Advice on getting started, Australia & Uk

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Pie-face
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Joined: Mon Jul 26, 2021 1:38 am

Advice on getting started, Australia & Uk

Post by Pie-face »

Hi all, new boy looking for advice. I am currently living in Australia but probably going to retire back to the UK. Is there a single ‘best’ ETF that i could invest in to cover these circumstances? Or is it a matter of swapping funds as you swap tax jurisdictions. I am probably looking at the 15-20 year timeline. Any hints on a sensible strategy would be very gratefully received. Thanks.
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oldcomputerguy
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Re: Advice on getting started, Australia & Uk

Post by oldcomputerguy »

Pie-face, welcome to the forum! I've moved your question into our Non-US Investing sub-forum; the readers there are more familiar with international tax issues and such, and should be able to give you better responses.
There is only one success - to be able to spend your life in your own way. (Christopher Morley)
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andrew99999
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Re: Advice on getting started, Australia & Uk

Post by andrew99999 »

Welcome to the forum.

If you're going to retire outside Australia, I would go for an all-global index.

VGS is large and mid caps developed markets
VISM is small caps developed markets
VGE is emerging markets

Together they make up the all world all cap index (i.e. the whole listed world) in proportions of about

VGE 75%
VISM 15%
VGE 10%

You could make it simpler and leave out VISM and go with

VGE 90%
VGE 10%

Either of those would be an ideal portfolio for someone planning not to live in Australia in retirement.

The question is also about super. How old will you be when you leave? If not far off 60, you should seriously consider using super for the massive tax breaks (i.e. free money from the government).
Eddya87
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Joined: Mon Jul 26, 2021 7:44 pm

Re: Advice on getting started, Australia & Uk

Post by Eddya87 »

I am the same mate. I am a pommy on a temporary visa unsure of where I’ll be long term.

I have gone with VGS/VGE/IAA/VISM in a 77% / 5.75% / 5.75% / 11.5% split.

I’m probably going to be adding 10/20% in international government bonds soon though as I’m a bit worried of how overvalued the stock market is and I only have 10 years until I want to retire early.

The website in the link below has lots of information for Aussie investors and has a section on non resident investing in ASX.

https://passiveinvestingaustralia.com/n ... -australia
Valuethinker
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Re: Advice on getting started, Australia & Uk

Post by Valuethinker »

Pie-face wrote: Mon Jul 26, 2021 1:46 am Hi all, new boy looking for advice. I am currently living in Australia but probably going to retire back to the UK. Is there a single ‘best’ ETF that i could invest in to cover these circumstances? Or is it a matter of swapping funds as you swap tax jurisdictions. I am probably looking at the 15-20 year timeline. Any hints on a sensible strategy would be very gratefully received. Thanks.
You need to delve into Australia-UK tax treaties to find out if your Australian Super is UK tax exempt. Let's assume it is, this is an important part of your savings because of the employer contribution. Aussie posters like Andrew9999 and I think also a wiki here can give you some steers.

It has to be said that I moved (to the UK) nearly 30 years ago, now, "for a couple of years". Beware - you get "sticky". And a warning from an ex pat - the "home" you remember is well and truly gone - it exists in not just a place but a time you can never revisit. The people there now don't share the same assumptions about the world, the language has changed, you've lost track of a lot of the key cultural references.

Conversely for Australia (and Canada) your UK state pension is frozen at the point of emigration (this is not true for USA or EU, currently) - an anomaly the government in the UK never has any incentive to fix. As the former 2 are the top 2 destinations for UK migrants in retirement, that's really unfortunate. Although the UK state pension is modest, it's inflation indexed, and your spouse gets one.

In terms of asset allocation:

- UK govt bonds (or bond funds (regardless of what they invest in) hedged into GBP) will provide the best hedge in terms of eliminating exchange rate risks. Alternatively UK bank accounts & bank notice deposits (never quite figured out what a Certificate of Deposit/ Term Deposit is called in UK banking).

But returns are low, below inflation currently.

Index Linked Gilts (gilt = UK govt bond; index linked means linked to RPI inflation) also guarantee your buying power (good) *but* current real returns are negative (you read that correctly) and so a loss of purchasing power of around 2.5% pa is *guaranteed* unless inflation is higher than the market currently expects - - over 20 years compounded that will really hurt

- UK property would hedge housing price moves. However UK house prices have had the best 30 years ever recorded. Can they really keep going up like this? My bet is the GBP keeps depreciating (as it has done since 1913, in the long run view - it was $4.85 then) and so homes stay expensive for locals but not so much for foreign buyers (even post Brexit).

And it's a real pain to manage a property remotely, I can't imagine what it would be like to do it across the world (but my neighbour went back to Brisbane, and rented out her basement flat in London, at least for a few years).

Given your uncertainties, this is probably in the "too difficult" category, but you could investigate how people do it, in terms of managing agent etc. Too many people buy nice properties too close to sea level (or subject to river flooding - it seemed like half of London was underwater after last week's rain) and I urge you to consider that our climate seems to be changing (warmer, bigger and heavier rainstorms, longer droughts, sea level rise). At least that has been the pattern in southern England over the last few years.

I am not really in touch with the market but if your rental yield is much below 4% (total rental income - all agents costs and with allowance for void periods / value of flat ; ie a calculation which is independent of what your mortgage rate is; this is what Americans call "cap rate" if you are reading around = Net Operating Income/ Value of Property) then I don't think that's particularly attractive (Central London yields, before the pandemic, in Central London, were well below 3%0

- stocks/ equities. I am a big fan of buying the global index for as low a price as you can. The reality is that none of us know which countries and which stock markets will be the winners of the next 20 years. It might be China, it might be USA, it might be someone else.

Your best bet is probably to max out global equities and then hang on for dear life for the inevitable bad periods. Those coldly shocking moments when you've lost 30%+ (May 2000- Mar 2003, May 2008-Mar 2009 (nearly -50%), Dec 2018 (-30% ish), Mar 2020 (-30% ish)). There were a few others. Keep investing, don't check your portfolio value, and fight one.

This doesn't specifically hedge your UK problem, and when you are within 10 years of moving back to the UK I would start moving savings back to the UK (ie out of equities and into savings) and consider again the question of a property purchase (although in terms of where to live, I suggest to almost anyone they rent for a year first; Cornwall for example looks idyllic, but it's actually quite isolated, there's a huge division between the "foreigners" from the Home Counties and the locals (quite bitter, as the locals' kids cannot afford to buy homes there) etc).
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