Investing from Australia

 provides information for Australian residents looking to implement Boglehead-style investing and apply the Bogleheads® investment philosophy.

Portfolio construction
While nowhere near the breadth and depth of low-cost exchange-traded funds (ETFs) and similar products in the US, there are ample options for putting together a low-cost portfolio in Australia. Vanguard entered the Australian market in May of 2009 with index-tracking funds for the Australian Stock Exchange 300 Index (ASX300), which covers approximately 81% of the capitalization of the Australian stock market; and for US and non-US global markets. Since 2009 the ETF market has steadily grown; by 2015 the market reached maturation.

Some good resources for analysing the various fund options include:

Home bias
Australians tend to have significant home bias, holding on average 70% of their equity holdings in Australian stocks, while the Australian market is only 3.5% of the global economy.

Assuming ASX index-tracking funds, such as Vanguard Australian Shares Index (VAS) etc., anywhere up to about 50% of your total portfolio in Australian equities should be fine; more than this and you may wish to consider a larger holding in international equity as the risks of portfolio concentration start to outweigh the benefits from franking.

Tax-free bonds
There are currently no tax-free bonds in Australia (like municipal bonds in the US).

Cash savings accounts
You can get a good comparison of rates on savings accounts from the Canstar site. The ING Savings Maximiser is a popular choice, though it requires you to deposit at least $1000 per month in order to get the top rate of interest, currently 3.5%. Other options have lower bars to entry.

Bonds vs cash
Considering the effective rate on Australian Government Bonds, as of March 2016, yields about 3.25%, and the Australian Government has a deposit guarantee scheme on cash deposits up to $250,000 per person, per institution, the question arises, "why bother with bonds at all?"

Looking at yield alone, cash savings accounts, as of March 2016, beat bonds by 25 basis points. Furthermore, there is no brokerage cost involved when keeping your money in the bank. And if interest rates increase, the extra interest should be passed on to the depositor. The main difference arises from how the two move when interest rates decrease. Should the Reserve Bank's cash rate decrease from 2% then the bonds would increase in value as they continue to pay 3.25% to bondholders, while depositors would be at the mercy of the new lower rate. As always, your choice regarding cash vs. bonds will depend on your circumstances, but keep in mind that there is more to the story than just current yield.

Emergency fund in mortgage offset account
One benefit from having a home loan is that it gives you access to a mortgage offset account. Putting the money earmarked for your Emergency Fund into a mortgage offset account allows you to reduce the interest paid on your loan, and interest received is not taxed as it would be if you kept the money in a regular savings account.

Buying vs renting
Rule of thumb: For lower tax brackets, renting and investing is better; for higher tax brackets buying works out better as you pay rent with post-income-tax dollars while interest payments

Brokerages
Most banks offer online trading accounts for $15-20 per trade, extra for live market data. There are also several online brokerages such as CMC Markets ($11 per trade). More expensive options include dedicated trading systems such as that offered by Interactive Brokers, and telephone trading ($50+ per trade).

Superannuation
Superannuation is a defined contribution retirement savings arrangement and provides tax-shielded accounts, similar to a 401(k) in the US.

Risks and possible changes
Superannuation has seen several changes since its inception in 1992 and will no doubt continue to evolve. Some of the potential changes discussed include:


 * Increase in Contributions Tax
 * Introduction of a Withdrawal Tax
 * Changes to Preservation Age
 * Compulsory annuities
 * Restrictions on lump sum withdrawals

Previous changes have tended to be grandfathered to an extent.

Safe withdrawal rate
In Australia, studies indicate a safe withdrawal rate to be around 3.5%, compared to the Trinity study of 4% for US residents.

Should I pay off my HECS debt?
Similar to the US, Australians often leave tertiary studies with a large debt burden.

Higher Education Contribution Scheme (HECS) debt has the following characteristics:


 * It is automatically deducted from your salary once you are earning above $50,000;
 * Increases with CPI;
 * Attracts no interest;
 * Lump sum payments attract a 5% discount.

The consensus is that it is better to never take the 5% lump sum discount, and instead use money slated for lump sum payments towards investing goals. This could change in a high-inflation environment, where debt increases due to CPI were outpacing investment growth and salary increases.