[AUS] Seeking Advice

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Topic Author
taeubs
Posts: 3
Joined: Wed Nov 20, 2019 12:12 am

[AUS] Seeking Advice

Post by taeubs » Sun Dec 01, 2019 2:09 am

Hi all,

Country of Residence: Australia
International Lifestyle: Australian-citizen living and expecting to retire in Australia
Currency: Australian Dollar (AUD)
Emergency Funds: Have an existing amount allocated
Debt: Only debt is a student loan which has no interest rate attached but is adjusted for inflation on a yearly basis
Age: 21
Desired Asset Allocation: 75% stocks (20% local AUS stocks and 55% international stock) / 25% bonds
Desired allocation to stocks outside your of country of residence: 55% of the 75% allocated to stocks
Total Portfolio: mid five figures
_______________________________________________________________

Question:

1. I am looking to adopt a simple portfolio of three ETFs, with the aim of selecting ETFs which are Australican domiciled so no US estate tax issues and for simplicity. At present, I am thinking of the following ETFs:

Bond Fund = Vanguard Australian Government Bond Index ETF (VGB)
Local Stock Fund = Vanguard Australian Shares Index ETF (VAS)
International Stock Fund = iShares Core MSCI World All Cap ETF (IWLD)

I am building this portfolio with an investment timeframe of 25+ years (long-term goal). I am currently trading with CommSec due to the ease of already banking with the Commonwealth Bank.

Any feedback would be appreciated, as I am still learning! Thank you in advance!

User avatar
asset_chaos
Posts: 1657
Joined: Tue Feb 27, 2007 6:13 pm
Location: Melbourne

Re: [AUS] Seeking Advice

Post by asset_chaos » Mon Dec 02, 2019 2:05 am

Your plan is sound. And investment-wise you're way ahead of the game. Congratulations and continue to save and invest as you're doing. Finally, remember that at your age financial investment is only part of the strategy; even more important is to invest in yourself, in your skills and experience to both enrich your life and keep yourself able to earn reasonable money.
Regards, | | Guy

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

Re: [AUS] Seeking Advice

Post by andrew99999 » Mon Dec 02, 2019 3:05 am

You could add some emerging markets since IWLD doesn't contain them, they're a great diversifier, but since they would only be 10% of your portfolio, it's not going to cripple your gains or anything if you leave it out when going for simplicity.

Overall excellent, and amazing that you are doing this at 21.

+1 to asset_chaos, now that you have your investment sorted out, you can spend your time seeking ways to up skill and improve your earnings capacity.
PassiveInvestingAustralia.com

Topic Author
taeubs
Posts: 3
Joined: Wed Nov 20, 2019 12:12 am

Re: [AUS] Seeking Advice

Post by taeubs » Mon Dec 02, 2019 7:19 pm

Hi,

Thank you both for your replies! I really appreciate you sharing your knowledge with me. In relation to adding some emerging markets, would this portfolio be more appropriate to have greater diversification:

Bond Fund = Vanguard Australian Government Bond Index ETF (VGB)
Local Stock Fund = Vanguard Australian Shares Index ETF (VAS)
International Stock Fund = iShares Core MSCI World All Cap ETF (IWLD)
Emerging Market Stock Fund = Vanguard FTSE Emerging Markets Shares ETF (VGE)

Would the addition of the VGE ETF be suitable, or is there a better ETF I should consider?

Thank you again for your comments, and any other feedback.

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

Re: [AUS] Seeking Advice

Post by andrew99999 » Mon Dec 02, 2019 7:33 pm

Yes VGE seems to be the fund of choice, considering the alternative (IEM) is even more expensive.
PassiveInvestingAustralia.com

Topic Author
taeubs
Posts: 3
Joined: Wed Nov 20, 2019 12:12 am

Re: [AUS] Seeking Advice

Post by taeubs » Mon Dec 02, 2019 8:04 pm

Thank you again for your comments, I really appreicate them!

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

Re: [AUS] Seeking Advice

Post by Valuethinker » Tue Dec 03, 2019 5:46 am

taeubs wrote:
Sun Dec 01, 2019 2:09 am
Hi all,

Country of Residence: Australia
International Lifestyle: Australian-citizen living and expecting to retire in Australia
Currency: Australian Dollar (AUD)
Emergency Funds: Have an existing amount allocated
Debt: Only debt is a student loan which has no interest rate attached but is adjusted for inflation on a yearly basis
Age: 21
Desired Asset Allocation: 75% stocks (20% local AUS stocks and 55% international stock) / 25% bonds
Desired allocation to stocks outside your of country of residence: 55% of the 75% allocated to stocks
Total Portfolio: mid five figures
_______________________________________________________________

Question:

1. I am looking to adopt a simple portfolio of three ETFs, with the aim of selecting ETFs which are Australican domiciled so no US estate tax issues and for simplicity. At present, I am thinking of the following ETFs:

Bond Fund = Vanguard Australian Government Bond Index ETF (VGB)
Local Stock Fund = Vanguard Australian Shares Index ETF (VAS)
International Stock Fund = iShares Core MSCI World All Cap ETF (IWLD)

I am building this portfolio with an investment timeframe of 25+ years (long-term goal). I am currently trading with CommSec due to the ease of already banking with the Commonwealth Bank.

Any feedback would be appreciated, as I am still learning! Thank you in advance!
I know there are tax advantages for Australians investing in Australian company shares - franking of dividends (I think I'd call that a "dividend tax credit").

However:

- Australia is only a small part of the world index (say around 3% of world developed markets)
- Australia's stock market is highly concentrated around a small group of stocks - banks and natural resource companies in particular

In addition your income, your state pension (whatever level that is), your home equity (if you buy one) will all be in Australian dollars. And Australia is a quite currency sensitive economy - it imports much of what it consumes. Thus a weak AUD is actually likely to be a hit to your standard of living (albeit a stimulus to exports).

So overweighting Australia is to lose a lot of diversification - both in stock terms (number of stocks, sectors especially tech, healthcare, branded consumer goods) and in terms of currency.

The counterargument is that the Australian index 1900-2016 outperformed even the US index. So in the long run it's been a great bet.

I would not have a big Australian weighting - 10-15% would be OK. Not on a 40 year time horizon.

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