When I talk to self-directed SMSF trustees their excuse for not diversifying more from Aussie Shares and Term Deposits was that it was difficult to understand some sectors and to get a decent diversification without building a huge portfolio of stocks, unlisted managed funds, bonds, hybrids etc. They hated application forms especially for SMSF investments but they have been reluctant to use a platform despite my argument that often a platform was a useful vehicle. Most just are not interested in another layer of fees for their SMSF. Each to their own so I left the argument there. However now the mountain is coming to them!
The following is general information and not a recommendation, you still need to do your own research or get advice for your personal circumstances.
In November 2017 Vanguard Australia finally launched a suite of four exchange traded funds (ETFs) that provide greater access to their leading diversified portfolio strategies. This will make SMSF and personal investing a far more accessible and transparent option for many and ultimately help them achieve their financial goals at a lower cost, easier reporting and with less paperwork than currently. They offer a great opportunity to develop a well simple, market leading diversified core to your portfolio.
The four Vanguard Diversified Index ETFs build on their extensive suite of ETFs and unlisted Managed Funds, and are one of the first ETFs allowing investors to gain diversification across and within all major asset classes, while making a clear choice about how much risk they take on. I would argue that AMP’s DMKT and Schroder’s GROW do this to some extent but not at this low a cost as they are actively managed an many might think they are a good blend with Vanguard’s new range.
The conservative (VDCO), balanced (VDBA), growth (VDGR) and high growth (VDHG) ETFs offer investors simple, single trade access to Vanguard’s global expertise in portfolio management and asset allocation, with annual investment costs at just 0.27 per cent. Yes that’s only $2.70 management fee for every $1000 invested in a diversified portfolio, wipe the floor of many industry and retail super funds.
Each Diversified Index ETF is a share class of an existing Vanguard Diversified Index Fund, meaning ETF investors can tap into the benefits of an established asset pool, collectively worth more than $7 billion, through Vanguard’s existing range of non-listed multi-asset funds. Vanguard’s Diversified Index Funds consistently rank in the top quartile of performance with their peers over three, five and 10 year periods, according to Morningstar.
Yes you are giving up some transparency and control but I believe you can rely on Vanguard’s investment experts to continuously assess their portfolio’s exposure and periodically rebalance it back to its intended level of risk.”
Each Vanguard Diversified Index ETF provides investors with extensive global exposure to around 6500 individual companies and more than 5000 fixed income securities.
Just in case you have not heard of Vanguard, here is a little detail to help build a picture of their strength and reach:
The Vanguard Group, Inc.: Key facts and figures*
| Founded | 1975 |
| Total assets under management | AUD $5.9 trillion |
| Funds offered | 180 in the US, and 190 funds in markets outside the US |
| Ownership | The Vanguard Group, Inc. is owned by its US-domiciled funds,
which are owned by their shareholders. |
| Headquarters | Valley Forge, Pennsylvania, USA |
| Chairman and CEO | F. William McNabb III |
| Number of employees | About 15,000 worldwide |
Vanguard’s Investment Strategy Group, a global team of researchers and analysts, set the asset allocation of the diversified funds as part of a robust framework used by Vanguard globally. This framework includes analysis of concentration risk and currency exposure, and incorporates comprehensive modelling generated by Vanguard’s proprietary forecasting engine, the Vanguard Capital Markets Model.
Full details about Vanguard’s new Diversified Index ETFs can be found at www.vanguard.com.au/diversifiedETFs.
Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make 2018 the year to get organised or it will be 2028 before you know it.
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Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Reginald
/ December 3, 2017A few issues however:
1. Internal rebalancing can result in unwanted CGT. Fine if in Pension mode but less so for Accumulation.
2. Vanguard periodically change asset allocation based on their forecasting model. What you sign up for initially may change to an unsuitable allocation. Major changes occurred recently.
3. An investor may want to change their asset allocation as they get older eg to more conservative. The product has no flexibility to do this.
4. If one needs to sell units to fund pension it results in all asset classes effectively being sold which may include shares during a crash. That is the Shares would be sold at the worst possible time.
Of course the impact of some of the above especially in relation to CGT will depend on whether in accumulation (part / full) or Pension mode.
Ideally best to invest in separate asset class ETFs eg VAS, VGS, VGB etc. Rebalance relevant asset class with new cash in accumulation. Sell outperforming asset class for income in retirement. Potentially better tax outcome, performance and greater control and flexibility over asset allocation.
Trouble is the above would appear a better alternative if behavioural issues didn’t play such an important role in investing. In which case some investors would likely do better being in a Vanguard Diversified ETF if for no other reason to protect them from themselves!
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SMSF Coach - Liam Shorte
/ December 3, 2017All valid points, especially on cash drawdowns which should be catered for within any portfolio and investor behavioural issues. These ETFs would only be a core to a portfolio.
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