Aussie Firebug

Financial Independence Retire Early

Nothing written below is financial advice. The below questions and answers are for general information only and should not be taken as constituting professional advice. You should always do your own research when making any financial decisions.

Question


Hi mate,

I’ve been following you for around 12 months now and love your work! I’m 35 and have focused all of my investing life into property and property development. I’ve done quite well however now with a young family I’m much more interested in index investing due to the ease and minimal time and effort needed to put in compared to property!

My question is regarding your choice on 3 ETFs (vas/a200, vts, vue) my plan is a200, vts and vue as well with pretty much the same weighting however recently I’ve heard a few people leaning towards just a200,vts stating that the majority of vts companies are large international companies anyway and vts obviously has the lowest fees and with only 2 ETFs there’s also less brokerage fees. Are there any reasons besides the extra diversity for the vue? Cheers firebug.

Phil

 

Firebug’s Answer


Hi Phil,

I’m glad you’re enjoying the blog.

There’s plenty of diversification between VAS/A200 and VTS alone with over 3,500 holdings across multiple sectors. VEU will add another 2,712 holdings and I personally invest in it to achieve that global diversification. Factoring in the low MER of 0.11% it makes sense to me but to answer your question, diversification is the main reason I invest in VEU.

I have recently changed my investment approach to focus on dividends though. I have close to $100K in international investments (VTS and VEU) and I’m focussing on Australian dividends for the next few years.
If you look at the returns for the three markets we’re talking about (Aussie, US, and world ex-US) you can see they all return pretty similar results over the past ~40 years

returns

SOURCE

The above does not include dividends either.

I wouldn’t worry too much about the brokerage. Assuming you’re with SelfWealth you’ll only be paying a flat fee of $9.50 for each trade.

One last thing I’ll leave you with is if you’re looking into VTS, check out IVV. Same low MER of 0.04% but is domiciled in Australia and has a DRP option if that matters to you. The biggest difference between the two is the diversification and exposure to small-cap companies (IVV has around 500 holdings vs 3,654 for VTS)

-AF

 

Question


Hi Mate,

Just came across your site and love it, it’ nice to see an Aussie who goes this in-depth with advice and I feel like I understand. I’m 21 and looking to get on the FIRE path (However I’ll buy shares before property). I thought you could give me advice on getting into the market. For ETF’s, is it worth investing the $5,000 and then making recurring payments of $100 or buying larger amounts over a longer period (i.e Once a year rather than monthly). Also, do you use the option of the dividend reinvestment plan?

One more question- When initially investing, should I invest in one of VAS or VTS and continually invest in it until I get growth in the ETF or should I buy $5,000 of one and when I get the funds, invest in the other than start making payments accordingly?

Regards, Josh.

 

Firebug’s Answer


Howdy Josh,

Great to see a young lad like yourself so interested in investing and escaping the rat race at 21.

Your question really boils down to you working out how much your brokerage is costing you as a percentage of each trade and judge for yourself if it’s worth it.

Let me explain.

If you’re trading at $9.50 and buy $5,000 dollars worth of ETFs, you have essentially lost 0.19% (9.5/5,000) percent of your initial capital through the brokerage cost. 0.19% to me is an acceptable amount. Hell people pay up to 2.5% plus marketing costs when they selling property. That’s a bit different I know but I wanted to make the comparison.

So if start to trade for $100. Suddenly our brokerage costs skyrocket to 9.5%!!! This is far too high.

If you can only save $100 a week I would suggest looking into opening an account with Vanguard directly because they offer the ability to BPAY for new units with no brokerage cost. The flipside is that your management fee will be slightly higher than the ETF equivalent. But we’re talking 0.14% vs 0.75%. Not 0.19% vs 9.5%.

I don’t have DRP switched on but I still use the dividends to purchase more shares. I get a psychological kick out of seeing the dividends hit my account.

Sorry, I can’t tell you what to invest in as that would be financial advice. That’s a decision you have to make yourself. Come up with a strategy you’re confident in and then implement it.

Hope that helps.

-AF

 

Question


Hi firebug, thanks for your time.

  • My aims
    • Be able to retire early/decrease my hours significantly.
    • Possibly buy a house along the way,
  • My situation
    • Age: 25
    • Income: 90K annually. Job contract for 165K from next year.
    • Assets: 30K in vanguard high growth retail index, 10K in vanguard retail Australian shares index, 30K in a diversified actively managed fund. 16K in deposit/savings account, 16K super. No property. physical assets probably amount to <10K.
    • My expenses: Not very much. $180 per week to rent a room. Possibly up to $350 a week next year as I plan to upgrade. Total expenses a month excluding rent are probably about 1.5K a month
  • My plan thus far
    • Since beginning investing about 3 months ago my plan has been to invest 1K into vanguard high growth index per month and 1K into actively managed fund per month. Save the rest. Leave my money to grow for at least 8 years (then possibly put a down payment on a house).
  • Questions
    • Is it worth changing to a vanguard ETF given my investment plan?
    • Do you think I should invest everything I earn? I also plan to use some of my savings to invest if the market takes a dip since I don’t need that much of a safety net.
    • Any other thoughts about my situation?

Thanks for your thoughts.

 

Firebug’s Answer


Wow $165K contract at 25! That’s a lot of smashed avo on toast.

I LOVE that your first question is about potentially switching to ETFs. Because as I was reading your situation, that where my mind instantly went to. Right now you’re paying $315 bucks a year on management fees for the two Vanguard investments. I would love to know the management fee on the other one but let’s just work with what we know.

If you switched to the ETF equivalent, it would bring your management fee down to $95 a year.

Check this out.

Now a difference of $220 might not seem like a lot, but you should always compare things in percentages and not dollars. The retail funds are costing you 331% more compared to the ETFs in management fees. When you get to a serious sized portfolio of let’s say $500,000. The difference works out to be $2,750 a year 😳

Your expenses are very low which is the aim of the game. $1.5K plus rent is around what I was spending when I lived by myself. If we factor in your rent of $180, we arrive at around $2,280 a month. Which means 6 months of living expenses is just under $14K which you have in savings. I would not go below this if I were you just from an emergency fund point of view. That emergency fund should not be used to invest!

Allocating a big portion of your income to investing is obviously the quickest way to get to FIRE along with cutting your expenses. But don’t forget to enjoy yourself along the way. I was too serious about my savings in my earlier years and it’s really important to live a great life during your journey to FIRE. The path there is half the fun I’m told by people who have reached the end goal.

Other than that, you’re kicking goals dude! Keep it up 🙂

-AF

 

Question


Hey Firebug,
Love the new segment!

My question would be – listening to some US pods they all speak about “flyer miles” being one of the Pillars of FI.

Do you do any yourself? I just did an easy westpac one that was free and got me 80k Qantas FF points. Even if you don’t fly this is worth around $400 at JBhifi.

Would be great to have a “watch team” out on these offers to share with the FI aus team. Or find a resource that tracks them.

Cheers,

Joel

 

Firebug’s Answer


Hi Joel,

I used to do this but can’t be bothered anymore. I don’t fly enough!

The US deals are WAY better than ours anyway. There is so much more credit card competition over there it’s insane. We recently had an ANZ CC because of the sign-up bonus and we would earn points throughout the year without doing much differently. There’s really no good reason not to have a point earning CC that you can accumulate points throughout the year I’ve just been lazy and haven’t bothered getting a new one.

Check out Points Hack website. It’s an Aussie site dedicated for finding these deals.

-AF

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