Best way to purchase shares with small amounts monthly

Hi All,

I am an absolute novice in the share market but looking to slowly start building a portfolio.
Each month I receive approximately $1,000 of passive income and I would love to somehow have some kind of automation that would allow this to go straight into purchasing some index funds.

When I say automation, if I had to do the actual transfer then that would be fine. I just however want it to be a very simple process whereby the money lands in my account and through a few clicks I can have it transferred and shares purchased.

From the admittedly limited research I have done, the feedback tends to be it isn't worth buying shares in small increments such as this due to the accompanying fees. I read its better to wait until you have say 5k before making a purchase.

Thanks in advance

 

Buy a low cost diversified index fund instead of buying shares through broker (Look at Vanguard Australia website) and setup automatic periodic BPAY payments to regularly buy into the fund.

Also, setup so distributions are automatically re-invested.

Cheers,
Oracle.

 

Keep good records as a lot of small purchases are a pain for tax.

 

I've always wondered with this method - is there any way to transfer the money invested in one of the funds to an etf without triggering taxable events? It seems like death by a thousand cuts as you pay a much higher ongoing fee vs. an upfront brokerage fee with much smaller ongoing fees.

Just looked at selfwealth - seems like a capped $9.50 fee per trade which is very cheap and makes ETF investing with small amounts more cost effective. Haven't used it though so DYOR.

 

No but for this person it seems like the best option despite the higher fees as they are appear to be looking for something truly passive that requires no action or decision making. I think for some people the higher fee is worth it due to personality type, behaviour bias etc. A retail index fund at 0.9% MER would still see them ahead of most investors over the long term. If the OP is interested there are plenty of people hear that could assist in a more cost effective set up, but if not go for the retail fund and no that by consistently investing over the long term and not making withdrawals you are likely ahead of the majority of investors.

 

If you have access to any existing equity you could buy larger parcels of shares (say $5-10k) using borrowed funds and then pay down the loan. Then rince and repeat.

Then your “monthly” regular payment is just being applied to the loan - you reduce the complication of many small share purchases, and better utilize your brokerage.

Regards,

Jason

 

Can I ask if you will need the money from investing in shares before the age of 60?
Also do you maximise salary contributions through super?

If you don't need it until 60 then salary sacraficing that 1000 a month should deliver better returns, as you're reducing your taxable income, and not paying additional tax on shares invested outside of it.

 

AIF or WHF for non income tax reinvesting.........

 

If you dont have funds you can draw on get a low interest credit card or one that has 6 or 12 months free interest and link your trading account to that a low cost broker like IG Trade will allow this. Or use your existing card use your 6 weeks free interest for 1k added to your cash to buy 2 k worth of shares every 9 weeks. What goose said you need 5K to buy shares , $8.00 or less is what some brokers charge, is only .08 % of 1000, it is better to have your buy order in at say a 3 month low and buy at maybe a 5% discount, than miss out because your worried about a trifiling amount less than a daily or hourly fluctuation in price. It is penny wise and pound foolish. If the order hasnt filled in 2 or 3 months you may want to increase the amount and put in another buy order. Just 5 days ago I said in the thread " What shares are you buying to-day." I said MP1 and NWL, they are up 6 & 4%. I am not sure what you mean by automatically because all you need to to is enter amount and limit price and it will happen automaticaly. I just get an email to say the order has filled or part filled. T here is no book work becuse staements, transactions and profit and loss automatcally generated, first bought are automatically sold for tax purposes unless you direct other wise. I just get an email from the ATO my via my accountant how much tax to pay.

 

Wow thanks all for such great replies.
I have no idea why I didn’t think about using my existing equity to make a larger singular purchase each year and then just using my passive income to pay down the loan..Rinse and Repeat.

I will definitely do that as the interest would also be tax deductible. I think I made my post in haste as I just returned to work and wanted out! Haha

So I guess now I need to decide what to invest in. I still want something easy so would prefer a managed fund. I have read a bit in these forums about Vanguard and as mentioned the fees are low. Assuming I make an annual 10k purchase then what other recommendations would people make? Would it then be better to use a broker?

 

@Barny my outlook is around 20 years so I will be mid 50s by then.
I’m Not keen at my age though investing into something that can only be accessed at a certain age.

 

Yep too much legislative and time horizon risk for maxing super kn mid 30s IMO. If you have access to an initial $100k go for vanguard wholesale fund. If you are generally interested in learning more an being hands on read as much as possible. @Nodrog @oracle maybe able to link some helpful threads for ETFs LICs etc

 

Investigate that Wholesale Fund mentioned above - with the initial $100k.
I have read they can reduce the initial signup money (i don't know for sure - just read it somewhere).
But - they have what you want after that - automatic BPAY on a regular basis - set and forget.

 

Thoughts only, not advice.

Already mentioned but to expand further the following Vanguard “wholesale” diversified High Growth fund would appear to meet your needs. Athough advertised as needing $500K min initial investment and min $5k top ups from what I understand Vanguard allows $100K initial investment and as low as $1k top ups via Bpay.

If need be borrow against existing IP LOC(s) to meet $100K initial investment. Then simply set up a monthly $1K auto-Bpay. Take advantage of further leverage over time if desired. Select distribution reinvestment option. Essentially end up with a SET & FORGET investment strategy.

This Diversified fund covers all the major asset classes (ex listed property which you don’t need given your IPs). Rebalancing done for you.

High growth fund likely best given younger age and minimises tax. But there will be some tax varying depending on the structure / entity. Given the behavioural benefits of this strategy for many investors a bit of tax is worth it.

https://api.vanguard.com/rs/gre/gls/1.3.0/documents/8469/au

Further so you fully understand what you’d be investing in the following Whitepaper provides plenty of detail. Well worth making the effort to read this as a good understanding of what you’re investing in will increase your chances of staying the course when markets turn to ****:

Vanguard’s approach to constructing Australian Diversified Funds
https://static.vgcontent.info/crp/i...ersified-funds-whitepaper.pdf?20181218|173723

 

Typed the previous post in a rush this morning and just got in from the yard.

Meant to clarify that the Diversified Fund mentioned in the previous post does hold listed property by “market weight” but doesn’t overweight it through adding a separate listed property fund. Reason for his discussed in the white paper linked in previous post.

 

@Nodrog reading more throughout the day it appears you are The Godfather of the sharemaeket threads. I feel in safe hands speaking to you

So My plan was/is to borrow 10k and invest so the loan is deductible. Pay down using my passive income then rinse and repeat each time I have paid it back.

In your previous posts you mentioned the Vanguard wholesale fund but I’m definitely not at that point only starting with 10k so would need other options.
So perhaps something like the Vanguard Diversified Growrh Index Fund would be good to get me started?

Please feel free to send me to another site or post but if I could just ask some ignorant questions (just to show how much of a novice I am).

If I invested 10k into say the fund above. What would I expect my fees to be?
Then what would I expect my dividend return to be based upon the funds average return?

I just want to try and understand how this strategy compares to say parking the money in the offset at 3.8%.

 

No, nooooooo don’t confuse forum activity with brains / skill etc. There are plenty here smarter than me.

There’s a listed version of the Wholesale fund (ETF) but it won’t allow you to automate the process. You will need to buy through an online broker. Which reintroduces the issue of minimum regular investment taking into account brokerage. Typically what many do is just accumulate cash in a high interest account until they have a minimum of say $3 - 5K. Depending on cash / leverage available that might means the investor tops up monthly, bimonthly, quarterly, etc. It doesn’t have to be each month.

Fee and other info is in the following factsheet eg 0.29% pa of Fund balance. So keeping it simple assuming a balance of $10K then fee is $29 pa which is dirt cheap.

https://api.vanguard.com/rs/gre/gls/1.3.0/documents/11894/au

I hate dealing with figures nowadays so perhaps someone else has the time / enthusiasm to answer your other questions. Also the questions you’re asking have all been discussed many times in the past but of course finding it is another matter.

 

I’ll step up and give @Nodrog a hand answering some of your questions since he has been so generous with his time answering many of mine and others queries.
Looking at the vanguard website it looks like the average distribution since inception (2002) of the high growth fund has been 5.25%.
Keep in mind though it doesn’t mention the how much of that comes with franking credits. So keep in mind there will be a tax that needs to be paid on part of that 5.25% income. If I had to guess how much of that if comes franked I would work of the aus index portion of that funds mix which is 35.5%. And even that part would not be 100% franked. So let’s assume 75% of your income will not come with franking credits. Though I know some international shares come with some tax concessions but that’s way over my level of knowledge.
Hope that helps.

 

Forgot the last part of your post on wether it’s worth it compared to sitting against your loan in offset. That’s a tough question and comes down to personal preference. The diiference between the dividends you collect and your interest rate of 3.8% on your loan will be minuscule depending on your personal tax rates. So your not doing it purely based on dividends. If you believe that the market will continue to go up which based on history it should then that’s when you end up ahead. People like myself and many others are happy with the 4% or so net dividend because that’s what we see as our income source into the forever and is sufficient to live of comfortably as we don’t hold debt that will chew up that dividend. The growth above the dividend is the cream.
Again from what I’m understanding in your posts your use of debt for equities is a short term thing in order to balance out your purchases in sizeable chunks. If that’s the case then I would think that’s a good idea as it gets you investing regularly with decent parcels at a time in order to minimise purchasing costs.

 

Trouble is and why I avoided answering the question is that Vanguard made significant changes to their diversified fund asset allocation in 2017. Hence previous data is less relevant.

That said, Vanguard invest in indexes so effectively their performance less a small fee is the market for the asset classes they hold.