Retirement Stocks 2019

[Muschu]

Thanks Muschu.

So between your early and mid 20 years of age! …

You frequented a small island that basically few here knew even existed (me included).

At 74 yo. I'd suggest you may have more than just the odd story to tell about your life, both trading and otherwise

Please feel free to elaborate! …. ASF may well be the richer for your input

Not all that interesting Barney. Very briefly:
I was conscripted into the Army in 1966 after my first year of teaching. They posted me, and six others, to Wewak and Vanimo on the north coast of PNG near the Irian Jaya border. We taught English and a few other things to the soldiers while also going on patrols in the Sepik hinterland and along the border.
I wasn't mad keen on the Army but loved the country. After discharge I returned to Uni and did further psychology studies. I married while studying and later returned to PNG [with wife and baby son] and worked as a Regional Psychologist, and then Clinical Guidance Officer with the public service board and then education department - being based in Madang and Lae. i was fortunate to see a great deal of a then very pleasant country and surrounding islands [including Manus].
Several years later, and with an extra son, we returned home and i spent the rest of my career as an educational psychologist, deputy principal and principal. Even now I spend a little time working as a consultant in certain areas.
That's the short story - leaving out 26 years of voluntary work around cult issues

 

[barney]

i spent the rest of my career as an educational psychologist, deputy principal and principal. Even now I spend a little time working as a consultant in certain areas.

You are far too intelligent to be hanging around here ... kidding of course … ASF are the most intelligent Forum members in the world

There is plenty of time to fill in some of the other 26 years as well

 

[aus_trader]

You are far too intelligent to be hanging around here ... kidding of course … ASF are the most intelligent Forum members in the world

There is plenty of time to fill in some of the other 26 years as well

Have to agree that ASF is one of the forums that I have had some of my best online conversations with. It's a great community of investors, traders and even the odd punters helping each other.

 

[Muschu]

Although I'm not here very often, I have been around ASF for a long time and find it a very good point of call when I want to check in.

Barney - those 26 years would really belong to another forum and I can't give cultic issues as much time as previously.
If the topic interests you then you might like to google the International Cultic Studies Association [based in the USA] or Cult Information and Family Support [Oz].

 

[barney]

If the topic interests you then you might like to google the International Cultic Studies Association [based in the USA] or Cult Information and Family Support [Oz].

All good. I was thinking more generally regarding your other 26 years etc, although, the psychology of those involved in any type of cult would certainly be an interesting topic

I have a close friend who has also worked in the field of psychology his whole life. No doubt you and he could chew some serious fat over what makes people like Charlie Manson tick.

Anyway I digress … I will let the thread get back to its intended topic of retirement Stocks

 

[aus_trader]

My father held APA for many years and participated in the dividend reinvestment scheme. He ended up with dozens of parcels and each had to have it's cost base reduced each year for the deferred tax components of distributions.

Yeah, but there is a benefit to it, it reduces your over all tax burden.

You could just ignore the deferred taxes side of things and just pay the full taxes each year as if it were a regular share.

Ofcourse you would end up paying more tax than you have to, but it would make it simpler and would just make it on par with normal shares.

With regards to above discussion, was there any taxes paid at the time of the DRP parcel allocation each time. My understanding is the company would have paid taxes on the dividends prior (such as with Franked dividends) ? If so wouldn't those be taxed twice i.e. at the time of allocation and when they are eventually sold in future years ?

DRP's are so complicated and seems to be double-taxed if I understand correctly. I have been opting for the dividend to be paid out to me to avoid these complications. I wish there was a simpler system with DRP's because the way I see it, that's money that you would've received as dividends already taxed, so why they need to tax the darn thing again as a Capital Gains later ?

 

[Belli]

DRP's are so complicated and seems to be double-taxed if I understand correctly.

I don't believe that is correct.

Say you hold 700 shares in XYZ which pays a fully franked dividend of $0.10. Dividend is $70 with $30 in franking. In your income tax return you declare - $100 income total, taxed at marginal rates then $30 credit allowed.

If you participate in the company's DRP and the reinvestment price is $2.00 per share you are allocated an additional 35 shares. The cost-base of those shares allocated is $2.00 and if/when you sell them, Capital Gains tax applies. So, say, bought at $2.00, held for 12 months, sold at $4.00. CG on those 35 shares is $70. CG is $35 and, with 50% rule, taxed at your marginal rate on $17.50

There is no double taxation involved. The issue is multiple purchases under the DRP. Each is really a purchase and each has its own cost-base. Was a problem in the past but now with soft-ware and accountancy firm does it in a breeze I reckon.

The issue really is record keeping so you could have a lot of fading paper hanging around especially if participating in a company's DRP for many years.. If pps go for DRPs best do all record keeping electronically, buy a scanner and get all notices sent electronically.

Bonus Share Plans are another beast altogether.

 

[Belli]

Couldn't edit post as I was out of time.

So, if anyone is bored beyond belief, have a look at the dividend history of a few companies on sharedividends com au

It will give an indication why some, such as myself, prefer to invest through LICs/ETFs with the steady increase in dividends over time.

And I foolishly mention Bonus Share Plans which could lead to further questions so here is the link to two companies I know of which have them. I don't and never have participated in them.

http://whitefield.com.au/shareholder-info/bonus-share-plan

https://www.afi.com.au/shareholders#Dividendsubstitutionshareplan

 

[Value Collector]

With regards to above discussion, was there any taxes paid at the time of the DRP parcel allocation each time. My understanding is the company would have paid taxes on the dividends prior (such as with Franked dividends) ? If so wouldn't those be taxed twice i.e. at the time of allocation and when they are eventually sold in future years ?

DRP's are so complicated and seems to be double-taxed if I understand correctly. I have been opting for the dividend to be paid out to me to avoid these complications. I wish there was a simpler system with DRP's because the way I see it, that's money that you would've received as dividends already taxed, so why they need to tax the darn thing again as a Capital Gains later ?

Let’s say you get a $5 dividend in the Dividend reinvestment plan, and this is used to buy 1 new $5 share.

In year 1 you pay tax on the $5 dividend just as you would if you had received it in cash.

But then in year 10 you sell the share for $20, as long as you have keep the record stating you purchased the share for $5 through the DRP a $15 capital gain will be recorded, and you will pay tax on that gain just as if you had bought the share for $5 cash.

 

[aus_trader]

OK guys, bit more clear now with regards to DRP's. Thanks.

 

[kahuna1]

I am not sure any of this is correct.

If your retired .... in the pension phase of your super ... the tax treatment is different than CGT ...

That is my understanding all be it from a few years ago. Ask a tax accountant or registered financial planner to minimize if not totally reduce your tax bill.

It of course depends on where and how you have things set up.

Tax on a capital gain in super is 15% flat in accumulation phase ... but if your over age 65 ... it was different. Maybe the shares are NOT in a super account, then one plays with the income being paid out of the pension phase of super verses the tax brackets. CGT discount is 50% of it so even at th etop end with Medicare its half of 47% so 23.5% .... but that's 180 k plus per annum.

Have fun

 

[kahuna1]

On this ...

Super funds are transferred into the retirement phase when a member commences a super income stream (or pension). ... Fund earnings on assets transferred into the retirement phase to support the pension income stream are tax-free (and are known as exempt current pension income) ...

Of course not sure how you are set up.

 

[aus_trader]

Thanks all, So excluding super/SMSF's is there a good tax effective way or stock/index instrument to accumulate money/wealth via regular contributions and/or dividends(DRP's) that would compound over time?
I just thought to put the question out there because without taking a fair bit of risk it just seems near impossible to compound money over time and snow-ball with current interest rates. At current rates it would take more than half a lifetime just to double your savings, so you'll be dead before any exponential part of the compounding curve kicks in !

 

[Muschu]

I'm trying to get my head around ETFs in comparison to LICs.
As mentioned above we hold several LICs but have not ventured into ETFs, largely because I don't understand them.
Is it accurate to observe that the share price growth of major ETFs such as VGS and VAS has exceeded the growth of major LICs such as ARG and MLT over say a 10 year period?
But what happens to the comparison when dividends, distributions and franking [or lack thereof] are taken into account? And are the distributions of ETFs as reliable as the dividends of LICs?
This is where I get lost.
Anyone in retirement-land holding both ETFs and LICs care to comment? Or anyone else, just to be liberal?
Thanks.

 

[Ferret]

Good questions Muschu. I too hold LICs but no ETFs and I'd like to hear from someone who owns both.

 

[sptrawler]

What happened to the first 26 posts in this thread? When I go to the oldest post only #27 and newer come up.

 

[rnr]

What happened to the first 26 posts in this thread? When I go to the oldest post only #27 and newer come up.

Changing your preference to "Older post first" will solve that problem, but then you need to switch back to "Newest post first" to preserve your patience!

 

[Value Collector]

Thanks all, So excluding super/SMSF's is there a good tax effective way or stock/index instrument to accumulate money/wealth via regular contributions and/or dividends(DRP's) that would compound over time?
I just thought to put the question out there because without taking a fair bit of risk it just seems near impossible to compound money over time and snow-ball with current interest rates. At current rates it would take more than half a lifetime just to double your savings, so you'll be dead before any exponential part of the compounding curve kicks in !

The best way I know of to compound money is to invest in a portfolio of great companies and reinvest the dividends back into the portfolio (you don’t need to use DRP).

So if own a decent portfolio of companies that are growing internally and you are consistently reinvesting your dividends back into buying more, you will be compounding your money.

I personally own a portfolio of shares, real estate, loans (rate setter) and an options portfolio.

I take 50% of the income this portfolio produces each year and reinvest it into growing the portfolio, the other 50% I use to live off.

Doing this means I achieve a compounding growth in capital value, as well as steadily growing income over time.

 

[Value Hunter]

Value Collector, either your approach is ultra conservative or you have a huge capital base. The fact that you only spend half of your income in retirement. In terms of real estate as we know rents tend to rise over the long-term and in terms of shares if you pick growing companies as you seem to do they increase their earnings and dividends over time. Why do you then feel the need to reinvest half of your income also? Does your portfolio generate so much income that you have no possible need to or want to spend it? Or is it just a leftover habit from when you were younger and poorer?

 

[Belli]

The other slight twist with current tax law is if, outside of super, you sell some shares, say, $40k, and you're below the taxable threshold, zero tax is paid on that transaction. I think that is why some may have chosen to participate in the Bonus Share Plans offered by a couple of LICs.

As I have previously posted I hold VAS (index based on ASX 300) and VGS (international reflecting top 1500- to 1600 companies but ex-Australia) and LICs. I once held STW (ASX 200) from 2002 to 2010.

During the slight hiccup around 2008/09 STW made distributions totalling $3.60. The next year the distributions totaled $1.40. The following year the distributions totaled $1.48 (a 5.7% increase over the preceding year) and slowly grew from there (basically company earnings need to increase before dividends can - in the long term)

With ARG the dividend history for the same time frame was $0.30 per share then $0.25 then $0.26 (a 4% increase over the preceding year.) Not such a dramatic fall but not the same % increase at that stage. Last year ARG paid $0.32 dividend. I know from assisting a friend who had been slack with ATO requirements STW paid $2.56 in distributions.

Personally, I don't take much account of economic conditions, politics, civil disruptions and all that. A large portion (about $50k) of my account-based pension is placed in the share market and still leaves me with a goodly amount to enjoy myself and do what I wish. Personal tax-refunds are also reinvested. However, I am single, own my own home, have no debts and have modest material needs.

I attempt to keep my preferred asset allocation (80% Australia v 20% International) around that but it can fluctuate slightly depending on when I put funds it but it gets back to balance eventually.

One aspect of ETF v LICs is off-market buy backs. LICs can participate as it requires an elective decision. ETFs such as VAS don't participate by their very nature as an indexer.

For my peace of mind I don't involve myself with any ETF which is not Australian domiciled, any esoteric on such as inverse animals or the active ETFs on offer. By the same token I do not take any heed of the "expert" commentaries in either mainstream media or financial ones. I do what suits me and no one else

So far it has worked. While I haven't done any performance calculations on my personal holdings (I've no expertise in that) the financial firm I use for the SMSF has advised me the funds total return (CG plus dividends) since 2002 has been 14.6% pa. Not shooting the lights out but I'm OK with the result.