Hi,
I am looking for the cheapest way to invest in an ETF/Index Fund. Vanguard/STW are some a thing that I am familiar with.
Basically want an automatic investment on say fortnightly basis @ the lowest cost, because that is the only item we can control when it comes to index investing.
This approach would be too costly, as either you need to pay the advisor, or they will get paid by the fund, meaning it would charge you much higher annual fees.
Of course need to pay adviser. But op seems want easy ways. I gave 2nd option anyways
But then you have to pay brokerage each time.
Even if OP deposits $2000 a month that is still a 1% fee if brokerage is $20.
If they use a fund that fee disappears.
@mskeggs: ok managed fund is good too. I have both. Also non unitized managed portfolio is you want to keep ownership of the underlying shares (franking credit from dividend )
@dragonindespair:
Yes, I am not sure how Vanguard deal with passing through franking credits. For income shares they are a big part of the benefit, but I’m not sure how they can reasonably pass through the credits to a pool of investors.
Do your funds claim the credits against other unfranked dividends? I imagine that must be a admin nightmare as they would end up with either an income tax credit or liability, I don’t know how that is treated.
I should know this!
@mskeggs:
This article says the franking (presumably net of other unfranked income) is passed through in Vanguard ETFs
https://www.morningstar.com.au/etfs/article/harnessing-ETFs-…
This is very important and I am surprised it isn’t more heralded.
I don’t hold any, so haven’t had to think about it previously, but if I was a self funded retiree or otherwise dependant on the after tax income it would disqualify a fund that didn’t pass these through!
Good on you for raising this important consideration.
It depends on the dollar amount you want to contribute each time.
Before ETFs came along, Vanguard made its name with low fee index funds that do exactly what you want. After a minimum investment you can add small extra deposits with zero fees.
This isn’t traded via the ASX, so there is no brokerage, just the management fee you pay anyway. I haven’t looked recently, but from memory you needed $2000 initially. They may charge a small deposit fee, but likely less than brokerage unless you are depositing a large regular amount.
Go to their Aussie web site to see what they offer under index funds instead of ETFs.
It is the same underlying investment, just a different approach more suited to regular small investment deposits.
This is what superfunds usually invest in, rather than ETFs, for example.
You might ask why have ETFs at all, but they are the better option if you want to trade in and out of the investment, but that isn’t what you are looking for.
For example, this is their ASX300 index fund:
https://www.vanguardinvestments.com.au/retail/ret/investment…
$5000 minimum to open it, but then zero fees for extra deposits. Annual fees 0.75% or lower.
Also see here for a fuller description:
https://barefootinvestor.com/how-to-invest-guide/index-funds…
If $5k is too much to start with, I would suggest saving in a normal bank account until you have at least $2000, then you could buy into an ETF, repeat again until you have the $5k, then sell out and move the money to the fund so you can continue to make small contributions with no fees.
It would be too expensive in brokerage to buy less than that each time.
Also note the ETFs charge management fees too, but usually a bit less because they don’t have to manage the transaction as it happens via the ASX. If you end up with $100k or similar, it would be wise to take out $95k, and buy the ETF, but keep the fund open to keep accepting your smaller regular contributions.
Thanks mskeggs,
What is the process to open and maintain an account with this index fund?
Also, is their 'buy in rate' a rate that I could theoretically paper-trade?
Final question, who's name would you out it under in terms of franking credits and capital gains at cash out time?
Better read the PDS, and look into it.
The historical prices are usually on their website too, but as it is index linked it will follow it very closely.
I’m happy for you to put my details when cash out time comes. ACC number and BSB are in my profile, but I will also happily take PayPal, bitcoin or cash.
save up and buy ~$5k at a time, through an online broker.
Don't go to a financial adviser, they will rip you off.
I have heard good things about Self Wealth. $9.95 per trade and your first 10 trades are free. Agree with saving up a decent amount, then trade, rather than incurring trading fees every fortnight. Perhaps you could do the fortnightly transfers into a "high" interest savings account until you reach $5k or so.
I wouldn't go so far as to say a financial advisor would rip you off, but if you already know what to do with your money, I agree there isn't much value in engaging one just to make the trades.
Use Acorns app if you want something lower value (even if it's an interim parking lot before you move it into other ETFs etc). They have a range of investment risk profiles. I pulled 12% last FY off it, so better than a savings account! I think the monthly fee is about $1.50 for under $10k (check this - not sure).
I think Acorns is a great way to passively save money that is somewhat invisible to the user, but I feel the expense ratio is too high. I would only recommend Acorns if you have trouble saving and only expect to invest low amounts (as toristo did mention).
It's also quite hands off - you don't need to research stocks and know about the stock market right? I think that's also a big appeal factor there.
Annual fee is 6%!! For the median user.
For some people, this will still be good value if it gets the momentum. Agree, this is 10x more expensive than alternatives, but if it's the difference between saving and not (and you're generating a return above a savings account, I don't see it as an entire deal breaker).
Go to financial adviser and ask access to an investment platform that has automatic investment top up feature ie every week or month they debit your cash to buy xxx.
Or just open commsec account, set reminder in google calendar every 2 weeks to buy xxx.