Boglehead/Vanguard way to retire.

I'd just say beware recency bias. Lots of investors who wished they had gone harder during the GFC are hoping for it to happen again, and THIS time they will be ready. We've already dusted 15% in the last few months. I think one needs to understand that corrections of the 10-20% variety are common whereas GFC scenarios are historically very rare. Just a comment, a what if. I don't know the future. But I'd rather be at least partly invested in stocks rather than all cash. Good luck Sev

 

Aha.. got it. Thanks.

 

Thanks all some good info there.

 

How many of you use leverage in conjunction with the products discussed in this thread?

 

Yep some on Oz stock ETFs but more on direct stocks. But very low levels in total, portfolio now at 34% LVR (margin) and substantial PPOR non callable equity as well.

 

I'm at 64% LVR. Im in 2 minds about Leverage. Some part of me says now is the time to leverage up further while prices are low but Im also sick of paying interest and thinking I may just draw down over the next year.

 

Vanguard Study DCA vs LSI

Vanguard compared rolling 10 year periods for the U.S. market between 1926 and 2011. They analyzed the same scenario for the UK market (1976-2011) and for the Australian market (1984-2011). Lump sum investing won 67% of the time

Summary

If a foundation receives a $20 million cash gift, what are the trade-offs to consider between investing those funds immediately versus dollar-cost averaging the investment over time? How might an individual who receives a $1 million windfall approach the same decision?

In this paper, we compare the historical performance of dollar-cost averaging (DCA) with lump-sum investing (LSI) across three markets: the United States, the United Kingdom, and Australia. On average, we find that an LSI approach has outperformed a DCA approach approximately two-thirds of the time, even when results are adjusted for the higher volatility of a stock/bond portfolio versus cash investments. This finding is consistent with the fact that the returns of stocks and bonds exceeded that of cash over our study period in each of these markets.

We conclude that if an investor expects such trends to continue, is satisfied with his or her target asset allocation, and is comfortable with the risk/return characteristics of each strategy, the prudent action is investing the lump sum immediately to gain exposure to the markets as soon as possible. But if the investor is primarily concerned with minimizing downside risk and potential feelings of regret (resulting from lump-sum investing immediately before a market downturn), then DCA may be of use. Of course, any emotionally based concerns should be weighed carefully against both (1) the lower expected long-run returns of cash compared with stocks and bonds, and (2) the fact that delaying investment is itself a form of market-timing, something few investors succeed at.

 

Hi Guys
I'll try and steer the thread back on course.

the intention is a base level of knowledge for the growing mass of oldies getting out of property in this boom.

so here goes......

Vanguard Value investing for dividends.

VHY right know is $58, the dividend is probably at around 7% or 8%. VAS is $65 and probably 4 or 5%.
What would a Value investor do? The price differential between the 2 ETF's is now $7. Not long ago it was $4 or $5.
Has VHY taken the hit to make it a value pick?

Sev

 

I'd go for the one with the higher yield %. Presumably "oldies" are looking to get income return for retirement

 

What tax environment? Is this inside super or outside?

 

Hi Falcon,
Family Trust for my case. Probably SMSF and Individual names would cover most.
Much past the 7 figure in super represents to much regulatory risk for me - that's why I went with the Trust structure.
Super has its place but only to cover average weekly earnings probably at some point. Then Taxation will be may be an issue.

 

Okay for mine 15% tax rate on super + franking credits makes SMSF a no brainer for at least being a part of any yield based equity strategy.

Issue you have with something like VHY which is a "smart" or "strategic" beta product, ie. Rules based is that is results in reasonably high portfolio turnover ( churn, has been as high as 60%) which will have significant tax impact on a large portfolio. And the higher the tax rate the bigger impact. You won't see this reported in the headline numbers

I'm much more inclined to hold products like this (my preference being QOZ) in SMSF given the favourable tax environment which offsets turnover cost (capital gain dist). and actually makes money from franking credits.

So now to the "value" question. A quick look will show that VHY is a concentrated portfolio...mostly banks and Telstra is largest holding. The banks have been sold off very hard recently, this is why in percentage terms VHY has dropped more than VAS which is the entire ASX300. The question for you is, do you think the banks represent such value that you want to take an overweight, relative to index position in them now - and do you think they will maintain dividends at these levels (as VHY will rebalance and reduce holdings if they don't).

The point is whenever you chase yield you give up something else. Diversification, capital growth and tax efficiency being the trade offs that need to be made.

 

Just having a quick look, QOZ & VHY are both down about 15% from 6 months ago. As per Falcon, they have fallen harder than the ASX 200 & ASX 300 and are on sale cheaper if you are DCA or rebalancing regularly with new funds

 

Hi Falcon,

Thankyou for taking the time to go into this.

I really am only just starting to understand (a very little) that products like VHY are running to a set formula. That, as a result shares within this ETF are regularly bought and sold. This may be beneficial but it may also have a cost.

VHY in the Australian situation makes some sense to me. Especially if the banks within it start giving over 9%. They are a marginally fair bet in this range.
Telstra probably isn't going anywhere fast.

If VHY keeps going down it may be too hard to resist if it goes below $55.00 at least for a part of the portfolio - but that part will be earned from dividends and returns on the other 3 ETF's I will be buying. These are at this time VAS, VAF (may also go with VGB as well, I am unable to make make a decision on this) and VGS. I know the bond ETF's are not particularly good value at this time and am mindful of this - it's all a balancing act.

VHY may have a role in the portfolio as a 'bottom feeder' type buy with any additional funds I am prepared to risk.

It's not really the Boglehead way though from what I can see. Bogleheading USA style might have to be different from Bogleheading Australian style as our shares are a bit more dividend focussed and have a degree of franking credits.

I wonder what Mr Bogle would do?

Exactly, and maybe they have a way to go yet. Sitting on the fence for now but another drop for VHY will make it hard to pass up. I am thinking if the dividend goes to 9% even with all the risk it might be worth a look.

 

Good stuff Sev you are on the right track. Look at the products in detail, what are they holding, why, what is the methodology of the index which the etf is based on, what are the pros and cons of this methodology etc.

 

I have VGS on my watch list but there doesnt seem to be any data other than price and charts listed . Even the ASX doesnt show much more than dividends .
Does anyone know why and where I can find more data on Vanguard Aust products other than their website.
Thanks

 

What data are you looking for ?

 

@The Falcon
The usual data that is visible from any of my other watched shares. Any past performance, notification, who they invest with . As a L plate investor I cant be more specific but I can clearly see a difference in the qty of information available compared to say MQG. I cant even set up any alert notification against VGS.
I was looking at VGS to gain international exposure ... where I can contribute smaller amounts regularly over a long period
cheers

 

VGS is a new product only listed last year. For the rest ;

https://static.vgcontent.info/crp/intl/auw/docs/etfs/profiles/VGS_profile.pdf?20150902|091500

 

Currently both VHY & VGS have 6 buyers and 5 sellers
Would I be correct in stating that the liquidity of VHY and VGS is quite low . Could this be due to limited shares with people generally holding long term ? If I also hold long term 10 to 15 years could this be a problem when it time to cash out ?