Active VS Passive

Ive definitely found this to be the case too.

 

Got him! Another one in the bag

I’d suggest finding Charlie Ellis on podcast/YouTube at this point as well.

Imho After that, perhaps David Swensen’s Unconventional success which among other things has very good descriptions of asset class risk (even if from US perspective, the themes are the same). Stanyer’s the Economist Guide to investment strategy also useful here as well to put “meat on the bones” of your thinking...I found these useful in the past.

 

Thanks mate. Will check them out.

 

Ellis is a great story teller, could listen to him for ages.

 

Hi. What are peoples opinions re online portfolios eg stockpot. I have 500k in an offset account, would like to put it to work. Their fees seem low, .55pct pa and easier than managing multiple etfs etc.

 

This falls into the truly catch-all basket of 'it depends'.
If your strategy was 100% equity (ex Australia), no touching except to tip in more funds.
You could use something like VGAD (disclosure: I don't) - that snips a management ticket of 0.21%.
"So stockpot is only 0.34% more" - I hear you say.

This is what 500k in stockspot (0.55%) vs VGAD (0.21%) at a 7% return (no DCA) would get you after 10 yrs.


The joys of compounding! Even small %'s show great returns.

If you mentioned managing etf's as a reason to go with stockspot and you were referring to paperwork - sharesight lets you track your investments (within 10 holdings) free, and also sends you tidy end of year paperwork for your returns.. Honestly don't actually know how tidy and usable it is yet so definitely not an authority on this.

Which goes back to 'it depends'.

Stockspot I think also falls under the 'robo-adviser' column, so it's straddling the passive and active camp. Which is up to you if that's something that you want.

It took me a while to dig as far down the rabbit hole as I was willing to dig to get to the result that I did. So it depends on what kind of rabbit you are, what kind of hole your after.. or if you even care about rabbits and would prefer to give control of your rabbit returns to a rabbit farmer.

 

Not familiar with stockpot myself.

But can we get something clarified. The term ETF’s. I understood an ETF as a fund in which its shares of that particular fund are traded on market. The fund could be an active fund or a index fund and if its units are being traded on an exchange then its an ETF.

Then I keep seeing index funds specifically being referred to as ETF’s as if ETF’s are purely only index based funds.

Can someone smart please clarify.

 

Not smart here but I’ll have a go.

All exchange traded funds - that I am aware of - follow some kind of index. That does not mean that the index is market capitalisation. Often the indices are proprietary and focus on one or more factors ; Value, Quality, Momentum, Dividend etc or focus on size ; small cap, mid cap, large cap or sectors ; tech, medical, property, mining...regions ; Asia, world developed, emerging markets, etc....or a combination of some or all of the above.

In Australia, products that are exchange traded that follow “active” strategies (discretionary) as opposed to those that follow any kind of index - are LICs or LITs.

The first, and largest ETFs were/are Market capitalisation indices but ETF does not equal market cap index the way that some people use it.

Stockspot could be summarised as a robo advisor that follows a strategic asset allocation (SAA)framework, as opposed to Tactical Allocation. They will likely change SAA infrequently, and I would not consider this “active management”. SixPark is similar, and Vanguards multi asset funds as well.

 

Thank you for clearing that up. Makes sense now.

 

Thanks for the response labucku. I see there are some vanguard retirement products, basically a mix of local, foreign etfs and bonds. Seems a good low cost way to replicate what a standard super fund would be doing? Anyone got an opinion on these? Any potential liquidity issues? I have a 15 year retirement horizon. Already max out my super contributions.

Vanguard Target Retirement Funds | Vanguard

 

Oops, just realise the fund above is only in the US.

 

Vanguard AU has multi asset funds, both as ETF and Unlisted funds which are similar - the SAA is fixed though, so you’ll choose between balanced, growth etc. Cost for all is sub 30bps

 

This is a great response. Although the 100% VGAD is illustrative and not what a balanced portfolio would look like IMO.

With your scenario, outside Super, I would tend to go down the passive index ETF path. You could go for Vanguard's fixed strategic asset allocation options such as VDHG, VDGR, VDBA, or VDCO, although I advocate VDHG as it has the highest equity component. The other option, which allows you to have 100% equities, is mixing your own by including VAS, VGS, VGAD and VGE (for example).

The Vanguard funds are more expensive, even the wholesale fund, which you could join with a $500k initial outlay.

Note there are other companies offering ETFs such as Blackrock.

In summary, @Labuku showed that the fees of Stockspot would be a drag over time, and i am of the opinion that the Vanguard funds may also have a minor drag versus the ETFs, which can be purchased on the stock market in your structure of choice.

 

Thanks for the responses all. Im also thinking, does it make any sense to have an income allocation at all in my etf given i would be borrowing from my mortgage @ around 2.5pct. Bonds would rarely be greater than a mtge? So only shares the would make sense ie high growth.

Also, quick tax question. If i take 500k from my offset account, even though this is technically from a svgs acct, is the additional interest i now pay on my mortgage tax deductible? I think it is but have had vague answers in the past.

 

Not licensed to give tax advice but......IMO increased/reduced interest as a result of movement in one’s offset account has no bearing on deductibility. It isn’t the same as a redraw. If the loan was used to purchase an IP then increased interest is deductible.

 

@Terry_w has written extensively on the ins and outs of debt recycling. Suggest you look up some of his posts and obtain professional advice.

 

Its a clear cut no.

Unless you are talking about an offset account attached to a loan that is already deductible.

 

So back to this point. There is a article in AFR today talking about how Hyperion are looking at listing an actively managed etf based on their international equities fund.
This is what I meant. I regularly read articles or write ups that refer to listed active funds as ETF’s. So confusing.

 

I too am convinced by Bogle's arguments for index investing. Listening to The Little Book of Common Sense Investing now. John's view on expected market returns over the next decade isn't comforting: only about 4% per annum from 2017 based on 60% stock and 40% bonds, less fees, etc.

What is everyone's thoughts on this?