[AUS] Portfolio Allocation Advice

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Topic Author
VanguardAnon
Posts: 3
Joined: Sat Mar 28, 2020 4:42 am

[AUS] Portfolio Allocation Advice

Post by VanguardAnon »

Hi All!

I have been trying to follow the Bogle way of investing for the last few years, and as it stands my portfolio consists of the following:

VAN0011AU Vanguard International Shares Index Fund $24,000
VAN0015AU Vanguard LifeStrategy High Growth Fund $27,000

I prefer the index funds as i signed up with the old vanguard platform and i prefer to do the BPAY transactions into these, rather than buying ETFs as i invest $3,000 per month.

I know there is overlap with the International Shares Fund and the VDHG fund, so i am wondering where should i focus my monthly deposits more?
As i am 25 with a before tax salary of $100k, is it better to bring my International shares % higher for a more "risky" higher rate of return, or should i only be buying into the VDHG fund from now on?

or should i maybe pick up another Vanguard ETF?

I am very open to your ideas and suggestions regarding my allocation, as i feel i am somewhat on the right path but i do not have any real conviction as to the percentage split i put my money into.

Thanks!
andrew99999
Posts: 799
Joined: Fri Jul 13, 2018 8:14 pm

Re: [AUS] Portfolio Allocation Advice

Post by andrew99999 »

Welcome to the forum.

I like your 2-fund portfolio.

I'm going to call the international fund 'VGS' and the lifestrategy fund 'VDHG' because it's shorter to type (and they respectively have identical underlying holdings).

Return-wise, I would expect both to be very similar. VGS is 100% equities, and VDHG is 90% (but with rebalancing, you would historically have gotten about 97% of the returns).

Risk-wise, they are both diversified but in slightly different ways. VDHG is more diversified by having some emerging markets, developed small caps, and bonds, but it is also less diversified by having so much Australian equities (40% of the equities portion).

Whether you intended or not, I think your portfolio has just about the best asset allocation. In my opinion, VDHG has too much concentrated Australian equities, and it has a lot of AUD-denominated assets (58% of the equities), especially when your house, cash, bonds, income are all AUD-denominated. Splitting in some VGS improves both of these issues while keeping the portfolio very simple.

It's up to you what split you go for, and half-half isn't a bad option and great for simplicity. Just make sure you make a decision and keep it permanent.

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As to the managed fund vs the ETF version of those funds, things to note:
1. The managed fund is a bit less tax efficient due to the nature of the structure. Also, ETFs tend to be a little cheaper, although not materially with those 2 funds.
2. Previously, there was high brokerage costs for ETFs, which meant you couldn't cost-effectively buy small parcels frequently. With OpenTrader, you can get CHESS sponsored brokerage for $5 up to $5k, and with SuperHero, you can get free brokerage (although it does not use your own CHESS account holder number) so that's less of an issue, particularly for amounts of $3k.
3. Previously there was an ability to have your BPAY auto allocated to a fund, so no need to even login to make the purchase. If you can still do that, that is the main advantage of the managed funds.
Topic Author
VanguardAnon
Posts: 3
Joined: Sat Mar 28, 2020 4:42 am

Re: [AUS] Portfolio Allocation Advice

Post by VanguardAnon »

Thanks for the advice.
It is good to hear that my current allocation is decent, as this will make it easy for me to continue doing what i am doing at a 50/50 split.
Since i signed up with vanguard a few years ago, i still have access to the BPAY function to buying new units, so now that i know what sort of allocation i need i am just going to set it up with automatic BPAY transactions and forget about it.

Thanks!
pseudoiterative
Posts: 208
Joined: Tue Sep 24, 2019 6:11 am
Location: australia

Re: [AUS] Portfolio Allocation Advice

Post by pseudoiterative »

Your allocation & plan to set up & forget regular BPAY contributions sounds great! May need a check up in a decade or two.

May also be worth thinking through how much investment you want to do inside of superannuation vs outside of superannuation. Investing inside your super is tax advantaged and also lowers your taxable income. One downside of contributing extra money into super is that you are restricted in how you can use the money before retirement age, whereas in a normal investment account then -- for better or worse -- you could sell the portfolio and cash out at any time. Depends what use for the investment you have in mind.

The maximum you can contribute to super each year (with the tax discounts) is $25k, so if you are currently putting in $3k / month * 12 months / year = $36 year into taxable investment accounts and only making the minimum contribution to super (~$9k), that may be something to consider. Going from $9k super contribution per year to $25k super contribution per year (with proportionally less investment into in non-super taxable investment accounts) would reduce tax by about $3k, assuming $100k gross income including 9.5% minimum super contribution.
andrew99999
Posts: 799
Joined: Fri Jul 13, 2018 8:14 pm

Re: [AUS] Portfolio Allocation Advice

Post by andrew99999 »

Good point by @pseudoiterative.
The tax savings in super are astronomical, and you can see it once you put it into a spreadsheet.
And unless you plan to die before 60, it makes sense to put at least some money into super for when you can access it.
Topic Author
VanguardAnon
Posts: 3
Joined: Sat Mar 28, 2020 4:42 am

Re: [AUS] Portfolio Allocation Advice

Post by VanguardAnon »

Thanks for the input regarding Super.
At this stage, i want to mostly focus on my non Super investment portfolio and get it to a point where compounding starts to kick off although i will likely look into additional super contributions within the next few years.
Hockey Monkey
Posts: 46
Joined: Thu Aug 13, 2020 10:23 pm

Re: [AUS] Portfolio Allocation Advice

Post by Hockey Monkey »

VanguardAnon wrote: Tue Apr 06, 2021 6:02 am Thanks for the input regarding Super.
At this stage, i want to mostly focus on my non Super investment portfolio and get it to a point where compounding starts to kick off although i will likely look into additional super contributions within the next few years.
Fair enough. Just keep in mind than compounding kicks off even better in a low tax environment like superannuation
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