Low cost DIY SMSF for an ETF portfolio

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Hockey Monkey, 15th Sep, 2021.

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  1. No_Limits

    No_Limits Well-Known Member

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    Setting it up now. Esther has been good. Got weird call from ATO yesterday - seems they individually call everyone who sets up an SMSF. 'Why do you want to set it up, what will you buy in it' etc.
     
  2. GreenTreeFrog

    GreenTreeFrog Well-Known Member

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    @Hockey Monkey just curious if have you looked into AirWallex with StakeSMSF? And do you have any concerns with the fact they are not backed by Aus Govt like a bank? And their terms, where they can close your account under certain circumstances and you can forfeit funds if you account is closed?
     
  3. Hockey Monkey

    Hockey Monkey Well-Known Member

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    I hold 100% equities in our SMSF with small amounts of incoming cash held less than 24 hours
     
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  4. No_Limits

    No_Limits Well-Known Member

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  5. ChrisP73

    ChrisP73 Well-Known Member

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    Are you young? Rich? Do you feel lucky? If not, think very carefully before committing a large percentage of your future wealth to a concentrated bet like this.
     
  6. No_Limits

    No_Limits Well-Known Member

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    So that's a no to my question then?

    As to your questions, such as they are...my current super balance represents 4% of my net wealth. May put half that into this strategy. Which, by the way, is not a concentrated bet (not sure you know what that means). It's the S&P500 index. With this, you effectively borrow 50% at around 90bps.
     
  7. ChrisP73

    ChrisP73 Well-Known Member

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    @No_Limits if you don't think a 2x leverged SP500 index fund is a concentrated bet try a backtest at relatively recent drawdown from 2008.

    U.S. stocks have outperformed international stocks significantly over the last decade but history tells us that this outperformance is unlikely to last.

    Diversifying internationally minimizes drawdowns.

    Minimizing drawdowns means faster compounding.

    I'm just saying be careful. If you're limiting your bet to 2% of your investable netwealth then no worries, sounds like you are being careful.

    Re: iCareSMSF and IBKR, keen to hear how it goes.
     
  8. No_Limits

    No_Limits Well-Known Member

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    upload_2022-3-3_21-6-11.png
    upload_2022-3-3_21-6-52.png

    As requested. Investing right at the high before each crash. Worst possible outcome. GFC value got down to a low of 0.26 (edit: 0.21). By now is up 6x. Covid got to a low of 0.40. Now at 1.5x.

    The S&P500 is literally the antithesis of a concentrated bet FYI, particularly vis-a-vis many here who put most of their portfolio into the ASX 200/300. Time heals all drawdowns. Even the worst in history.

    There is no chance that the market (nor house prices) will be less in than 30 years than now. So if they will be higher, earning 2x that return is going to be better than 1x. Start shrinking your time frame though, and optimal leverage does start reducing. Also to add - as per one of the links I sent - the amount of leverage that is optimal is a function of how volatile/diversified that index is. Less diversified; less leverage. For the S&P500 it's about 3x but to account for more volatile periods, it's really 2x I think is best and handles these drawdowns more reasonably.
     
    Last edited: 3rd Mar, 2022
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  9. Hockey Monkey

    Hockey Monkey Well-Known Member

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    Using leverage to invest when young is a valid approach.

    Without leverage you are much more exposed to the market later in life. By using leverage when young and reducing as you approach retirement you diversify over time, having a more even a exposure to the market over your life.

    Check out a book called Lifecycle Investing. The folks at Rational Reminder have also mentioned this in their podcast
     
  10. No_Limits

    No_Limits Well-Known Member

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    I would add I am not suggesting 100% SSO. As per original post, idea is a 60/40 stock/bond portfolio rebalanced quarterly. In my case I am 60/20/20 SSo/UBT/UGL i.e. stocks/bonds/gold. The bonds and gold are there to power you out of a drawdown as you rebalance.
     
  11. Hockey Monkey

    Hockey Monkey Well-Known Member

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    That doesn’t make a whole lot of sense to me. Leverage and bonds are essentially two side of the same trade. Why not just increase your equities allocation and reduce bonds avoiding the cost of leverage?
     
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  12. No_Limits

    No_Limits Well-Known Member

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    I understand the confusion. It wouldn't make sense in a set-and-forget portfolio. The key is, it's the rebalancing. It works like the old portfolio insurance, or a synthetic call option. You could just think of the bonds/gold as cash. No return expected. But it should be better than cash as it has negative correlation with stocks in a crash.

    So, as the market rises, you are gradually taking $ off the table, putting into bonds. The market crashes - now you will be taking from bonds (which hopefully not only held their value but went up) and putting it into stocks. It thus actually provides an even higher return over time than being 100% SSO. This is because the big drawdowns in an 2x or 3x leveraged thing can take too long to power out from otherwise.
     
  13. Invest2021

    Invest2021 Active Member

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    I am in process of moving from StakeSMSF to iCare + IBKR. Speaking with Gavin from iCare. He advised me that i can keep the existing Stake SMSF trading account and still move to iCare. Not sure , how this will work given - its a Stake SMSF trading account. I dont want to end up paying SMSF administration fees to both stake and iCare. Has anyone moved from StakeSMSF to iCare + IBKR?

    Also, IBKR account opening process is also very technical specially the W8BEN part.
     
  14. Hockey Monkey

    Hockey Monkey Well-Known Member

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    Just tell StakeSMSF you won’t be using their services any more. You can still keep the Stake account
     
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  15. Hockey Monkey

    Hockey Monkey Well-Known Member

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    Think of it this way

    With a 60% allocation in a 2x leveraged product you are

    120% equities
    20% bonds
    20% gold
    -60% cash

    If you want 120% equities exposure you could do that with
    120% equities
    -20% cash
    For less cost
     
  16. No_Limits

    No_Limits Well-Known Member

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    Not sure I understand your portfolio. It's a non-leveraged product with 120% exposure, so I assume you are talking about borrowing on margin? Certainly not less cost! And far greater drawdowns than a rebalancing strategy.
     
  17. Hockey Monkey

    Hockey Monkey Well-Known Member

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    You could get 120% equities with 20% VSO And 80% VOO (or IVV on the ASX) if you don’t want to use external leverage.

    The point I was trying to make is that with your current portfolio you are essentially borrowing to buy gold and bonds. Do you expect these assets to outperform the leverage costs in VSO?
     
  18. ChrisP73

    ChrisP73 Well-Known Member

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    Last edited: 12th Mar, 2022
  19. Sgav

    Sgav Well-Known Member

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    Thanks as usual for sharing your experience @Hockey Monkey, it is much appreciated. I'm at a similar balance as the post below with circa 230k and my annual fees in ART (formerly Sunsuper) are $547-I'll wait for a higher balance before considering the $1000 extra in fees.

    With your below quotes fees for SMSF, is the $1551 a combined total cost for you and your spouse or are some of the below costs required to be paid by both you and your spouse. If so, which?

    Lastly, I see from Google searches that joint SMSF's still accurately record your contribution and earnings versus that of your spouses, for obvious reasons. With that in mind, do you and Mrs Hockey Monkey make your own 'purchases' within the SMSF? or do you combine your contributions and make one ETF purchase together, per month, and the audit at the end of each year identifies & records how much of each ETF (in your VAS/VTS/VEU portfolio) is technically owned by each member?

    Many thanks, as always.
     
  20. Hockey Monkey

    Hockey Monkey Well-Known Member

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    The ETF fee's are not paid directly, they come out of returns, but for the rest (Stake, ATO, ASIC, brokerage and any taxes) it comes out of the overall pooled funds. It is the responsibility of the directors of the fund (Mrs Hockey Monkey and I) to ensure there is enough liquidity to pay the when due, but that is simple enough through contributions and ETF distributions.

    There are no segregated assets with all funds pooled and used to make ETF purchases which I do whenever the cash balance is > $2k ($3 brokerage on 2k is 0.15%)

    SMSF accounting attributes incoming contributions from each member and this is used to determine what percentage of total balance each member owns.
     
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