High Yielding Shares Again

[oracle]

Just set up DCA again.

$6k/month into the high yield Australian share index fund and $3K/month into the Australian commercial property index fund.

Set and forget for the next 3 years and if I have the courage buy more if either fund dips significantly.

Oscar,

From your past post I understand you have a high income and therefore must be paying a lot of tax. What is the rationale behind investing in high yield investments while on high income thereby, increasing your income even more and foregoing more of your returns to the tax man?

Would a S&P500 or Total US market fund be more suitable in your case for eg like VTS. Over the past 5 years it went from $60 odd to over $120 today with say 1.5% yield. This comes to annual compound return of 15.25% + 1.5% (dividend) = 16.75%

Whereas VHY (Vanguard High Yield share) fund has gone from $50 to around $66 today. This comes to annual compound return of 5.7% and assuming 6% yield equals to annual return of 11.7%.

Even if the total returns from both funds are the same your returns will be higher in US Index fund because of your high tax bracket.

Have a read through this post I made some time back where I stressed on importance of having maximum dollars compounding for you. Because over the long term even 2% difference can be huge in terms of the final results.

Here are the result

Person A
After 40 years the $1 million earning 9% will be worth approx $36 million

Person B
After 40 years the $1 million earning 7% will be worth approx $16.3 million

Less than half.

More from the post here

If you have other structures to minimise your tax then it probably doesn't matter.

Cheers,
Oracle.

 

[The Falcon]

And/Or BRKB/MKL, no distributions, internally compounding....just CGT when you want to sell in 20 years

 

[MTR]

Oscar,

From your past post I understand you have a high income and therefore must be paying a lot of tax. What is the rationale behind investing in high yield investments while on high income thereby, increasing your income even more and foregoing more of your returns to the tax man?

Would a S&P500 or Total US market fund be more suitable in your case for eg like VTS. Over the past 5 years it went from $60 odd to over $120 today with say 1.5% yield. This comes to annual compound return of 15.25% + 1.5% (dividend) = 16.75%

Whereas VHY (Vanguard High Yield share) fund has gone from $50 to around $66 today. This comes to annual compound return of 5.7% and assuming 6% yield equals to annual return of 11.7%.

Even if the total returns from both funds are the same your returns will be higher in US Index fund because of your high tax bracket.

Have a read through this post I made some time back where I stressed on importance of having maximum dollars compounding for you. Because over the long term even 2% difference can be huge in terms of the final results.



More from the post here

If you have other structures to minimise your tax then it probably doesn't matter.

Cheers,
Oracle.

Thanks Oracle, very interesting.

Enjoying this thread, lots of great info.

MTR

 

[THEHEATH]

Oscar,

From your past post I understand you have a high income and therefore must be paying a lot of tax. What is the rationale behind investing in high yield investments while on high income thereby, increasing your income even more and foregoing more of your returns to the tax man?

What the?! You make money you have to pay tax !?

 

[D.T.]

What the?! You make money you have to pay tax !?

Whats a tax? Is that something I can learn about on youtube?

 

[sanj]

What the?! You make money you have to pay tax !?

I thought it was a fair question, income tax and unrealized capital gains are 2 different things

 

[oracle]

What the?! You make money you have to pay tax !?

There are two ways to make money. One way is to make it via cashflow and other one is to make it via capital growth.

If I make it via capital growth I can compound my money much faster than cashflow due to substantial amount being taken out in form of tax due to the differential tax treatments of CF vs CG.

I was just curious about Oscars cashflow strategy to make money especially since he is already on high income.

Hope that helps.

Cheers,
Oracle.

 

[The Falcon]

Dividends = Tax events every year, you have no control of this. Even with franking credits attached high income earners will need to pay top up tax each year to the top marginal tax rate. Eg. Australian Shares.

Internally compounding = you choose when you want the tax events to occur (ie. selling), then CGT 50% 12+ month holding discount to apply. Eg. Berkshire Hathaway, Markel Corp.

Horses for courses here, but something to be aware of, as Oracle well points out!

 

[Television]

Dividends = Tax events every year, you have no control of this. Even with franking credits attached high income earners will need to pay top up tax each year to the top marginal tax rate. Eg. Australian Shares.

Internally compounding = you choose when you want the tax events to occur (ie. selling), then CGT 50% 12+ month holding discount to apply. Eg. Berkshire Hathaway, Markel Corp.

Horses for courses here, but something to be aware of, as Oracle well points out!

Erko,

Could you explain this part? 50% tax on capital gains? Discount to hold 12 months?

Or does it mean your CGT is reduced by 50% if you held the shares longer than 12mths?

 

[The Falcon]

Or does it mean your CGT is reduced by 50% if you held the shares longer than 12mths?

Yep this.....

 

[Television]

Yep this.....

Wunderbar. Cheers

 

[Rickardo]

For those investing in funds such as VTS, how do you mitigate the currency risk?

"The Vanguard US Total Market Shares Index ETF is fully exposed to the fluctuating values of foreign currencies as there will not be any hedging of foreign currencies to the Australian dollar."

 

[The Falcon]

For those investing in funds such as VTS, how do you mitigate the currency risk?

"The Vanguard US Total Market Shares Index ETF is fully exposed to the fluctuating values of foreign currencies as there will not be any hedging of foreign currencies to the Australian dollar."

I have a long term outlook and don't hedge. Having part of the portfolio unhedged provides further diversification. There are different schools of thought on this obviously, and hedged ETFs are available, albeit at a higher cost, so that may assist in making that decision.

Some different views here ; http://www.moneymanagement.com.au/a...ternational-equities-to-hedge-or-not-to-hedge

 

[redwing]

For those investing in funds such as VTS, how do you mitigate the currency risk?

"The Vanguard US Total Market Shares Index ETF is fully exposed to the fluctuating values of foreign currencies as there will not be any hedging of foreign currencies to the Australian dollar."

Its going the right way at present isn't it

 

[Blacky]

For those investing in funds such as VTS, how do you mitigate the currency risk?

For me I earn USD and GBP. So its a natural hedge at this point (noting that I have invested in the US fund not the AU fund).

With the high AUD (and its current direction), I'm also hoping to profit from the future devaluation.

So for me at least it is a double whammy (hopefully).

Given current investing environment I think investing in the US will generate better returns over the next few years than in Australia. Of coarse I could be very wrong - its just my opinion.

Blacky

 

[redwing]

Thanks for posting your trades China.

Most people (not necessarily on this forum) are happy to post their "wins" retrospectively. I appreciate you posting your trades prospectively and your rationale for doing them. Good luck.

Quoted for truth

BHP is all over the shop at present

 

[skater]

Whats a tax? Is that something I can learn about on youtube?

Yep! Look it up! There's a whole section on that & DIY depreciation schedules.

 

[Oscar]

Oscar,

From your past post I understand you have a high income and therefore must be paying a lot of tax. What is the rationale behind investing in high yield investments while on high income thereby, increasing your income even more and foregoing more of your returns to the tax man?

Hi Oracle, it's a good question and thanks for the challenge. It's true that I have a very high income. This income comes from a J.O.B and as a very senior executive I feel I am somewhat of a cost saving target. It's a ruthless corporate world and I know too well that in 2 to 3 years I may be out of a job. I am therefore ensuring that if I was out of full time work in 3 years time that I have adequate cash returns from my investments to fund a very reasonable life style. I leveraged to the hilt about 15 years ago and did well out of that and now am looking for high return investments to fund a possible early retirement.

I will think about your comments, thanks.

 

[pinkboy]

Are you having kittens today china?


pinkboy

 

[eyespy]

iron ore price still dropping.

i got into fmg, lost 15%....got out. small miners like fmg punished more than bhp and rio , anyone know why ?

anyhow, hard to pick bottoms.