ETF and index funds question

Hi

Ill be starting some investing in July when my term deposit and all my debts will be paid in full. I've read the following and have a few questions.

- The little book of common sense investing by Bogle
- The intelligent investor by Graham
- The barefoot investor by Pape

1/ In Bogle, he strongly encourages the use of Index funds instead of ETF. I cant find any index funds in Australia except for Vanguard index fund which charges a 0.9% fee. Are there any low fee index funds that mirror the whole ASX or am I stuck with VAS from vanguard for the Australian share proportion of my plan.

2/ After research, my long term growth plan (10+ year plan to save for $200,000 house deposit) might be as follows in a passive investment.



Are there any glowing issues in your opinion with the following.

3/ When dividends get reinvested automatically do the leftover stays with the company or broker for further dividends later or paid to the investor.

4/ Info on me

I've made many mistakes in life and am now 30s, but have a safe full-time job in retail paying $40,000pa and will keep $6,000 emergency funds in my bank account. To fix my career and future potential I'm doing university part-time in commerce with a 6.8gpa with 3 more years left to graduate.

Thank you for your time

Mandrull said:

Hi

Ill be starting some investing in July when my term deposit and all my debts will be paid in full. I've read the following and have a few questions.

- The little book of common sense investing by Bogle
- The intelligent investor by Graham
- The barefoot investor by Pape

1/ In Bogle, he strongly encourages the use of Index funds instead of ETF. I cant find any index funds in Australia except for Vanguard index fund which charges a 0.9% fee. Are there any low fee index funds that mirror the whole ASX or am I stuck with VAS from vanguard for the Australian share proportion of my plan.

2/ After research, my long term growth plan (10+ year plan to save for $200,000 house deposit) might be as follows in a passive investment.

View attachment 69775

Are there any glowing issues in your opinion with the following.

3/ When dividends get reinvested automatically do the leftover stays with the company or broker for further dividends later or paid to the investor.

4/ Info on me

I've made many mistakes in life and am now 30s, but have a safe full-time job in retail paying $40,000pa and will keep $6,000 emergency funds in my bank account. To fix my career and future potential I'm doing university part-time in commerce with a 6.8gpa with 3 more years left to graduate.

Thank you for your time

Click to expand...

As usual, not financial advice blah blah

1) Bogle's argument is a bit subtle - he advocates funds over ETFs because people tend to overtrade them. Performance from a buy and hold perspective is the same.

Here's a chart of 3 lines
- Vanguard Aus shares Index Fund (Retail fund: 0.9%)
- Vanguard Aus 200 ETF ( VAS AU: 0.14% fee)
- ASX 200 Index

Equalized at May 2009 which is when the Vanguard ETF started trading
Can you guess which one is which?



Over the longer term, the 0.14% ETF definitely wins out though

2) Allocations look alright, although it might be worth considering leaving the cash component in a high interest account rather than the bond ETF. That way you have access to cash if you need it while earning comparable rates of interest. With rates at historic lows, 0.2% management fee will eat up a good chunk of the bonds ETF.

3) If you choose div reinvestment with a fund, there is no leftover. You'll get decimal places on the number of your units. With ETFs, the balance is left with the ETF provider and is added to your next div/DRP.

4) Better to make your mistakes in your 20s and 30s when you're still young! Good luck

Even though you got a solid plan, might be worth speaking to a financial adviser if you havent already. A small fee now can save you lots down the track, though take what they say with a grain of salt!

Thank you for your reply, much appreciated. Eased my concern on the ETF from the Bogle book and have found a 3%pa bank account (which is higher than my term deposit) to store cash instead of the fixed interest until my share balance and interest rates improved.

ETF's dont provide any out perform exposure, no one makes any real money with ETF's i mean fine if you already have money and want some divs and conservative growth but there is no spectacular potential.

Another option is to create the 'market' portfolio yourself and not pay the .14% per year every year for the rest of your living life...

Personally I'm not keen on bonds at the moment simply because interest rates in much of the world are at or near all times lows going back throughout entire recorded history.

How much lower can they really go?

And what's the risk that rates go up and the value of your bonds drops accordingly?

In my opinion the risk is too high relative to any likely benefit of being in bonds versus cash. So I'd seriously consider a simple bank deposit in an interest paying account as an alternative for that part of the portfolio.

The above is just my opinion - I'm not a professional financial adviser etc.