Ideal Passive Income Portfolio for Retirement - advice from forum experts

Only if one exceeds the $1.6M cap otherwise under that the rate is 0%.

So if you're 65 and have reached the tax-free cap of $1.6M, at 4% yield that is $64,000 plus, if fully franked at 30%, a franking credit of $27,428. Total $97,248 of income in the fund. Surprise, surprise if you're below the tax-free cap the fund gets refunded $27,428. And even if above a refund will still happen after the 15% tax on income is deducted.

Now as the legislated draw down for an account-based pension for a 65 yo is 5% of the fund value, the person gets cash in hand $80,000 tax free (about the equivalent of a salary earner on $114,000 before tax). Result is a net gain in the fund of $17,500 (97,248 - 80,000). Not too shabby for really doing SFA.

As to the 'fear' of the share market, naught I can do for anyone to assuage that perception mainly because the prevalent attitude is to focus on price movements and ignore dividend income. However, from my perspective and using LIC's as the vehicle, I consider I am investing in a lot of the businesses operating in both Australia and overseas. I prefer that to investing in one asset class, i.e. property. You can have many IP's or commerical but it's still the same concentrated business.

 

Not all the time. STW (an ETF) charges 0.29% whereas BKI (an LIC) it's 0.15%. You have to check each entity. No blanket assumptions or guesswork allowed in this classroom.

As for CGT, only if you sell the shares. If the LIC's sells the shares (and the sale of its portfolio is less than 10% of it's overall holdings in any one year) you personally get a CGT discount of 50% (33% for a superfund) included with the dividend paid at the time. Go and check MIR's report for its dividend paid on 9 August 2017 as a starting point.

 

I was referring to accumulation phase.

 

OK....so for a real beginner, as a starting point, if you were to start again, would you be looking at LICs or EFTs.....and no, I know it's not advice, just trying to get a picture of where those experienced in shares would start, if they were starting again today. Kind of like I wouldn't ask what suburb to invest in.....but I might ask for help in locating a broad area (State, maybe, or capital city) to purchase in, or research, if I was a newbie.

 

Ah. My mistake. My apologies.

 

Down to 19bps now, Vanguard is keeping State Street honest.

Cheapest LIC I think is CIN at 10bps, don’t think I’ve seen anything cheaper. CIN obviously a bit of a punt on Mr Rydge’s “baby”.

 

Darn good question. I'm not sure to be honest.

When I started there weren't any ETF's available so apart from direct share holdings, LIC's were my choice of poison. Then STW came on the scene in 2001 and I got interested. Gathered quite a few but I became a little disenchanted with the income which fluctuated whereas those from the LIC's didn't.

If I were starting out now, and there weren't international LIC's which suit me, I think I would certainly have to consider ETF for international and LIC's for Australia.

 

That is interesting. Ta. I saw something from Streettracks about it changing it's status to an attribution managed investment trust but didn't absorb it fully, i.e. lack of interest on my part.

CIN is interesting. I have always wondered why Perpetual took on SOL and Brickworks about disadvantaging shareholders but CIN has almost the same criteria with it's holding in Event yet was left alone. Only a curiosity on my part but not worth pursuing.

 

I started a few years ago with ETF then moved to LICs. Reason being the LICs i bought at the time give higher dividends than the distributions from VAS. But as Austing said a few times: you could buy both ETFs and LICs

You can search for the beginners guide to LICs investing wriiten by Austing.

 

@L3ha7, been meaning to comment but forgot. Not my call of course but have you considered a Testamentary Trust Will? I cannot say if one would or would not be appropriate to your circumstances but a competent solicitor may be able to advise you.

 

But did you have investment income? If so you could have made personal Super contributions. And of course after tax contributions which also have nothing to do with employment.

Selling a property soon? If in your name or benificiary of Trust then can use the $25K personal contribution to reduce CGT. If you have a SMSF then potentially able to bring forward next year’s Super contribution so that $50K can be used to offset CGT.

Not advice of course, DYOR. Better still see a Super / Tax professional.

 

Shame on you @SatayKing.

 

Ya know @ Nodrog, the more I read of this thread and others, the more I become convinced it's getting too darn hard in someways.

As the investment environment changed as I, and possibly yourself and others, tend to absorb those changes without going completely nuts. Sort of Oh yeah, that's how it is now.

However, for someone starting I get why they feel like throwing their hands up in despair. So much to go through. Only analogy I can think of is that it must feel like wading through treacle. A bloody hard slog.

As for being completely nuts I've probably reached that particular Nirvana. My excuse and I'm keeping it.

 

Ha. Hardly ahead of any game.

Ok so with A-REITs, you correctly raise the issue of high correlation during the GFC. In fact, A-REITs showed beta of 1.2 (!). That hasn’t happened in the 40 odd years I’ve seen data on, with the GFC being the only exception. The cause of this was record high gearing (near 45%) immediately pre GFC. A total debacle when the credit crunch hit.

If we look at dot com bust, A-REITs were very solid. correlation was extremely low to the broader market with beta below 0.1

Taking a longer view, A-REIT beta swings around a lot but usually in the 0.2-0.4 Range. This is worthwhile I think over the longer term. The circumstances of each crisis are different of course. That the sector almost always shows low correlation is about as good as it gets. Nothing works all the time, even gold which often shows negative correlation showed notable correlation to the S&P in 2008 for example.

Re REIT index concentration, yes it’s a small subset of the market with about 20 constituents, but when added to their existing weights within ASX200 in conjunction with a Small Cap product it serves to reduce weights of banks and miners while providing a different source of earnings - I think of the sector in a way like moderate quality corporate bonds with long capital term growth.

Re International REITs, sure DJRE is an option but currency exposure plays a role when thinking about this portfolio, besides from international bonds I wouldn’t intend to hedge any international investment...so this is why a-reit is favoured. There are always limitations. International reits could be used instead of international infrastructure of course. Their inclusion is also a nod to desire for initial yield, and included instead of a higher bond allocation for a “growthier” portfolio.

 

Yeah i agree. When I started in my 20’s Daryl Dixon just told me to buy the old LICs and let the broker tell me which ones offered best value when we had cash to invest. That was about it.

Now some poor new investor asks a question on here and by the time the threads finished they’re thinking a PHD in investing is needed just to get started.

I’m probably one of the worst culprits in confusing the hell out of others. If nothing else it might prompt them to seek advice which could save them potentially a very large amount of money. Then again if they knew I was mentally deranged (the smart ones have figured that out) they would be wise to ignore everything I say. I could be worse I suppose:

 

@sash if you are selling down some of your resi portfolio then profits on this can be a good time to put into NCC Super.

I hope I explain this correctly but your post CGT profits are generally at a lower rate of tax than let's say your job income. NCC is only for post tax and these profits can be then put into your SMSF

With the 3 year pay forward you can ramp up your Super aggressively and then invest in both property and shares within your Super if you wish.

 

Better off sending them to Bogleheads

 

I may be misunderstanding but with concentration I meant how much of the Areit index is dominated by a small number of stocks. Then again it’s a lot better than what it was years ago:

 

Yeah just get beginners to check out the Boglehead forum. That’ll straighten them out