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 (3:00)
Hi Firebug!
Loving the content and hearing all the great questions from listeners on Friday’s, keep up the great work. I’m hoping to hear your opinion or what you would do in my shoes if possible 🙂
My husband and I are 36 with a 2 &1/2-year-old and thinking about expanding our family because you know by this point sleep is a distant memory anyway!
We’ve got a nice emergency fund, zero debt and have just started to invest in ETFs. Super is currently sitting at about $150k. Right now we’re really fortunate to have free housing but are keen to get into a place of our own as we can’t stay here forever.
We keep going back and forth between what’s best to do which is where I’m curious to hear what you have to say.
We’re currently saving towards a house deposit and looking to have about $100,000 saved before we buy in SA. Until we reach that goal in approx 2 years our plan was only to invest about $5k a year into ETFs. But we’re not sure if we should beef up that amount we’re investing instead of saving so aggressively for the house because we’ve had investing on pause for 2 years while we cleaned up debt and got an emergency fund together.
One of the things that drives me nuts is the brokerage fee with such a small quarterly trade, but hey what can you do (I plan to get on to using self wealth this month!)
What do you think you would do in our position, and why?
-Amy
Firebug’s Answer
Hi Amy,
Ahhh kids… As aspiring parents (one day) Mrs FB and I are really taking advantage of weekend sleep-ins. I’m not sure how she’s going to cope tbh, she regularly puts away 9-10 a night 😂.
Now to your query.
Firstly, you’re in a really good position for a couple in their 30s:
- No debt ✅
- Emergency fund ✅
- Super balance over $100K ✅
- Reads aussiefirebug.com ✅✅
I have no idea how you’re getting free housing but milk that bad boy for as long as possible. Housing is one of if not the most expensive item anyone will pay for in their entire life. Living at home until 26 was probably the biggest advantage I had to increase my net worth so young.
It depends what you’re after, but from what you’ve written in, it appears that you want to start investing outside of Super whilst also saving for a house deposit. If I were in your position, I would concentrate on the house deposit and not worry about investing until you’re in your next home.
The other question you need to ask yourself is do you plan to retire before 60? If the answer is no, Super is the best vehicle to invest in because of the tax advantages. You can swap Super providers and invest in ETFs directly through them. A popular choice in Hostplus Superfund.
If you really want to start building that snowball outside of your Super you could either trade through a broker such as SelfWealth as you’ve mentioned. Or you could sign up with Vanguard directly and invest smaller amounts without paying the brokerage cost. You will be paying higher management fees though…
Hope this was of some help and good luck on your journey 👊
-AFB
Question (11:33)
Hi Aussie Firebug,
I just came across your blog as I was searching on how to buy Vanguard Index funds (VAS, VGS) Thank you so much for your blog, you made it very easy for me to understand.
Just 2 quick questions:
1) I am single, no kids or dependents. Would u recommend buying EFTs through a trust or just under my name? Is there any tax benefit when buying EFT’S thru trust in my situation?
2) From what I’ve read on your blogs, VGS is domiciled in Australia so I don’t have to pay taxes outside Australia. Is this correct? Based on your strategy, I might invest VAS 40% and VGS 60%
Looking forward to hearing from you.
Thanks a bunch!
Jonathan
Firebug’s Answer
Hi Jonathan,
I’m glad you’ve found my content easy to digest. Simplicity and ease of use have become a bigger part of my decision making in recent times which also reflect my answers to your questions.
- There can be. But the most realistic tax minimization strategy from trusts for most people will be when their wife isn’t working if they have kids and income can be distributed to her. That and distributing to other family members who don’t have an income. If I were in your situation I wouldn’t bother to set one up. You don’t need it.
- You’re correct. You also get the added benefit of not having to fill out a W-8BEN-E form. VAS and VGS, in my opinion, is a great diversified portfolio.
Cheers,
-AFB
Question (20:07)
Hey Aussie,
I made an observation today which I thought was interesting. All the main indices were down (ASX200, All Ords, ASX200 Financials, ASX200 Materials, ASX200 Industrials) yet all the larger LICS I track were up (or in the case of AFIC, was flat).
Thoughts on this?
Regards,
Michael
Firebug’s Answer
Hi Mick,
I noticed this the other day as well which intrigued me so I started to do some investigating.
The larger LICs like AFI, MLT and Argo have a heap of crossover from the ASX300 which should, in theory, mean that their price is closely linked.
If we compare VAS to AFI over the last 10 years or so we get this graph.
I’d say that looks pretty much how I thought it would. There’s definitely some correlation between the two. They rise and dip mostly the same.
One reason I have read that would explain why ETFs can drop further than LICs in a bear market is because LICs seemed to attract more long term investors who don’t get spooked by the market. This is reflected in the share price and could explain why the LICs didn’t suffer as much during last month.
Just a guess though. Maybe someone smarter than me could comment down below.
-AFB
Keep up the good work AFB. Enjoying your content.
Enjoying your content. Only one thing in relation to your answer regarding setting up a trust. This is 2018 and maybe the guy in the relationship will stay at home and look after the kiddies, so maybe he will be the low income earner. Also could be 2 guys/gals. Just helping you try to broaden your audience 🙂
There is always one overly politically correct person trying to enforce the “it’s 2018, don’t assume anything as a norm” sentiment. The man is giving out free financial advice, just listen… 🙄
Not financial advice! Just thoughts and opinions of some random dude on the internet 🙂
Sorry, I meant no offense 👍
Good comments Annabel. Totally agree with you. I thought you stated your point politely.
Was coming on here to stay exactly the same thing Annabel. It’s not “political correctness”, it’s the reality for lots of families including mine. Becomes so tiring when hearing advice for optimising “when the wife is at home”. The language we use matters and I would think even more so for a podcast!
Also agree with Annabel. If I ever bother getting married, the husband will almost certainly be the lower income earner for the duration of my career.
The differences in shareholdings between LICs and index tracking ETFs would certainly account for some of the difference, going from memory (so I could be very wrong!) the LICs don’t tend to invest much in resources of REITs so that might well account for some of the differences in returns.
Also there are plenty of index arb desks or market makers out there who won’t let the ETF get very far away from the underlying index. LICs don’t have that so tend to be less efficient in terms of how they trade. So on a day to day basis you might also see some differences between the two because ETFs will always track the Index extremely closely whereas LICs won’t necessarily.
Therefore you might get an upward day for LICs even if the market went down for either/both of those reasons, and potentially others as well.
Regarding comment: LICs seemed to attract more long term investors who don’t get spooked by the market.
Why would LICs attract more long term investors who don’t get spooked?
LICs tend to attract people who don’t watch the market on a day to day or even month to month basis. There are certainly some ETF holders like that, but there are others who have different reasons for investing in it and won’t be holding it for lon. As I’ve said I would argue LICs don’t trade very efficiently, and you might easily end up paying more for the LIC than what the underlying companies are worth or vice versa.
Nice one Annabel. We are in the position were the male in the family stays home and all income is distributed to him. He gets lots of subliminal and overt messages that a stay at home Dad is a complete weirdo. For example on official forms he can’t be a ‘housewife’ or a ‘parent’ so he has to put the demeaning ‘unemployed’. I have had to encourage the writers of school newsletters and playgroup emails to use the words ‘hello parents’ instead of ‘Hi mums’ or ‘Hi ladies’. More fathers should be encouraged to have an active role in child rearing if that is what works for your families. Not to mention a partner who is not a wife.
Hey there FireBug,
Great work on the blog and content!! Keep it up!!
I Would like to ask you something. I’m 27 yo Engineer (renewable energy) born outside of Oz. I currently work full time and have no dept, have about 45k in term deposits and 32k in EFTs/LICs (my portfolio is bit all over the place). I would like to own my house (small 300-450k ish) in next few years. It was my dream that my dividends will pay my monthly mortgage, but clearly that is far far away. Currently I save about 60-70% of my monthly income (which is about 5k ish after tax).
Anyways, I would like to ask what amount/value of portfolio do you think would be sufficient for not to worry about mortgage and spending that comes along with house?
P.S. Just like you I also have dream of not working for money/ retire early. My partner just finished uni and she is starting work next month and she is ready to thrive on little money for some time, I’m thinking of investing 10k in WAM global, what are your thoughts on that?
Hi Ashy,
Please submit your question here mate https://www.aussiefirebug.com/contact-me/
Cheers
Hi AFF,
I am quite interested in your comments on Ashy’s questions.
In case Ashy doesn’t mind, would care to share with us? 🙂
Cheers!
No magic to it. The LICs tend to rise slower and fall slower than the market. They’re mostly held by retail investors who don’t track NTA every single day, mostly are just happy to top up when they have the money or sell when they need the money.
Of course there’s more to it than that, but because of this when the market falls quickly as it kinda did recently, the likes of AFIC are usually slower to fall, meaning AFIC is now trading at a premium of almost 5%, making it more attractive to top up holdings which have actually fallen, like the index. Hope that helps.
I actually bought some A200 last month for this exact reason Dave. It was down a lot more than MLT and AFI.
Yep makes sense. And it’s one of the main reasons I added VAS to the portfolio in recent months.