Feedback sought on investment plan please

[Murd]

Hi guys, I'm after feedback, pitfalls, and opinions on my long term investment plans.

I'm 28 years old, stable job, HECS debt of 50k, about 50k to invest, defacto relationship, about 30k in superannuation with QSuper in their diversified index option.

My plan is as follows:
1. HECS to be paid off with no voluntary repayments, only compulsory, due to no interest and only CPI adjusted.
2. Current investing cash to be put into Vanguard Lifestrategy High Growth Index Fund.
3. BPay input into Vanguard on fortnightly basis when paid - cost averaging strategy
4. Salary sacrificing into super as much as possible. Aim to max this to the 25k limit as raises allow.
5. Investment properties to be bought by my partner, in her name. Reason for this is my job puts me at risk of being sued everyday, and I'd rather she held the property, and I held the liquid investments.
6. Partner also contributing to super, with increasing amounts to maximum with raises.

It's a pretty cautious plan, and simple, which I like.
I've read 'common sense on mutual funds' - Bogle, 'The 4 pillars of investing' - Bernstein, and am sold on the low cost index fund and feel the diversified Lifestrategy option gives me exposure to lots of products in and out of Australia in a tax friendly manner seeing as about 60% franking of dividends is the norm.

Looking forward to any feedback from the experienced guys here,
Cheers in advance,
Murd

 

[RandR]

Hi guys, I'm after feedback, pitfalls, and opinions on my long term investment plans.

I'm 28 years old, stable job, HECS debt of 50k, about 50k to invest, defacto relationship, about 30k in superannuation with QSuper in their diversified index option.

My plan is as follows:
1. HECS to be paid off with no voluntary repayments, only compulsory, due to no interest and only CPI adjusted.
2. Current investing cash to be put into Vanguard Lifestrategy High Growth Index Fund.
3. BPay input into Vanguard on fortnightly basis when paid - cost averaging strategy
4. Salary sacrificing into super as much as possible. Aim to max this to the 25k limit as raises allow.
5. Investment properties to be bought by my partner, in her name. Reason for this is my job puts me at risk of being sued everyday, and I'd rather she held the property, and I held the liquid investments.
6. Partner also contributing to super, with increasing amounts to maximum with raises.

It's a pretty cautious plan, and simple, which I like.
I've read 'common sense on mutual funds' - Bogle, 'The 4 pillars of investing' - Bernstein, and am sold on the low cost index fund and feel the diversified Lifestrategy option gives me exposure to lots of products in and out of Australia in a tax friendly manner seeing as about 60% franking of dividends is the norm.

Looking forward to any feedback from the experienced guys here,
Cheers in advance,
Murd

1. Sounds like you have reasonable justification
2. Are you sure this is the one for you? the fees seem quite high for a passive fund. with 70% + of the money indexed into australian and international shares you should be paying a lot less then 0.9% and it has a spread!
3. as above .. have a browse through this list ... http://www.asx.com.au/products/managed-funds-product-list.htm click on etp and you might find more products to consider.
4. do you really want to sal sacc as much into super as you can? its very much going to be locked away are you happy to not see this cash before 60?
5 +6. sounds reasonable.

BTW, why do you like the indexed mixed option at qsuper? 0.44% is the fee when about 60% of funds are in indexed australian shares and international shares. The Qsuper fee for their individual australian shares and international shares is only 0.29%. It doesnt sound like much but 15 basis points is more money in your pocket. You could get a similar weighting in bonds through the diversified bonds option.

eg: instead of having 100% in indexed mix at 0.44%

70% mixture australian + international shares at 0.29%
30% diversified bonds at 0.44%.

None of the above is personal financial advice! Repeat, None of the above is personal financial advice!

 

[qldfrog]

4. do you really want to sal sacc as much into super as you can? its very much going to be locked away are you happy to not see this cash before 60?

+1
till 60 or 65 or 70 or 80 or never based on the budget at that time?
I would seriously reconsider this;
I am 20 y older than you, yet only contribute the minimal;
think about it, whatever various government say, this is not your money anymore once it is in super and the forced super ie tax is even increasing so.
And the massive debt building up now will have to be paid at some stage, probably by the savers, not by the "battlers" which seems to be the name given to cash burning idiots (or are they?).
DYOR obviously

 

[Murd]

RandR,

The QSuper index option is mainly because when I called to discuss it, the lady informed me that its the only actual 'indexed' fund. The aus and int shares options aim to match the index, but the way she explained it was that this is done through active trading. She wasn't overly confident in this though, and I'm awaiting contact from one of the staff in the know.

The Vanguard lifestrategy fund costs become much cheaper after 100k is in it, and I'm hoping I'll reach this in 12 months. I understand there will always be the higher fees on the first 100k, but that will be a small portion in time. It also gives me maximum simplicity, which psychologically will help me stay on the path.
Cheers for the list. I've decided against the ETF options as input to them would be less regular due to higher transaction costs.

RandR, and qldfrog,
I get what you mean with the super. The gov can't leave well alone. There's also the chance that future governments go hard the other way, though this is less likely. It's still a good tax haven for growing future funds though, and my salary and lifestyle allows me not to miss the contributions much. I am probably just hedging my bets though, as really I'm only planning two investments, index fund and super. The mrs to have the property.
Other than further taxes on earnings in super, any other ways they can pinch it out from us?

Cheers for the feedback and suggestions, it's given me more to ponder.

Murd

 

[RandR]

RandR,

The QSuper index option is mainly because when I called to discuss it, the lady informed me that its the only actual 'indexed' fund. The aus and int shares options aim to match the index, but the way she explained it was that this is done through active trading. She wasn't overly confident in this though, and I'm awaiting contact from one of the staff in the know.

Cheers for the feedback and suggestions, it's given me more to ponder.

Murd

The lady you spoke to sounds quite confused and appears to have misinformed you.

I can assure you 100% the australian shares and international share options are definitly passively invested. You can check it on their website.

Here ... http://www.qsuper.qld.gov.au/members/investments/options/australianshares.aspx?id=asset

click on the tab in that link for asset allocation and you will see the following .. "The portfolio is passively managed by State Street Global Advisors." Thats for aus shares, it's similar with international.

The custododian for Qsuper as a fund is State Street, so no surprises there. State Street of course have an ETF for the ASX 200. you'll notice the MER is quite similar

 

[Murd]

Interesting. Cheers for the info and link.
Switching investment options is an easy and free process, so I'll give this some thought.

Seeing as its long term, tax free on earnings, and has the potential to be ruined by government intervention, maybe a riskier asset allocation would be acceptable.

Something like 45% aus shares, 45% int shares, and 10% bonds?
Just a thought.
I'm slow to finally make decision...

 

[sydboy007]

What is your expected avg return over the next 10 years.

A lot of funds quote 3.5 to 4.% above CPI as their target return over the medium term (minimum 5 years)

Since your going for passive / index style investing this article might be of interest to you. It is US centric but reasonably applicable to Australia as well. In some cases, the concentrated nature of the ASX may make the volatility here worse at times.

by Dr. Stephen Nash

Are you feeling lucky?

Even though equity returns provide “blue sky”, that blue sky comes with the heavy price of volatility; especially volatility to inflation. This brief study shows that long term data supports the premise that inflation and equity returns remain largely unrelated, over the short, medium, and longer terms. Equities struggle to beat CPI plus 4%, and while differences may exist between Australia and the US, especially with regard to taxation, the longer term facts are hard to ignore. If you can earn roughly an equity return in a senior position within the capital structure, that ILB return beats equity returns hands down. Indeed, you have to be “feeling very lucky” to buy equities ahead of ILBs with a 4% yield above inflation. It is a matter of time before investors compete away the opportunities in the ILB market.
In the analysis we now present analysis for three different rolling time frames, which all show how equities struggle to beat inflation plus 4%. The three rolling time frames are as follows:
One year,
Five years, and
10 years
One year results

Generally, the poor record of equity returns relative to the US CPI is apparent in the annual comparison of S&P returns to the annual CPI. Specifically, notice the large variation in return, relative to the US CPI plus 4%, as shown in Figure 1 below,

Figure 1
Also of note is the frequency, or chance that equities outperform the CPI by an amount greater than 4%. Here, the chances favour equities (55% versus 45%), yet the risk of underperformance is very high, as figure 2 shows below,

Figure 2
Five year results

Looking at longer rolling time frames, the poor record of equity returns, relative to the US CPI plus 4% remains in the five year comparison. Specifically, notice the large variation in return, relative to the US CPI, as shown in Figure 3 below,

Figure 3
Looking at the frequency, or chance that equities outperform the CPI by an amount greater than 4%, the chances once again favour equities (52% versus 48%), yet the risk of underperformance is very high, as figure 4 shows below,

Figure 4
10 year results

Generally, the poor record of equity returns, relative to the US CPI remains even over a rolling 10 year period. Specifically, notice the large variation in return, relative to the US CPI., as shown in Figure 5 below,

Figure 5
Looking at the frequency, or chance that equities outperform the CPI by an amount greater than 4%, the chances favour equities (59% versus 41%) but again the risk of underperformance is very high, as figure 6 shows below.

Figure 6
Conclusion

As we indicated last week, inflation needs to be taken seriously in the construction of portfolios, and this brief study emphasises that one needs “to feel lucky” when investing in equities, if one wants to beat inflation by 4%. Equities can beat that target, but can also fail, and fail badly. We still wonder why one would assume all the risk of equity investing, especially the risk that inflation erodes the value of saving, when ILBs provide such an effective form of inflation insurance.
We would recommend that investors observe the deep value in ILBs above 4%, as opposed to relying on “luck”, in almost every time frame. Moreover, as investors become aware of the value of this inflation insurance, through ILBs, the current yield above inflation of between 3% and 4% is likely to fall, as demand inevitably exceeds the supply of ILBs.

 

[Murd]

Cheers Sydboy,
An interesting read. Certainly fom what I've read, historical returns on bonds do not match returns on equities over the long term.
I can't find much information on inflation linked bonds available in Australia. But if they are around, and available to retail investors, with 4% interest on top of CPI then they do sound attractive. Any further info?
To answer your question, 3.5 o 4% on top of inflation is my minimum target over the next 30 years.
Cheers,
Murd

 

[galumay]

Any further info?

Murd

http://www.rba.gov.au/fin-services/bond-facility/index.html

this is one source of ILB's in Oz.