Australia: Portfolio Advise needed; plan to retire early + live in Europe

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Topic Author
onwrds
Posts: 8
Joined: Mon Nov 29, 2021 4:51 pm
Location: Melbourne, Australia

Australia: Portfolio Advise needed; plan to retire early + live in Europe

Post by onwrds »

Hi,

My husband (41) and I (40) are ready to start investing in ETFs with the aim to retire early, and would appreciate some advise on portfolio building.

Details:
- age: 41 + 40
- based in Australia
- joint pre-tax earnings are $225,000 AUD (split $140,000 husband + $85,000 me)
- contribute maximum pre-tax concessionary contributions to super yearly
- PPOR with $430,000 still owed ($200,000 variable @ 2.44%, $230,000 fixed @ 2.69% until Nov 2026)
- no other debt
- have a 3mth emergency fund
- saving to buy a property in Portugal in the next 3yrs
- long term goal is to retire in Portugal (my husband is Portuguese)
- basic calculations indicate we could retire in 12yrs (age 53 + 52)
- plan to use what we invest to live off until we reach super retirement age (60)

Thoughts:
We plan to use SelfWealth as our broker and ShareSight to manage the holdings for taxes.
We want to invest within the ASX to take advantage of DRP and franking credits.
We were considering this portfolio split:
- VAS or A200 or STW or IOZ (Australian top 200-300) - 20%
- VGS or IWLD (world excl. Aus) - 35%
- VGAD or IHWL (world excl. Aus - hedged) - 15%
- VGE or IEM (emerging markets) - 10%
- VAF or IAF (AUD bonds) - 20%

Questions:
- Any thoughts on the above portfolio plan?
- Should we be purchasing ETFs that are based in Europe due to the fact we are planning to retire in Portugal and will be using Euros?
- How much of a benefit is it to invest in the lower-income person's name, considering we are only planning to be working for the next 12yrs? We had planned to invest in both our names.
- Has anyone else retired in Europe and is living off their investment until they can access their super? Is there anything re. tax related etc that we need to be aware of and account for?

Thank you,

Sia
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andrew99999
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Re: Australia: Portfolio Advise needed; plan to retire early + live in Europe

Post by andrew99999 »

The portfolio looks good, although if you are retiring outside Australia, I don't see the piont of AUD-hedged equities and would move that to global (unhedged).

You could potentially switch out VAS for some european home bias (VEQ), since your "home bias" should be where you retire to, not where you currently live. Another option is to just replace it with global (unhedged).

If the lower income earner will result in a lower tax rate on earnings, then that is one advantage. However, if you will both stop work shortly into a new financial year to sell down and pay CGT before leaving, splitting it will give you two tax-free thresholds and twice as much 19% tax rate up to the next threshold.

Regarding super — I would similarly remove Australian bias and go for an all-global solution.

You don't necessarily need to see an accountant yet to learn about tax-residency, but it is worth getting a start so that you have a basic understanding because when you have a base understanding, you tend to pick up bits and pieces over time that you otherwise would miss. So worth trying to learn about that. It's a bit of a pain at first if you don't want to spend a few hundred on an accountant, but it is worth learning.
Topic Author
onwrds
Posts: 8
Joined: Mon Nov 29, 2021 4:51 pm
Location: Melbourne, Australia

Re: Australia: Portfolio Advise needed; plan to retire early + live in Europe

Post by onwrds »

Hi Andrew,

Thanks for that advise, you're right, it does make sense to not bias towards (or hedge on) Australia since we don't plan to remain here.

I think we will look into a European ETF (VEQ, EEU or IEU) like you suggest.
Would you recommend that we do the same for bonds?

I assume, as we will no longer be investing in Australia specifically, it would be better to have a global ETF which includes Australia.
Is there one that you recommend that is still Australian domicile?

Thanks,

Sia
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andrew99999
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Re: Australia: Portfolio Advise needed; plan to retire early + live in Europe

Post by andrew99999 »

onwrds wrote: Thu Dec 02, 2021 9:53 pm Thanks for that advise, you're right, it does make sense to not bias towards (or hedge on) Australia since we don't plan to remain here.

I think we will look into a European ETF (VEQ, EEU or IEU) like you suggest.
Would you recommend that we do the same for bonds?
Yea, but when and how much to switch is a tough one.

If you definitely won't be drawing down on it, I would go for either EUR-hedged global bonds or unhedged global bonds. You will need an IBKR brokerage account since they are unavailable on the ASX.

AGGG and IGLO (or currency-hedged versions of either) are be the standard options.

For any cash you need handy to use before you leave, keep that in AUD (e.g. emergency fund, and any other savings that you will use)
onwrds wrote: Thu Dec 02, 2021 9:53 pm I assume, as we will no longer be investing in Australia specifically, it would be better to have a global ETF that includes Australia.
Is there one that you recommend that is still Australian domicile?
I would stick with VGS or IWLD and not bother since Australia makes up 2% of the market, so you won't even notice the difference in your returns.
DJN
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Re: Australia: Portfolio Advise needed; plan to retire early + live in Europe

Post by DJN »

Hi,
as your husband has an EU passport he should be able to avail of the Non Habitual Residence scheme in Portugal as long as he hasn't been resident there for 5 years before you enter. I don't think that his Portugese passport is a bar on his use of NHR.
Have a look at the high level information in Bogleheads Wiki for non-US investors on the subject of NHR: https://www.bogleheads.org/wiki/EU_non- ... _residence
The timing of your property purchase may have a bearing on the use of that property as a residence for NHR purposes. You should check that.
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
Stork
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Location: Portugal (EU)

Re: Australia: Portfolio Advise needed; plan to retire early + live in Europe

Post by Stork »

Hi,

I am in a similar situation to you insofar as I have moved to Portugal, my spouse is Portuguese (I am EU citizen).

We decided to do it simple and just buy VWCE when we got a lump sum from company sale, the ballast portion is still mainly in bank deposits.

One thing you have to bear in mind when you are looking for retirement places is that both public and private healthcare varies _a lot_ depending on where in Portugal you are.

We are in the Algarve, and whereas the climate is the best (IMHO) the public health system has a severe lack of capacity and the private is not much better: I recently needed an urgent eye consultation and ended going to Cascais 300km up the road as I could not get an appointment in the Algarve sooner than 3 weeks. Alternative would be Seville.

Lisbon area is clearly better, and in the centre (Coimbra region, my inlaws live there) the public system is so good you could consider going without private health insurance.

Good luck e bem vindo!
Topic Author
onwrds
Posts: 8
Joined: Mon Nov 29, 2021 4:51 pm
Location: Melbourne, Australia

Re: Australia: Portfolio Advise needed; plan to retire early + live in Europe

Post by onwrds »

andrew99999 wrote: Fri Dec 03, 2021 2:31 am If you definitely won't be drawing down on it, I would go for either EUR-hedged global bonds or unhedged global bonds. You will need an IBKR brokerage account since they are unavailable on the ASX.
AGGG and IGLO (or currency-hedged versions of either) are be the standard options.
Thank you, I''ll have a closer look at these.
andrew99999 wrote: Fri Dec 03, 2021 2:31 am I would stick with VGS or IWLD and not bother since Australia makes up 2% of the market, so you won't even notice the difference in your returns.
Yeah, 2% isn't a lot. I was thinking of just weighing in 5% initially in VAS, and after some time stop buying anymore - although, I am still investing in Australia in my super so, I may not.

What is your opinion on IWLD as a ESG?
I saw some discussion about it not being as tax-efficient as VGS due to some of it's US holdings, which it was hoped would clear up once it became fully replication. Has becoming an ESG helped with this?
Last edited by onwrds on Mon Dec 06, 2021 8:47 pm, edited 1 time in total.
Topic Author
onwrds
Posts: 8
Joined: Mon Nov 29, 2021 4:51 pm
Location: Melbourne, Australia

Re: Australia: Portfolio Advise needed; plan to retire early + live in Europe

Post by onwrds »

DJN wrote: Fri Dec 03, 2021 3:31 am The timing of your property purchase may have a bearing on the use of that property as a residence for NHR purposes. You should check that.
That's great to know! Thank you.

We'll look into that more closely as we don't want to buy too soon and then not be able to benefit from NHR.
I"m also a EU citizen (UK + Polish), so hopefully this won't effect our eligibility.
Topic Author
onwrds
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Joined: Mon Nov 29, 2021 4:51 pm
Location: Melbourne, Australia

Re: Australia: Portfolio Advise needed; plan to retire early + live in Europe

Post by onwrds »

Hi Stork,

Thank you for that information. I have just fought breast cancer so it's really helpful to know that about the public / private health system.

We are not a hundred percent set yet on where we'd like to settle, right now we're considering either Aveiro or Castelo Branco (close to my husband's family). Both of which are 45 - 90min drive to Coimbra which sounds more manageable then 300km!
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andrew99999
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Re: Australia: Portfolio Advise needed; plan to retire early + live in Europe

Post by andrew99999 »

onwrds wrote: Mon Dec 06, 2021 8:45 pm What is your opinion on IWLD as a ESG?
I saw some discussion about it not being as tax-efficient as VGS due to some of it's US holdings, which it was hoped would clear up once it became fully replication. Has becoming an ESG helped with this?
I'm not a fan of ESG. I think IWLD does not invest in companies that sell alcohol and porn. I don't think it is "morally wrong" to drink alcohol and watch porn. In fact, I think it is morally wrong to tell others not to do that. What's next — you can only invest in IWLD if you agree to take Jesus/Allah/Shibah or any other deity that they decide is "moral" as your lord? It's ridiculous.

"ESG investing" has become a marketing term for companies to get customers who want to feel like they are doing something moral without actually doing anything at all, and this is just another example of it. If BlackRock was remotely "moral", they would not have created a second emerging market fund with a lower fee so that they could continue to extract high fees from earlier customers who now are stuck with the higher fee fund due to the embedded capital gains (this is from Blackrock outside of Australia).

Again, if Blackrock was "moral", they would have told people about this in advance. Instead, they said they would convert to full replication and didn't say a thing about the ESG until they were about to switch. This was to attract more investors who would be stuck with their embedded capital gains when they changed their strategy. If you ask me, they are disgraceful and I have come to distrust them. Just another reason to look to Vanguard. Vanguard Australia isn't some perfect company, they are "for-profit" but they haven't pulled any of this kind of thing on their customers.

As a result of many ESG restrictions in IWLD, half the entire index was removed from 1600 odd companies down to 800 or so.

The tax inefficiency of IWLD should no longer exist since it is now domiciled in Australia rather than holding US-domiciled funds wrapped in an Australian-domiciled wrapper fund.
Topic Author
onwrds
Posts: 8
Joined: Mon Nov 29, 2021 4:51 pm
Location: Melbourne, Australia

Re: Australia: Portfolio Advise needed; plan to retire early + live in Europe

Post by onwrds »

Hi Andrew,

Thank you very much for your perspective. It's given me a bit more insight into the company and I can see what you mean about how Blackrock's strategy has placed their investors at a disadvantage! It has reminded me that all companies are ultimately looking at their profit margin...

I have done a bit of reading around ethical investing, and had decided not to go in that direction, as like you said what is "moral" or "ethical" is entirely subjective. I was debating between VGS and IWLD, as the low 0.09% management fee was tempting, but hearing a bit about the way Blackrock have operated (including halving the index's holding) makes VGS all the more appealing.

Sia
DJN
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Joined: Sun Nov 19, 2017 11:30 pm

Re: Australia: Portfolio Advise needed; plan to retire early + live in Europe

Post by DJN »

Hi,
one other thing that might be useful to check is your domicile and how that might or might not affect your tax status in Portugal. If there was a possibility of using a remittance basis for your tax that might be interesting. In addition because of the unrelenting aggression against independent tax status of EU individual countries including in particular tax schemes like the non habitual residence, it may not be around in ten years. So you should probably have an option in your savings rate to cover that possibility. Also as you probably know NHR lasts 10 years before you revert to full taxation. The status of the capital gains of your Australian investments should be checked against the Portuguese tax requirements before you leave to make sure that Portugal doesn't have a right to tax capital gains of prior years.
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
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