Australian Beginner Investor Seeking Opinions

[LifeAdviceWelcome]

Hi All,

After years of procrastinating, I'm finally ready to start investing into ETFs. I'm hoping to get some opinions from others in this sub... Do let me know if I've made any grevious oversights or errors.

A bit of background on me first:

**Personal (Australian)**

* Age: 31
* Salary: $130k yearly / $7.4k monthly (Inc. Super)
* Savings: $207k (All is sitting in an uncapped offset account)
* Super: $87.9k

**Property (2 Bedroom Unit, Investment / Rented Out since June 2023)**

* Mortgage: $242k
* Mortgage Repayments: $1.64k monthly
* Rent Income: $1.87k monthly (After property manager fees)
* Property Value (Approx): $554k

I won't do a breakdown of expenses, but they're quite low. I live with my partner and I cover her 40% of her loan each month - this works out to around $900. We also half everything else: Bills, food etc. My overheads aren't large at all, maybe $1.3k / $1.4k total monthly (I don't buy much either - I save the majority of my pay).

As for investing - I have no issues playing the long game or diversifying investment across low/medium/high risk. As a starting point though, I'm looking solely at ETFs, something along the following (With % of allocations reflected - This doesn't factor in separate cash and property values):

- AUS Equities (25%): VAS, A200 or IOZ - Undecided here
- International Equities (60%): VGE, BGBL or IVV - I'm leaning towards BGBL at this stage given the lower management fees. N100 is also a bit of a wild card that I'm thinking of tacking on
- US Equities (AUD Hedged | 10%): VGAD, HGBL or IVV - Leaning towards BGBL given lower fees here too
- Emerging Markets (5%)

From what I can tell, this should achieve a relatively diverse portfolio with thoughts made to currency risk and overall risk tolerance. For the most part I've referenced Boglehead threads and guides (Like the passive investing site), so hopefully this is a good start or a solid enough approach to press go on. This forum post in particular has been a great reference point for me to start: viewtopic.php?t=433959

Should I look at a big lump sum investment to jumpstart my journey? Or start with a gradual $x amount on a weekly basis? I've also made an account with CMC Markets to use moving forward.

I've also thought about increasing super contributions as I believe that's better for minimizing tax (Correct me if I'm wrong). I'm yet to do a deep dive into research on this, but I think there are significant benefits here.

Keen to hear thoughts from beginners like me to seasoned pros in the investing space. I'm definitely excited to start on this journey!

Happy to answer any questions any of you may have.

Thanks,

[Valuethinker]

Hi All,

After years of procrastinating, I'm finally ready to start investing into ETFs. I'm hoping to get some opinions from others in this sub... Do let me know if I've made any grevious oversights or errors.

A bit of background on me first:

**Personal (Australian)**

* Age: 31
* Salary: $130k yearly / $7.4k monthly (Inc. Super)
* Savings: $207k (All is sitting in an uncapped offset account)
* Super: $87.9k

**Property (2 Bedroom Unit, Investment / Rented Out since June 2023)**

* Mortgage: $242k
* Mortgage Repayments: $1.64k monthly
* Rent Income: $1.87k monthly (After property manager fees)
* Property Value (Approx): $554k

I won't do a breakdown of expenses, but they're quite low. I live with my partner and I cover her 40% of her loan each month - this works out to around $900. We also half everything else: Bills, food etc. My overheads aren't large at all, maybe $1.3k / $1.4k total monthly (I don't buy much either - I save the majority of my pay).

As for investing - I have no issues playing the long game or diversifying investment across low/medium/high risk. As a starting point though, I'm looking solely at ETFs, something along the following (With % of allocations reflected - This doesn't factor in separate cash and property values):

- AUS Equities (25%): VAS, A200 or IOZ - Undecided here
- International Equities (60%): VGE, BGBL or IVV - I'm leaning towards BGBL at this stage given the lower management fees. N100 is also a bit of a wild card that I'm thinking of tacking on
- US Equities (AUD Hedged | 10%): VGAD, HGBL or IVV - Leaning towards BGBL given lower fees here too
- Emerging Markets (5%)

From what I can tell, this should achieve a relatively diverse portfolio with thoughts made to currency risk and overall risk tolerance. For the most part I've referenced Boglehead threads and guides (Like the passive investing site), so hopefully this is a good start or a solid enough approach to press go on. This forum post in particular has been a great reference point for me to start: viewtopic.php?t=433959

Should I look at a big lump sum investment to jumpstart my journey? Or start with a gradual $x amount on a weekly basis? I've also made an account with CMC Markets to use moving forward.

I've also thought about increasing super contributions as I believe that's better for minimizing tax (Correct me if I'm wrong). I'm yet to do a deep dive into research on this, but I think there are significant benefits here.

Keen to hear thoughts from beginners like me to seasoned pros in the investing space. I'm definitely excited to start on this journey!

Happy to answer any questions any of you may have.

Thanks,

I am not Australian based and so I don't know the Superannuation options, nor would many here know the tickers.

It might help if you posted fund names and expense ratios?

- AUS Equities (25%): VAS, A200 or IOZ - Undecided here

So that's still 8x the weighting of Australia in the world index. Now I think historical evidence shows that doesn't hurt your diversification too much, but you are making a very concentrated bet on a handful of banks and natural resource companies (mind, I am probably fairly bullish re BHP etc on the long run, as the world electrifies in the face of the need to energy transition: copper, lithium etc + steel for construction and consumer durables in Emerging Markets).

Presumably you are doing this because of the dividend franking (credit investors receive dividends to avoid double taxation of dividends at the investor and at the company level)? I think evidence cited here is that the valuations of Australian equities partly reflect that advantage for domestic investors, already.

- International Equities (60%): VGE, BGBL or IVV - I'm leaning towards BGBL at this stage given the lower management fees. N100 is also a bit of a wild card that I'm thinking of tacking on
- US Equities (AUD Hedged | 10%): VGAD, HGBL or IVV - Leaning towards BGBL given lower fees here too

So this is overweighting the USA, which is already over 65% of international indices? I am not sure why you want even *more* Apple, Microsoft, Nvidia, Google, Meta than you already have in a fully diversified global fund?

On currency hedging, given this is quite early in your investing career, I am not sure I would bother (for stocks, for bonds the default is usually to hedge). If you don't need the money for 25+ years, the currency related volatility should even out in that time.

In sum, 25% Australian + 75% fully diversified global equities is not a stupid allocation, and probably gives you as good a return as a bet on equities can give you, in the long run. (I am agnostic on emerging markets: Australian economy has a lot of exposure to EM via natural resources sector, so 75% in developed markets can work. Or something like 65-68% developed, 10-7% EM)

[Pops1860]

This thread has been moved to the “Non-US Investing" forum. Moderator Pops1860

[LifeAdviceWelcome]

Hi All,

After years of procrastinating, I'm finally ready to start investing into ETFs. I'm hoping to get some opinions from others in this sub... Do let me know if I've made any grevious oversights or errors.

A bit of background on me first:

**Personal (Australian)**

* Age: 31
* Salary: $130k yearly / $7.4k monthly (Inc. Super)
* Savings: $207k (All is sitting in an uncapped offset account)
* Super: $87.9k

**Property (2 Bedroom Unit, Investment / Rented Out since June 2023)**

* Mortgage: $242k
* Mortgage Repayments: $1.64k monthly
* Rent Income: $1.87k monthly (After property manager fees)
* Property Value (Approx): $554k

I won't do a breakdown of expenses, but they're quite low. I live with my partner and I cover her 40% of her loan each month - this works out to around $900. We also half everything else: Bills, food etc. My overheads aren't large at all, maybe $1.3k / $1.4k total monthly (I don't buy much either - I save the majority of my pay).

As for investing - I have no issues playing the long game or diversifying investment across low/medium/high risk. As a starting point though, I'm looking solely at ETFs, something along the following (With % of allocations reflected - This doesn't factor in separate cash and property values):

- AUS Equities (25%): VAS, A200 or IOZ - Undecided here
- International Equities (60%): VGE, BGBL or IVV - I'm leaning towards BGBL at this stage given the lower management fees. N100 is also a bit of a wild card that I'm thinking of tacking on
- US Equities (AUD Hedged | 10%): VGAD, HGBL or IVV - Leaning towards BGBL given lower fees here too
- Emerging Markets (5%)

From what I can tell, this should achieve a relatively diverse portfolio with thoughts made to currency risk and overall risk tolerance. For the most part I've referenced Boglehead threads and guides (Like the passive investing site), so hopefully this is a good start or a solid enough approach to press go on. This forum post in particular has been a great reference point for me to start: viewtopic.php?t=433959

Should I look at a big lump sum investment to jumpstart my journey? Or start with a gradual $x amount on a weekly basis? I've also made an account with CMC Markets to use moving forward.

I've also thought about increasing super contributions as I believe that's better for minimizing tax (Correct me if I'm wrong). I'm yet to do a deep dive into research on this, but I think there are significant benefits here.

Keen to hear thoughts from beginners like me to seasoned pros in the investing space. I'm definitely excited to start on this journey!

Happy to answer any questions any of you may have.

Thanks,

I am not Australian based and so I don't know the Superannuation options, nor would many here know the tickers.

It might help if you posted fund names and expense ratios?

- AUS Equities (25%): VAS, A200 or IOZ - Undecided here

So that's still 8x the weighting of Australia in the world index. Now I think historical evidence shows that doesn't hurt your diversification too much, but you are making a very concentrated bet on a handful of banks and natural resource companies (mind, I am probably fairly bullish re BHP etc on the long run, as the world electrifies in the face of the need to energy transition: copper, lithium etc + steel for construction and consumer durables in Emerging Markets).

Presumably you are doing this because of the dividend franking (credit investors receive dividends to avoid double taxation of dividends at the investor and at the company level)? I think evidence cited here is that the valuations of Australian equities partly reflect that advantage for domestic investors, already.

- International Equities (60%): VGE, BGBL or IVV - I'm leaning towards BGBL at this stage given the lower management fees. N100 is also a bit of a wild card that I'm thinking of tacking on
- US Equities (AUD Hedged | 10%): VGAD, HGBL or IVV - Leaning towards BGBL given lower fees here too

So this is overweighting the USA, which is already over 65% of international indices? I am not sure why you want even *more* Apple, Microsoft, Nvidia, Google, Meta than you already have in a fully diversified global fund?

On currency hedging, given this is quite early in your investing career, I am not sure I would bother (for stocks, for bonds the default is usually to hedge). If you don't need the money for 25+ years, the currency related volatility should even out in that time.

In sum, 25% Australian + 75% fully diversified global equities is not a stupid allocation, and probably gives you as good a return as a bet on equities can give you, in the long run. (I am agnostic on emerging markets: Australian economy has a lot of exposure to EM via natural resources sector, so 75% in developed markets can work. Or something like 65-68% developed, 10-7% EM)

Hey Valuethinker,

Thanks for your thoughts here.

For Superannuation, I'm with Hostplus. They're one of the funds with the lowest fees and have a strong reputation. All my investments are high growth groups - AUS Indexes 27%, International at 63%, emerging 4.5% and balanced 5.5% (Unsure what this entails specifically).

I'm open to amending my AUS allocation. Can't say that I'm educated on the franking sides of things - I know it involves tax incentives of some description... I should probably spend time nutting that out properly. I do agree that Australia's boom off the back of mining and natural resource has passed. Unsure how the country will perform moving forward given its reliance on that sector and broader natural resources.

Given your final comment, it sounds like I should look at something like AUS 25% (i.e A200), International 65% (i.e BGBL) and Emerging Markets 10% (i.e VAE)

[Valuethinker]

I am not Australian based and so I don't know the Superannuation options, nor would many here know the tickers.

It might help if you posted fund names and expense ratios?



So that's still 8x the weighting of Australia in the world index. Now I think historical evidence shows that doesn't hurt your diversification too much, but you are making a very concentrated bet on a handful of banks and natural resource companies (mind, I am probably fairly bullish re BHP etc on the long run, as the world electrifies in the face of the need to energy transition: copper, lithium etc + steel for construction and consumer durables in Emerging Markets).

Presumably you are doing this because of the dividend franking (credit investors receive dividends to avoid double taxation of dividends at the investor and at the company level)? I think evidence cited here is that the valuations of Australian equities partly reflect that advantage for domestic investors, already.



So this is overweighting the USA, which is already over 65% of international indices? I am not sure why you want even *more* Apple, Microsoft, Nvidia, Google, Meta than you already have in a fully diversified global fund?

On currency hedging, given this is quite early in your investing career, I am not sure I would bother (for stocks, for bonds the default is usually to hedge). If you don't need the money for 25+ years, the currency related volatility should even out in that time.

In sum, 25% Australian + 75% fully diversified global equities is not a stupid allocation, and probably gives you as good a return as a bet on equities can give you, in the long run. (I am agnostic on emerging markets: Australian economy has a lot of exposure to EM via natural resources sector, so 75% in developed markets can work. Or something like 65-68% developed, 10-7% EM)

Hey Valuethinker,

Thanks for your thoughts here.

For Superannuation, I'm with Hostplus. They're one of the funds with the lowest fees and have a strong reputation. All my investments are high growth groups - AUS Indexes 27%, International at 63%, emerging 4.5% and balanced 5.5% (Unsure what this entails specifically).

I'm open to amending my AUS allocation. Can't say that I'm educated on the franking sides of things - I know it involves tax incentives of some description... I should probably spend time nutting that out properly. I do agree that Australia's boom off the back of mining and natural resource has passed. Unsure how the country will perform moving forward given its reliance on that sector and broader natural resources.

Given your final comment, it sounds like I should look at something like AUS 25% (i.e A200), International 65% (i.e BGBL) and Emerging Markets 10% (i.e VAE)

So the other big sector in Australia stock exchange index is Financial Services. Basically 3 big banks (from memory).

https://www.ishares.com/us/products/239 ... tralia-etf

CBA COMMONWEALTH BANK OF AUSTRALIA Financials Equity 13.34
BHP BHP GROUP LTD Materials Equity 10.44 1
CSL CSL LTD Health Care Equity 7.09 -
NAB NATIONAL AUSTRALIA BANK LTD Financials Equity 5.93
WBC WESTPAC BANKING CORPORATION CORP Financials Equity 5.78
ANZ ANZ GROUP HOLDINGS LTD Financials Equity 4.42
WES WESFARMERS LTD Consumer Discretionary Equity 4.22 -
MQG MACQUARIE GROUP LTD DEF Financials Equity 4.17
GMG GOODMAN GROUP UNITS Real Estate Equity 3.19
WDS WOODSIDE ENERGY GROUP LTD Energy Equity 2.43

So 34% in 4 financial institutions + real estate

You put $100k in there, and $13,340 is is CBA. Put $100k into the global index and the largest component (Nvidia?) is something like $6k. Overvalued in my view, but with far greater barriers to entry & international diversification than an Australian bank.

So the franking basically says you get a tax credit for owning Australian shares - because those companies have already paid corporation tax on their profits. However from what has been said here, the effect is muted.

If you decide to do 25% Australian (I would do more like 10%, because of international diversification, but in actual fact the correlations are quite high, so it shouldn't have a huge effect on your long run performance) then I might be tempted just to ignore EM. Because of Australia's direct exposure to the economies of the largest EMs: India and China. Which will also feed into the valuation of housing in Australia, which in turn feeds into the financial services sector.

(Possibly reasoning by false analogy, I see the same phenomena in Canada. The index is heavily banks + oil sands stocks, and the (overinflated) housing market has big exposure to China (in particular money from East Asia flowing into real estate; then domestic consumers leveraging up with big mortgages to buy) and demand for oil (US and also indirectly China). Plus of course now trade disputes w new US Administration (likely to be resolved, but not good news for a country that is basically a branch plant of the larger US economy & corporate sector)).

But tbh 10% in EM is not a huge bet -- it's a modest underweighting.

I might propose something like 15% Australia 10% EM and 75% world developed markets (itself c 70% USA)?

On AUD hedging:

- any defined benefit (eg state pension scheme) payments will be in AUD
- any fixed income or savings accounts you hold will be in AUD
- you own a property in AUD which earns rental income (or if you live there, avoided rent = de facto income) in AUD
- your career pays in AUD

So, until you are about 10-15 years out, I wouldn't worry about hedging equities into AUD. You are plenty exposed to the AUD through daily life.

(It is worth noting though that my view has been quite painful for an Australian investor over the last 25 years aka "the lucky country" as AUD has tended to appreciate with the natural resources & housing boom. There are posters here like Andrew9999 (who knows a lot about Australian investing options etc) who correctly point that out).

All my investments are high growth groups - AUS Indexes 27%, International at 63%, emerging 4.5% and balanced 5.5% (Unsure what this entails specifically).

Notwithstanding the total portfolio view I suggested above, that doesn't look too bad. My guess is balanced is a mix of Australian equities, possibly foreign equities, and AUD paying bonds. Again I'd probably be more like 15% AUS indices, but it's not, in the long run, likely to make a huge difference to your final portfolio value.

To be clear about what the theory says:

- investors should maximally diversify, by market capitalisation weighting. Thus the global index (but normally there is a break down between Developed and EM indices)

- currency volatility is a risk we should not expect investors to be compensated for. So investors should have a large proportion of their assets hedged into the home currency. For institutional investors that is cheap & easy, but for retail investors I don't have a clear sense of what that costs. For bond funds, they are normally hedged back into the home currency (otherwise the currency volatility far exceeds the bond return), for equity funds they normally are not (it's felt that Purchasing Power Parity works out in the long run, ie that if a country has higher inflation, its currency will depreciate relative to the lower inflation currency; in actual economic fact this is either not true, or only true in the very long run)

Vanguard had a paper on optimum foreign holdings for investors in UK, Canada, Australia. UK the domestic stock market index is heavily internationally exposed (c 70% earnings of FTSE100 companies are earned overseas). Canada and Australia I think the conclusions were that domestic investors should have something like 20-30% in their own stock indices. Vs the actual reality of "home country bias" which means actual investors are more like 60%.

The US has technology stocks. Europe and Japan have industrial stocks. Australia and Canada have very little of either. That's the diversification benefit I am trying to capture.

On currency, I just tend to "let it ride" (ie don't hedge the currency exposure of my equities**) and partly because I think the long run tendency of the CAD (and the GBP, where I live now) is down against other currencies, due to domestic political and economic factors. And I like travelling overseas & consuming lots of things which are imported.

** my bonds tend to be "Global Investment Grade. Sterling Hedged" and I explain why not just hold gilts (UK govt bonds) in my pensions in other posts. TLDR: gilt index is very long duration and so very sensitive to interest rate risk (definition of modified duration = sensitivity to interest rate changes).

[LifeAdviceWelcome]

Hey Valuethinker,

Thanks for your thoughts here.

For Superannuation, I'm with Hostplus. They're one of the funds with the lowest fees and have a strong reputation. All my investments are high growth groups - AUS Indexes 27%, International at 63%, emerging 4.5% and balanced 5.5% (Unsure what this entails specifically).

I'm open to amending my AUS allocation. Can't say that I'm educated on the franking sides of things - I know it involves tax incentives of some description... I should probably spend time nutting that out properly. I do agree that Australia's boom off the back of mining and natural resource has passed. Unsure how the country will perform moving forward given its reliance on that sector and broader natural resources.

Given your final comment, it sounds like I should look at something like AUS 25% (i.e A200), International 65% (i.e BGBL) and Emerging Markets 10% (i.e VAE)

So the other big sector in Australia stock exchange index is Financial Services. Basically 3 big banks (from memory).

https://www.ishares.com/us/products/239 ... tralia-etf

CBA COMMONWEALTH BANK OF AUSTRALIA Financials Equity 13.34
BHP BHP GROUP LTD Materials Equity 10.44 1
CSL CSL LTD Health Care Equity 7.09 -
NAB NATIONAL AUSTRALIA BANK LTD Financials Equity 5.93
WBC WESTPAC BANKING CORPORATION CORP Financials Equity 5.78
ANZ ANZ GROUP HOLDINGS LTD Financials Equity 4.42
WES WESFARMERS LTD Consumer Discretionary Equity 4.22 -
MQG MACQUARIE GROUP LTD DEF Financials Equity 4.17
GMG GOODMAN GROUP UNITS Real Estate Equity 3.19
WDS WOODSIDE ENERGY GROUP LTD Energy Equity 2.43

So 34% in 4 financial institutions + real estate

You put $100k in there, and $13,340 is is CBA. Put $100k into the global index and the largest component (Nvidia?) is something like $6k. Overvalued in my view, but with far greater barriers to entry & international diversification than an Australian bank.

So the franking basically says you get a tax credit for owning Australian shares - because those companies have already paid corporation tax on their profits. However from what has been said here, the effect is muted.

If you decide to do 25% Australian (I would do more like 10%, because of international diversification, but in actual fact the correlations are quite high, so it shouldn't have a huge effect on your long run performance) then I might be tempted just to ignore EM. Because of Australia's direct exposure to the economies of the largest EMs: India and China. Which will also feed into the valuation of housing in Australia, which in turn feeds into the financial services sector.

(Possibly reasoning by false analogy, I see the same phenomena in Canada. The index is heavily banks + oil sands stocks, and the (overinflated) housing market has big exposure to China (in particular money from East Asia flowing into real estate; then domestic consumers leveraging up with big mortgages to buy) and demand for oil (US and also indirectly China). Plus of course now trade disputes w new US Administration (likely to be resolved, but not good news for a country that is basically a branch plant of the larger US economy & corporate sector)).

But tbh 10% in EM is not a huge bet -- it's a modest underweighting.

I might propose something like 15% Australia 10% EM and 75% world developed markets (itself c 70% USA)?

On AUD hedging:

- any defined benefit (eg state pension scheme) payments will be in AUD
- any fixed income or savings accounts you hold will be in AUD
- you own a property in AUD which earns rental income (or if you live there, avoided rent = de facto income) in AUD
- your career pays in AUD

So, until you are about 10-15 years out, I wouldn't worry about hedging equities into AUD. You are plenty exposed to the AUD through daily life.

(It is worth noting though that my view has been quite painful for an Australian investor over the last 25 years aka "the lucky country" as AUD has tended to appreciate with the natural resources & housing boom. There are posters here like Andrew9999 (who knows a lot about Australian investing options etc) who correctly point that out).

All my investments are high growth groups - AUS Indexes 27%, International at 63%, emerging 4.5% and balanced 5.5% (Unsure what this entails specifically).

Notwithstanding the total portfolio view I suggested above, that doesn't look too bad. My guess is balanced is a mix of Australian equities, possibly foreign equities, and AUD paying bonds. Again I'd probably be more like 15% AUS indices, but it's not, in the long run, likely to make a huge difference to your final portfolio value.

To be clear about what the theory says:

- investors should maximally diversify, by market capitalisation weighting. Thus the global index (but normally there is a break down between Developed and EM indices)

- currency volatility is a risk we should not expect investors to be compensated for. So investors should have a large proportion of their assets hedged into the home currency. For institutional investors that is cheap & easy, but for retail investors I don't have a clear sense of what that costs. For bond funds, they are normally hedged back into the home currency (otherwise the currency volatility far exceeds the bond return), for equity funds they normally are not (it's felt that Purchasing Power Parity works out in the long run, ie that if a country has higher inflation, its currency will depreciate relative to the lower inflation currency; in actual economic fact this is either not true, or only true in the very long run)

Vanguard had a paper on optimum foreign holdings for investors in UK, Canada, Australia. UK the domestic stock market index is heavily internationally exposed (c 70% earnings of FTSE100 companies are earned overseas). Canada and Australia I think the conclusions were that domestic investors should have something like 20-30% in their own stock indices. Vs the actual reality of "home country bias" which means actual investors are more like 60%.

The US has technology stocks. Europe and Japan have industrial stocks. Australia and Canada have very little of either. That's the diversification benefit I am trying to capture.

On currency, I just tend to "let it ride" (ie don't hedge the currency exposure of my equities**) and partly because I think the long run tendency of the CAD (and the GBP, where I live now) is down against other currencies, due to domestic political and economic factors. And I like travelling overseas & consuming lots of things which are imported.

** my bonds tend to be "Global Investment Grade. Sterling Hedged" and I explain why not just hold gilts (UK govt bonds) in my pensions in other posts. TLDR: gilt index is very long duration and so very sensitive to interest rate risk (definition of modified duration = sensitivity to interest rate changes).

Wow thanks so much for the reply - heaps of info here!

I've spent the past few hours reviewing and replying to different people as I've made multiple posts.

Your point on AUD hedging makes sense. Perhaps the allocation for that was incorrect as I was copying it from a lost where the OP is in a alter stage in life, so that risk minimisation makes sense. That, and my property and income in AUD makes it even less important given your arguments.

I've collated another option that's more simplified:

- AUS Equities: VAS - 15%. Opted for this over A200 as I prefer VAS' spread of top 300 companies than 200 for the latter.
- International Equities: BGBL - 75%. Lower fee versus VGS is the main appeal.
- Emerging Markets: WEMG - 10%. This one is super interesting. I can barely find anything about it, but the fund has been around since 2013. It has a low management fee too, but my main issue is that it's share to China is higher than I'd like. Given geopolitical issues, I'd prefer weighting to be less. Alternative ETFs I've reviewed are VAE or EMKT.

Does the above sound good to you?

Really appreciate you taking the time to write up everything that you have done so far mate!

[Valuethinker]

So the other big sector in Australia stock exchange index is Financial Services. Basically 3 big banks (from memory).

https://www.ishares.com/us/products/239 ... tralia-etf

CBA COMMONWEALTH BANK OF AUSTRALIA Financials Equity 13.34
BHP BHP GROUP LTD Materials Equity 10.44 1
CSL CSL LTD Health Care Equity 7.09 -
NAB NATIONAL AUSTRALIA BANK LTD Financials Equity 5.93
WBC WESTPAC BANKING CORPORATION CORP Financials Equity 5.78
ANZ ANZ GROUP HOLDINGS LTD Financials Equity 4.42
WES WESFARMERS LTD Consumer Discretionary Equity 4.22 -
MQG MACQUARIE GROUP LTD DEF Financials Equity 4.17
GMG GOODMAN GROUP UNITS Real Estate Equity 3.19
WDS WOODSIDE ENERGY GROUP LTD Energy Equity 2.43

So 34% in 4 financial institutions + real estate

You put $100k in there, and $13,340 is is CBA. Put $100k into the global index and the largest component (Nvidia?) is something like $6k. Overvalued in my view, but with far greater barriers to entry & international diversification than an Australian bank.

So the franking basically says you get a tax credit for owning Australian shares - because those companies have already paid corporation tax on their profits. However from what has been said here, the effect is muted.

If you decide to do 25% Australian (I would do more like 10%, because of international diversification, but in actual fact the correlations are quite high, so it shouldn't have a huge effect on your long run performance) then I might be tempted just to ignore EM. Because of Australia's direct exposure to the economies of the largest EMs: India and China. Which will also feed into the valuation of housing in Australia, which in turn feeds into the financial services sector.

(Possibly reasoning by false analogy, I see the same phenomena in Canada. The index is heavily banks + oil sands stocks, and the (overinflated) housing market has big exposure to China (in particular money from East Asia flowing into real estate; then domestic consumers leveraging up with big mortgages to buy) and demand for oil (US and also indirectly China). Plus of course now trade disputes w new US Administration (likely to be resolved, but not good news for a country that is basically a branch plant of the larger US economy & corporate sector)).

But tbh 10% in EM is not a huge bet -- it's a modest underweighting.

I might propose something like 15% Australia 10% EM and 75% world developed markets (itself c 70% USA)?

On AUD hedging:

- any defined benefit (eg state pension scheme) payments will be in AUD
- any fixed income or savings accounts you hold will be in AUD
- you own a property in AUD which earns rental income (or if you live there, avoided rent = de facto income) in AUD
- your career pays in AUD

So, until you are about 10-15 years out, I wouldn't worry about hedging equities into AUD. You are plenty exposed to the AUD through daily life.

(It is worth noting though that my view has been quite painful for an Australian investor over the last 25 years aka "the lucky country" as AUD has tended to appreciate with the natural resources & housing boom. There are posters here like Andrew9999 (who knows a lot about Australian investing options etc) who correctly point that out).



Notwithstanding the total portfolio view I suggested above, that doesn't look too bad. My guess is balanced is a mix of Australian equities, possibly foreign equities, and AUD paying bonds. Again I'd probably be more like 15% AUS indices, but it's not, in the long run, likely to make a huge difference to your final portfolio value.

To be clear about what the theory says:

- investors should maximally diversify, by market capitalisation weighting. Thus the global index (but normally there is a break down between Developed and EM indices)

- currency volatility is a risk we should not expect investors to be compensated for. So investors should have a large proportion of their assets hedged into the home currency. For institutional investors that is cheap & easy, but for retail investors I don't have a clear sense of what that costs. For bond funds, they are normally hedged back into the home currency (otherwise the currency volatility far exceeds the bond return), for equity funds they normally are not (it's felt that Purchasing Power Parity works out in the long run, ie that if a country has higher inflation, its currency will depreciate relative to the lower inflation currency; in actual economic fact this is either not true, or only true in the very long run)

Vanguard had a paper on optimum foreign holdings for investors in UK, Canada, Australia. UK the domestic stock market index is heavily internationally exposed (c 70% earnings of FTSE100 companies are earned overseas). Canada and Australia I think the conclusions were that domestic investors should have something like 20-30% in their own stock indices. Vs the actual reality of "home country bias" which means actual investors are more like 60%.

The US has technology stocks. Europe and Japan have industrial stocks. Australia and Canada have very little of either. That's the diversification benefit I am trying to capture.

On currency, I just tend to "let it ride" (ie don't hedge the currency exposure of my equities**) and partly because I think the long run tendency of the CAD (and the GBP, where I live now) is down against other currencies, due to domestic political and economic factors. And I like travelling overseas & consuming lots of things which are imported.

** my bonds tend to be "Global Investment Grade. Sterling Hedged" and I explain why not just hold gilts (UK govt bonds) in my pensions in other posts. TLDR: gilt index is very long duration and so very sensitive to interest rate risk (definition of modified duration = sensitivity to interest rate changes).

Wow thanks so much for the reply - heaps of info here!

I've spent the past few hours reviewing and replying to different people as I've made multiple posts.

Your point on AUD hedging makes sense. Perhaps the allocation for that was incorrect as I was copying it from a lost where the OP is in a alter stage in life, so that risk minimisation makes sense. That, and my property and income in AUD makes it even less important given your arguments.

I've collated another option that's more simplified:

- AUS Equities: VAS - 15%. Opted for this over A200 as I prefer VAS' spread of top 300 companies than 200 for the latter.
- International Equities: BGBL - 75%. Lower fee versus VGS is the main appeal.
- Emerging Markets: WEMG - 10%. This one is super interesting. I can barely find anything about it, but the fund has been around since 2013. It has a low management fee too, but my main issue is that it's share to China is higher than I'd like. Given geopolitical issues, I'd prefer weighting to be less. Alternative ETFs I've reviewed are VAE or EMKT.

Does the above sound good to you?

Really appreciate you taking the time to write up everything that you have done so far mate!

I really don't/ won't know the funds available to an Australian investor.

- AUS Equities: VAS - 15%. Opted for this over A200 as I prefer VAS' spread of top 300 companies than 200 for the latter.

If they are ordered by market capitalisation then I would bet there is essentially no difference. The last 100 companies won't account for more than a few percent of the total fund. Thus, I tend to go with the one with the lowest Expense Ratio (assuming both are index tracking funds/ passive, of course).

- International Equities: BGBL - 75%. Lower fee versus VGS is the main appeal.

Subject to be essentially tracking the same thing, agree.

- Emerging Markets: WEMG - 10%. This one is super interesting. I can barely find anything about it, but the fund has been around since 2013. It has a low management fee too, but my main issue is that it's share to China is higher than I'd like. Given geopolitical issues, I'd prefer weighting to be less. Alternative ETFs I've reviewed are VAE or EMKT.

Geopolitics. I once chose a value-tilted EM fund. It was over 20% in Russia (v something like 8% in the EM index) - Russian companies were really really cheap by any metric. After the Ukraine War kicked off those stocks dropped to 0 (for western investors). So in other words, the stocks were indeed cheap - and the market was quite sensible as to why. The market was warning the investor of the risks, and the risks materialised in a way most investors never anticipated

China's market is clearly driven by internal dynamics orchestrated by the Communist Party of China and Chairman Xi. Not purely investment fundamentals. And yes, there's high geopolitical risk in that. And the performance of the Australian economy is correlated with that geopolitics - arguable when the Chinese index is down/ foreigners are selling, is precisely at the same time that there are contretemps with Australia.

So. You'd have to list out the 3 ETFs and their expense ratios, and say their top 5 market concentrations (China, India etc). Then one can look.

To reassure you, I doubt whether you are 3% of your total portfolio in China, or 5%, makes much odds. But, generally, underweighting China seems a good policy. (Although my stock market brain - never a reliable indicator! - notes just how cheap Chinese stocks appear(ed) to be).

Conversely India's stock market is interesting because it has a range of stocks: domestic consumption exposed, as well as international IT consulting companies etc.

[pseudoiterative]

Welcome to the forum, congratulations for posting & starting to investigate and learn more about investing in ETFs.

I've also thought about increasing super contributions as I believe that's better for minimizing tax (Correct me if I'm wrong). I'm yet to do a deep dive into research on this, but I think there are significant benefits here.

re: super,

• re: hostplus, they are a solid choice of super fund, but worth double checking the fees & costs of your exact investments. hostplus offer "indexed" options where the fees & costs are very low (0.04% -- 0.08%). in contrast, hostplus' default "my super" balanced offering has much higher fees & costs of about 1%
• a big upside to holding investments in super is you only pay 15% tax on earnings (dividends & capital gains). Your marginal tax rate is likely 32% = 30% income tax + 2% medicare levy. If you hold investments in taxable brokerage account (e.g. CMC), when you receive income from dividends or capital gains, you will pay about twice as much tax than if you held those same assets in your super fund.
• another big upside to investing through super is that contributions to super (both mandatory contributions made by your employer, and voluntary contributions that you decide to make, if any) are subtracted from your taxable income. If your gross pre-tax income is $130k, and your employer makes the 11.5% mandatory super contribution to your super fund (of about $13400), then your taxable income is $130k - $13400. But if you chose to make additional voluntary super contributions, then your taxable income could be reduced to $130k - $30k
• one big downside to putting investments in super is that the government will not let you access those investments until you retire at 60 (or at 65 regardless of if you are retired)
• the first $30k added into your super fund each year benefits from this preferential tax rate of 15% --- if your employer is currently making a contribution of $13,400, you could voluntarily contribute another $30,000 - $13,400 = $16,600 to your super fund each year to make use of the full tax benefits. There's two common ways to do this: some (larger?) employers offer a "salary sacrifice" arrangement where you elect to have more of your paycheck directed into your super fund. Another way to do this is directly transfer money from your bank account into your super fund (check with your super fund on how to do this) -- this could be a regular thing or a one off. If you make a direct transfer, you need to fill out the form Notice of intent to claim or vary a deduction for personal super contributions and send it to you super fund -- this is a little bit to figure out the first time, but once you've done it once you can make a note to do the same thing every year when preparing your tax return.

One thing to ask yourself -- what goal(s) are you investing towards? When & how much cash do you need from your investments?

If you are investing toward retirement at around 60 years old, there are big tax advantages to investing via your super fund (up to $30k each year) before investing via taxable brokerage accounts.

If you plan to (or would like to have the option of) invest toward retiring before 60, you'd need a mix of some assets outside of super to cover living expenses until 60 when you could access investments held in super.

[LifeAdviceWelcome]

Hey Psuedo,

Thanks heaps for the response - super thorough and a lot of detail here!

In terms of looking ahead, the more I've thought about FIRE, the more it appeals to me. To accommodate this and what you've spoken ab look it, I think I'd like to balance ETFs in a CMC account and increase super contributions. I'd also like to keep a higher portion of savings for emergencies but so to continue offsetting my loan.

A few other unknowns that I need to think about more are:

- Debt Recycling: Should I withdraw say $50k-$100k in equity from my property and put it into ETFs? Or perhaps buy another IP? I'm personally less inclined for the latter as I'll over index in AUS investments and have additional risk with (potentially bad) tenants
- Income Calculator Post Super Contributions: I previously tried looking up what my weekly / monthly salary would be after increasing super contributions (With tax being accounted for accordingly), but I haven't been able to find a tool that does this. Probably me a issue though as I'm sure it involves a few easy calculations
- ETFs / Bull Market: The market had been on a high now for a while, so there's always that fear of losing out when it crashes/dips, potentially taking years to recover. That said, it shouldn't worry me as I'd be holding these for 15 yrs+ anyway. DCA is something that I'd abide by too

Keen to hear your thoughts on the above if you have any.

Thanks for your help so far!

[LifeAdviceWelcome]

Welcome to the forum, congratulations for posting & starting to investigate and learn more about investing in ETFs.

I've also thought about increasing super contributions as I believe that's better for minimizing tax (Correct me if I'm wrong). I'm yet to do a deep dive into research on this, but I think there are significant benefits here.

re: super,

• re: hostplus, they are a solid choice of super fund, but worth double checking the fees & costs of your exact investments. hostplus offer "indexed" options where the fees & costs are very low (0.04% -- 0.08%). in contrast, hostplus' default "my super" balanced offering has much higher fees & costs of about 1%
• a big upside to holding investments in super is you only pay 15% tax on earnings (dividends & capital gains). Your marginal tax rate is likely 32% = 30% income tax + 2% medicare levy. If you hold investments in taxable brokerage account (e.g. CMC), when you receive income from dividends or capital gains, you will pay about twice as much tax than if you held those same assets in your super fund.
• another big upside to investing through super is that contributions to super (both mandatory contributions made by your employer, and voluntary contributions that you decide to make, if any) are subtracted from your taxable income. If your gross pre-tax income is $130k, and your employer makes the 11.5% mandatory super contribution to your super fund (of about $13400), then your taxable income is $130k - $13400. But if you chose to make additional voluntary super contributions, then your taxable income could be reduced to $130k - $30k
• one big downside to putting investments in super is that the government will not let you access those investments until you retire at 60 (or at 65 regardless of if you are retired)
• the first $30k added into your super fund each year benefits from this preferential tax rate of 15% --- if your employer is currently making a contribution of $13,400, you could voluntarily contribute another $30,000 - $13,400 = $16,600 to your super fund each year to make use of the full tax benefits. There's two common ways to do this: some (larger?) employers offer a "salary sacrifice" arrangement where you elect to have more of your paycheck directed into your super fund. Another way to do this is directly transfer money from your bank account into your super fund (check with your super fund on how to do this) -- this could be a regular thing or a one off. If you make a direct transfer, you need to fill out the form Notice of intent to claim or vary a deduction for personal super contributions and send it to you super fund -- this is a little bit to figure out the first time, but once you've done it once you can make a note to do the same thing every year when preparing your tax return.

One thing to ask yourself -- what goal(s) are you investing towards? When & how much cash do you need from your investments?

If you are investing toward retirement at around 60 years old, there are big tax advantages to investing via your super fund (up to $30k each year) before investing via taxable brokerage accounts.

If you plan to (or would like to have the option of) invest toward retiring before 60, you'd need a mix of some assets outside of super to cover living expenses until 60 when you could access investments held in super.

Unsure if I tagged you properly in my other comment sorry - doing this just in case I didn't.

[Valuethinker]

In stock investing, leverage increases your risk. But if markets go up, also your returns.

Now in the long run, mortgages are long term and cannot be "called" by the bank or broker. Whereas stock margin accounts can be. So it's not necessarily a bad strategy to "leverage up" your equity portfolio with a home loan.

But you can have a 10-15 year period where this goes against you. In Japan, it's been a 35 year period.

I would say that one should definitely make maximum use every year of tax protected space (Super in your terms). If to do that, you have to defer repayment of property-related debt that's OK. Other than high interest consumer loan and credit card finance, it's a reasonable thing to do (ie invest in tax protected accounts, ahead of repayment of loans).

If I was doing it in a taxable account, however, the call is much closer. Stocks might pay 7-8% pa, but with a range in any given year from -30% to +25% say. And then you pay tax on that gain and dividend income. Whereas if a mortgage is say 6% (I don't know Australian interest rates) that's an immediate, guaranteed return of 6%, *after tax*. Which is more like 9% pre tax for stocks (assuming 33% tax rate on investment gains; formula is Pre-tax rate/(1-marginal tax rate) to make it post tax rate)?

I would lean towards repaying the debt as per the bank's amortization schedule (ie when you took out the loan) and investing any surplus cash flow. But having maxxed out my tax protected investments for that tax year first.

But not leveraging up to invest. The reason being when your stock portfolio is down -50% (and that happened in 2008/9 and will no doubt happen again in our investing lifetimes) that just feels like such an awful place to be.

[pseudoiterative]

- Income Calculator Post Super Contributions: I previously tried looking up what my weekly / monthly salary would be after increasing super contributions (With tax being accounted for accordingly), but I haven't been able to find a tool that does this. Probably me a issue though as I'm sure it involves a few easy calculations

Have a look at moneysmart.gov.au super contribution optimiser. I think it shows what you're interested in as "Take-home pay".