Australian Portfolio Review

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Topic Author
Cat1963
Posts: 6
Joined: Wed Dec 08, 2021 8:02 pm

Australian Portfolio Review

Post by Cat1963 »

Hi All,

Currently reviewing my portfolio after receiving an inheritance.
Idea is to retire early while also increasing my portfolio to pass on to my children.

At the moment my assets are primarily in my PPOR, cash and super.
With the low returns on cash at the moment, I am looking to increase diversification through ETFs.

Country of Residence: Australia
Lifestyle: Conservative, living expenses are low

Currency: AUD

Debt: None

Age: 55

Current Assets: $1.5M in House, $1.5M in Cash, $500k in a Term Deposits locked away till 2024, $500k in Super

Desired Asset allocation: Equities via ETFs and Super

Super: Looking to transition from a managed fund Super to something with lower fees (i.e. Industry SuperFund or low cost Index Super funds)
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Questions:
1. Based on historical comparisons, it would appear that UniSuper has been the stand out performer over the last 10 years. However the asset allocation seems heavily weighted to the Aus market even under High Growth. Am I better off going with low cost Index Super funds and creating my own split (i.e 20/80 Aus/Int) to reduce my Aus exposure or are there some diversification benefits to an industry Superfund (i.e. investment in assets)? I would also be considering non-concessional contributions so my Super could increase to $1m by the time I retire.

2. Are there any cost implications from changing my Super besides transfer fees? Would I be taxed on the Capital Gains to-date by selling/rebuying?

3. Is the following ETF allocation sufficiently diversified when considering the value of my house?
VAS - 20% (Vanguard Australian Shares)
VGS - Market Weight Cap Weighting of 80% (Vanguard MSCI Index International Shares ETF)
VISM - Market Weight Cap Weighting of 80% (Vanguard MSCI International Small Companies Index ETF)
VAE - Market Weight Cap Weighting of 80%- (Vanguard FTSE Asia ex Japan Shares Index ETF)

I have opted over VTS/VEU as the fees seem similar after tax drag and to avoid any potential impact from changes to the Aus/US laws in the long term (probably a very minor risk though)

Thank you.
User avatar
andrew99999
Posts: 1021
Joined: Fri Jul 13, 2018 8:14 pm

Re: Australian Portfolio Review

Post by andrew99999 »

Due to the enormous tax benefits of super, anything you don't need until you can access super should go in there.

Super is a structure, not an investment. You can invest in the same thing inside super as outside super, just with much less tax (i.e. a whole lot of free money).

You can get quite a lot into super. The bring-forward rule means you can get 3 years of NCC (330k) in. And if you got 110k in this financial year, you can still use the 330k next financial year, which allows you 440k within the next 7 months. Additionally, your spouse (if you have one) can do the same and get 880k into super combined in a short period, depending on how close to the 1.7m cap they are.

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Personally, I don't like over about 20% in Aus equities due to the concentration risk, which can easily be diversified away. I also would not rely on past performance and instead choose low-cost indexing in super.

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If you are transferring from a (regular) pooled option, then no capital gains tax to pay when switching. I'm not sure if there is a switching fee, but I assume(?) it would be minimal, but you should ask your super provider to be sure.

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Your 20% Aus index and 80% International components coming out to cap weighting looks great to me.
Topic Author
Cat1963
Posts: 6
Joined: Wed Dec 08, 2021 8:02 pm

Re: Australian Portfolio Review

Post by Cat1963 »

Thanks Andrew. Definitely considering maximising my NCC. Assuming I opt for low cost indexing in Super going into either Aus/Int Index, I presume maintaining the 20/80 split is also ideal in Super?
My current Super is a BT product with a mix of funds (i.e. Index Funds, Wholesale Plus Funds) so I think it may operate differently and would require CG events to change (although may already be priced in). Will check with my provider. The portfolio currently contains an Aus Shares Index Fund and Internation Shares Index Fund (with fees of 0.17%), so allocating my NCCs to these could be an alternative to shifting if I can't avoid CG. I presume Index Funds and low cost indexing are the same?
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andrew99999
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Joined: Fri Jul 13, 2018 8:14 pm

Re: Australian Portfolio Review

Post by andrew99999 »

Yes, if you have a wrap, you will be individually taxed, so you definitely want to wait until you convert to an account-based pension before moving so that you can have all the capital gains wiped first. It would be an enormous mistake to move beforehand.

Yes, your fees on those funds are very low, although I don't know what the cost of using the wrap is — that should be considered also, and if you are with an adviser, the cost of that too (often paid through the wrap).
Topic Author
Cat1963
Posts: 6
Joined: Wed Dec 08, 2021 8:02 pm

Re: Australian Portfolio Review

Post by Cat1963 »

Had a chat with my advisor. Basically what you said was right; I'm stuck with my wrap and adviser (unless I want to incur capital gains).
I think I'll set up another Super and then merge the two into a single Pension fund when I turn 60.
Thinking an 100% allocation to Int Shares given that my current Super is about 50/50.
Just deciding on who to go with now; thinking HostPlus ChoicePlus
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andrew99999
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Joined: Fri Jul 13, 2018 8:14 pm

Re: Australian Portfolio Review

Post by andrew99999 »

If you want to remove your adviser fee, check with your platform provider if there is a way to remove that. I think there might be with BT.
Topic Author
Cat1963
Posts: 6
Joined: Wed Dec 08, 2021 8:02 pm

Re: Australian Portfolio Review

Post by Cat1963 »

I can remove the fee but I can't use the platform so my portfolio wouldn't be able to be maintained without the adviser. Isn't that a risk?
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andrew99999
Posts: 1021
Joined: Fri Jul 13, 2018 8:14 pm

Re: Australian Portfolio Review

Post by andrew99999 »

Yes, that's not an usual scenario with platforms. I hope ASIC makes it illegal at some point because it is a common manipulative practice where the adviser and platform team up to force clients to keep paying them longer than they want or need an adviser.

I could have sworn I read that BT offered a way to remove your adviser. If you want to remove the adviser, I would contact BT directly and ask them to double-check.

I don't consider it a risk, it is just that if you don't see the value in an adviser, you are paying thousands of dollars a year for something you may not need.
Topic Author
Cat1963
Posts: 6
Joined: Wed Dec 08, 2021 8:02 pm

Re: Australian Portfolio Review

Post by Cat1963 »

I'll give them a call today and confirm. I only need the adviser to be able to rebalance the portfolio so hopefully that's an option.

Also I just set-up my HostPlus account.
Is there an optimum combination of ETFs to capture the worldwide index (without including hedging)?
Thinking 20 VGS / 20 WXOZ / 20 VTS / 20 VEU but the VTS/VEU split isn't really reflective of the market weighting...
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andrew99999
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Joined: Fri Jul 13, 2018 8:14 pm

Re: Australian Portfolio Review

Post by andrew99999 »

Cat1963 wrote: Fri Dec 10, 2021 3:29 pm I'll give them a call today and confirm. I only need the adviser to be able to rebalance the portfolio so hopefully that's an option.

Also I just set-up my HostPlus account.
Is there an optimum combination of ETFs to capture the worldwide index (without including hedging)?
Thinking 20 VGS / 20 WXOZ / 20 VTS / 20 VEU but the VTS/VEU split isn't really reflective of the market weighting...
20/20 VTS/VEU seems close enough. If you ask me, I prefer a more even split since the US makes up so much of the global market.

I would probably switch out WXOZ for VESG which has only a few stocks removed from the total market index. The reason is that WXOZ has a low AUM, so if it gets closed down, you will have to realise all the gains which lose the whole point of using direct investment options in super.
Topic Author
Cat1963
Posts: 6
Joined: Wed Dec 08, 2021 8:02 pm

Re: Australian Portfolio Review

Post by Cat1963 »

Thanks Andrew. Appreciate all the help. Great job on the website as well.
SR7
Posts: 106
Joined: Fri May 15, 2020 4:06 am
Location: Down Under

Re: Australian Portfolio Review

Post by SR7 »

Cat1963 wrote: Sat Dec 11, 2021 4:17 pm Thanks Andrew. Appreciate all the help. Great job on the website as well.
Yes, Andrew is great! He has always answered my silly questions with patient wisdom.
I studied Physics not Finance, so best to ignore anything I say about money.
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