ETF Recommended index funds ?

Hey i have 60k to invest in index funds.
Im 26 and looking to invest longterm 25 plus years.
What index funds are recommended to look into ? I just need somwhere to start
Thanks

 

Or VDHG

Lots of threads on this

 

This is a bit like asking what car should I buy or what should I eat for breakfast. I suggest you read some of the ETF and LIC threads to understand the considerations, which include:

• When will you need access to the money? If less than 7 years, you may need to reconsider shares.
  
• What is your risk tolerance? This might relate to your age and/or your personality. If you can not handle seeing the investment drop 80% then you may need to reduce risk by including bonds for example.
• What is the expected return are you seeking? If you are expecting 18% per year compounding for the investment time frame this is not realistic for shares.
  
• How many other assets do you own? Where are they domiciled, in what currency, and what category are they, eg property, precious metals, etc? If you hold lots of Australian property you should increase your international share allocation. If you have lots of precious metals you could consider that your volatility dampener instead of bonds.
• Is yield important? If yes, and you can receive franking credits then you could increase allocation to the ASX.
• How much time do you want to spend managing your investments? In theory you want to do a lot of thinking, set your strategy, and then set and forget. Some people like tweaking

Disclaimer: not advice.

 

Good on you. Not a lot of 26 year olds can say that they have 60K to invest. You are in a good space. Next bit is - do a search for "Beginners Guide to LICs" - it's somewhere in this forum. Educate yourself so you get comfortable with the idea of investing in shares.

I'd also throw in 2 podcast recommendations - around 20-25 mins each.

NPR Planet Money - "how much does a cow weight" -> general explanation of the stock market.
NPR Planet Money - "brilliant vs boring" -> index investing

Good luck!

 

If you go to somewhere like Stockspot they have their recommended index funds on their website.

 

80% VGS
20% VAS

100% into these two ETF's until within 10 years of retirement, then start building a 'bond tent' with something like VGB.

Assumes you will live, work and retire in Australia.

plenty of good books on how to go about it, however I'd suggest the quickest and most digestible source of quality information is at Passive Investing Australia (besides this forum).

 

Not a fan of bond tents, but then again I'm prioritising a SWR in the 3.xx% range so that's less important for sequence return risk than say a SWR in the 4% to 6% range.

Firstly, $60k that's a great effort. Whatever you're doing to save money, keep doing it.

The first choice you'll need to make is whether you lump sum that $60k all on one day or do it in $5k chunks, $10k chunks, $20k chunks (called dollar cost averaging or DCA). We DCA by nature because our pay cheques come weekly/fortnightly/monthly. I argue against it for lump sums because the maths show that time in the market beats timing the market. But to do so, you'll need balls of steel.

Why? Because the market is volatile as f. Investing means accepting that, and not selling when it drops. From Jan 2020 to Apr 2020 my portfolio dropped considerably. Today, it's up 25% on that Jan 2020 all time high. If I'd sold in Apr 2020 waiting for the right moment to buy in, I'd have missed the whole cycle waiting for that next drop which just hasn't come yet. You need to sign a contract with yourself that you won't sell (unless you need it to put food on the table, pay rent obviously), just because the market dips or crashes. It's a very real, yet irrational fear.

As for ETF recommendations, that's a choice only you can make. Vanguard is quite popular because of its ownership structure and has a wide variety. I would have a look at their product list page which shows all that they offer. You can look at other companies too (like Black rock, iShares etc). Read up on the different markets, and why owning across a wider index can be beneficial.

A popular split is VAS 20%-40%/VGS 60%-80% or VAS 20%-40%/VGS 40%-70%/VXX10%-20% where VXX can be VAE/VGE/VAP/VGB/VHY/VISM. Have a look at these more niche ETFs and see what interests you. Just a note on VAP, it's not residential property like housing, it's commercial property like shopping centres, office buildings etc. It may start including built to rent type places as that market picks up.

edit: I forgot to mention, you should have an emergency fund setup (3 months expenses) in case you lose your job, this protects against needing to sell investments when **** hits the fan (losing your job and the markets crashing can have a high correlation unsurprisngly).

 

Your Lazy Uncle's Guide to Investing

 

Keep it simple.
50% VAS
50% VGS.

Then start reading and figuring out next steps..

 

Australia is only 2% of global stockmarket, so I'm not sure 50% allocation to such a minuscule stock exchange is prudent?

 

Depends on attitude. I live in Australia so I'm 60% in Australian shares. And according to information provided by others on this forum it is common for residents across all countries to invest the majority of their funds in their home country.

Then it's not for me to say they or anyone else is being imprudent. It's up to them.

 

Home country bias. It is probably present in every single Australian's portfolio. Franking credits provide a bonus. Is it worth reducing diversification? A question for each individual.

 

+1 for not being concerned in the slightest about home country bias.

Just because we represent only 2%, it doesn't mean that 2% means lesser quality.

Admittedly I dont like our over representation of financials and resources, but thats mitigated by our franking system imo.

Peter Thornhill considers international exposure fairly unnecessary, but despite being a PT fan I hold some (cough half) my holdings in international shares although thats nothing to do with oz representing such a small market.

 

And @MB18 it can be viewed from another perspective as well as per the quote below.

 

Franking credits are at least partly priced in. 20% Australian equities here which is still around 10x overweight. Definitely not a PT disciple.

Franking credits - how much more are you really getting? — Passive Investing Australia

 

What no comments about holding anything other than global market cap weighting meaning you think it’s mispriced? Mustn’t apply to the ASX.

Sorry no offense anyone who states this I’m just messing. I’m way overweight asx.

 

I'm surprised at how many responses there are favourable to overweighting the ASX.

I would have thought that concentrating to such a small market, with a heavy skew to banking and resources, would be relatively risky in the scheme of things. It's the opposite of diversification. And per @Hockey Monkey comment, the franking credits are likely already priced, no? So by that logic, isn't it better to weight more closely to global weighting, where a greater % of total return is in capital growth, meaning you would pay less tax during your higher-earning years?

Please challenge my thinking as I'm genuinely curious, and always fine-tuning what I want my Aus vs. Non-Aus allocation to be.

EDIT: @dunno, I'd love to hear your perspective here.

 

We also tend to focus on australian property…

imho the us tends to be more volatile.

Dividend franking makes a difference.

 

Hmmmm sounds a lot like dividend indifference debate, think I'll save myself some time/sanity and stay out of it.



Ps. Diversification is the greatest protection against the unknown, i.e. just in case the future is different from the past.

 

i am a banker in hk aiming for return home in next few years. one thing i just want to highlight the danger of old school "risk parity" models meaning those classic 30% equity vs 70% bond etc etc model. that used to work when interest rate regime were normal but with so much QE in the world, both the equity and bonds are moving in same direction in last few years and likely to stay that way as long as yields are low.

i dont want to sound like a snob but be weary of any financial advisor who blindly say "if u want low risk buy bond funds". bond itself ia very complex matter, things like average duration of basket can alter your sensitivity to move in interest rate so if yields rise your notional bond value will drop so you suffer capital loss even if yield goes up.

i am risk adverse but even so i still think dividend paying equity will be far superior even times of retirement. i would only invest in actual bond, not bond ETF (because bonds habe maturity if you hold it long enough you get your priciple back if not defaulted, whereas bond ETF never matures so you can.never be guranteed a full.principle return)

good luck.