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 (2:30)


Hi Aussie Firebug,

I currently have some cash funds that is used as my emergency fund. Given the poor cash rates on bank savings accounts, what would you recommend I invest in, in order to generate some return whilst still having access to the funds? I know Mutual Funds do have some fixed income funds.

I assume this would be a similar position for most investors when they save up for a deposit on a property.

Thanks,

Franco

Firebug’s Answer


Hi Franco,

This is always a tricky one to answer and it depends on a few factors.

Firstly, your emergency fund should always be in cash and I wouldn’t be using it as a down payment for a home. It’s possible that I’ve misinterpreted your email but it sorta sounds like your saving up your emergency fund to one day use as a deposit for a house? Sorry If that’s wrong.

When are you planning on buying? What’s the timeframe? Your investing horizon will dictate a lot. If you’re realistically going to be buying a house within the next year or two, I’d personally just leave it in a HISA.
You could potentially make more by investing in other assets but you run the big risk of a market going downhill when you want to pull your money out to use!

Unfortunately, the current economic climate is punishing savers 🙁

-AFB

Question (6:40)


Hi Aussie Firebug,

My partner has been following you for some time now and he has recently introduced me to your blog! My partner and I are 23 and 21 and are keen investors and avid followers of your blog. I feel as though we are in the very position you would have been in at our age with similar goals in mind. We were considering buying a house over the next few years but having read your blog, we’ve opted to rent until kids are in the picture and we’ve even decided to delay our euro trip as well lol.

I am just messaging you to see if in hindsight you wish you had done anything differently roughly 8ish years ago or any advice you would give to your younger self! (Other than the value of investing in ETFs :P). Specifically speaking in terms of investments.

Thanks so much and look forward to hearing back from you.

Firebug’s Answer


Hi Jess,

I would have never set up a trust if I’m being honest. Too complicated and you don’t need it to reach FIRE. A 50-50 split or 100 to the lower income earning wll work just fine. It also makes accounting difficult. Having it in your own name is a lot more simple and sometimes it’s worth paying more for simplicity.

I would have bought IVV instead of VTS because IVV is almost the same (same low MER) but is domiciled in Australia which means no W-8BEN-E forms. Small change but again, less complicated.

I don’t regret investing in property even though it’s way more work. It has taught me many life lessons.

I wasted a whole heap of money before discovering FIRE around 23-24 so you’re already way ahead. You guys are so young that getting the snowball started now is so beneficial.

The other thing I’d say is that you need to make sure you’re living a great life too. A great life doesn’t cost much but don’t deprive yourself too much. I was way too hardcore at the start and in the long run it doesn’t actually make that much of a difference.

I bought a car worth $21k that I slightly regret. Could have had a similar car which would have got me from A to B for around $6k but oh well…

Other than that… Not much really. I’ve always been pretty frugal in general so no major stuff ups.

Hope that helps

-AFB

Question (16:25)


Hi Aussie Firebug,

Firstly, thank you for everything you’re doing. The information and content that you put out is truly life-changing. You’re inspiring me to save, invest and get excited about what’s possible in my financial life, for that, thank you.

I’m also looking for your advice on this topic, here’s my current situation.

My partner and I began our investing journey about six months ago. We currently own Betashares A200, VAS and VEU since following your strategy which makes sense to us.

We also follow Scott Papes work and he recently released his ‘Idiot Grandson Portfolio which listed reasons why he prefers VAS over A200. We’re now considering switching to VAS and I’m trying to understand the implications of buying different ETF’s (although they are both index-tracking ETF’s). And the primary question I want to get clarity on is; will the dividends pay more if we hold more of one ETF versus holding two ETF’s? For example, will I receive more dividends if I have say, 200 units of A200 shares versus having 100 VAS and 100 A200?

I guess overarchingly, I want to understand how having a bunch of different shares that are the same in many ways affects the overall dividends and compound interest. I know you recently switched from VEU to an iShares product and I keep asking myself, ‘doesn’t that affect his compound interest longterm?’.

Any advice you can shed on this topic would be greatly appreciated

Nu

Firebug’s Answer


Hi Nu,

I’m pumped to hear that you’re enjoying the content so much mate 🙂

I’ve read Scott’s ‘Idiot Grandson’ Portfolio too, it’s a fantastic read with great reasoning behind the decisions on investment products.

The price of any unit of a company is largely irrelevant as in it’s an arbitrary number. That’s because when they first go public, usually another company comes in to give a valuation for the IPO but after that, the market sorts out it’s worth through supply and demand based upon how much of the company a single unit is worth.

Theoretically, if a company is worth $100 and they have 10 units outstanding, that would mean each unit is worth $10. But what happens if they dominate the market and are worth $100M in five years? Each unit is now worth $10M which means it’s very hard for people to sell their units to other buyers. What a company can do is a share split where the board of directors increase the number of outstanding shares to current stockholders. The primary motive is to make shares seem more affordable to small investors even though the underlying value of the company has not changed.

So each company/index fund may have a different value for their unit price, but as long as the underlying assets are the same it should not impact return at all.

A200 and VAS are a bit different in terms of dividends because of how new A200 is as a fund. I believe I’ve answered why that would be the case in another AFF as it’s a bit lengthy to go into. But over time they should be extremely similar.

I hope that answers your question mate.

Cheers,

-AFB

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