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 (2:50)
Hi,
Just wondering what you have in mind for the structure if your portfolio once you reach FIRE? What do you think your asset allocation will look like, what percentage for defensive to preserve your hard earned and what percentage in growth to cover inflation and continue your income?
What figure do you think you may want to keep in cash?
Cheers,
Alan
Firebug’s Answer
Hi Alan,
The plan right now is to have all of the properties sold and be 100% in equities plus an emergency fund that’s sitting in our house loans offset account. When we do eventually buy a home to live in, we plan to use debt recycling to turn our PPOR loan into a tax-deductible one.
Having around $1M invested in a combo of ETFs and LICs should produce around over $50k of dividends plus franking credits which can be used if Labour doesn’t remove the franking credit refund 🙏. The portfolio itself should grow on average by 3-4% which will mean it’s growing faster than inflation (on average).
Of course, the market works in peaks and troughs and some years are going to be better than others.
I have always felt comfortable with 6 months worth of living expenses in cash.
-AFB
Question (7:35)
Hi AFB
Thanks for a great blog. It is really easy to read and understand.
Obviously, your focus is on investing, but I was wondering if you could offer some insights into the other side of the coin and let us know ways you save money in your household. The everyday things like shopping at Aldi, rewards programs, etc (or however you do it).
Thanks heaps!
Pam
Firebug’s Answer
Hi Pam,
It’s refreshing to hear someone ask a question about the most important part of FIRE. Too often it’s all about investing and tax minimization strategies which pale in comparison to simply saving more each paycheck.
Now to your question.
I created a free eBook years ago which listed my top 10 strategies to save money. You can get it HERE.
In no order here are my top ten tips.
- TRACK YOUR SPENDINGS
- CANCEL UNUSED MEMBERSHIPS
- PAY YOURSELF FIRST
- LEARN TO COOK
- THINK IN PERCENTAGES
- BUY SECOND HAND
- RENT WHERE POSSIBLE
- CREDIT CARDS
- DELAY GRATIFICATION
- STAY AT HOME WHEN POSSIBLE
The eBook lists each point with a little explanation so I recommend that you download it and have a read.
-AFB
Question (26:09)
Dear AFB,
You continue to push out such great content.
Two questions:
- May I ask your reasoning in buying MLT, as opposed to AFI which is currently trading a discount? I currently only hold VGS (started very recently) and am looking to buy my first LIC. My eventual portfolio is hopefully VGS (20%) AFI (40%) and A200 (40%).
- If you have an inkling the US stockmarkets bull run has got to eventually come to an end (2 yrs, 5 yrs, who knows), what would your plan be? I know its stay the course, dollar cost average, buy more during a crash, but would it make more sense to buy Australian shares now, then during US crash pump more money then?
Thank you!
H
Firebug’s Answer
Hi H,
- When we bought MLT last month it was trading at a slightly higher discount PLUS it has a lower MER than AFI.
- You pretty much hit the nail on the head. Invest consistently no matter what the market is doing is our strategy. But it’s very hard to not hear the thunderous roars from the doom and gloom pundits that are drowning out all other narratives at the moment. I try not to look at the markets too much but it’s hard for someone like me not to read financial news.A lot of things make sense with hindsight. But trying to pick what’s going to happen is very risky. It’s going to interesting to see what unfolds over the next 24 months… But I’m strapped in with my helmet and all, gleefully awaiting the rollercoaster ride that is the stock market. Hopefully, I can hold my nerve and not scream to get off after a heart-dropping dip. Only time will tell.
-AFB
Always interesting to hear your answers
A very interesting time at the moment in the World and Australian stock markets. Rising interest rates in America are bringing a sense of ‘the era of easy money’ is over (and US company earnings will reduce as a result). Add in Trumps trade war with China (our most important trade partner), as well as the likelihood on a change in Australian government (potential capital gains tax, Negative gearing and franking credit changes), and this is a very interesting period coming up. Personally, I look forward to the volatility. Try to look long term and this next 12-24 months of volatility will present some very rare buying opportunities.
Totally agree… I hate paying top dollar in my super and for investments. Bring on the heart-dropping dip!
Hi AFB, At the recent Milton AGM – they stated their expense ratio was 0.14% for the year (same as AFIC). Some people still think it’s the old 0.12%. Granted it’s a bee’s willy difference but can matter to some people. I think it’s ridiculous some of the fees charged by the ETFs and LICs given they are glorified index huggers. They should be charging next to nothing for their management fees (some ETFs in the US now charge 0.00%!). Cheers.
Well, there you go Ben. I didn’t know that! Thanks for the update.
I’m very envious of the US ETFs MERs sometimes 😥
Hi guys, Labors proposed changes to franking credits will have huge impacts on our community. AFIC has supplied a template for a submission to the house economics committee: Email: [email protected] Mail: Committee Secretary, Standing Committee on Economics, PO Box 6021,Parliament House, Canberra ACT 2600
The link to the template is: http://www.afi.com.au/Latest-News.aspx
What would happen if labour did remove franking credits from LICs??
They are not removing franking credits. Under the Labor proposal you can still use the franking credits to offset tax, but you will no longer be able to get a refund if the franking credits are more than your tax. If this change is implemented, it will effect FIRE people who assumed they would get franking credit refunds as part of their FIRE strategy i.e. people who assumed they would earn $20,000 in dividends and then get $7,500 in franking credit refunds.
Have a read of this post by aussie HIFIRE, which I think explains it all quite well:
https://aussiehifire.com/2018/09/09/how-would-the-proposed-changes-to-imputations-credits-affect-fire/
You have to assume the people most effected by these changes are going to find it worthwhile changing their strategy. For example some people will sell some of their shares (paying no CGT because of their franking credit situation if they do their maths correctly) and invest it in overseas shares, peer to peer lending, property. And some people will look at being able to work a little bit at effectively a 0% marginal tax rate. This is why I’m guessing Labor’s expected savings will drastically reduce from this tax change if it’s actually implemented.
Some really good information in this article. Thanks for sharing. Always love reading your answers and seeing how your mind works. Cheers
Thanks for all your hard work with this blog, super useful. Following along with interest.
I was looking at your networth pie charts and wondering – how do you decide what percentage of your networth to keep in cash?
Hi Tegan,
I’m glad you’re enjoying the blog.
We keep 6 months worth of living expenses plus $5K per IP each… plus we have a little bit extra because I’ve been lazy. More will be in the markets next couple of months