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Vanguard ETFs for dividends

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gretrust

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Hi all

With banks offering around 2%, I have decided to invest savings of 300k in Vanguard ETFs for the short term, 6-8 months, possible longer. (which is when I will look into property if conditions improve)

There's too many ETF options so seeking guidance on low risk + dividend option to start off with, atleast better returns than what banks are offering.

Currently looking at these two to spread across:

- VHY
- MVA (Mostly commercial properties)

Appreciate your thoughts as most of you would understand ETFs much better than me.

Thank you!
 
love to find a bank offering 2% !!

But really, it all gets back to RISK versus REWARD. You're comparing apples with oranges. Putting $250K in an approved deposit taking institution is government guaranteed; something like VHY is a fund of shares, mainly solid, dividend paying (& 91% franked) but I'm sure if you looked, the suggested timeframe to invest in listed companies would be 5-7 years.

If your $300K is money "you can't afford to lose" (a deposit for a house) then I'd think you're putting capital at risk over the short term.
 
sptrawler said:
Why VHY? the management cost seems higher than say VAS.
Click to expand...

Good point, I picked it mainly because of dividend yield benefits. Though I need to calculate costs associated with investing 300k in each and the potential dividend return.

http://www.etfwatch.com.au/vas-vs-vhy-unpicking-vanguards-two-largest-australian-etfs/

What are the differences in these funds?
In essence VAS is a broad based Australian share fund, investing in the 300 largest companies available on the ASX. We had a good look at VAS some time ago when we compared it to its similar peers.

By contrast VHY invests in the same universe of companies, however includes screening criteria to invest only in companies with higher forecasted dividend yields than the overall market. It invests in a much smaller amount of companies, currently just 42. 39% of VHY’s portfolio makeup is identical to VAS. VHY is a High Yield Smart Beta ETF. You can have a look at all of the yield focused ETFs available on the ASX in a previous post.
 
Thanks for responding.

love to find a bank offering 2% !!

Ubank & RAMS are quite good with a steady 2%. Macquaire (250k cap) & HSBC (upto 1 mil balance) are offering 2.65% & 2.35% for 4 months each.


Dona Ferentes said:
love to find a bank offering 2% !!

But really, it all gets back to RISK versus REWARD. You're comparing apples with oranges. Putting $250K in an approved deposit taking institution is government guaranteed; something like VHY is a fund of shares, mainly solid, dividend paying (& 91% franked) but I'm sure if you looked, the suggested timeframe to invest in listed companies would be 5-7 years.

If your $300K is money "you can't afford to lose" (a deposit for a house) then I'd think you're putting capital at risk over the short term.
Click to expand...

This is exactly why I am looking for a safer option rather than going after highest return/risk combination.

I have around 500k in savings and due to the stock market generally being at the end of a bull run (catch phrase I know), I am not comfortable investing directly in stocks.

The main outcome that Im seeking is a decent dividend yield than what the current banks have to offer.
If the ETF grows in value between the next 6 to 12 months, that'd be a good bonus. However if it doesnt, Id be happy with the dividends provided I dont have to sell them after a year at a loss.

This leaves ETF's as a decent option but with too many choices for newbies who dont have insight into ETFs as lot of folks on here,

- do I go with Vanguard BONDS?
- do I pick the Vanguard Small companies ETF
- do I pick VHY or VAS?

..or a mix of the above.

- cheers
 
Your money so it's your decision but maybe you should bear in mind VHY is not exactly a "passive" ETF. The shares which are in the basket are decided on a "forecast of higher dividends relative to other ASX-listed companies."

This also results in a higher turnover - last time I looked it was in the 20% to 30% range. That will attract Capital Gains as part of the distribution. Are you sure you want CG in the distributions?

Always good to read and understand the PDS although it is tedious going through it.
 
Belli said:
Your money so it's your decision but maybe you should bear in mind VHY is not exactly a "passive" ETF. The shares which are in the basket are decided on a "forecast of higher dividends relative to other ASX-listed companies."

This also results in a higher turnover - last time I looked it was in the 20% to 30% range. That will attract Capital Gains as part of the distribution. Are you sure you want CG in the distributions?

Always good to read and understand the PDS although it is tedious going through it.
Click to expand...
Do not expect your ETF to stay stable if there is a crash, as much risk as direct share trading in that regards.The only safety you get is the number as you would not probably invest in 49 different codes on your own...
I like these ETF but they are not an alternative to shares
 
ETFs may not be the best place for an 8 month investment. The ASX is at near record highs and there is a high chance of a correction at some point as happens most years. Typical corrections do range from 5 to 20% and this is considered normal. The market typically recovers but this may take some time. There is also a chance of another GFC type correction which depending where which ETF will be higher than the 20%. You could easily get caught with the real estate market looking good at the same point as a correction. If you want to take the risk, my thoughts would be a mix of ETFs and LICs - VAS, VAP, PL8, WAM. You may get lower risk in a world index such as VMIN which is supposed to have lower volatility.

Iggy
 
Belli said:
Your money so it's your decision but maybe you should bear in mind VHY is not exactly a "passive" ETF. The shares which are in the basket are decided on a "forecast of higher dividends relative to other ASX-listed companies."

This also results in a higher turnover - last time I looked it was in the 20% to 30% range. That will attract Capital Gains as part of the distribution. Are you sure you want CG in the distributions?

Always good to read and understand the PDS although it is tedious going through it.
Click to expand...

Thanks for pointing that out. I forgot about CG, which means I would be okay to hold it for 12 months over.

Also CG in distribution still better than 2% from banks ?
 
qldfrog said:
Do not expect your ETF to stay stable if there is a crash, as much risk as direct share trading in that regards.The only safety you get is the number as you would not probably invest in 49 different codes on your own...
I like these ETF but they are not an alternative to shares
Click to expand...

True, they are better than individual shares because of the buffer spread between many companies. That still doesnt mean its a crash-proof strategy....is there even such a thing? :)

Just looking at the next best outcome.
 
Iggy_Pop said:
ETFs may not be the best place for an 8 month investment. The ASX is at near record highs and there is a high chance of a correction at some point as happens most years. Typical corrections do range from 5 to 20% and this is considered normal. The market typically recovers but this may take some time. There is also a chance of another GFC type correction which depending where which ETF will be higher than the 20%. You could easily get caught with the real estate market looking good at the same point as a correction. If you want to take the risk, my thoughts would be a mix of ETFs and LICs - VAS, VAP, PL8, WAM. You may get lower risk in a world index such as VMIN which is supposed to have lower volatility.

Iggy
Click to expand...

Thank you for the advice. I will start researching the above recommendations. Much appreciated!

Plan was to have 200k set in the banks for 2% and invest the 300k. Let me rephrase this and apologies if a bit direct.

If you had 500k of your core savings, how would you go about investing it today with a 12 month window initially?
 
gretrust said:
If you had 500k of your core savings, how would you go about investing it today with a 12 month window initially?
Click to expand...
If it was me and I wanted to be sure my 500k was there in 12 months plus interest then I would go 100% into 4 separate bank accounts and get 2% interest.

Everything else is risk. Like others have said, the market can and has done previously sunk 20, 30 or even 55% in a matter of 12 Months. Do you really want to risk your 500K in the sharemarket? I'm not saying that it is not a viable investment, I'm saying what will you do if turn your 500k into 250K after being caught in a market crash?

Disclosure: I hold the VHY ETF, I know the risks and I can handle a 50% drop if it happened overnight.

That is probably the question you should be asking yourself. Anything can happen in this crazy world of ours, good luck.
 
gretrust said:
- do I pick VHY or VAS?
Click to expand...
As of 30 November 2019 on their website it states VHY has 60 holdings. https://www.vanguardinvestments.com...t.html#/fundDetail/etf/portId=8210/?portfolio
VAS has 299 holdings which include REITS. VAS seems far more broad.

REITS are a big part of the market with good distributions, all be it with no franking.

On that website I checked the returns for 1 year until 30 November for both ETF's.
VAS 25.89%
VHY 21.33%

Your choice but VAS did better for that 12 Month period. But nothing stays the same and it could go the other way, especially if the banks ever start improving.
 
gretrust said:
Thanks for pointing that out. I forgot about CG, which means I would be okay to hold it for 12 months over.

Also CG in distribution still better than 2% from banks ?
Click to expand...

I'm not sure you fully understood what I was getting at. I probably didn't explain it clearly.

As you are aware if you buy VHY at $30, hold for over 12 months and sell for say $60, you would have a CG of $30 and in your tax return you would declare a CG of $15 as a result of teh 50% rule."

However the fund itself incurs CG as a result of:

Belli said:
turnover - last time I looked it was in the 20% to 30% range
Click to expand...

So it is possible each distribution from the fund has a CG portion in it. That's what I was getting at.

I haven't studied VHY very closely as I don't wish to have anything to do with such products as I have a preference for the passive style of indexing. The have sufficient CG with AMIT arrangements. CG OK maybe in super but not so good sometimes outside of super.

As usual it all depends on various factors and individual circumstances. I know in detail my circumstances but not those of others - nor do I wish to know.
 
Bill M said:
If it was me and I wanted to be sure my 500k was there in 12 months plus interest then I would go 100% into 4 separate bank accounts and get 2% interest.

Everything else is risk. Like others have said, the market can and has done previously sunk 20, 30 or even 55% in a matter of 12 Months. Do you really want to risk your 500K in the sharemarket? I'm not saying that it is not a viable investment, I'm saying what will you do if turn your 500k into 250K after being caught in a market crash?

Disclosure: I hold the VHY ETF, I know the risks and I can handle a 50% drop if it happened overnight.

That is probably the question you should be asking yourself. Anything can happen in this crazy world of ours, good luck.
Click to expand...


Hi

I was never considering dumping everything into the stock market. Was lookingto spread 300k across bonds + ETFs.. focusing on less volatility options. 40/50% of savings will stay in banks.

Fair reminder about the worst case 50% drop. Anything can happen at this stage, though 20-25% is more likely than a straight 50%.

I probably should have clarified earlier, but I am okay with a 20% drop on 300k if things go down that route.
 
Bill M said:
As of 30 November 2019 on their website it states VHY has 60 holdings. https://www.vanguardinvestments.com...t.html#/fundDetail/etf/portId=8210/?portfolio
VAS has 299 holdings which include REITS. VAS seems far more broad.

REITS are a big part of the market with good distributions, all be it with no franking.

On that website I checked the returns for 1 year until 30 November for both ETF's.
VAS 25.89%
VHY 21.33%

Your choice but VAS did better for that 12 Month period. But nothing stays the same and it could go the other way, especially if the banks ever start improving.
Click to expand...

Not looking for the highest return at this stage. If I end up selecting this, it would be no more than 20/30% of my investment amount.

Some initial research points to VHY being a good starting option especially with the franked dividends.
Since you hold VHY, can you shed some light on CG on dividend payouts as Belli has called out. Thanks!
 
Last edited:
willoneau said:
Why 12 month window?
and what return to risk ratio are you looking at ?
how much DD are you prepared to handle?
Click to expand...

Well to start off with, this is my first time investing with ETFs and I guess this time frame would provide the opportunity to reflect if I can keep doing this and handle the waves that come...good and bad.

Anything over 5% return would be good. At worst, I am okay taking a 20% hit.

DD - Sorry, new term for me..due diligence on the investment portfolio?

Thanks everyone for sharing your views. I do sincerely appreciate it.
As Im a newbie into investing, I am considering to go in with 100k initially split across and keep the rest of the savings parked in the bank.
 

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