Advice on diversifying

[Gunnerguy]

From my understanding the main difference is ETF's have to distribute all their earnings, every year, whereas LIC's can hold back cash reserves which can be used to smooth bumpy dividend years e.g last year.
The other thing with ETF's like VAS, again from my understanding, they hold a cross section of the top 300 asx listed shares, when a share drops out they sell out, when another comes in they buy in, so in a way it is very mechanical which is o.k.
With LIC's they mainly buy shares for their dividend yield, and are more a managed fund, therefore they have a different selection criteria.
As I said it is only my understanding, but as a self funded retiree I have been very happy with my choice, but as they say it is horses for courses.
A huge amount depends on your personal circumstances and objectives.

Basically ... LIC’s are managed, ETF’s are passive/Index.
If you think a manager can beat an index then you know what to invest in.
Gunnerguy

 

[qldfrog]

Basically ... LIC’s are managed, ETF’s are passive/Index.
If you think a manager can beat an index then you know what to invest in.
Gunnerguy

but as @sptrawler mentionned, LIC can put cash aside and smooth returns which can be advantageous even at a cost of lower returns...whereas ETFs are raw.
LICs have their role

 

[Gunnerguy]

but as @sptrawler mentionned, LIC can put cash aside and smooth returns which can be advantageous even at a cost of lower returns...whereas ETFs are raw.
LICs have their role

I understand that, I was just highlighting that LIC’s I believe have a lot of ‘human/manager’ control, (read emotions and fund managers not beating the index long term) while passive ETF’s performance is controlled by ‘the market’.

 

[qldfrog]

I understand that, I was just highlighting that LIC’s I believe have a lot of ‘human/manager’ control, (read emotions and fund managers not beating the index long term) while passive ETF’s performance is controlled by ‘the market’.

fully agree, managers do not beat the market or hardly ever;
the whole reason I try to do only system trading is to avoid the emotional rollercoaster myself

 

[tech/a]

What the-------?????.
We are talking about investing $1000 and a further $500. all be it on a regular basis.

So Lets say you have a stellar return of 10% P/A that's $100 and $50. a year.
I dont know about you but that would keep me going for about 10 mins.

Why are we even discussing this?

 

[Value Collector]

What the-------?????.
We are talking about investing $1000 and a further $500. all be it on a regular basis.

So Lets say you have a stellar return of 10% P/A that's $100 and $50. a year.
I dont know about you but that would keep me going for about 10 mins.

Why are we even discussing this?

I started out by investing $50 a week, and now have an 8 figure investment portfolio, let’s not discourage people from making a start, from little things big things grow.

if he continues saving money, while also the invested capital keeps compounding, it can really grow, especially if his savings rate increases as he earns more or gets more confident in investing more.

 

[tech/a]

Everyone is born Naked and Penniless.

There are better ways than sitting the odd $50 into a 10% return.
(in my not so humble opinion).

You'd make more money Buying a Lawn mower and Cutting Lawns
on the weekend then selling the clients when you have too many.

Or a squeegee and Cleaning windows or cleaning office blocks---blah blah.

 

[Value Collector]

Everyone is born Naked and Penniless.

There are better ways than sitting the odd $50 into a 10% return.
(in my not so humble opinion).

You'd make more money Buying a Lawn mower and Cutting Lawns
on the weekend then selling the clients when you have too many.

Or a squeegee and Cleaning windows or cleaning office blocks---blah blah.

I think you are confusing investment earnings with earning that come from having a job. Ben already has a job, which he has said makes him time poor. He is looking to save funds from his earnings at that job, not find a second job.

Of course by all means you should increase your income, which then would allow you to increase your savings rate, and then putting those excess earnings away at 10% is a great thing.

I mean even if you managed to build this hypothetical lawn mowing business, all that gets you is increased income, you still need some where to store this increase savings you can generate, and earn passive income, other wise you are just swapping labour for income.

 

[tech/a]

I see your point.

I've always spun surplus into more money generating purchases.
Having worked for myself all my life.
They have given me the ability to leverage my investments in housing which
since early 90s helped me to my own 8 digit swath of assets. From Businesses to Housing to
portfolios.

I personally cant see the point of parking small sums into small return products.
Id rather pick a stock and attempt to turn it into $2000.
Id be the same with $10000.
When you get to surplus funds that can seriously make a difference to your Net wealth
and that will vary from circumstance to circumstance then the sort of investment talked
about comes more into play.

(Just noticed your swapping labor for income comment) If your creating an asset then its much more.
If your a builder and your costs including wages are covered then you build a house and sell it for 30%
more than your cost then you've built an asset.---the investment in your time / labor scenario is much better served
than say the Barista at the local coffee shop!

Again in my opinion.

 

[over9k]

What the-------?????.
We are talking about investing $1000 and a further $500. all be it on a regular basis.

So Lets say you have a stellar return of 10% P/A that's $100 and $50. a year.
I dont know about you but that would keep me going for about 10 mins.

Why are we even discussing this?

Long term investment for his kids. Looks like he's going to continue adding to it over time, just in $1k or $500 or whatever chunks.

 

[Value Collector]

(Just noticed your swapping labor for income comment) If your creating an asset then its much more.
If your a builder and your costs including wages are covered then you build a house and sell it for 30%
more than your cost then you've built an asset.---the investment in your time / labor scenario is much better served
than say the Barista at the local coffee shop!

The builder in your example is no different to the barista, provided that the Barista owns the cafe.

The builder earns his return though a combination of income from his labour and income from his capital he had to invest.

The Barista that is self employed in the cafe is doing the same.

--------------------------------

How ever, whether you are a builder or a barista its totally possible that when you actually break up you total earnings over the year into what you earned as a wage for all the personal effort you put in and what should be allocated to the return on the capital you put in, you might find that either your wage or your investment return is pretty low, and you might have been better off working for a good wage while investing your funds else where.

For example, let's say that your builder (or barista/cafe owner), earned a total of $100,000K but to earn that they worked 40 hours (or 80 hours) a week, and had to have $500K invested.

We could say they earned 20% on their money, but thats ignoring their labour

We could say they earned $48 an hour (or $24 in they are working 80 hours), but thats ignoring the $500K of invested capital.

The most correct way to state the numbers would be to allocate maybe $30 / hour to the builder/barista for their labour, which only leaves $37,600 for their return on capital which is a 7.5% which is not near the 20% they thought they were making.

In this situation, it might be completely rational for the builder/barista to work for some one else where they might get a better hourly rate, plus paid time off etc and less stress, and put the $500K into another investment.

---------------------------------

I have no idea what Bens job is, or what stage of his career he is in. He could be a Medical student on the career path to be a brain surgeon earning $500K a year, if thats the case he is much better staying on that path and squirrelling away funds in passive investments, where he is not distracted from his main income source.

 

[Sharkman]

Hey all,

I have $1000 invested into vanguard ETF VAS

I have nearly accumulated another $500 with weekly deposits and wondered whether i should invest this next $500 into the global ETF and have two that i each week put some money towards.

i am more or less asking with low amounts which i currently have am i best putting it all into VAS until i get a larger amount to place into various funds?

Also it looks like the market has improved, should i wait till it downward trends before i buy more? I originally brought at $89 now is $94.

many thanks

are you taking brokerage into account? even with selfwealth or another low cost broker, if you're investing $500 at a time you will be down 2% right off the bat. it might only seem like a couple cups of coffee, but when investing it's often useful to think in terms of percentages, and that 2% will eat up about half a year's worth of dividends.

if i was starting out again i'd wait until i'd accumulated 5k or even 10k and invest that sort of sum at a time instead, so you're only taking a 0.1% hit on the brokerage. yes it means missing out on potential gains whilst accumulating the cash, but such gains are not guaranteed - the market could very well fall during that time. however getting smashed by brokerage IS guaranteed if trickling the funds in $500 or 1k at a time.

could alternatively buy the equivalent units direct from the fund manager themselves rather than on the ASX, which to my understanding (never done this myself) does not incur brokerage, but they will charge a higher MER. it won't be 2% higher though, it should be much less - but it will be charged year after year whereas the brokerage is a once off.

in terms of diversification, are you happy with the exposures provided by the underlying assets and do you like the prospects for growth in the years to come? the underlying index which VAS follows is dominated by financials and mining, and Aust is heavily reliant on primary sector industries.

too heavily in my opinion, so i stopped adding new funds to my Aust holdings years ago (i don't own VAS but do have a number of individual holdings from before index ETFs rose in prominence), and put them into IVV + VEU instead. S&P 500 in particular is heavily weighted towards tech and healthcare, high value sectors which i think is where the best growth will be going forward. of course i could be wrong, so it's important that you have a look at what you're actually getting exposure to and consider whether that fits with your own view of the world, rather than buy something just because other people are buying it.

IVV has a currency hedged variant (IHVV) for a slightly higher (but still very competitive) MER so if you don't want to deal with FX risk that could be a consideration as well.

 

[sptrawler]

I understand that, I was just highlighting that LIC’s I believe have a lot of ‘human/manager’ control, (read emotions and fund managers not beating the index long term) while passive ETF’s performance is controlled by ‘the market’.

BUT, when you are no longer working and all your living expenses come from your dividends, interest or sale of shares.
You have to have defensive income, last year most dividends were stopped or cut, so franking credits were nothing also, interest was nothing, so it was a case of selling shares or using capital.
The only ones that kept their dividend constant, in my portfolio, was the LICs

 

[Value Collector]

are you taking brokerage into account? even with selfwealth or another low cost broker, if you're investing $500 at a time you will be down 2% right off the bat. it might only seem like a couple cups of coffee, but when investing it's often useful to think in terms of percentages, and that 2% will eat up about half a year's worth of dividends.

if i was starting out again i'd wait until i'd accumulated 5k or even 10k and invest that sort of sum at a time instead, so you're only taking a 0.1% hit on the brokerage. yes it means missing out on potential gains whilst accumulating the cash, but such gains are not guaranteed - the market could very well fall during that time. however getting smashed by brokerage IS guaranteed if trickling the funds in $500 or 1k at a time.

could alternatively buy the equivalent units direct from the fund manager themselves rather than on the ASX, which to my understanding (never done this myself) does not incur brokerage, but they will charge a higher MER. it won't be 2% higher though, it should be much less - but it will be charged year after year whereas the brokerage is a once off.

in terms of diversification, are you happy with the exposures provided by the underlying assets and do you like the prospects for growth in the years to come? the underlying index which VAS follows is dominated by financials and mining, and Aust is heavily reliant on primary sector industries.

too heavily in my opinion, so i stopped adding new funds to my Aust holdings years ago (i don't own VAS but do have a number of individual holdings from before index ETFs rose in prominence), and put them into IVV + VEU instead. S&P 500 in particular is heavily weighted towards tech and healthcare, high value sectors which i think is where the best growth will be going forward. of course i could be wrong, so it's important that you have a look at what you're actually getting exposure to and consider whether that fits with your own view of the world, rather than buy something just because other people are buying it.

IVV has a currency hedged variant (IHVV) for a slightly higher (but still very competitive) MER so if you don't want to deal with FX risk that could be a consideration as well.

I agree with what you are saying,

But if waiting to accumulate $5000 takes an extra 2 years, you miss out on 2 years dividends and two years capital growth, it might be better to take the brokerage hit = 6 months of dividends / 2%.

after all other investments such as property can have transaction costs of 5% , and no one bats an eye.

 

[Gunnerguy]

I see your point.

I've always spun surplus into more money generating purchases.
Having worked for myself all my life.
They have given me the ability to leverage my investments in housing which
since early 90s helped me to my own 8 digit swath of assets. From Businesses to Housing to
portfolios.

I personally cant see the point of parking small sums into small return products.
Id rather pick a stock and attempt to turn it into $2000.
Id be the same with $10000.
When you get to surplus funds that can seriously make a difference to your Net wealth
and that will vary from circumstance to circumstance then the sort of investment talked
about comes more into play.

(Just noticed your swapping labor for income comment) If your creating an asset then its much more.
If your a builder and your costs including wages are covered then you build a house and sell it for 30%
more than your cost then you've built an asset.---the investment in your time / labor scenario is much better served
than say the Barista at the local coffee shop!

Again in my opinion.

I don’t think dollar amounts are a good thing to discuss here.
‘Rich’, ‘large” words are subjective.
Best to keep our comments to percentages. Percentages are more important to me, and should be for others.
My net worth is over $147M ( approximately, give or take $147M) so for me a gain of $20,000 is really not worth discussing .... however ... if we talk about an annual gain of 15% then I am listening.
Gunnerguy
(an investor interested in percentages NOT dollar values’)

 

[sptrawler]

I don’t think dollar amounts are a good thing to discuss here.
‘Rich’, ‘large” words are subjective.
Best to keep our comments to percentages. Percentages are more important to me, and should be for others.
My net worth is over $147M ( approximately, give or take $147M) so for me a gain of $20,000 is really not worth discussing .... however ... if we talk about an annual gain of 15% then I am listening.
Gunnerguy
(an investor interested in percentages NOT dollar values’)

Spot on Gunnerguy, money is subjective and can be misleading, percentage is objective, at all levels of investment IMO.

 

[Dona Ferentes]

annual gain of 15% then I am listening.

Especially if it is compounding

 

[tech/a]

While I can understand larger amounts and timing in ones life.

For smaller amounts Im wired differently.--To sit $5k in an investment for 12 mths for $500-$800
while better than bank interest --- not interested. Particularly If it was a larger % of my net worth Id rather put it to work.