Active VS Passive

4% p.a sounds reasonable if your holding 40% in bonds. Most government bonds are paying close to nothing. So really most of that 4% is coming from your 60% exposure to stocks. Go 100% stocks and I that would translate to something like a 6% return.
Again 6% p.a return in such a low interest rate environment looks to be a reasonable return.

 

Well there you go. I don’t recall seeing actively listed ETFs, and remember Magellan went with LIT structure a couple of years back. I suppose it’s quite possible to use ETF structure for an active strategy, not sure how it would work for the market makers trying to provide liquidity though. I think the main takeaway here is ETF is structure, not a strategy.

 

The John Bogle Expected Return Formula

I’m pretty dubious on these type of formulas personally. As an example, the S&P500 has compounded at 14.5% over the last five years. Bogle’s model could not predict that.

I think it’s fair to say it’s possible to have decades where you shoot the lights out, and another 10 year stretch where you lose money. As an equities investor you should be prepared for both. Broad diversification is usually helpful here.

2020 should be a good reminder on the value of prediction.

 

There are quite a few active ETFs. Just look for the ones with high MERs from page 11
ASX Investment Products - December 2020

eg KSM - K2 Australian Small Cap Fund
From ETF's

Active ETFs are unit trusts that do not track an index and are more similar to actively managed funds. ETF’s differ from unlisted managed funds in that the ETF aims to provide investors with a more efficient way of accessing the strategy via the application and redemption process.

Ouch 1.31% MER and 15.38% performance fee

 

Makes sense. There just seems to be a lot of confusion out there, even among professional writers. The term ETF is commonly used to refer exclusively and only to index based products.

 

Yep
ETF's are a structure
Managed Funds are a structure
LIT's are a structure
LIC's are a structure.
Superannuation is a tax favored structure.

Holding a broad diversification based on market capitalization is a strategy.
Minimizing management fees and tax drag is a strategy.
Regular investing is a strategy.

Strategy first and then pick the product that best suits, The structure of the product is largely irrelevant, If a product is the best available to implement your chosen strategy, use it whether it be a ETF, LIC, managed fund, whatever.

ETF team vs LIC team is just for the rusted on...............

 

Now that we have that sorted, I have one more question completely unrelated to the topic of this thread. I am sure this has been covered somewhere but there doesn't seem to be a specific thread that I could find. VAS the ETF vs the Vanguard Aus Index fund. I understand they are pretty much the same other than one being unlisted and the other listed / traded on the ASX.
I hold the unlisted wholesale version, but see that the management fee is .16% compared to VAS being .1%. Why would they be charging a higher fee for a wholesale fund? I have always assumed there would be an advantage holding the wholesale version over VAS.

 

The experts here can confirm:with VAS you need to pay for brokerage costs, the index version does not

 

Thank you @Anne11 . Good point, but I believe the wholesale fund also has a buy and sell spread. Would that not be the equivalent to listed brokerage cost? If we factor in all costs of both versions are we saying they are fairly equal?

 

Here you go mate, dedicated thread here : Vanguard Australian Shares Index Fund and VAS [ETF]

 

Thank you Sir.

 

Wholesale funds are also less tax efficient than ETFs as other investors actions can lead to capital gains

The problem with pooled funds - Passive Investing Australia

 

Ok, so we have established that costs are similar when you factor in brokerage but there is a slight difference in tax treatment. From what I understood in the link is that the pooled fund is taxed when the pool as a whole must sell down regardless of what you do as an individual. ETF gives you the independence from that perspective. End result is the same if and when you sell down the ETF holding.

so overall the ETF structure might be slightly better. Since I am already holding the wholesale fund versions I guess it makes sense to keep going with that. I am surprised that both the advisers I have dealt with so far have not pointed this fact out.

 

With ETFs though you get the benefit of compounding returns on those tax savings and eventually might be able to choose to sell down when your marginal tax rate is lower (eg during retirement)

I suspect most advisors are not even aware of the issue. The savings are not huge and in many years, non existent if the wholesale fund didn't realise capital gains. The impact tends to be larger during big selloffs like COVID and the GFC.

One option might be to start acquiring ETFs going forward and only sell wholesale funds if there is a correction, avoiding capital gains. Thats what I did last year after getting $3600 of unplanned capital gains from the March selloff.

 

You would still do those development investments as well i guess?

 

Yeah sorry I was specifically referring to when I started investing in equities 5 years ago. The developments I did was before that. Haven’t done a development since. The development thing i sort of fell into. Had some people around me at the time who guided me into it.

Not that I wouldn’t do another development now if something worthwhile came across my table. At the time I did the last ones the market was extremely favourable and made me look smarter than I really was.

 

Sorry i should have been clearer....you mention investing in VAS & VGS above but i meant you will still be investing in the development mortgage syndicates with Matthew?

or after they expire you will will be solely investing in VAS & VGS only?

 

Yes, will keep investing in the mortgage syndicates. I am actually trying to increase my holdings in different syndicates but can’t get in right now. I have had a number of syndicates mature in the last month and have a heap of cash sitting there waiting to go into new or existing syndicates that open up.

I would consider moving cash across from syndicates into equities as it becomes available if the share market was not so frothy and offers better buy in opportunities.

That doesn’t mean I am not going to continue buying equities during this period as per the plan. With prices looking frothy I will buy set amounts each month based on expected available cash.

 

My thoughts on it @Sydneyboy - I am not into bonds.

 

So what are they yielding now?