Sun Dec 01, 2019 7:50 pm

Hello beautiful people -- would love some help.

Country of residence: Australia (permanent resident, working towards citizenship)
Background: 30s M+F, year 1 of investing ~A$50K a year, working towards a target of A$2.5M --> RETIREMENT

Goal: building a global ETF growth portfolio that will allow both of us to live in different countries passively of off A$100K

*****
I've started with the following portfolio:
- 45% VTS - Total US market
- 25% VEU - Total ex-US market
- 25% VAE - Asia ex-Japan (70% Asian emerging markets, 30% Asian developed ex-Japan)
- 05% A200 - Australian index

But since it's just year 1 for us and we're putting in sizeable amounts yearly -- wanted to know if there are any comments to bear in mind regarding an eventual nomadic lifestyle (e.g. should we steer clear of US-domiciled ETFs, should we incorporate a company and trust in AUS or SIN etc., taxation?)

All help is greatly appreciated. You guys are amazing!
Last edited by 1dangerousmind on Mon Dec 02, 2019 7:19 am, edited 2 times in total.

andrew99999
Posts: 525
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Re: [AUS] Planning for nomadic/international retirement. Help?

Post by andrew99999 » Sun Dec 01, 2019 9:51 pm

Welcome to the forum.


Firstly, VTS/VEU are US domiciled, so you need to be aware of that. With your nomadic lifestyle if you become a resident in a country without a US tax treaty you will have to pay 30% tax on dividends for VTS vs 15%, and you will be paying 30% tax on VEU where you would pay none for an Australian domiciled fund. I've read that Vanguard has mentioned to at least a couple of people in private correspondence that they plan to re-domicile these to Australia at some point but right now they are focusing on adding actively managed funds so who knows if and/or when this will happen. Also if they simply use an Australian wrapper, the 15% US tax for VEU would still be paid whereas it would not with a fund that uses full replication instead of holding US domiciled funds inside Australian domiciled funds.

Your global cap weighting options are basically

1. VTS/VEU - lowest cost and most diversified but US domiciled

2. IWLD + EM - IWLD has been re-domiciled to Australia but contains US domiciled funds in it, so there is some tax being lost in their US domiciled fund that contains non-US equities. IShares has said they will go full replication when AUM hits 150-200m and has been growing rapidly since they halved their MER to 0.09 a few months ago, so it looks like they might hit that AUM target within the next year. Also their spreads are high. Does this lower when AUM grows significantly?

3. VGS + EM - VGS is Aus domiciled so missing all the problems with the 2 funds above, but MER is higher at 0.18. It is also missing small caps, and you can add VISM but even higher MER (0.32) and small caps is debatable. I suspect they may have to lower the cost of VGS when IWLD goes full replication because I don't see how everyone would just flock to IWLD at that time - both cheaper, more diversified


Secondly, VEU already contains Australian equities in market cap proportions. I don't think 5% more will make any meaningful difference so I would just not bother with that.


Thirdly, VEU already contains emerging markets, so that's a of a lot of emerging markets - 17.5% in VAE plus the 5% in VEU. Emerging markets tends to hover between 10 and 15%, I think about currently 12%, and I would keep it at a max of around 15% due to their high volatility and concentration risk.
Last edited by andrew99999 on Mon Dec 02, 2019 12:37 am, edited 8 times in total.
PassiveInvestingAustralia.com

DJN
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Re: [AUS] Planning for nomadic/international retirement. Help?

Post by DJN » Sun Dec 01, 2019 10:06 pm

Hi,
good advice already above. Have a read of the Bogleheads Wiki sections, start here: https://www.bogleheads.org/wiki/Outline ... _domiciles
good luck,
DJN
Yah shure

Topic Author
1dangerousmind
Posts: 9
Joined: Sun Dec 01, 2019 7:37 pm

Re: [AUS] Planning for nomadic/international retirement. Help?

Post by 1dangerousmind » Sun Dec 01, 2019 10:51 pm

andrew99999 wrote:
Sun Dec 01, 2019 9:51 pm

2. IWLD + EM - IWLD has been re-domiciled to Australia but contains US domiciled funds in it, so there is some tax being lost in their US domiciled fund that contains non-US equities. IShares has said they will go full replication with AUM hits 150-200m and has begun growing rapidly since they halved their MER to 0.09 a few months ago, so it looks like they might hit that AUM target within the next year. Also their spreads are high. Does this lower when AUM grows significantly?
Thanks for the terrific effort, mate -- you've given me serious food for thought. Really appreciate the effort put in.

Did some quick reading up on IWLD. Can I have two follow up questions:
1. Thoughts on 85% IWLD and 15% VAE?

2. Thoughts on say 20% in an ASX LIC (e.g. Milton) and the balance 80% in the above proportion? The only reason I even put this on the table is because everyone seems to be talking about the benefits of over weighing ASX for franking credits etc. [Optimal ratio is supposedly 40%:60%]

In an ideal world, we'll retain the corpus in Australia (along with AUS citizenship) while we travel.
Last edited by 1dangerousmind on Sun Dec 01, 2019 11:09 pm, edited 1 time in total.

Topic Author
1dangerousmind
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Re: [AUS] Planning for nomadic/international retirement. Help?

Post by 1dangerousmind » Sun Dec 01, 2019 10:52 pm

DJN wrote:
Sun Dec 01, 2019 10:06 pm
Hi,
good advice already above. Have a read of the Bogleheads Wiki sections, start here: https://www.bogleheads.org/wiki/Outline ... _domiciles
good luck,
DJN
Thanks DJN, on it like a bonnet.

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Prokofiev
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Re: [AUS] Planning for nomadic/international retirement. Help?

Post by Prokofiev » Sun Dec 01, 2019 10:53 pm

You are saving for a goal . . . in this case "nomadic travel". The important thing is to save and invest to maximize your future net worth. The exact goal is not really that important. At this point in time you are only beginning your investment journey, so focus on savings rate, income and job advancement. Low expense, diversified, index funds with 80-90% in stocks will probably get you there. Have an investment plan.

A future with continual, nomadic travel may sound attractive right now, but plans can change over time. This may or may not be a good plan. Time will tell, But having the resources to fund whatever you might like to do is the important thing.

Good luck, -P
Everything should be made as simple as possible, but not simpler - Einstein

Topic Author
1dangerousmind
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Re: [AUS] Planning for nomadic/international retirement. Help?

Post by 1dangerousmind » Sun Dec 01, 2019 11:00 pm

Spot on. I've done a fair bit of contemplating regarding risk profile, retirement target/SWR, and am continually working towards increasing income/savings and decreasing expenses. The questions were mainly around optimising portfolio with the dry powder I can come up with year-on-year.

Thanks for engaging! :)

andrew99999
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Re: [AUS] Planning for nomadic/international retirement. Help?

Post by andrew99999 » Sun Dec 01, 2019 11:57 pm

1dangerousmind wrote:
Sun Dec 01, 2019 10:51 pm
1. Thoughts on 85% IWLD and 15% VAE?
Looks great. Very close to global cap weighting. Also low cost.

As I said, main issue is them going full replication, and the spreads.
They said they are planning on the first, and I don't know enough about spreads but I guess(?) it should narrow as AUM grows but I'm just guessing because I don't really know.

1dangerousmind wrote:
Sun Dec 01, 2019 10:51 pm
2. Thoughts on say 20% in an ASX LIC (e.g. Milton) and the balance 80% in the above proportion? The only reason I even put this on the table is because everyone seems to be talking about the benefits of over weighing ASX for franking credits etc. [Optimal ratio is supposedly 40%:60%]

In an ideal world, we'll retain the corpus in Australia (along with AUS citizenship) while we travel.
LICs, for any non-Aussies reading, are closed end funds. Similarly popular in the UK (I think as LITs?).
MLT/ARG/AFI are the 50+ year old Australian LICs that were a low cost index proxy before there was indexing, so for the rest of this paragraph, when I say LIC''s I will refer to those and not the other more actively managed LIC's
I'd expect over the long term they run pretty close to the Aussie index, but just going a bit over or under at different times. Unfortunately there is a lot of misconceptions and half truths about LIC's and most of the reasons put forward are nonsense.
The reason I would choose an Australian index over an LIC is that an index has no manager risk. Even if the risk is tiny, why take it?
The reason to choose one of these LICs is because you really believe in their management team. If you don't have a strong belief in it, I see no reason to take on manager risk.

As for benefits of overweighting Australian equity -

On why not to invest mostly in Australian shares
  • Tax advantages (franking credits) are largely priced-in in and what remains may be gone in the future.
  • Idiosyncratic country risk (single country risk). Nobody has any idea if Australia will continue to perform well or if will go into an isolated economic crisis.
  • Your income and job security are tied to Australia so investing internationally will reduce the risk of your income and investments going down together.
  • You can improve risk-adjusted returns investing globally.
  • Global equities hedged to AUD can accomplish the same mitigation of currency risk for a practically insignificant cost while removing idiosyncratic country risk.

On why to invest some amount in Australian shares
  • Still some benefit remaining from franking (for now)
  • May regret going with little or no Australian shares if Australia out performs (note the opposite of this is possible)

I personally think if retiring to Australia, a max of maybe 20-30% Australian shares seems like I could tolerate problems related to the list of reasons not to overweight Australian shares in exchange for any benefits, but the if likely to retire to Australia, less reason to overweight them.

_______________________________

Important things not discussed yet:

1. Bonds have not been discussed at all. Hopefully someone will chime in. Despite the fact that Aussies (and FIRE followers) seem to think bonds are rubbish, they have an important use.

2. Pinned at the top of the list of threads is a link My portfolio: seeking advice which gives you a way to layout all of your information including debts, super, property, other investments, goals, etc, and people will be able to give better advice with much more information, especially since you should be moving towards an Investment Policy Statement (IPS) with a laid out plan so that you have the end in mind and map to get there. I'm have no idea if this is best in a new thread or not.
PassiveInvestingAustralia.com

DJN
Posts: 516
Joined: Mon Nov 20, 2017 12:30 am

Re: [AUS] Planning for nomadic/international retirement. Help?

Post by DJN » Mon Dec 02, 2019 12:23 am

1dangerousmind wrote:
Sun Dec 01, 2019 10:51 pm
1. Bonds have not been discussed at all. Hopefully someone will chime in. Despite the fact that Aussies (and FIRE followers) seem to think bonds are rubbish, they have an important use.
Hi,
its been recommended by some smart people that the ordinary investor should never hold more than 75% in equities and never less than 25% in equities. Inversely a minimum of 25% in bonds would be sensible. In the case of your safe side what's the alternative to bonds? Cash of course, but probably not the lot.
DJN
Yah shure

Topic Author
1dangerousmind
Posts: 9
Joined: Sun Dec 01, 2019 7:37 pm

Re: [AUS] Planning for nomadic/international retirement. Help?

Post by 1dangerousmind » Mon Dec 02, 2019 12:46 am

Honestly, for the next 5-10 years, I was only considering equities + small emergency fund since we're both highly qualified working professionals. Thought we'd make our money work as hard as possible. The bond ramp-up would ostensibly start then.

Topic Author
1dangerousmind
Posts: 9
Joined: Sun Dec 01, 2019 7:37 pm

Re: [AUS] Planning for nomadic/international retirement. Help?

Post by 1dangerousmind » Mon Dec 02, 2019 1:24 am

andrew99999 wrote:
Sun Dec 01, 2019 11:57 pm
On why to invest some amount in Australian shares
  • Still some benefit remaining from franking (for now)
  • May regret going with little or no Australian shares if Australia out performs (note the opposite of this is possible)
So now I'm leaning towards:
  • 70% iShares Core MSCI World All Cap ETF
  • 15% Vanguard FTSE Asia ex Japan Shares Index ETF
  • 15% Betashares Australia 200 ETF
2. Pinned at the top of the list of threads is a link My portfolio: seeking advice which gives you a way to layout all of your information including debts, super, property, other investments, goals, etc, and people will be able to give better advice with much more information, especially since you should be moving towards an Investment Policy Statement (IPS) with a laid out plan so that you have the end in mind and map to get there. I'm have no idea if this is best in a new thread or not.
Didn't realise you ran passiveinvestingaustralia.com -- absolutely stellar stuff with that. I'm working on an IPS as we speak.

andrew99999
Posts: 525
Joined: Fri Jul 13, 2018 8:14 pm

Re: [AUS] Planning for nomadic/international retirement. Help?

Post by andrew99999 » Mon Dec 02, 2019 2:55 am

1dangerousmind wrote:
Mon Dec 02, 2019 1:24 am
So now I'm leaning towards:
  • 70% iShares Core MSCI World All Cap ETF
  • 15% Vanguard FTSE Asia ex Japan Shares Index ETF
  • 15% Betashares Australia 200 ETF
Looks good.
1dangerousmind wrote:
Mon Dec 02, 2019 1:24 am
Didn't realise you ran passiveinvestingaustralia.com -- absolutely stellar stuff with that. I'm working on an IPS as we speak.
Thank you.
Here are some more links on the IPS if you need.
Investment policy statement
You Need An Investing Plan - The White Coat Investor
Designing Your Portfolio series - - The White Coat Investor
Post Your Investment Policy - mrmoneymustache post
PassiveInvestingAustralia.com

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

Re: [AUS] Planning for nomadic/international retirement. Help?

Post by Valuethinker » Mon Dec 02, 2019 8:39 am

1dangerousmind wrote:
Mon Dec 02, 2019 1:24 am
andrew99999 wrote:
Sun Dec 01, 2019 11:57 pm
On why to invest some amount in Australian shares
  • Still some benefit remaining from franking (for now)
  • May regret going with little or no Australian shares if Australia out performs (note the opposite of this is possible)
So now I'm leaning towards:
  • 70% iShares Core MSCI World All Cap ETF
  • 15% Vanguard FTSE Asia ex Japan Shares Index ETF
  • 15% Betashares Australia 200 ETF
2. Pinned at the top of the list of threads is a link My portfolio: seeking advice which gives you a way to layout all of your information including debts, super, property, other investments, goals, etc, and people will be able to give better advice with much more information, especially since you should be moving towards an Investment Policy Statement (IPS) with a laid out plan so that you have the end in mind and map to get there. I'm have no idea if this is best in a new thread or not.
Didn't realise you ran passiveinvestingaustralia.com -- absolutely stellar stuff with that. I'm working on an IPS as we speak.
My usual caution about 100% equities.

Because the correlation between government bonds and equities is low (original tests done S&P 500 equity index against US Treasury bonds) there is a gain to diversification. That is the bend left in the Efficient Frontier (risk on the x axis, expected return on the y axis)-- like an archer facing right drawing her bow. Otherwise it would just be a straight line (more equities, more return, with a linear risk relationship).

The practical difference is that for up to 30% bonds, the reduction in total return is quite low (nothing like 30%). The reduction in volatility is quite large. The rebalancing benefit is there.

Most of us, however, learn our responses to bear markets by living through them. Note that 1980, 1990, 2000-03, 2008-09 were all very different in terms of how they were experienced.

How I would have survived the 1968-1980 bear market I do not know. Let alone the 1973-75 UK crash (someone was quoting -73% not sure if that is nominal or real? Inflation was about 20% pa at that time).
Last edited by Valuethinker on Mon Dec 02, 2019 9:33 am, edited 1 time in total.

Valuethinker
Posts: 39048
Joined: Fri May 11, 2007 11:07 am

Re: [AUS] Planning for nomadic/international retirement. Help?

Post by Valuethinker » Mon Dec 02, 2019 9:28 am

1dangerousmind wrote:
Mon Dec 02, 2019 1:24 am
andrew99999 wrote:
Sun Dec 01, 2019 11:57 pm
On why to invest some amount in Australian shares
  • Still some benefit remaining from franking (for now)
  • May regret going with little or no Australian shares if Australia out performs (note the opposite of this is possible)
That last one is just not a reasonable regret. I mean you may experience it, but it's not worth shifting your asset allocation strategy over it.

I could see that Australian market is something of a global commodity price inflation hedge. The ASX probably does relatively well under conditions of rising global inflation.
So now I'm leaning towards:
  • 70% iShares Core MSCI World All Cap ETF
  • 15% Vanguard FTSE Asia ex Japan Shares Index ETF
  • 15% Betashares Australia 200 ETF
Are these latter two not simply doubling up?

Why not hold 15% Australia (c. 5x overweight) and 85% world? If your world fund does not have EM you could be 15% Australia, 15% EM, 70% world - although the level of correlation is so high between Australian economy & China in particular (1/3rd of EM + Taiwan another 10%+) that you could argue you should avoid having more EM exposure- stick with developed markets.

andrew99999
Posts: 525
Joined: Fri Jul 13, 2018 8:14 pm

Re: [AUS] Planning for nomadic/international retirement. Help?

Post by andrew99999 » Mon Dec 02, 2019 10:39 am

Valuethinker wrote:
Mon Dec 02, 2019 9:28 am
1dangerousmind wrote:
Mon Dec 02, 2019 1:24 am
andrew99999 wrote:
Sun Dec 01, 2019 11:57 pm
On why to invest some amount in Australian shares
  • Still some benefit remaining from franking (for now)
  • May regret going with little or no Australian shares if Australia out performs (note the opposite of this is possible)
That last one is just not a reasonable regret. I mean you may experience it, but it's not worth shifting your asset allocation strategy over it
I agree the point could be left out, but whether it is "reasonable" is arguable.
Valuethinker wrote:
Mon Dec 02, 2019 9:28 am
So now I'm leaning towards:
  • 70% iShares Core MSCI World All Cap ETF
  • 15% Vanguard FTSE Asia ex Japan Shares Index ETF
  • 15% Betashares Australia 200 ETF
Are these latter two not simply doubling up?

Why not hold 15% Australia (c. 5x overweight) and 85% world? If your world fund does not have EM you could be 15% Australia, 15% EM, 70% world - although the level of correlation is so high between Australian economy & China in particular (1/3rd of EM + Taiwan another 10%+) that you could argue you should avoid having more EM exposure- stick with developed markets.
The Australian index has been pretty close to that of EM since after the asian crisis at the end of the 90's, but there's no reason why Australian couldn't have an isolated downturn which is where EM could provide a diversification benefit.
PassiveInvestingAustralia.com

Topic Author
1dangerousmind
Posts: 9
Joined: Sun Dec 01, 2019 7:37 pm

Re: [AUS] Planning for nomadic/international retirement. Help?

Post by 1dangerousmind » Mon Dec 02, 2019 6:31 pm

andrew99999 wrote:
Mon Dec 02, 2019 10:39 am
Valuethinker wrote:
Mon Dec 02, 2019 9:28 am
1dangerousmind wrote:
Mon Dec 02, 2019 1:24 am
andrew99999 wrote:
Sun Dec 01, 2019 11:57 pm
On why to invest some amount in Australian shares
  • Still some benefit remaining from franking (for now)
  • May regret going with little or no Australian shares if Australia out performs (note the opposite of this is possible)
That last one is just not a reasonable regret. I mean you may experience it, but it's not worth shifting your asset allocation strategy over it
I agree the point could be left out, but whether it is "reasonable" is arguable.
Valuethinker wrote:
Mon Dec 02, 2019 9:28 am
So now I'm leaning towards:
  • 70% iShares Core MSCI World All Cap ETF
  • 15% Vanguard FTSE Asia ex Japan Shares Index ETF
  • 15% Betashares Australia 200 ETF
Are these latter two not simply doubling up?

Why not hold 15% Australia (c. 5x overweight) and 85% world? If your world fund does not have EM you could be 15% Australia, 15% EM, 70% world - although the level of correlation is so high between Australian economy & China in particular (1/3rd of EM + Taiwan another 10%+) that you could argue you should avoid having more EM exposure- stick with developed markets.
The Australian index has been pretty close to that of EM since after the asian crisis at the end of the 90's, but there's no reason why Australian couldn't have an isolated downturn which is where EM could provide a diversification benefit.
I'm fundamentally more comfortable with having separate investments tracking the ASX and EM. If we were perfectly rational investors, I wouldn't have the slight EM-bend that I do, but the (diminishing?) marginal diversification makes it worthwhile maybe.
Last edited by 1dangerousmind on Mon Dec 02, 2019 7:11 pm, edited 1 time in total.

Topic Author
1dangerousmind
Posts: 9
Joined: Sun Dec 01, 2019 7:37 pm

Re: [AUS] Planning for nomadic/international retirement. Help?

Post by 1dangerousmind » Mon Dec 02, 2019 6:35 pm

Valuethinker wrote:
Mon Dec 02, 2019 9:28 am
Why not hold 15% Australia (c. 5x overweight) and 85% world? If your world fund does not have EM you could be 15% Australia, 15% EM, 70% world - although the level of correlation is so high between Australian economy & China in particular (1/3rd of EM + Taiwan another 10%+) that you could argue you should avoid having more EM exposure- stick with developed markets.
Precisely what I've tried to do with current portfolio i.e.
70% developed world
15% ASX
15% EM

The point about China correlation is well-taken.
My usual caution about 100% equities.
As is this. I may well add-in a 10% bond component (Australian Govt./high quality) -- do you have a view as to should this start immediately or after a considered period?

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