ETF Exchange Traded Funds (ETFs) 2021

Thank you @Oats . That’s a good enough reason to select DRP.

 

Vanguard used to have Superfunds many years ago but due to lack of support sold off to a retail fund mgr. One would hope the same doesn't happen again. Trouble with platforms is rules / fees can change at any time. Worst still is lack of support and the enevitable closure???

 

I buy VG ETFS through SW. Oats is correct. Can do whatever you like, DRP, take div etc. Just need to do it via computershare. I get the divs paid into my SW cash account.

 

As has been mentioned turning the DRP on/off is as easy as logging into computershare and making the selection.

I used to use the DRP option but Ive switched it off and if I had my time again I'd avoid it.

Sure you save on some brokerage, but its outweighted (imo) by the administrative headache of having so many small drp purchases when calculating CGT especially if its a fund that pays quarterly distributions.

I just roll the cash distributions into the next parcel that I purchase.

 

Good point. Thanks for bringing this to my attention. I haven't had to deal with this problem as till now I have used the BT Panorama platform. It does all the math's for you and spits out tax statement end of year for the accountant to do his thing.

From what I understood Selfwealth provides end of year tax statements to process your tax return. I am guessing that with DRP since its done off the platform it will not be captured in the selfwealth tax statements?

 

More newbie questions. Since I have never bought any index funds via ETF and only via the wholesale funds I am a little confused. Why is it that when you go on the platform to buy there is varying prices among buyers and sellers? I was under the impression that a share in an index fund always trades at its NTA and when you buy or sell you pay the price of the underlying value of the shares within that index.

 

Just like any other share purchase, some will just buy 'at market' & get an immediate purchase, others will only buy when it hits a certain price., others still will only sell when it hits 'their' price.

 

So you can buy shares in an index based fund and pay slightly more or less than what the actual underlying index is trading at? I didn't know that. I was under the impression that when you buy a share in an index based fund the manager goes into the kitchen and cooks up a new share for you made up of the index.
Learning new things every day.

 

I use Sharesight for my reporting. However, SW auto updates when my ARGO shares DRP twice per year... so I would assume the reporting would pick it up also.

 

No, no if you're buying 'at market' you're buying at 'current' set NTA at that time you purchase 'at market'. this will vary up or down depending when you place your order.
That buy/sell difference you're speaking of is just what the 'punters' wish to either buy or sell at, ie. the rollercoaster game.

 

Ok that makes sense. Appreciate you spelling it out for me.

 

With the index funds you would have been buying at “end of day” NTA. Plus/minus a 0.06% (for VGS equivalent) spread.

NTA moves throughout the day as the underlying market moves. With an ETF you can buy at any time, not just the end of the day.

The NTA is calculated continuously and market makers sit a few cents either side of the current NTA. Their business model is to make money of the spread and they will deal with the ETF provider for unit creation/deletion. If you look at either VAS or VGS depth you will see some larger volume sitting either side – that is the market makers and the displayed volume is only the tip of the iceberg.

You may also get smaller orders inside the market makers bids, this is just non-market maker activity, potentially making the spread smaller as already created units are traded.

this is a screen grab of VGS


You can see the market makers at 98.07 and 98.13. safe to say NTA at that second was 98.10, that's a market maker spread of about 0.03% which is better than the index fund spreads even less if you pick up some of the retail punter trading inside the market maker spread.

Market maker can widen spreads and/or disapear altogether in volatile markets, so just make sure they are present before trading.

The real difference to get used to is the fact that NTA is calculated continuously and moves with the underlying market, That should be a benefit but could be a burden depending on how you deal with short term noise.

 

Thank you for the explanation. This stuff is way over my head and that's probably a good thing. Since I can acknowledge that I don't understand the complex nature of exactly how markets work, its best I stick to the simple mans strategy of buy at market and accept the NTA at that given moment. I will try my hardest to ignore even the smallest bit of market noise in order to avoid stupid behavior.

 

Even though I have been using the BT platform for my holdings, I have also kept an excel spreadsheet of every purchase and dividend paid / reinvested to date.
The buying I am about to commence through self wealth is under a company holding which I have not used to buy any shares through to date. Current holdings are held via a trust structure on BT platform. I will also use an excel spreadsheet to capture every buy / sell and dividends.
I will look at share sight. It could work well for the holdings under the company since I only plan on buying VAS & VGS and its free for 10 or less holdings.

 

I'm definitely no expert, but from what I can gather, buying at market can be dangerous at the start and end of the day. I always use a limit order. I don't buy at the start or end of the day, and if I want to buy without worrying about the price, I'll put my maximum price slightly higher than the lowest available sell price.

 

It suggested to not buy near the open or close of the market also as the spread is often greater

Some use Market Orders and then get on with their day, others set limit orders

There's also this..

The limits of limit orders (Dan Bortolotti)

Cont..including example

 

Thank you for pointing that out. Being the first time I will be purchasing an index based ETF I don't want to get it wrong as I am making a sizeable first buy.
So it seems the safest option is to look at the cheapest sell price for the volume I am looking at and put my limit 1-2c higher. This way I understand that the system take the lowest priced shares up to the limit you have set and fills your order.

 

Yes that's right, so putting your limit a bit higher will usually not cost you any extra (in my experience). I used to put my limit a bit lower than the lowest sell price to try to make a little saving, but if you do that you risk missing out if the price keeps going up, and then you end up having to pay a higher price later or not buy at all. When I saw how little I was saving, I didn't bother doing that any more (it also became a distraction because I kept checking to see whether my order had been filled). Depends on how price-sensitive you are and how badly you want to buy.

Of course, you shouldn't automatically put your limit higher than the lowest sell price if it's a share with very few sellers, because the lowest sell price might be unreasonably high.

 

According to Vanguard Australia, they came to Melbourne in 1996 attracted by the Superannuation Scheme, looks like they weren't keen on paying Financial Advisers to recommend them though

 

How did you go with VAS?