Why Property is Better Than Shares

Where in Europe?
So is the plan? 6 months Oz, 6 months Europe?

 

Hey MTR, it's Montenegro. Beautiful country, and very cheap to leave there. Not very good for making money there though.

I actually figured out I should be able to retire there in the next 10 years. All I need is 1M in shares, which is probably equivalent to retiring on 3M here.

 

Brilliant, that fast tracks retirement

 

Yeah, retirement at 46. Well i think I'll be bored doing nothing so might just keep ticking along..

 

Hey guys,

Just thought about very compelling advantage of shares that made me seriously consider buying ONLY shares from now on, forever.

I think many of us would agree that divesting into shares is the final goal before retirement, as yields are much better. What this means is that we'll pay massive CGT on sale of properties. I think this is an important element that I think should be added in the spreadsheet by @truong and this will advantage shares a lot!

My example:
1. We invested 200k and bought 1.1M property portfolio,
2. We are going to spend 100k now on ETFs (VAS, VGS, VTS),
3. Say in 15 years I plan to retire. I sell 1.1M portfolio and pay 275k CGT,
4. I haven't lost any money on the original 100k shares portfolio, I just keep it growing until I transition into retirement.

What are your thoughts? With this taken into account (CGT paid on sale of property), the spreadsheet gives very similar results even at 88% LVR, but that's IF you want to live off shares AND sell property to buy shares. Similar profits, but no debt along the way, no stress, no bad tenants, you don't need to think about massive buffers (if IRs rise and you lose a job), and you can always sell a few shares here and there in the worst case scenario (emergency).

@Terry_w have I missed anything?

 

Not everyone would agree that shares are ideal before retirement, but if you are going to sell property to invest into shares then you have to consider the CGT aspects.

 

VGS or VTS / VEU not both.

 

Great.

When you say not ideal, I suppose you mean because of potential market crashes?

Yeah if dividends would drop significantly in these situations, not ideal..

 

No, because of greater leverage with IP. I prefer Shares with less leverage.

 

Great.

What do you think about investing 100k this way:

1. 60k in VAS and 40k in VTS. I'd do it all in one go,
2. Should I do it through their wholesale option?
Investment Products
3. Keep 50k on the side at all times as investment buffer (on the top of the living buffer). This buffer will be invested during obvious market dips if/when they happen,
4. Invest 15k quarterly in the mentioned ETFs. Consider maybe introducing VEU,
5. In a couple of years time, as I learn more, potentially invest in LICs as well.

@austing your thoughts would be much appreciated.

 

From the LIC Guide:

But if you want to go Wholesale managed funds you need minimum $100k to get started.

1. Up to you which way you want to go re ETFs vs Wholesale fund.
   
   If you want a hands off approach then $100k into one of their Wholesale diversified funds such as below example, set up quarterly BPay the forget about it:
   https://api.vanguard.com/rs/gre/gls/stable/documents/8469/au
   
   But note following changes from 1 July:
   https://api.vanguard.com/rs/gre/gls/stable/documents/10508/au

 

Thanks a lot @austing

Maybe we should dump everything in the wholesale fund you mentioned, as we have exactly 100k to invest. What are the benefits of the wholesale fund over the individual etf's? Just lower costs?

With the wholesale option, should I change the asset allocation within in it or just leave it at their default option? If I do change it, I'm thinking 60:40 split VAS:VTS.

 

What about timing/staging the sales so you don't trigger huge CGT events by selling the lot in one year? Holding properties in yours and your partners names will lessen the blow too.

 

You are less likely to fiddle with your portfolio and get hooked on monitoring the sharemarket daily which can happen if you have an online broking account. Investors are their own worst enemy so the more you can remove yourself from the process often the better.

You can't change the asset allocation unless you select a different diversified fund or invest in indidual funds.

Might be worthwhile slowing down a bit and reading about the products on the Vanguard site. They don't even have VTS as a wholesale option. You're confusing ETFs and wholesale funds. Take your time and don't rush, get this right upfront:
Investment Products

 

Before you start investing into vanguard, perhaps you might want to build up your buffers in property in case in turns and you're underwater, and at 88% lvr after selling costs you could have issues pretty quick.
You are considering vanguard right? It holds 4 trillion in assets and they are making changes to risks in the property market. Now your about to invest in a company that believes there's risk In Australian banks and property but almost all of your assets are in property.



Changing strategic asset allocation—July 2017

Our global team of investment experts have analysed our diversi ed fund portfolios and determined asset allocation changes aimed at reducing concentration risk while managing currency exposure.

• We’re reducing the allocation to Australian shares in favour of international shares to reduce risk resulting from the high concentration of banks and mining companies in the Australian sharemarket.
  
  
• We’re removing the allocation to listed property securities to reduce home bias and concentration risk to property, leaving investors with exposure to listed property through Australian and international shares.
  
  
  
  

 

See this thread I created to show you could still be ahead even if you sold property, paid the CGT and then bought shares with the rest.

Strategy: Selling Property on Retirement to buy shares Strategy: Selling Property on Retirement to buy shares

 

Hey mate,

Re: policy changes, isn't that a great reason to buy their etf's, for the sake of diversification (as I already have property and they want to limit their exposure to property)?

Spot on with buffers. Should 50k buffer and 100k (on top of that) invested in etf's be a fairly safe strategy? If worst comes to worst, at least I can sell a few shares here and there to get me through the rough times. I know shares should not be considered a buffer, but I believe they do provide a degree of safety as you can sell as many/little as you need to.

 

Always good to diversify at the right times, how bout waiting till a great opportunity arises. That 100k can sit in your account untouched for when really needed. When you're highly leveraged then risking more for a little profit above your home loan rate, maybe another 4%? Is it really worth it?
Are you putting your whole investment portfolio at risk for a little extra return? What lvr will you be at once you buy 100k in etf's?

 

Hey Barny,

So if I put 100k in etf's, and with 50k cash in offset, the portfolio would be:

1. Total equity: 284k (that includes 12% equity in my property portfolio, 100k in etf's and 50k in offset),
2. Total loan: 1M (that's 88% loan on property).

I think overall LVR would be 22% if I'm not mistaken, however 150k of equity will be in liquid assets (cash and etf's). What are your thoughts?

 

Cool. As long as you have your back up plan in case you need to exit and can still service with all the new changes and future changes coming.