Walking the Road to Riches

[VSntchr]

Update:
Accidentally bought 93 units of WXOZ - I had an outstanding buy order which I missed and didn't cancel. It executed today and what a big shock it was when I received a confirmation email
.

I know the feeling! I had a contingent order on a stock a few months back (stop loss) which I forgot to cancel. The trade been completed within a few days...but over a week or so later the contingent order triggered and I had bought a parcel I had no idea about!!
Closed it off instantly but gave me a heart attack!!

 

[Ryan C]

The Education of a Value Investor by Guy Spier

Here's a great book I wanted to share with you all. I listened to it twice already (got the audiobook version) and I will no doubt listen to it again on my investing journey to save myself from myself. Loved most of his insight into self awareness, processes, values and importance of mentors (I need to find one). This is not a how-to book though.

Hope it helps you in some way on your long term investing journey.

 

[Ves]

Hey RyanC

Wondering if you had the chance to have a look at VGS yet.

Is it worth holding both VEU / VTS to make up international exposure (they're both non-domiciled) or is it better to just hold one fund VGS (Aust domicile) or even WXOZ (I think you may have this)?

I believe that VEU and VTS have more underlying stocks compared to VGS and WXOZ, not sure if that leads to better index tracking. VGS also doesn't have any emerging markets exposure (this is about 10%-12% of the world I believe). But you *could* use VGE.

However the non-Aust domiciled funds have lower MER, but both have foreign paper work to fill out, no DRP and possible loss of foreign tax credits (any idea how much the long-term return loss is??).

Interesting dilemma, is it not?

 

[Ryan C]

Hey RyanC

Wondering if you had the chance to have a look at VGS yet.

Howdy Ves,

Yes I looked but I haven't bought it. I think VGS is much better when looking it holds over 1500 securities in 22 countries vs 1108 securities in 25 countries at much lower management cost. However VGS has smaller volumes.

Is it worth holding both VEU / VTS to make up international exposure (they're both non-domiciled) or is it better to just hold one fund VGS (Aust domicile) or even WXOZ (I think you may have this)?

I wasn't aware of VGS until I'd bought WXOZ. for myself, I'd still prefer WXOZ over VGS because I have nearly everything with Vanguard and want to avoid some shutdown risk.

I prefer US and International exposure split up because I may want to change my asset allocation and gain more exposure to certain markets.

I believe that VEU and VTS have more underlying stocks compared to VGS and WXOZ, not sure if that leads to better index tracking. VGS also doesn't have any emerging markets exposure (this is about 10%-12% of the world I believe). But you *could* use VGE.

I know VTS covers more of the US market compared to WXOZ. For the US, I believe this provides a better index tracking than an S&P 500 index alone. I think using VGE is a good option to allocate exposure to emerging markets but I wouldn't allocate more than 10% of my International percentage. However the 0.48% management cost is a worry for those small markets.

However the non-Aust domiciled funds have lower MER, but both have foreign paper work to fill out, no DRP and possible loss of foreign tax credits (any idea how much the long-term return loss is??).

Admittedly, I only concerned myself with low MER and I didn't mind the paperwork when choosing my ETFs. I had no control over foreign tax so i didn't bother too much, filled in the forms and sent it off. Having a DRP is preferred but when it's not available I just park the dividends with my savings ready for my next round of purchases. I let the accountant work that out because I don't fully understand it too. Sorry I have no idea on long-term loss.

May I ask how youre assets are split and what you used?

Cheers,
John

 

[Ves]

Hi John

When it comes down to it, the international exposure seems to come down to these things:

• Diversification (As you mentioned Vanguard comes out ahead here)
• Control (How much control do you wish to have over the break-up of the exposure? ie. Tilt to US / Europe etc.)
• Cost (MER, Buy or sell spread, brokerage)
• Taxes (Treatment of foreign tax credits, and I have discovered Estate Taxes - see below)

I tend to agree with you on most points that using VEU and VTS is preferred over VGS or WXOZ (with perhaps a small portion for VGE).

However. There is a catch and it has to do with the fact that VEU and VTS have a US domicile. From a Vanguard prospectus (and iShares says something similar):

US estate tax
US estate tax may apply to an investor who is a natural
person who is not a US citizen and who is not domiciled in
the US and, at the time of death, is the beneficial owner of
the US ETF securities. The amount of the estate tax may
be determined by the quantum of the ETF interests
owned at the time of death. The value of an investor’s
holdings as well as capital gains and income may be subject
to tax. The amount of tax may be reduced under an
Australia/US estate tax treaty. There may be some exemptions
to these rules depending on the structure that owns
the ETF interests.
Investors are warned that they should seek professional tax
advice in relation to the US estate tax issues, as they are
fundamentally different to the Australian system.

I have done some digging, and Australia does have a tax treaty with the USA. I am unable to locate a definite answer to this question, how much tax is payable by an Australian resident who holds USA assets at death? It's very important, because the US estate taxes are quite heavy from what I recall (can be as high as 55% above certain thresholds). It is enough to choose an Australian domiciled ETF such as VGS if there is no exemption under the tax treaty.

I also understand that there are gifting taxes for US assets (ie. if you gift your ETF units to someone below their market value).

Do you know anything?

May I ask how youre assets are split and what you used?

I'm actually a stock picker. I don't have any exposure to any of these ETFs at the moment. However, I have been doing some research into some alternate strategies lately and your thread struck me as a very good example of the Bogleheads approach in action!

 

[Ves]

Sorry to be a pain....

But did you think much about ETFs vs Index Funds (ie. Vanguard retail and wholesale).

ETFs look heaps cheaper on the surface.

But I was more thinking of liquidity and its associated costs. Do the buy / sell, premium to NTA costs on large sums?

What if you reached your retirement goals, and not only that, had lots of excess cash, and wanted to cash out a large sum, is this easy? Would it be easy for someone else to do without running up "costs" (selling below NTA by moving the market) if you were incapacitated / dead?

Are there circumstances where index funds may actually be more suitable?

I should stop thinking. More questions than answers.

PS: a lot of my questions are general, and may or may not apply to you, but it'd be great if others with some experience could join in the conversation.