Asset Allocation

Brain function

 

The future. It's always there.

 

Why thank you Sir. If I was the pupil then surely that would make you the teacher.

How dare you.

Of course I have stuck to the plan and have never strayed. Edit: And never will. VAS & VGS for life.

 

Haaha, yours or SKs?

 

Both

 

Wise advice.

Personally, the factor tilt helps me avoid the temptation to tinker on the active side. I love seeing the different factors zig and zag and the feeling of buying at a discount with inflows.

A 20% allocation to factors gives just enough skin in the game to have an impact but not to blow up the portfolio during periods of underperformance.

AVUV is up 10% in the past month vs 1% VTI. Random noise at this timescale I know, but a bit of fun nonetheless. Either way, something is always winning.

 

Speaking only for myself it is a consequence of one in the past and the other present.

 

Ha. I was thinking this. You have more than enough complexity ; far more complexity than a handful of ETFs in your ex equities portfolio. Trying to tweak equity strategies would likely lead to a brain explosion.

Personally I am following the path to simplify as much as possible but not too much. Within a few years will be at a Handful of ETFs/index funds, One active equities strategy (Microcap), Cash. Simple.

 

Yes I am a deeply flawed person. I can talk the talk but have lots of trouble walking the walk. The positive I guess is that I recognize and acknowledge this, which means there is hope that it can be fixed. Baby steps.

 

Investing chess is.........................

..............wait for it..................

...................wait for it................

compounding.

So have you stopped investing chess or not?

 

I have stopped playing investing chess. Every now and then I glance over at my board and think what if I move this piece over there to get a slight advantage. Then i slap my own hand and say don’t touch the board. There are still a few pieces on the board that are not in the right spot due to my earlier playing days. I have decided to leave them put for now. Either I will move them into the correct positions ( what I believe is correct anyway VAS & VGS ) slowly over time or as the board grows they will be small and insignificant pieces, so they won’t really matter.

I won’t discount the possibility that one day far into the future I won’t relapse and go back to messing with the pieces unnecessarily. If that happens I’ll come here and ask your opinion on my new super dooper strategy and you can set me straight?

 

You seek enlightenment, young budgie bottom?

 

I recalled veteran members like nodrog/falcon/dunno may have posted about this before. It would be great if someone can help to refer me to their posts.

The crux of this post is to answer: is it more effective from tax perspective to invest in (a) LIC or (b) ETF and would you invest (a) inside or (b) outside superannuation?

To simplify the scenario here (also based on historical data), we would assume that:
1. LIC pays fully franked dividends (with 30% company tax)
2. ETF pays 70% franked dividends
3. Individual tax rate is > 30%
4. Tax inside superannuation = 15% and superannuation does provide DIY option to invest in ETF but not LIC
5. Total return of LIC and ETF is equal

My take on this is:
1. Invest in ETF inside superannuation as the max tax rate would be 15%. If it's invested outside of superannuation the individual may pay more than 30% tax rate which is higher than the 30% company tax from LIC (in comparison).
2. Invest in LIC outside superannuation as the max tax rate would be 30% which is lower than individual tax rate (in comparison). Bonus point: the individual could also take part in any corporate actions (SPP, etc.) when offered by the LIC.
3. By doing both (2 points above), the individual would be investing in the best of both worlds ETF (passive) and LIC (more active) and he/she could contribute in both ETF & LIC threads without any scrutiny from other members

 

It is important to understand the nature of distributions from a fund and dividends from a company (LIC)

1. ETF is pass through vehicle, franked dividends and unfranked dividends / distributions are passed to investors as received from underlying holdings.

2. LIC receives franked dividends and passes on franking credit. It receives unfranked dividends / distributions and then pays corporate tax on those dividends and creates franking credit to pass on. Ensuring 100% franking.

Hopefully this helps in understanding the issue of 70% +/- vs 100% franking. TLDR it’s a non issue.

Can you clarify what you mean by your Point 2 ; if individual MTR is over 30% you’ll be paying top up tax on FF dividends regardless.

 

Thanks Falcon for checking this. Agree with your point here hence, point#2 is incorrect in my previous post (except the bonus point is still relevant).

In summary, superannuation would be the most effective vehicle to hold any investments in as MTR would be 15% regardless but alas, superannuation funds don't usually offer LIC as an investment option.

 

@inspiredbyprop spot on. Super 15% tax on income, 10% tax on CG in accumulation. Location of investments is a planning decision with plenty of considerations.

 

The simplicity approach is extremely attractive. However, for the same reason that you are investing in passive assets, the market cap weighted world ndex is theoretically optimal: How to get worldwide index exposure on the ASX — Passive Investing Australia, particularly as you approach longer timeframes.

However VAS + VGS should produce very similar results with more simplicity and less chance of incorrect implementation.

 

Some interesting discussion.

I’m not sure that simplicity should necessarily be an explicit goal for all. I don’t buy that simplicity is necessarily the height of investment/self understanding. Minimum mental effort does seem a sensible goal though and if that means simple then simple it is.

I like the line as simple as possible but no simpler.

Just VAS & VGS would cause me more mental stress than I need to carry. I like a bit of extra diversification. If simple was important to me than I would be in an industry fund or a multiple asset - single fund.

A handful of ETF’s for an all equity portfolio is not a time/physical imposition and minimises mental effort, so that is the happy spot for me.

Giving up active shares would be like giving away a hobby I enjoy – not going to happen until the enjoyment fades.

Each to their own though.