Best strategy to put % of salary into shares?

My partner is in her early 20's and is on an average income. She saves some money but doesn't have enough to buy a property and doesn't want to (yet). It's sitting in the bank earning bugger all and she'd like to know what she can do to make her money work for her.

I would think that buying some ETFs with part of her savings, and also regularly putting a % of her salary into ETFs would be a good move for her.

What ETFs would you suggest? What is the best way to buy them if only buying a small amount - say $100/week (could buy fortnightly or monthly if that works out cheaper).

Thanks

 

I just transfer my weekly allocation into a seperate bank account.

Then buy when it hits a certain amount.

If she’s buying small lots the brokerage will add up.

 

Can she help you debt recycle?

 

Interesting question Terry, how would you suggest she does this?

Contribute towards paying down my debt, then redraw the oney out to buy shares?

For now our funds aren't combined and she might feel safer keeping it that way for now.

 

She could lend you interest free. You could pay down loan on main residence and redraw to buy shares, perhaps as trustee

 

Not at that stage just yet. But could work down the track.

Just trying to teach her how shares work at the moment and she's keen to get started. Now we need to figure out suitable ETF/s and where/how to buy to reduce fees, and how to set up DRP.

I've always focussed my efforts towards property until now, but started buying shares a few months ago. I'm also keen to regularly buy ETFs (larger amounts than her) and set up a DRP. Not sure if I should just buy through CommSec or look at other brokers, or buy direct...? Will also buy more bank shares in the short term as I think they have a long way to rise.

 

Purchasing small amounts might not be viable if she has to pay brokerage for each transaction. For example NABtrade charges a $15 brokerage fee per transaction so that's 15% of $100 taken right away!

One way to avoid brokerage is to open a wholesale account with a fund provider (passive or active) which allows transfers any time without occurring transaction fees, as they take their cut from a management fee instead. This is calculated and reflected in the fund's unit price. There may be a minimum amount for transfers though. However, the limiting factor of wholesale accounts is that most funds require a sizeable initial investment; Vanguard requires $100k!

I'd also consider investment time frame, as market swings can erode capital. If your partner intends to use the money in the short to medium term (generally < 7 years) then perhaps she might not have as big a risk appetite to contemplate a capital loss.

 

The Commsec’s pocket app has like $2 brokerage and can buy parcels as small as $50 per trade. It has a selection of 5 or 6 ETFs to choose from.

it’s pretty basic but cheap brokerage

 

That's true! And handy to know.

It makes smaller parcels more palatable, $2 on a monthly purchase of $400 worth of shares (as an example) represents a cost of only 0.5%! I suppose the issue would be if the selection of ETFs on offer suit Jmillar's partner's investment strategy and preferences.

 

Depending on how much you have a starting amount you could look at Vanguard. I think they may have a 5k minimum but after that you can set up a recurring Bpay with no brokerage fees.

 

Thanks all.

It would probably be a starting amount of around $2,000 and a monthly purchase of around $600-1,000. Would probably be around 3 purchases per month as she would do it monthly, but buy into 2 or 3 different ETFs.

I've heard of CMC and selfweath having cheap brokerage costs too so I guess we just need to do the math on total brokerage costs per year. Also I've heard you might be able to buy direct from Vanguard and dodge brokerage fees so will have to look into this. ETFs will probably be a ~70/30 split of VAS/VGS at this stage and would be setting it up as DRP.

Does that all sound sensible?

Any other ETFs worth a look to balance out the portfolio?

(keep in mind she wants to keep things as simple as possible)

 

RAIZ has free brokerage and no minimum investment but charge $2.50 a month account fee. If adventurous and ambitious Stake for US shares, has no fees but you have FX risk and currency conversion fees (0.7%) if using $AU

 

What your view on eToro for US trading?

eToro Fees - What they are & how they are calculated

No commission and conversion fees of 0.50% - with benefits of social trading?

 

I've done some research and VDHG seems like the best bet for a simple, easy all-in-one ETF.

It has 90% equities 10% bonds to reduce risk. This link suggests that "adding a small amount of bonds significantly reduced volatility, but hardly reduced returns at all in almost all cases" which was interesting.

The equities portion consists of:
- 40% Australian equities
- 18% Global equities AUD-hedged
- 42% Global equities

The hedged portion provides some protection against currency fluctuations.

The equity portion has:
VAS 40%
VGS 29%
VGAD 18%
VISM 7%
VGE 6%

And selfwealth seemed to be the best low-fee broker.

I now need to consider which ETF/s I use for my portfolio, but I think I'll probably go with VDHG as well - it seems to tick all the boxes for a safe, long term portfolio strategy.

 

Vanguard's Personal Investor platform (0.2% fee) is likely to be cheaper than SelfWealth's $10 brokerage if she's investing small amounts monthly. When she hits a decent balance eg 50+k, switch out of Personal Investor (time to buy a house - this is a property forum after all!)

 

Hmm good call. SelfWealth's $9.50 fee is pretty reasonable and allows her to also have access to other shares and non-Vanguard ETFs etc.

If she gets to say $50k in a few years time, can she move the shares out of VPI into a broker like Selfwealth easily?

 

VPI allows access to other shares too and yes, moving a portfolio elsewhere should be easy. I don't use it and haven't gone through the fine print but when Vanguard introduced the platform I remember thinking that VDHG via this every pay packet would be ideal for someone starting off.

 

Thanks.

Just wondering if there are tax advantages too... I know broker fees form part of cost base. Would the 0.2% pa fee be tax deductible?

 

Regarding fees, she is planning on doing $1,000 at a time with Selfwealth (probably every 1.5 months)

So with Selfwealth @ $9.50/trade, that's $76/yr in brokerage.

VPI fees will exceed $76/yr when she has more than $38,000 in funds with VPI.

 

Too small a difference to sweat it ~ $60+/first year (then again, when I was younger, I counted every penny!) Presumably the VPI 0.2% as account keeping fees is tax deductible, whereas brokerage is added to cost base, so the former should be even cheaper.