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Boglehead/Vanguard way to retire.

Discussion in 'Other Asset Classes' started by seven, 7th Sep, 2015.

  1. seven

    seven Active Member

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    Hi Members
    I am starting this thread hopefully to stimulate interest for those of us who now wish to divest ourselves of property and start a more passive investment phase of our lives.

    I have been reading the works of Mr Bogle and his 3 fund way to retire.

    I am starting off in this direction and have had one false start which was structure related. Now that's sorted out I am looking at investments.

    For those interested Bogle asserts investing in 3 separate asset classes being Bonds, shares (US) and Total Share Market.

    Trying to copy this in Australia is probably not ideal as we have other things to consider like franking credits.

    Vanguard lists a few options to achieve most of his strategy though. However decisions still need to be made. For instance BONDS or Australian Fixed Interest. VAS 300 covers our market but current prices make VHY an excellent income earner. Is VGS worth buying with our deflated dollar or should we wait until it recovers?

    I currently don't own any vanguard yet but will be tip toeing in over the next year or so.

    So if anyone else is looking at getting out of property and wants to join me on this journey...welcome aboard.

    Sev
     
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  2. The Falcon

    The Falcon Well-Known Member

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    Per my copy of Bogle's common sense on mutual funds he keeps it as simple as ;

    - Vanguard total market. (VTS)
    - Vanguard US total bond market ETF

    This is more viable in the states which has a market which is truly diversified and exposed to global growth.

    I think for Oz, a three fund solution would work well and all you would need is ;

    VAS - ASX300
    VAF - Australian composite bond index
    VGS - MSCI world ex Oz unhedged

    It's really as simple as this. Mr Money Mustache has a good Australian investing thread which you might find useful.
     
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  3. Heinz57

    Heinz57 Well-Known Member

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    I don't think you necessarily need to get out of property to still follow the Boglehead approach. Does not necessarily preclude property as a hedge against inflation.

    Haven't been able to find much Australian content on MMM. Any links, please Mr Falcon?
     
  4. turk

    turk Well-Known Member

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  5. Big Daddy

    Big Daddy Well-Known Member

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    Untitled (2).png

    This is my portfolio i started for my 7 yo daughter. Its an agressive growth strategy without any commodities. Any input guys?

    VAS - Vanguard Australian Shares Fund (fee: 0.15%)
    IOO - iShares Global 100 Fund (fee: 0.40%)
    IEM - iShares MSCI Emerging Markets Fund (fee: 0.67%)
    VAF - Vanguard Australian Fixed Interest Fund (fee: 0.20%)
     
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  6. D.T.

    D.T. Adelaide Property Manager Business Member

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    How long ago did you set it up?
    Do you continually contribute to it or let it sit? If so, how often?
    What timeframe are you looking at? Til daughter is 21 say?
    Do you own it in her name or your name or trust?
     
  7. Big Daddy

    Big Daddy Well-Known Member

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    Setup last year
    Contribute 5k a year. Thinking of topping up one ETF every quarter so after 1 year they are all in balance again. Trying to minimise broking costs (Bell Direct)
    Timeframe is 21
    Setup as 'Trustee For'. Accountant said everything (mostly) is Fully Franked so i shouldnt worry about loosing too much tax on dividend payments. I cant put it in her name since tax threshold is $416 a year then its 68% tax

    2 are setup as DRP's the other 2 dont offer DRP.
     
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  8. D.T.

    D.T. Adelaide Property Manager Business Member

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    Thanks,
    Do you think you'll maintain the same % split ?
     
  9. Big Daddy

    Big Daddy Well-Known Member

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    Yes, i hope to maintain roughly the same split atleast once per year. Topping up one ETF every quarter. I know this is impossible but i will try
     
  10. The Falcon

    The Falcon Well-Known Member

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    Big Daddy, your accountant is wrong. Only VAS has any franking and is about 75% franked approx.

    My view; too much emerging markets. I'll comment more on that later as I can understand it may sound counter intuitive. Both Ishares products are too expensive, Vanguards are better given fees and broader indices. I'd be inclined to ditch the bonds given risk profile / duration.

    A great initiative indeed and please don't take above as criticism, just my thoughts.
     
  11. Big Daddy

    Big Daddy Well-Known Member

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    Thanks falcon. I didn't mention which share indices I was going to buy to the accountant so that's my problem. I will look into the vanguard indices today.

    Also I will stop topping up my bonds and reduce my exposure to emerging markets. What passive portfolio split do you recommend?
     
  12. SouthBoy

    SouthBoy Well-Known Member

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    Great Post! I own VAS, VHY for income and franking benefits. I use the income I get from these 2 ETFs to lower my PPOR loan. I also own IVV for growth. Coincidently I have a 7 year old daughter as well, and I have been scratching my head on how to give her a good start. I decided not to invest anything in her name, as kids are taxed very highly above a small threshold as "Big Daddy" pointed out. Maybe when she turns 18 or 21 I'll transfer some of these ETFs in her name. (The risk is if something happens to me before she turns 18, I am at the mercy of the wolfs and sharks around her) Currently VAS, VHY & VAP will give you better yield than most property in OZ, and these are much more liquid if you need quick cash. However I am still looking to buy properties as you get better leverage. I won't be able to borrow 90% from a bank to invest in ETF like I do for my IPs.
     
  13. JDP1

    JDP1 Well-Known Member

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    Disagree on the first point- giver the childs age; the emerging mkt exposure is adequate.
    Agree on all other points.
     
  14. The Falcon

    The Falcon Well-Known Member

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    Ah got you.

    Personally, to keep it as simple as possible, I would run with ;

    VAS 50% (ASX 300, 15bps)
    VGS 40% (MSC World developed, unhedged. 18bps)
    VGE 10% (FTSE Emerging markets, 48bps)

    @JDP1

    Ok, now I am going to tell you my thoughts on "emerging markets". The problem with market cap weighted indices in emerging markets is that they are very heavy on formerly or partially state owned utilities, telcos, banks, materials and energy. (For the readers at home, Emerging Market indices cover only those companies listed in Emerging Market countries...not those that are listed elsewhere and are large players in them) These are not, in my view the ideal exposures to have. When I want emerging market exposure I want global brands in IT, Healthcare, Consumer staples and consumer discretionary. Best place to get this is US market or MSCI world developed...or sector specific ETFs. My thoughts on this is who will most benefit from emerging market growth? (and be able to make the highest ROI and has the best governance, so the return ends up in the hands of the shareholders?) My view, it will be the US/Euro listed global leaders. Personally, I like consumer staples for emerging markets, in particular Nestle, Unilever and Philip Morris which I hold as direct stocks. Just explaining my thought process on this.

    Putting above aside, even high growth model portfolios limit EM to 5 or 10% absolute tops.
     
    Last edited: 8th Sep, 2015
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  15. seven

    seven Active Member

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    Hi Falcon,
    I just got through reading the 28 pages of thread on the moustache sight you recommended. Very interesting reading ...Thankyou!
    Regarding the conservative third of the Bogle Head approach. This being VAF v VGB. I was reading in the moustache thread that VGB varies some risk as well in regards to interest rate movements. Is this why you recommended VAF?
    Can you let me know your thoughts on VAF v VGB.
    The portfolio I have will be an intergenerational one but it's initial purpose is for someone who is retired and in her late 60's. Bogle suggests 'age in bonds' so about 70% seems right.
    Could you let me know your thoughts.

    My thoughts are that the share market will be hitting a rough patch in the next 12 months as will housing. This is why the (my) houses will be being sold off now for the most part.
    probably be putting the proceeds into term deposits and Vanguard VAF or similar with the term deposits for when the share market gets a slump. Then VAS/VGS will be purchased.

    Not wishing a slump on anyone as I know it will cause pain to people's lives. Still it's hard to ignore the reality that 'things aren't getting better'. From my narrow perspective I can see them deteriorating slowly but surely - we haven't turned around yet or even had high unemployment or high interest rates. Construction is holding things together at this time,,,but what will happen when the legions of Chinese buyers don't materialise next year to buy up the thousands of apartments being built from Wolli Creek to Ramsgate?
    I'll be investing for troubled times but having said that it's still the right time for ME to get out of real estate (even though free standing houses are still a safe bet). I'm simply over the day to day hassles of managing them.

    Thankyou for your advice and thoughts it is certainly appreciated.

    Sev
     
  16. JDP1

    JDP1 Well-Known Member

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    The IEM is MSCI...
     
  17. The Falcon

    The Falcon Well-Known Member

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    Sorry not sure what you are stating here... I'm lost. Yes IEM is MSCI EM index.
     
  18. JDP1

    JDP1 Well-Known Member

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    You recommend VGE (FTSE Emerging mkts).. Does the FTSE index exclude the (inefficient) state run companies found in the msci..?
     
  19. The Falcon

    The Falcon Well-Known Member

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    They are essentially the same index. Market cap weight. Note, I am not saying don't have EM index exposure, just 20% is too much. IMHO, and made comment as to why I think this is the case. It is a response to your assertion that 20% is right. I've added comment as to why I beleive this. It's supported by model portfolios I've seen including Vanguards (High growth fund) at 4.5% EM. As a general point I wanted to comment on the large emerging market exposure already in developed market indices as a way of getting access to that emerging growth story. OP likes the emerging market exposure hence I think 10% is ok.

    The key here is sticking with the asset allocation and rebalancing and not chasing performance (ie. what worked last year).
     
    Last edited: 8th Sep, 2015
  20. JDP1

    JDP1 Well-Known Member

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    Ok. Now I understand what you are saying...
     
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