Boglehead/Vanguard way to retire

[Danrc]

Check the closing prices on 27 Feb.

I must be missing something. If they aren't at a discount according to 27th Feb closing, they would be very close nonetheless?

edit: dajackal and I have ESP it seems

 

[The Falcon]

Ok something really messed up is going on with the monthly ASX LIC report ;

http://www.asx.com.au/documents/products/ASX_Funds_Monthly_Update_-_February_15.pdf

Showing AFI at +4.5% at end February for example. I typically look at this as a reference...I won't be any more

PS. Glad to know, I'll probably pick up some AFI soon

 

[luce.rocks]

Sorry if this doesn't relate closely enough to the theme of the thread, but would any of you consider buying indexes through a forex broker rather than a managed fund, as a way to reduce management fees?

 

[MTR]

Plenty of rock solid companies offered such yields during the lows of GFC. Do you recollect your views on sharemarket during that time?

Market will surely offer these kind of yields again in future. The question is when it does will you be ready to act, or will you think sharemarket is risky place to invest?

Cheers,
Oracle.

I am actually now looking at buying another property in US.

I have some rentals in US and have US$ to pay for property and when I bring it back home it gets very exciting as Au$75 at record low very tempting.

Hard to match this with shares, and I don't have the expertise that savvy share investors have so perhaps I should just go down this road for the moment and then review the share market in 6 months time

MTR

 

[oracle]

I am actually now looking at buying another property in US.

I have some rentals in US and have US$ to pay for property and when I bring it back home it gets very exciting as Au$75 at record low very tempting.

Hard to match this with shares, and I don't have the expertise that savvy share investors have so perhaps I should just go down this road for the moment and then review the share market in 6 months time

MTR

Good luck MTR!

I am no share investing expert either. As in I don't know which companies will be best investments over next 10-20 years. But I do know whichever company happens to be best investment, should make it's way into the index and being an index investor I would automatically own it without doing anything really.

In terms of real estate again you really need to know where and what you are buying to ensure satisfactory future returns. On top of that you have holding costs (maintenance, vacancy and management) etc. If its one or two properties probably not an issue but if you start to build large property portfolio it no longer stays passive investment. I guess if you are making bucket loads of money who cares if there is some active management. But getting to a stage where you are making bucket loads of money ain't easy either.

Cheers,
Oracle.

 

[MTR]

Agree Oracle, what you point out is the beauty of shares, passive investment, totally with you on this and having a mix of both would be the way to go.

I just keep watching, reading and learning
Thanks for sharing.

MTR

 

[redwing]

I read up on The Boglehead strategy of 3 index funds...one fund in Bonds, one in local shares and one in international shares...or rather a representative index of these markets. Vanguard is the recommended provider of the ETF's used to implement this strategy.

This what I found.
- Vanguard has an Australian Bond ETF....as of this year it produces something like 2 to 2.5%. No better than a rental property....so I am keeping some rentals and AGL shares as bond substitutes.

- Vanguard has an Australian share ETF that represents the top 300 ASX companies. If I had known this earlier I wouldn't have purchased the AGL and WOW shares...but whats done is done and I am going to keep them. The dividends are good and fully franked.

The ETF is called VAS and I will be putting into this when the time comes. It returns over 5% with the advantage of franking to some extent. The franking varies but works out to well over 50% over the course of a year. So much better than property for my money.

-Vanguard has several US and international ETF's. I have settled on one which covers the world and returns a tad over 2% - VGS its about 60% USA shares. The other contender was the USA only shares but there is some hassle with USA withholding tax that I cant be bothered with so I am going with VGS (unhedged). This one I feel is the unknown to me as its a big world and the unknown brings fear and the possibility of risk. the upside is that has potential to grow (it may also shrink).

The breakdown for the total shares for me will work out at 33% individual Aust shares (AGL, CBA and WOW) ,33% VAS and 33% VGS.

My buy in price for VAS is less than it is today so if I was to buy it would be during the next slump. VGS doesn't seem to move nearly as much as VAS , its also a fairly new ETF, but if I had to buy today I would buy into this one.

So there it is.....my attempt to convert houses into shares.

I know others are in this position as well and like me not overly familiar with more than the basic share mix of 4 banks, 2 supermarkets and a phone company....funny thing is that VAS is mostly just that so it will probably turn out well.
Nearly forgot to mention...I am a buy and pray buyer. That is I wont ever sell these and don't want the hassle of watching over these things daily or even monthly. That's why I am going into it. The houses have worn me out....made a lot of money but still....now's the time for easing off and enjoying life a bit more.

I am hoping we can share knowledge and experiences on this as it is a new to me anyway way of going about things.

Cheers
GW

Just having a look at what you've posted re: Vanguard (there are obviously other providers) and looking at some of thier core ETF's for your Aussie, Bond, US and International Funds over the last 12 months and then 2 years (some funds are not older than 5 years) via a picture

 

[tess85]

Am starting to save up for daughter's high schooling years, 8 years away. I've weighed up ETF (paying brokerage each time) for VAS/VGS vs investing in Vanguard managed fund directly, and have decided to go with ETF through commsec / nabtrade etc. Thanks to the posters who pointed out that the brokerage would kill me if I was to drip-feed small amounts in monthly. I will invest larger sums and at 3 month intervals.

I have spare funds sitting in my offset account, so I was thinking of paying down my PPOR loan and redrawing it when I was going to invest. That way, the interest would be tax deductible (as per Terry's post earlier in the thread)

My question is, is it possible to get a share trading platform (eg. commsec / nabtrade) to link to the split loan portion? Or would I have to get a LOC? I've only recently just gotten the hang of paying for property expenses from a loan split... but in this case I need the share trading platform to take funds straight out from a loan. By default they seem to want you to use their own "cash investment" account so I wondered if it would cause issues trying to take money from a loan (if that makes sense)

Cheers

 

[dajackal]

but in this case I need the share trading platform to take funds straight out from a loan. By default they seem to want you to use their own "cash investment" account so I wondered if it would cause issues trying to take money from a loan (if that makes sense)

Why does the trade need to be funded directly from the loan?

I recently paid down a portion of my PPOR and borrowed it back out via a split loan. I parked the funds in a separate offset account attached to the split loan and will transfer money out of the offset account into the cash investment account on the settlement date. As long as you keep records I don't see why this would be an issue.

disclaimer: not tax advice

 

[see_change]

Agree Oracle, what you point out is the beauty of shares, passive investment, totally with you on this and having a mix of both would be the way to go.

I just keep watching, reading and learning
Thanks for sharing.

MTR

Hi MTR

If people were interested in shares , then something like the vanguard funds are a reasonable way to do it .

Direct investing is much harder than people would like to believe and I've only know a handful of people who have been able to do it consistently . Tech A who is a stalwart on many share trading forums is one and another is a guy called Stevo also from share forums . I've met both of the, and you know where they've made most of their money ? Running highly successful businesses and property investing . For them , share trading is something they enjoyed conquering the challenge .

For those who are interested , the van Tharp book is for those who are interested more in share trading rather than the approach the OP is interested in .

Cliff

 

[The Falcon]

Trading and investing are very different matters. Tech/A is very much in the former camp and "plays" with relatively small sums from what I have seen. You run into difficulties when you try to trade which is a zero sum game.

Any idiot can buy AFI, tick DRP and keep buying in any market conditions. Let compounding and the nature of capital markets work for you.. Over the long term that is. Most can't wait of course and see the stock market as a casino that they can somehow game via various unique strategies that they found in book, online etc.

I know a couple of people with very large stock portfolios that simply bought and kept buying a reasonably diversified portfolio of industrials over the long term, and never sold during downturns but bought more stock. It's not rocket science. My 2 cents, I don't mind if others take a different view

Best way to make money in the first place? A large stake in a successful business or a very high salary. Both is even better!

 

[Cherry Pro]

I was going to invest $10k in VHY until my son sent me this article, now I'm confused any thoughts ?

http://cuffelinks.com.au/index-funds-invest-bad-good/

 

[dajackal]

I was going to invest $10k in VHY until my son sent me this article, now I'm confused any thoughts ?

http://cuffelinks.com.au/index-funds-invest-bad-good/

Roger Montgomery is the Chief Investment Officer of The Montgomery Fund.

 

[The Falcon]

Yeah Rog has a good business and he is a good promoter. I'd suggest however that Rog's historical performance ( going back to Clime days ) is pretty patchy.

The comments on the article pretty well rebut a lot of his points, so I won't bother with those. There is a role for active management in a portfolio, and if your concern is around avoiding the dogs, then perhaps a fundamental weight ETF such as QOZ or one of the large LICs (AFIC, Argo of Milton I am talking about) will suit. For ASX active management I would have looked to hyperion or paradice but both funds closed to new money, a good sign from a unit holders perspective.

PS. AFIC still available at a discount to NTA, I picked up a parcel yesterday at -2.4%. I'd be buying AFI.AX at these levels over any ETF. Not advice, etc.

 

[dajackal]

PS. AFIC still available at a discount to NTA, I picked up a parcel yesterday at -2.4%. I'd be buying AFI.AX at these levels over any ETF. Not advice, etc.

Agree 100%

Are you basing your discount figures on NTA as at 31/03/15 or do you have a means of forecasting current NTA?

My crude way is to adjust the previous months NTA based on performance of the XJO.

 

[The Falcon]

Agree 100%

Are you basing your discount figures on NTA as at 31/03/15 or do you have a means of forecasting current NTA?

My crude way is to adjust the previous months NTA based on performance of the XJO.

My broker has an spreadsheet that allows them to get a good handle on intra day NTA of the main LICs, they know top 20 holdings and get a live stock price feed on those and apply in ratio or something like that.

Your crude method probably works just as well overall

 

[see_change]

I was going to invest $10k in VHY until my son sent me this article, now I'm confused any thoughts ?

http://cuffelinks.com.au/index-funds-invest-bad-good/

I've mentioned the concept of survivorship bias in a recent post and that was in relation to an example quoted where someone picked a share starting in 2007 .

For someone to pick an example of coca cola , at its original price , starting in 1919 , ( IMHO ) completely discredits any following conclusion and IMHO , completely undermines the credibility of the person making those conclusions .

Would he have known to pick Coca Cola back in 1919 . How many other companies might one have picked back in 1919 ? . How many other companies in 1919 still exist . Probably not that many

People like to look at the long term performance of indexes like the Dow jones , but the reality is that the shares constituting the Dow jones have changed dramatically over the last century . My recollection is that when it as first created , one of the main industries represented in the Dow jones were railway companies ( this was at the time of the westward expansion ) . My recollection is that there are few if any still there .

The same would apply to a group of shares selected in 1919. Very few would exist nowadays .

I'm happy to read articles like the one linked , but the reality is that it is purely marketing and with a fundamental flaw at the basis of its arguement I wouldn't be basing any serious decisions on its conclusions .

For me the share market is no different to the property market . If I buy a share or property , I want to know the reason why I am buying it . If I am relying on advise I'm going to do my due diligence on that advisor and well and truly understand the logic behind their recommendations .

One of my pet hates is advisors who feel that they have to knock down other strategies in order to promote their own which is what this article does . If they have a good approach , then they should be able to stand on their own two feet.

This is what this article is doing .

Read it . READ IT CRITICALLY . Find flaws in it and then draw your own conclusion .

Cliff

 

[Terry_w]

I've mentioned the concept of survivorship bias in a recent post and that was in relation to an example quoted where someone picked a share starting in 2007 .
Read it . READ IT CRITICALLY . Find flaws in it and then draw your own conclusion .

Cliff

Excellent points Cliff.

 

[see_change]

For me

Probably the most informative aspect of that article was the discussion that followed

For anyone interested in funds investing , it's worth a read .

Cliff

 

[The Falcon]

I've mentioned the concept of survivorship bias in a recent post and that was in relation to an example quoted where someone picked a share starting in 2007 .

For someone to pick an example of coca cola , at its original price , starting in 1919 , ( IMHO ) completely discredits any following conclusion and IMHO , completely undermines the credibility of the person making those conclusions .

Would he have known to pick Coca Cola back in 1919 . How many other companies might one have picked back in 1919 ? . How many other companies in 1919 still exist . Probably not that many

People like to look at the long term performance of indexes like the Dow jones , but the reality is that the shares constituting the Dow jones have changed dramatically over the last century . My recollection is that when it as first created , one of the main industries represented in the Dow jones were railway companies ( this was at the time of the westward expansion ) . My recollection is that there are few if any still there .

The same would apply to a group of shares selected in 1919. Very few would exist nowadays .

I'm happy to read articles like the one linked , but the reality is that it is purely marketing and with a fundamental flaw at the basis of its arguement I wouldn't be basing any serious decisions on its conclusions .

For me the share market is no different to the property market . If I buy a share or property , I want to know the reason why I am buying it . If I am relying on advise I'm going to do my due diligence on that advisor and well and truly understand the logic behind their recommendations .

One of my pet hates is advisors who feel that they have to knock down other strategies in order to promote their own which is what this article does . If they have a good approach , then they should be able to stand on their own two feet.

This is what this article is doing .

Read it . READ IT CRITICALLY . Find flaws in it and then draw your own conclusion .

Cliff

Yep, Rog has had a shocker pulling KO as a sole example Very ordinary!

BUT,

to your point on stock survivorship and indexes...the ghost fund...

ING Corporate Leaders Trust has outperformed most of its competitors over the past decade, thanks to outsize holdings in energy and railroads, which both benefited from rising oil prices. The fund was also underweight in financials, which helped it dodge the worst of the 2008 bear market.

So who is the savvy portfolio manager who made those bets?

There is no such manager.

The 22 stocks in the $750 million portfolio are all descended from a portfolio chosen in 1935, set up so the stocks wouldn't be traded except in a handful of cases, such as a dividend elimination, a debt default or a downgrade. David Snowball, publisher of the Mutual Fund Observer website, calls it "the ghost ship of the fund world."

"It's a fund whose motto is, 'No manager? No problem!' " Mr. Snowball says.

The largely static holdings of Corporate Leaders Trust make index funds based on Standard & Poor's 500-stock index, which changes about 20 components every year, look like fast-trading hedge funds by comparison.

Thriving on Passivity

"The fund takes passivity to a level that would be intolerable to most investors," says Morningstar Inc. analyst Kevin McDevitt, who adds that the fund "has thrived for 75 years on chronically low expectations for its old-economy holdings."

The fund sponsor, ING Investments LLC, a unit of ING Groep NV, declined to discuss the fund, but an outside spokeswoman answered questions by email.

While some of the 30 blue chips originally in the fund have fallen by the wayside, about a third remain in something resembling their original form. Others have morphed into different holdings through acquisitions, spinoffs or other changes.

Those remaining include household names like Union Pacific Corp. , DuPont Co. and Procter & Gamble Co. Gone are International Harvester Co. and American Can Co. F.W. Woolworth Co. became Foot Locker Inc. Stakes in two oil companies, Standard Oil Co. of New Jersey and Socony-Vacuum Oil Co., became parts of Exxon Mobil Corp. , the fund's largest holding.

And a holding of Atchison, Topeka & Santa Fe Railway Co. eventually became stock in Warren Buffett'sBerkshire Hathaway Inc. when Berkshire acquired Burlington Northern Santa Fe Corp. in early 2010.

The fund has trailed the market at times, such as during the 1990s tech-stock boom. It lacks exposure to pharmaceuticals, health care and social media. But over the past decade, through the end of June, it returned an average 8.3% a year, compared with 5.3% for the S&P 500 and an average of 4.7% for peers in Morningstar's large-value category. During that decade, shares of Union Pacific and Burlington Northern both tripled in price. Praxair Inc., the former industrial-gas business of Union Carbide Corp., also tripled.

'Sustainable' Advantages

But Mr. McDevitt also credits the fund's recent results to its inaction. "The original advisers wanted to find blue-chip, dividend-paying companies that could thrive for decades," he says. The portfolio was set up as a unit investment trust?generally an unmanaged cousin of a standard mutual fund?and depends on "brands and sustainable competitive advantages," rather than short-term stock picking, he says. Comparable funds own about 75 stocks and trade in and out of 38% of their assets annually, he adds.

Static though it is, the portfolio continues to suffer some attrition in the ordinary course of events. It sold Citigroup Inc., a holding descended from American Can, in early 2009 after the bank eliminated its dividend, based on the trust's guidelines. And it dumped Eastman Kodak Co. last year when its stock price fell below $1, another sale guideline, before Kodak sought bankruptcy-law protection from creditors in January. Both stocks had been a drag on the fund's performance before their ultimate sale.

http://www.wsj.com/articles/SB10001424052702304199804577477131145378546

The problem when people look at historical indexes and don't see names they know, they are overlooking mergers and acquisitions....this is critical.

A more recent example, the Nifty Fifty from the early 70's, courtesy of Tim McAleenan Jr.

The Nifty Fifty: Forty-Three Years Later

In 1972, the Morgan Guaranty Trust (in conjunction with a few other investment advisory companies) launched an advertisement push called the Nifty Fifty that proclaimed certain American companies were so dominant, they should be purchased and never sold. The intuitive appeal of this argument was obvious people will always need food, beverages, medicine, and so on and the companies included on the list all had excellent records of making shareholders rich, with the popular terminology at the time calling them blue-chip stocks rather than dividend growth stocks.

But there was a problem with the timing of this list: many of the companies were trading at lofty valuations that have only been seen three times in American history (the late 1920s and late 1990s being the others) with Coca-Cola trading at 48x profits, Johnson & Johnson trading at almost 60x profits, McDonald?s trading at 71x profits, and so on. Here, in a moment of sobriety, we can see how foolish that was.

Yet, here is what I find interesting, if you by some chance put $1,000 into each of the fifty stocks on the original list, only four of the fifty stocks went on to deliver negative returns over the next 43 years. Polaroid, Burroughs, Emery Air, and MGIC were the stocks that would delivered negative returns.

You would have trounced the S&P 500 even if you bought at the mountaintop of 1972 valuations, but it is important to understand why: Wal-Mart and Philip Morris International did a disproportionate amount of the heavy lifting. Wal-Mart delivered 19.2% annual returns, so that the $1,000 investment would have grown into $2,200,000. The old Philp Morris delivered 18.5% returns, so that $1,000 grew into $1,400,000 (what a different 0.7% makes over forty-three years, eh?). The growth of Wal-Mart, and the significant outperformance of the tobacco stock that is now Altria, Philip Morris International, Kraft, and Mondelez, play an outsized role in explaining why even buying the Nifty Fifty stocks at absurd valuations still led to results that beat the S&P 500 over the next forty-three years.

But here is what has caught my attention about the Nifty Fifty: the incredibly low money loss rate. Only four of those fifty stocks cost you money 43 years later. The only companies you could have bought and lost money with were: Burroughs, Polaroid, Emery Air, and MGIC. The rest would have made you richer if you bought, sat on your rear, and held for the next forty-three years.

I think one of the reasons why this fact gets ignored by those who take a list of old recommended stocks is the effects of mergers and acquisitions. For instance, you may look at the list and see American Hospital Supply, and then assume that is a blue-chip stock that went defunct. Well, in 1985, Baxter International issued stock certificates to buy out American Hospitals owners, so you would have earned 11.6% from 1985 through January 2015 on that American Hospital Supply stock that got turned into Baxter.



Chesebrough Ponds became a part of Unilever, Squibb became Bristol Myers Squibb, and on the list goes. Schlitz Brewing got purchased by Stroh Brewing in an all-cash transaction. Heublein, perhaps the most obscure of all the companies on the original Nifty Fifty list, turned out to be the most lucrative of all?it got bought out by RJR Nabisco and then R.J. Reynolds, and turned into a tobacco fortune that compounded at 19% since 1982 (this assumes that, after it got taken private in the 1989 leveraged buyout, you bought shares of R.J. Reynolds when they became publicly available). The point is that those companies you may no longer recognize often got consumed by larger companies that continued to build wealth, with the failure rate of the Nifty Fifty being that 8% of the individual stocks would have lost you wealth over the next 43 years.

Of course, in addition to Wal-Mart and Philip Morris International, you would have purchased many stocks that would have made you quite rich even taking into account the high valuation apparent in 1972. Gillette returned over 16% annually before getting purchased by Procter & Gamble. Coca-Cola compounded at 14.5% annually to the present day. General Electric, despite its very significant troubles in 2008 and 2009, still returned over 13% annually from 1972 to the present day. Johnson & Johnson, Pepsi, Procter & Gamble, 3M, and Walt Disney have all returned between 12% and 15% annually from 1972 through the start of 2015.

The lesson here isnt that its okay to pay things like 71x profits for McDonalds. If you do something like that, it will take 3+ decades for you to burn off that excess weight of overvaluation and then earn actual returns in line with the S&P 500 at large. Instead, the point is this: If paying an expensive price for a blue-chip stock works out over time, imagine what happens when you pay an intelligent price for something like Chevron and scoop it up at $105 per share and hold it for the long haul. It also highlights how few blue-chip stocks actually fail over very long periods of time,the reason there are so many unknown names is the result of merger/acquisition activity rather than actual business failure. Wealth is lost when you do things like sell McDonalds, GlaxoSmithKline, IBM, Coca-Cola, and Exxon upon seeing disappointing short-term news; history shows that selling, rather than holding, is responsible for the bulk of an investors troubles.