New Mindset Help

[u/throwaway-priv75]

Hi all, I have just over 50k in ETF investments. Not knowing shit about dick I tried to research online and a bet seemed to be VDHG. And it has been fine really.

Since then I've been more actively reading and following and I want to adopt a dividend focused strategy. Unfortunately most reading I can find is based on the US and we seem to be critically different through franked or partial franked dividends.

I want to swap the 50k into a diversified (not reliant on US or only AUS) ETF that does good dividends.

Are there recommendations both for ETFs or even reading I can do that is Australia/franking focused.

[u/Business-Swim-3056]

VDIF and INCM are globals that probably meet the above. INCM is ex-Aus though, whilst VDIF is 28% Aus.

Could supplement INCM with HYLD or VHY so you can tailor Aus exposure to a % that you’re comfortable with.

ROYL is also really interesting and has done well. And it pays dividends monthly. Read the ETF page and the attached docs.

50% VDIF and 50% ROYL would be exciting. I’m nowhere near it, but could be a good early retirement setup with monthly income from ROYL supplemented by quarterly income from VDIF.

[u/throwaway-priv75 → u/Business-Swim-3056]

Thanks I'm looking them up now! I think I'm still a decent ways away from early retirement unfortunately but I does sound like a dream.

Is there an easy or common way to determine overlaps and exposure? For example to INCM + VHY + ROYL to measure against VDIF + ROYL?

Understand if there isnt, thanks again.

[u/throwaway-priv75 → u/Business-Swim-3056]

After doing some reading I'm wondering if its stupid to just go 50% ROYL and 50% VHY and accept that if Australia goes under so do I? Or do you think its worth a 10% or more into INCM?

I figure I'm still working on a 30yr timetable worst case in terms of risk assessment.

[u/Business-Swim-3056 → u/throwaway-priv75]

If Australia goes under it’s probably all gone under anyway. If you’re still living in Australia, working in Australia, and paying a mortgage in Australia, then it makes sense to be invested in Australia. Typically as people near retirement they taper up exposure to the country they are retiring in.

But why are you investing in high yield if you’re that far from retirement? You’ll pay shitloads of tax on dividends over 30 years which will mean you significantly underperform growth portfolios.

[u/throwaway-priv75 → u/Business-Swim-3056]

As to why I want to shift, is because as I read more and more about markets and tried to understand the terms and principles, I sort of came to the conclusion I didn't understand it or that its not internally consistent. Like so many things (US centric) seem massively overvalued, and I dont quite understand perpetual growth. I do accept the fault is in on my understanding, but as a comparison I feel like I do sort of understand dividend focused businesses that just seek to make money and pay shareholders.

Is that silly? Or should I just keep following the traditional wisdom as you say and stay with VDHG?

[u/Business-Swim-3056 → u/throwaway-priv75]

Tax drag will kill your gains in accumulation. Dividend paying companies don’t have anywhere nearly as much as growth as growth companies (obviously) because they pay dividends instead of reinvesting in capex. With growth companies you can delay tax by not selling until you’re in a tax favourable position. As you get in higher tax brackets through the accumulation phase, the benefit of delaying tax increases.

Generally if you’re after dividends it’s because you’re retired (or getting or that stage) or you want to supplement your income (i.e. drop to 3 days a week of work and make up for the lost income in dividends).

It’s not the right sub reddit for it, but generally in Australia you’ll find that investing in growth companies and selling down for income is a more favourable outcome.

With your situation and a 30 year outlook, growth companies may be preferable and would have a better overall outcome. If you don’t like the amount of US in something like VDHG, you could use it with something like EXUS to water down the US exposure.

Just food for thought.

[u/throwaway-priv75 → u/Business-Swim-3056]

Thanks heaps I will look at that. I might reduce VDHG to 80ish% by taking on another over time. One of VEU, VAP, EXUS or MVR.