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Sam writes to us today with a question about consolidating the number of Australian ETFs that he holds:

Hey EFT Bloke,

Oof rough start there Sammy. It’s actually ETF Bloke. But I’ll let you slide this time!

Only recently found your site/blog and love the simplicity to it all!

What can I say, I’m a simple bloke..

I am 27 now but was 22 when I first jumped into ETFs and I went a little crazy. I bought several (all vanguard) ETFs and now when I look at them I wonder if they can/should be condensed down a bit as I think some might overlap for no reason?

My current ETF portfolio is:
VAF
VAS
VDHG – Wondering if I should sell and buy more VAS?
VGS
VHY – Wondering if I should sell and buy more VAS?
VTS – Was unaware of the tax issues regarding this till reading your thoughts on it. Damn!
VGE – Looking to buy
VBND – Looking to buy

I was going to buy VAP but after reading what you wrote where it’s the same as VAS anyway I didn’t see a point.

I also hold a few individual company stocks.

Appreciate any thoughts you may have!

You’ve given me plenty to work with here Sammy.

First up, a couple of clarifications from my side.

VAP is not the same as VAS. They invest in different things. VAP invests in Australian Property REITS whereas VAS invests in the Australian Stock Market as a whole, but the market as a whole INCLUDES Australian Property REITS.

Clear as mud right?

VAS invests in the top 300 companies on the Australian Stock Market so it holds 300 investments.

VAP invests in the REITS that are part of the top 300 companies on the ASX, so it holds much less than 300 investments as only some of the top 300 companies in Australia are REITS.

At the time of writing there are 32 REITS in the ASX 300 so VAP invests in 32 ASX REITS compared with 300 Australian companies for VAS. Those 32 REITS are also part of the 300 companies that VAS owns.

If you own VAS, you already own everything that is included in VAP. There is not a need to add VAP to your ETF portfolio unless you specifically want to increase your holdings in Australian REITS beyond that already included in VAS.

Hope I have helped clear that up!

Next clarification is for readers who may not be aware of the tax issues you mention with VTS.

VTS continues to be domiciled in the USA. This means that Australian investors who buy VTS are exposed to US tax obligations including Estate Tax. It also means you need to regularly fill out a W8-BEN form for the IRS.

Yes that IRS!

That is why I don’t recommend VTS as an ETF to buy. You should consider investing in VGS or IVV instead.

Now onto your portfolio review Sammy.

Sam’s Australian ETF Portfolio Review

It’s good to see you started investing young. This is something you won’t regret as you grow older. Giving your investments a chance to benefit from the march of time and the power of compound interest pays off in the end.

Future Sam will thank you for your work to date.

But you definitely have a couple of double-ups going on in there!

Consolidating VHY & VAS ETFs

For starters, VHY & VAS looks like an area where you could look to consolidate your ETFs. These ETFs serve slightly different purposes so unless you have a strong reason to hold VHY, you probably don’t need to invest in it alongside VAS.

VHY aims to give a high yield return to Australian investors. It does so by focussing on companies that pay a higher dividend than average, and by excluding companies that pay a low dividend or no dividend.

Dividend investing is one strategy, but is it a good strategy?

Let me tell you the name of a company that has never paid a dividend.

Amazon. Currently worth $1.76 TRILLION dollars.

Would you want to exclude Amazon from your portfolio because it doesn’t pay a dividend?

I wouldn’t!

Take a look at what companies VHY invests in:

• BHP
• Commonwealth Bank
• Wesfarmers
• Westpac
• RIO Tinto
• NAB
• ANZ

It’s a who’s who of Australian companies right?

But these same companies are held by VAS. And VAS doesn’t exclude high growth stocks to only focus on dividends.

Unless you have a strong personal reason for holding both VAS & VHY, you probably don’t need to.

Consolidating VDHG and VAS+VGS+VGE+VAF+VBND ETFs

Next up, I see you hold VDHG as well as VAS+VGS+VGE+VAF+VBND.

This is really an either/or decision for you Sammy and another chance to consolidate your ETFs.

You can choose to invest in VDHG, which is an all-in-one diversified ETF the comes with pre-determined investment allocations to the different global markets.

Or you can choose to invest in each market individually yourself using different ETFs. In which case you would buy VAS & VGS & VGE & VBND at the allocations that are right for your individual circumstances.

Take a look at what VDHG invests in:

• Vanguard Australian Shares Index Fund (Also known as VAS)
• Vanguard International Shares Index Fund (Also known as VGS)
• Vanguard International Shares Index Fund – Hedged (Also known as VGAD)
• Vanguard Global Aggregate Bond Index Fund (Also known as VBND)
• Vanguard Emerging Markets Shares Index Fund (Also known as VGE)
• Vanguard Australian Fixed Interest Index Fund (Also known as VAF)

VDHG invests in each of these market areas so that you don’t have to! Owning both is unnecessary work if VDHG is fit for purpose for you.

Typically you would either say,

I trust Vanguard has the right allocations for me so I am going to invest in VDHG only.

Or you would say,

I need to make my own ETF allocations that suit my own individual circumstances. Vanguards’s pre-determined allocations in VDHG, VDGR, VDBA & VDCO are not right for me. I am going to invest in my own mix of VGS & VAS & VGE & VBND & VAF etc.

So Sammy, you’ve got a decision to make here. I can’t make it for you!

Either Vanguard’s all-in-one ETFs are right for you or you need to roll your own ETF portfolio.

What’s it gonna be?

Marie writes:

Can you please tell me whether the VEU ETF requires a W-8BEN form to be submitted?

Thanks.

Straight and to the point there Marie. But seeing as you said the magic words I will give you the a response that is also straight and to the point.

Yes. If you buy VEU you will need to submit a W-8BEN form to the US Tax authorities.

VEU is a US domiciled ETF and is subject to US taxation laws. Therefore if you own VEU you are also subject to US taxation laws!

The IRS in America requires foreigners (that’d be you and me Marie!) to declare their foreign status if purchasing US domiciled assets.

Find out more about the W-8BEN Form on the IRS website

Don’t want to get involved in US tax stuff? I don’t blame you! Me neither.

This is just one reason why I don’t recommend VEU in my list of the Best Australian ETFs

Sit down boys and girls, it’s story time.

A brief history of Vanguard’s VTS + VEU ETFs

Vanguard was originally a US based business before expanding all over the world. When Vanguard launched their American ETFs (for Americans to buy!) they more or less broke down the total market as follows:

• VTS – Which invests in all US Stocks
• VEU – Which invests in all Global Stocks (and excludes US Stocks)

The idea was that Americans could invest in VTS if they wanted exposure to the US market, or they could invest in VTS & VEU if they wanted exposure to the entire world.

All over the internet you will find countless blogs referring to VTS & VEU. And these ETFs make sense to invest in if you are American.

But we’re not.

When Vanguard first launched in Australia they initially offered VTS & VEU to Australians. This is the same VTS & VEU ETFs that Americans can buy. Although you can buy VTS & VEU on the Australian Stock Exchange the ETFs are actually listed in America. They are AMerican domiciled. And this is why you need to fill in the W-8BEN form if you buy these ETFs

Well skip forward a couple of years and Vanguard realized their business was growing in Australia and it was about time to offer Australian based ETF products. When Vanguard launched their Australia ETFs they broke down the market in a similar way, but in a way that made sense to Australians:

• VAS – Which invests in all Australian Stocks
• VGS – Which invests in all GLobal Stocks (and excludes Australian Stocks)

Can you see what they were trying to do?

As an Australian, you could invest in VAS if you wanted exposure to the Australian market, or you could invest in VAS & VGS if you wanted exposure to the entire world.

At this point Aussies could (and should) have said bye bye to VTS & VEU. We now had our own equivalent ETFs

So there you go kiddos. A brief history of Vanguard ETFs in Australia.

How can I avoid filling in the W-8BEN form when buying VEU?

But what does this mean for Marie?

Well, rather than having a portfolio consisting of VTS & VEU Marie could consider having a portfolio consisting of VAS & VGS.

It’s the way Vanguard Australia intended Australians to invest in the market.

And doing so waves bye bye to the US W-8BEN forms and says g’day to the boys at the ATO!

Which although not great, is still better than needing to say Hi Y’all to the boys at the IRS!

Alright guys, ease up already. My inbox has been inundated these last few days and weeks with questions about – you guessed it – the Coronavirus!

So here we go, let’s see if I can provide some clarity for all the Aussie investors losing sleep over their ETF portfolio.

Richard writes:

Great resource you’ve provided.  Thanks.

Seeing as we’re in the midst of the Coronavirus Crisis – mainly in the sense of public and investor panic – what are you doing right now?

Part of me imagines “staying the course”, another “waiting for buying opportunities”.

Lindsay says:

Despite your bias towards Vanguard products, I’m interested to know what ETF’s you’d be considering after this recent pull back. And when to pull the trigger – now, or wait a while?

Linds, a tip. You catch more flies with honey than with vinegar. Take a note out of Richard’s book next time.

However I’ll make an exception given these are exceptional times and publish your question despite the opening dig.

As I’ve openly stated before: I am completely, hopelessly, 100% independent of Vanguard and all other ETF providers.

In terms of what ETF’s I am considering. I will be continuing to invest in the same ETF’s that make up ETF Bloke’s Portfolio.

You don’t change horses midstream and you don’t change your passive investment strategy when the market goes down (or up!)

In terms of timing, I usually add to my ETF holdings once every three months.

And now is no different.

Will the market be higher or lower in 5 weeks or 10 weeks from now?

Who knows! Who cares!

Will the market be higher or lower in 5 years or 10 years from now?

You can almost guarantee it will be higher. Perhaps much higher.

How do I know this?

90+ years of stock market history.

Broaden your investing timeline and you won’t stress over the day to day movements.

Or the impact of Coronavirus on your ETF portfolio.

Population increases, productivity increases, inflation increases.

Stock markets go up.

Now Jacob, who is just starting out, asks:

First of all, thanks for the great information provided on your website. It’s helped my research a lot.

Currently the Coronavirus is bringing a lot of volatility to the markets, ETF’s are down considerably. So, is this a good time for a first time investor to start out with a position in ETF’s?

On the other hand would the wait and see option mean missing the boat?

Once again thanks for all the info, and your time reading this message.

Jacob you are quite welcome. And thank you for the kind words, I appreciate it.

Linds, take note.

So is this a good time to start out buying Australian ETF’s?

Well let me put it to you this way.

Are the boxing day sales a good time to buy a new TV or couch?

Of course they are!

And why is that?

Because in the boxing day sales you are getting exactly the same thing you could in September but for a much better price.

That is the impact that this Coronavirus is now having on the stock market.

You can invest in exactly the same global companies as everybody else has been doing for the last few years, but now you can do it at a cheaper price!

To all you ETF investors who have been on the sidelines, this is the moment you have been waiting for.

But be sensible and follow the usual personal finance rules of life:

1. Make sure you have an emergency fund in case you lose your job
2. Don’t take out a loan to invest. Just don’t.
3. Don’t invest money that you need in the next few months or years. Although stock markets go up over time, you can’t guarantee where they will be when you need that house or car deposit

Now is a great time to start investing in ETF’s if you are in a financially secure situation. But then again, any time is.

If you start investing today, you can expect to continue investing for the next 20+ years. So whether you start today, last year or next year. It won’t make that much of a difference at the end of the day.

What makes a difference is choosing to start. And sticking to your strategy through the next:

• Coronavirus
• Global Financial Crisis
• 9/11
• Tech Bubble
• Oil Market Crash
• Black Monday

I guarantee you this won’t be the last stock market crash you have to live through.

And if this is your first? Then consider yourself lucky.

You’ve got plenty of years ahead of you to see growth in the stock market.

But only if you start investing.

Regular reader Benjamin writes:

Myself and my partner are starting to invest in ETF’s.

What a great idea Benjamin!

What we can’t work out is how to keep adding to our purchased shares on a regular basis without paying a lot in broker fees?

We started with a $10,000 investment via NABtrade and set up dividend reinvestment, but we also want to set aside say $200 a fortnight from our pay for further investment.

Can you invest extra every fortnight or does that incur the brokerage fee every time?

First of all, good on ya Benjamin for diving in and getting started with Australian ETF Investing. This will be one of the best decisions you have made in terms of securing your financial future for you and your partner.

I see you already have $10,000 invested in ETF’s of your choice which is a great amount for a first investment – well done!

You know the process of buying and selling ETFs through a broker and you have figured out how to enroll in the dividend reinvestment plan!

Minimising Broker Fees

There are two ways to minimise fees when buying ETF’s:

• Enrol in the Dividend Reinvestment Program so that the ETF provider will reinvest your dividends and buy more shares for you for free
• Save up a large chunk of dollars before buying your next set of ETF shares because the more you invest the less you pay in broker fees

Benjamin already the first strategy under control so let’s talk about the second strategy.

Minimising Fees with NABTrade

Here are the fees that NABTrade charges for buying and selling ETFs.

• $14.95 on trades up to $5,000
• $19.95 on trades between $5,000.01 and $20,000
• 0.11% of trade value on trade above $20,000.01

Let’s look at these fees in % terms of different investment amounts.

• Trade size = $200. Broker costs = $14.95/$200 = 7.48%
• Trade size = $1,000. Broker costs = $14.95/$1,000 = 1.50%
• Trade size = $5,000. Broker costs = $14.95/$5,000 = 0.30%
• Trade size = $10,000. Broker costs = $19.95/$10,000 = 0.20%
• Trade size = $20,000. Broker costs = $19.95/$20,000 = 0.10%

If you are making trades valued above $20,000 then the calculations changes to be a fixed per cent of the amount invested.

• Trade size = $50,000. Broker costs = 0.11% * $50,000 = $55

Analysing these numbers you can see that it doesn’t make much sense to buy regular packages of $200 worth of shares. If you do that NAB will charge you $14.95 for each trade. That works out to be 7.48% of the amount you are investing!

You need to be earning a big return from your ETFs to overcome the brokerage costs here. A better strategy is to buy less frequently but in larger amounts.

If you can manage the amount you are investing you can even take advantage of sweet spots to minimise fees paid.

For example, it doesn’t make sense to buy $5,001 worth of shares and pay $19.95 when you could buy $4,999 worth of shares and pay only $14.95.

You should pay attention to these sweet spots because each broker has different thresholds where costs begin to increase.

Do you know your broker’s thresholds?

How often should I invest to minimise fees?

How regularly you should invest depends very much on how much you earn and how much you save each week.

Benjamin says and his partner are saving $200 per fortnight ($100 per week).

The first investment sweet spot with NABTrade is $5,000 . For any and all trades made that are worth less than $5,000 NAB will charge you $14.95. It doesn’t matter if you want to buy $200 worth of shares or $2,000. That will be $14.95 thanks!

To maximise the bang for your buck and minimise fees you want to save up as close to $5,000 as possible before buying an ETF and hit that sweet spot.

At $100 week this means that Benjamin should be buying an ETF once per year in order to minimise fees paid to NAB.

Let me anticipate your next question Benjamin

But what do I do with the $100 I am saving each week if I can only buy an ETF once per year?

You put it in your High Interest Savings Account Benjamin. And don’t be tempted to touch it throughout the year. Remember you are for your financial future – so show some restraint!

Got a question you want ETF Bloke to answer? Drop me a line

Susie – who is clearly not here to fuck spiders – asks:

What kind of portfolio returns are you averaging with your investment mix?

I like a woman who is straight to the point.

And with the follow up:

Are you independent of Vanguard?

Let me address the second question first because it’s a piece of cake.

Vanguard Independence

I am completely, hopelessly, 100% independent of Vanguard and all other ETF providers.

Consider me the Solo Man of Australian Finance.

I write as ETF Bloke because I love youse all, not because Vanguard (or anyone else) is putting me up to it.

I write to help educate other Aussies about ETF’s and hopefully give people a few tips that they can use to better their financial futures.

The About and ETF Bloke’s Portfolio pages give some hints as to my background and motivations so have a read to satisfy your curiosity.

But remember at the end of the day I am just a normal bloke and none of what I say on here constitutes financial advice. You should consider getting independent advice that is specific to your personal situation.

ETF Bloke’s Portfolio Returns

Alright Suze, I’ll show you mine if you show me yours.

Portfolio returns since inception are 11.61% for the ETF Bloke portfolio.

Returns are real after taking into account management fees. ETF fees are reflected in the price that each ETF trades at on the market. You don’t have to do any fancy calculations to figure out your returns less management fees.

Below is how the portfolio looks in Sharesight, which is a program I use to track my total returns. Sensitive information has been removed of course!

And to my earlier point on independence, I don’t just hold Vanguard ETF’s in the portfolio. I also have one ETF from BetaShares and one ETF from iShares.

Most of the return has been from Capital Gains rather than Dividends. This is because the ETF Bloke portfolio is comprised of mostly international stocks and bonds.

International stocks tend to focus on capital gains due to tax advantages, whereas in Australia we focus on dividends (also due to tax advantages!)

When broken down into individual holdings the returns look like:

• VGS – Global Shares – 13.16%
• VAS – Aussie Shares – 11.17%
• IJR – US Small Cap – 9.98%
• VAF – Aussie Bonds – 7.31%
• VBND – Global Bonds – 5.56%
• VGE – Emerging Markets – 4.10%
• AAA – Cash – 1.91%

This ETF investing stuff goes alright.

OK I’m done, now it’s your turn Suze.

You know where to contact me.