Questions about Buying EFTs / Indexed Funds

• 

  littleburrito on 31/12/2018 - 17:50

  +1

  Generally, the numbers shouldn't vary much and it is important to ensure you are looking at the same period.

  The returns on Canstar shows a return of 19% for 1year. On Vanguard's website, you will need to click on Display - Annually and View As - Fiscal Year. The Total Return by NAV is 18.93% and this might be the figure Canstar used.

  This ETF has high returns because it is Small Companies Index ETF, which means it specifically invest only in Small Companies and it is a high risk/high returns fund. You'll need to have a high risk tolerance for this fund so please consider your situation before investing!

• 

  idonotknowwhy on 31/12/2018 - 18:03

  +2

  Hi Charlie,

  This isn't something you just want to rush into after reading some comments online here. I highly recommend this book from the creator of index funds:
  https://www.amazon.com.au/Little-Book-Common-Sense-Investing…

  Remember, an ETF (exchange traded fund) can be anything. It can be an index fund, realestate, metals, ASX:BBUS (which hedges against the S&P500), cryptocurrency, etc.

  Prior performance doesn't predict future returns. Even canstar's site says this. The best you can do is aim to minimize fees, which is what index funds do.

  In Bogel's book which I linked above, he's against ETF Index funds, because they encourage you to trade frequently (incurring fees, tax, and missing out on potential gains). If you're disciplined enough to hold through a correction (you need to stomach seeing your portfolio drop 20% from time to time), then buying Index funds via ETFs is a very good, low cost strategy.

  Once you've read that book (please read it), I recommend:

  1. Sign up for selfwealth via an ozbargain referral link to get 5 free trades.
  2. Buy funds based in Australia to avoid foreign tax complications.
  3. I personally buy:
     i. VAS for Australian stock exposure.
     ii. VGS for world excluding Australia (but based here so no complex tax).
     iii. VGE to get some exposure to emerging markets. High risk,but the US was high risk back when it was young and look how well they did :)

  I wouldn't necessarily recommend bonds either (despite what the book says), high interest cash isn't much worse (Ubank). Make sure you keep some wealth in cash/bonds so that if you lose your job in a recession, you don't have to sell your stocks when the market is down.

  Edit: And make sure you get your strategy sorted before you start buying anything. Changing it later is expensive, especially if things have gone up (CGT). One such high-risk strategy might be:
  Shares - 80% wealth split into (50% VGS, 25% VGE, 25% VAS)
  High interest cash/bonds - 20% of wealth

  • 

    Edsanwong on 31/12/2018 - 23:59

    Purely honest question, and apology to OP, I don't meant to hijacking
    Assume I invested in index ASX 200 just before GFC 2008 when index in 6000s, would that mean % growth is negative in 2018 (now ASX 200 in 5600s)?

    • 

      [Deactivated] on 01/01/2019 - 08:31

      There are also dividends to consider, while the index is just measuring the capital value.

    • 

      idonotknowwhy on 02/01/2019 - 10:34

      Assume I invested in index ASX 200 just before GFC 2008 when index in 6000s, would that mean % growth is negative in 2018 (now ASX 200 in 5600s)?

      Yep, if you bought at the peak and were still holding now, you'd be down (on paper). And when you consider inflation, you'd be down double-digit percentages. IMO, this is partly because we don't have a proper tech sector here (and everything is being consolidated/automated via tech).

      That's why you need more exposure than just this country. VAS is a small percentage of my portfolio because I'm pessimistic about the future of our economy (what do we do other than export coal, in a world moving to renewable energy, and swap houses with each other?)
      The main benefit of VAS is franking, and relatively high dividends (our companies like telstra and woolies aren't really growing compared with US companies, so less of their profits are reinvested in the business and instead are paid out of shareholders).

      Here's a relevant article discussing the ASX200, I took the liberty of circumventing the paywall via this link. This is the original

      Now were you in the S&P500 in 2007, you'd be better off now: historical chart

      Edit: Also checkout my comment below regarding dollar-cost averaging to avoid ever buying the peak. If you had bought in at the average price throughout 2007, you'd be in better shape.

  • 

    geowest on 01/01/2019 - 20:51

    Thanks for the detailed explanation. Can I ask you a couple of questions? all of your holdings are with Vanguard. Is that alright? Also what could be the best strategy for a small investor say I want to start with $200/. I have signed up with Selfwealth. They charge $9.5 per transaction. So I don't think it is very cost effective to invest in a small amount. If I accumulate and when the amount reaches $1000, the fund valuation may not be attractive.

    Your inputs, please. Ta.

    • 

      idonotknowwhy on 02/01/2019 - 11:04

      +1

      all of your holdings are with Vanguard. Is that alright?

      Good question, and I had the same question when I started out. This article here (which I have bookmarked lol). I assume your question is mostly "what if vanguard goes broke or runs off with my money?", this is the relevant section of that article:

      Because my assets are not invested in Vanguard. They are invested in the Vanguard Mutual Funds and, thru those, invested in the individual stocks, bonds and REITS those funds hold. Even if Vanguard were to implode (a vanishingly small possibility), the underling investments would remain unaffected. They are separate from the Vanguard company. As with all investments, these carry risk, but none of that risk is directly tied to Vanguard.

      Also what could be the best strategy for a small investor say I want to start with $200/. I have signed up with Selfwealth.

      Firstly, if you used an ozbargain referral code *, you get 5 free trades, which means you can invest $200 for free.

      This is my advice for you: If you can only spare $200 at this point, you're better off putting it in a Ubank 2.87% savings account and building up a cash buffer. Then when you have a buffer of about 3 months of living expenses with no credit card debt, wait until you have $1,000 available

      If I accumulate and when the amount reaches $1000, the fund valuation may not be attractive.

      A lot of us are doing dollar cost averaging with amounts like $2,000 (0.5% lost on brokerage) or $1,000 (1% lost on brokerage).
      Basically, we have a schedule where we will definitely put $2,000 or whatever amount we choose into our portfolios every 3 months or whatever interval we choose, regardless of the state of the market.

      This has 3 advantages:
      1. It helps avoid the scenario @Edsanwong mentioned above whereby you might buy the absolute top of the market, and then be in the negative for decades. Instead, when we average out our purchase for the year, we end up buying whatever the average price was for that year.

      2. It helps us tax-effectively rebalance our portfolios. Say for example you have a stategy: 25% VGE 25% VAS 50% VGS and your portfolio reflects that. Over the next 3 months, conflict in third world countries devalues your VGE so that it only occupies 17% of your portfolio. Rather than rebalance by selling and then buying (incurring capital gains tax and extra brokerage fees), you can simply buy more VGE on your next scheduled purchase date, bringing your portfolio closer to alignment.

      3. You don't need to look at or worry about market conditions at all. Most people can't time the market. Simply follow your original portfolio strategy. If the market has just crashed or is crashing, stocks are cheap! If it's part way through a bull-run, your other purchases that year will average out of a lower purchase price than the peak.

      Still, I strongly recommend that you invest in this book. I read these questions here 2 days ago, but was unable to reply because my account was in the penalty box for a drunk rambling on New Year's Eve. I'm mentioning this to remind you, don't make financial decisions based on what random people like me post on forums :)

      *don't report me for posting affiliate links. This is the ozbargain referral lottery link, not my personal one.

      • 

        geowest on 02/01/2019 - 20:17

        Thank you so much for taking time and replying. My doubt was slightly different.

        Block-quote "what if vanguard goes broke or runs off with my money?"

        Though I am not sure, I believe all Vanguard funds, in general, may be following the same investment methodology and stock holding pattern. Also may have lots of stocks overlapping. So I believe opting one Vanguard fund and another (say AS200) would be a better mix. I personally prefer only Australian domicile fund to avoid taxation hassles. I know I will be missing out global exposure, but it will be alright I think.

        I have signed up with Selfwealth with an affiliate link and got five free trades. But these free trades are valid for only one month I guess. Also, I spoke to someone on Selfwealth chat support, he said the first minimum investment is A$600, after that no such requirements. I will check with them once again.

        Thanks once again.

• 

  franky82 on 31/12/2018 - 18:05

  +4

  The answer here is fairly simple- there has been a significant drop in the unit price for this fund since october. Canstar's data is old.

  The Vanguard MSCI Australian Small Companies Index EFT invests in small caps, which generally have a greater level of volatility in price. As a result the fund's unit price will also likely experience more volatility than funds that focus on larger, more established companies.

  If you're wanting info Charlie it's worth reading widely. I'd suggest the fastest way to learn the basics about shares is to get a book from your local library.

  When researching specific funds, it's worth looking at some of the key terms used to describe them. For example, to know more about this fund, you'll really need to explore small cap shares and index funds to understand what your fund managers are going to be buying for the fund, and what the basis for their investments are. This will tell you more about your investments than looking at 1yr or 5 yr returns.

  • 

    [Deactivated] on 01/01/2019 - 08:38

    +2

    Yeah this. October-December was a really really bad quarter. I bought half my portfolio in September, so my fault, sorry :\

    The last 5-7 years have been really good on the whole.

    The reality is that shares as an aggregate investment tend to be the best over 15-20 year time periods. If you pick a year or even 10 years they can be volatile. (If I'd sold my portfolio in late September I'd have made something like 18% over 6 months which is phenomenal, but holding onto them until now and they're basically dead even if you take dividends into account.)

    Coincidentally I also own property which has gone negative value over the last 10 years. So…. Don't pick whatever I pick next would be my suggestion.

• 

  evol on 31/12/2018 - 19:59

  VDHG or VAS would be what I suggest you look into if you're looking for somewhere to start with ETFs.

• 

  theHMASfriendship on 31/12/2018 - 21:29

  -1

  Recommend all in crypto