Passive Income From Shares - See History through Charts

I think VAS is about as good as it gets for ASX ETF when trying to go broad based low cost - my concern is the economy it represents is not that broad based. I'm still not settled as to whether ETF, LIC’s or Pseudo LIC through direct shares is most appropriate. I would pick a LIC manager before a smart beta ETF to overcome economy concentration. My inclination is to build high quality low volatility direct share passive portfolio when valuations are appropriate to be held long term. Just gotta think hard how that route suits in old age and estate planning.

Probably the best way to go to get broad based low cost is a higher exposure to international but the franking advantage runs against that idea.

VGS over VTS/VEU for trust or individual name because of Domicile and US estate tax. VTS/VEU if held in a company.

Not advice - becasue I dunno **** and just make this stuff up to adress my own situation.

 

I haven't looked into the detail but doesn't Trump's tax plan announced a couple of days ago include getting rid of Estate Tax? Of course getting any of his proposed tax changes approved is another matter.

I however sleep better at night by sticking with Australian domiciled International ETFs.

 

@SatayKing raised this question early in the thread which I'm not sure has been answered or perhaps I missed it?

@dunno share buybacks are common with LICs to reduce NTA discount and offer liquidity. Has your dilution analysis taken this into account?

 

I think the issue of leveraging into shares is that the LVR is lower & the applicable interest rate is higher when compared to property. Can you go interest only or is it PI for margin loans? Is there another type of lending got shares? The higher interest rate means that the underlying shares need to perform better than property

 

From memory I know for international exposure you bought VGS. Are you increasing your portfolio international holdings or plan to increase it or you happy to buy LICs when they are attractively priced?

Any views on what is a good percentage of your portfolio to allocate for international holdings for well diversified portfolio? Specifically, for an investor in accumulation phase with 20 odd years before retirement.

Cheers,
Oracle.

 

I haven't added to VGS since around Nov 16. Rightly or wrongly I feel uncomfortable with valuations. I will however continue to add to VGS long term as opportunities arise.

PMC was last topped up around Sept 16 when on the nose somewhat. I have however generously topped up FGG at a discount very recently given options were expiring with an eye to the future. In theory greater downside protection and with Geoff Wilson the driving force behind it I expect (hope) the dividend will build over time to a reasonable level. I'll be happy if I can get around Index like performance with a reasonable fully franked dividend from it.

Unfortunately there's no real answer to this as it varies for each investor for a whole host of reasons. Thornhill suggests zero but others have suggested 80% or more.

I personally would prefer not to invest in International at all. But being a nervy type I do so purely for "insurance" against country risk. Our allocation to International as retirees has generally maxed out around 20%. I'd probably feel more comfortable if I had more but it's about trying to find a balance between income and insurance for me.

If I was an accumulator I could never see myself allocating more than 40% to International. But knowing me I'd probably end up settlling on around 25 - 30%. However given I'm greedy if I saw an opportunity like in recent history where the Aussie Dollar was very strong and Overseas markets were beaten down I'd probably grab all I could. I'm not so much a balanced portfolio investor but more an opportunistic investor.

But as I said there's widely varying views on this. The only real guide is your comfort / SANF and that's unique to each investor.

 

I think one issue which may need to be considered is the amount of funds necessary in order to get into either market. For shares you don't require a loan of, say, $500,000, as you may with property. It can be done with less. Example shares with value of $500k against a loan of $100k. Gearing 20%. Interest at, say, 6.5% (no idea of the rates actually. It's just a guess.) Interest payable $6,500. Income at 4% is $20k. Positively geared.

Can someone check those numbers and then maybe do a comparison with a IP of similar value, rental less costs and approximate loan of 80% of property value (including purchase costs, eg stamp duty, legal fees, etc)

This will be brief as I don't like using these tablet thingys. International in my case is about 12%. I'm comfortable increasing it to around 15% but to each their own. Participated in PMC's SPP back in April this year and bought more after they went ex- dividend. Also bought PIC for some additional, although minor, international exposure.

Glass of vino and BBQ awaits. CYA

 

Don't go overboard @SatayKing it's only been six weeks since your last glass of vino.

Next to no alcohol, cutting back on coffee ... . Just the thought of it is making me feel faiinnnnttttt .... oh no it's happening again .........

 

The topic of international allocation has been discussed numerous times but I always find it interesting.
There is no general consensus on what percentage is right, as @austing has said it comes down to personal preference in the act of balancing country risk/ concentration of the ASX and income.

In this debate I find it useful to remind myself the international allocation I hold with VGS is not devoid of income: in fact it is yielding 2.3% presently. Not has high as what the ASX exposure, but it is not nothing either.
With some PMC on the side, I get some balanced international allocation and a pretty decent overall yield.

While I am currently not there yet, my goal is to have a 60/40 allocation to asx/international.
I am building the income/asx component first and I too have been waiting - probably foolishly - for a better entry point to top up my VGS position. I got some more PMC a few months back when it was somewhat a little bit down.

When I think about it, it is interesting the amount of thought I dedicate to my asx holdings while I don’t think about my international holdings much.

 

Great post @Ouga. Apart from PMC improving on yield compared to VGS alone it also provides exposure to Asia etc which isn't covered by VGS.

 

Yes, I doubt This will happen, it will go the way the Health bill went.... nowhere

 

That’s exactly right @austing and that’s what I was hinting at when I wrote the combination of the 2 is providing a balanced (for my taste) international allocation.

 

I wonder if there is more of a consensus in countries where domestic markets have had serious underperformance etc. Australia has done very well and may (likely) continue to do so. If we suffered some unforeseen event that gave us serious underperformance for a couple of decades maybe we would have a consensus.

 

I would have thought getting toward a "decade" of serious underperformance relative to a historically comparable market such as the US and still well off our pre-GFC high is nothing to get local investors excited! Except maybe the "contrarians"?

We are even on the nose and being outperformed by numerous other markets in our region:

The ASX is the most hated market in Asia

Investors I think need to stop being influenced by those with vested interests in encouraging international investing.

There's two ways of looking at it:
1. Home BIAS (supposeably bad because we're missing out on diversification or to protect against Australia going bad for a long time)
Vs
2. Home ADVANTAGE (very generous imputation system and a century of world beating performance on average)

Don't get me wrong cause as you know I, as a nervous nelly type, have some International exposure. But if I was made of stronger stuff I'd probably do as Thornhill suggests and just stick to ASX.

Not advice and after stating the above Australia will now likely slip into a multi-decade recession.

 

Perhaps ultimately what defines the “right” allocation to international for the income focused investor is the level of income being received by the ASX holdings of that investor’s portfolio, and ultimately the size of the said portfolio.

If one is receiving the desired - or close to - level of income from their ASX holdings then why not branch into international exposure?

Share portfolios of $100,000 , $1,000,000 or $5,000,000 would likely see pretty different exposures to local/international.

For a $100,000 portfolio I would focus it entirely on the ASX for the income play.
A $1m portfolio could be say 80% ASX.
A $5m portfolio could easily be 50/50 - the $2.5m held in ASX alone would yield $150,000 pa if invested in some of the old LICs yielding 4% fully franked. If the rest was just put in VGS @2.3%, that is another $57K pa (not accounting for exchange rate variations).

Personally given I have exposure to Aussie property and given the weight of the banks in the index (and their correlation to the property markets), I feel more comfortable holding a bit of a larger % of international shares, but that is purely based on my own circumstances.

 

Just one thing to note. Greater wealth generally increases with age and many wealthier types have a large amount of assets in a SMSF. Plus many of these wealthier investors prefer to live off the income from their portfolio rather than sell assets. That is they would like to keep as much as possible in this Super tax free pension environment as long as possible hence the desire to avoid realising capital.

The trouble is Super law requires members in Pension mode to withdraw a minimum of their total pension balance depending on age:

55-64, 4%
65-74, 5%
75-79, 6%
80-84, 7%
85-89, 9%
90-94, 11%
95+, 14%

So for those wealthier types who don't want to draw on capital in their SMSF there's a tendency to focus on higher yielding shares, typically not International but local shares.

With the latest Super changes it might change behaviour somewhat but I was just drawing attention to one factor that younger investors might not think about.

In fact I've been thinking about this lately myself with the objective of perhaps having a greater allocation of the International LICs with potentially lower yielding franked dividends outside of the SMSF (higher tax environment) and holding more of the higher yielding assets in the SMSF (tax free / 15% tax environment) to minimise having to draw on capital (minimum pension requirement) as I get older.

 

This is exactly my approach

Selling down properties to create ASX focused income stream.

After this some excess wealth will be put towards the likes of VGS for international exposure and likely higher dividend growth.

The goal is creating the necessary income first, then with any additional/future cash, diversifying further into international as a bit of extra protection.

 

Yep, agree. There is a little discussion about bringing both into the approach in in Why Shares are Better Than Property and the 'why property is better than shares' thread.

 

14.2% is interesting.
Has anyone been holding ARG (or others) 10, 15yrs or more and can verify?

 

ARG claim 3.3% for 10 years on their website which would be all dividend as their share price is no higher than 10 years ago