Investing For Income - A Lost Art?

Once upon a time, investing specifically for drawing an income was pretty much the standard way to invest in the stock market.  Things have changed however both with investor styles and how businesses deal with their profits. Nevertheless investing for income (return), while no longer 'sexy' is still an important investment approach.

We've all known or read about times past when widows lived comfortably off their Merrill Lynch accounts or similar - all down to a lifetime of investing by their late manager husbands/fathers (yes, back in the era of the single male breadwinner) who inevitably died of the then ubiquitous heart attack in their very early 60s. However, this returns-for-income investing approach seems to have gone out of vogue nowadays (the investing part I mean, not the heart attack part!).

These days, investing for pure growth rather than returns is much more in vogue ..... and for a long list of valid reasons that I will not delve into at all in this post. Day trading and stock growth watching over the last 30 years have certainly encouraged growth-investing too (just look at the news and see what it shows - that's right, growth and stock value fluctuation). Investing for growth is all very front-of-mind these days.

However, consider for a moment  the benefits of investing for income returns - as follows:

• Dividends still pay despite stock value
• Fluctuations in stock value are less important
• Dividend franking (paid company tax) is highly desirable for personal tax purposes
• Dividend reinvestment can be entered into 
• 100% dividend franking (fully prepaid company tax) is achievable
• Provides a regular income for those requiring it
• Flexibility to either reinvest the dividends or take them as cash 
• Allows your portfolio to be either growth or return focused (see previous point)

I personally have 1/2 my portfolio geared to income returns via dividends and deem this as the conservative and stable part of my portfolio (I'm not a believer in bonds as true long-term investments). Luckily, Australian companies pay much higher dividends on average to non-Australian companies thus making the dividend/return approach to investing very achievable for Australians. 

Now I am not a financial adviser, so definitely do your own research on the topic. I only write this to encourage you all to research and get interested in investing wisely the old fashioned way ..... at least in part.

Take care folks and stay nice

Mr HM (Phil)

My Personal Spend Nothing Challenge

Hi Folks

I have been impressed over the years at some people's efforts with their personal spend-nothing challenges. So it is time for me to bite the bullet and challenge myself on this too. I think I am ready....ish.

I have decided to only challenge myself and not the family as I see myself as the most struggling of recovering consumerists within the family.  This challenge will help me overcome some more consumerist demons within.....I'm hoping. It just may build some self discipline muscle (!).

A full year spend-nothing challenge is way out of my realm of ability to tackle up front, so instead I am going to do it step by step. Here is the initial plan.

1. One full week spending nothing
2. One fortnight spending nothing
3. One month spending nothing

After that, any longer stints will have to be discussed with my family as it will impact them unless they are aware. I have not told them about this initial set of challenges - I wonder if they will notice?

By spending nothing I mean - spending nothing on myself or any purchases outside normal bills and household expenses. Yes, I know, it is a fairly soft version - but horses for courses to start with you know!

I'll keep you all posted.  First one starts Monday!


Take care folks and stay nice.

Mr HM

Exciting News - VANGUARD AUSTRALIA

Hi Folks

Three days ago Vanguard Australia launched a suite of new products. These products are a game changer for Australians in my opinion.

Check out this article from the Financial Standard

A beautiful 1940's dining room in an airBnB we stayed at recently

The new Vanguard suite has four Diversified Index ETF options:

1. Vanguard Diversified Conservative (VDCO)
2. Vanguard Diversified Balanced (VDBA)
3. Vanguard Diversified Growth (VDGR) 
4. Vanguard Diversified High Growth (VDHG)

Our US readers have had access to a long list of cheap US Vanguard offerings for many years now, however Vanguard's Australian arm are still growing and evolving. Generally speaking Vanguard are known as arguably the holy grail of investment companies world-wide and are committed to low costs and prudent investment policies.

Our airBnB 1940s bedroom - on the Hay Plains Australia

I have been looking at so many differing non-direct share/ETF options for investing outside of Superannuation including Robo Investors like Stockspot et al, Vanguard Australian Retail funds etc but the fees for these non-direct share/ETF investment products have been a little too much for my liking and thus I have defaulted to buying ETF's and LIC's directly which only incur the cost of the trade and the underlying MER (Management Expense Ratio - a fancy name for the inbuilt fee).

Whilst I may still stick with directly trading in ETFs and LICs (this is still the cheapest way), Vanguard Australia's introduction of these four new Diversified Index ETF's is a real game changer for those of us needing and wanting to invest but are too time/inclination poor (or even fearful)  to be mucking around building a portfolio. Choosing one of these four new options and investing regularly may just be the answer to the simplest way to build wealth outside of superannuation in Australia. Vanguard Australia has created a real game changer with these four new offerings.

A 1940s cabinet full of local jams, jellies and chutneys for sale

Theoretically I would choose the Vanguard Diversified High Growth (VDHG) option as the 90% growth appeals to my needs. 

Why?

• At 0.27% MER (for every $1 million invested you would pay $2700 yearly) this is a reasonable and fair fee for its excellent inbuilt growth diversification strategy using both international and Australian securities. 
• 90% growth assets and 10% income assets (potentially tax effective)
• Australian Domiciled, so no annoying international W-BEN8-E forms - it is all done for you by the fund.
• It's Vanguard - highly trustworthy company
• A full portfolio in one easy aggressive growth product.
• Offers DRP (Dividend Reinvestment Plan)
• I suspect these ETF's are subsets of Vanguard Australia's Wholesale Diversified Funds of the same name. If so, then the return, stock holdings and structure of these funds are excellent.

For Australians, two of the barriers to getting into Vanguard's Diversified Funds were the $500,000 minimum entry into their equivalent wholesale funds or the 0.90% MER on their equivalent retail funds.  These four new offering have instantly removed those two barriers ....well done Vanguard!

The 1940's fireplace with all the proper period utensils

Here is the link to Vanguard Australia here. Scroll to the bottom of the list and you will see them with "new" next to each offering. Also, Vanguard's write up here.

Of course I am not a qualified finance guy, so all this information has been for sharing and encouragement only and cannot be classified as financial advice. Do your own research! Oh, and I am NOT getting paid by Vanguard either.

Take care and stay nice

Mr HM (Phil)

1940's single twin beds

P.S. We recently stayed on the Hay Plains as we were travelling to Adelaide. We stayed in an air BnB all done out in 1940s style.  It was just wonderful.  I felt totally at home.  The post header picture is taken from Granite Island looking back along the jetty to Victor Harbor South Australia.

Superannuation - My Approach

Hi Folks

I thought I would share with you all my approach to Superannuation. Of course, I am not qualified or licensed in anything to do with finances, so do your own research before making any changes your end. My remarks are for encouragement only. If they spur anyone on to have a long hard look at their own superannuation scheme, its fees and its returns, then I will be very happy. You'll be bound to be simultaneously enlightened, bored and angered as you do your own research - I guarantee you of that!

All the photos in this post are from where Mrs HM
and I do our evening walk at sunset.

I have already mentioned some of my thoughts on Superannuation HERE - so I will not rehash these observations. Seeing as Australians are locked into toeing-the-line with this government legislated Superannuation set up, we may as well make the most of it.

Sharing my approach of how I'm making the most of my mandatory Superannuation contributions is what this post is about today. It is not financial advice, its just sharing.

Sunset at the breakwater

Who:

• Hostplus Superannuation 
• Choiceplus (Hostplus's back-end SMSF product)

Why:

• Very low fees (once you hunt through all the investment offerings)
• SMSF platform available (SMSF means Self Managed Super Fund)
• Very cheap fees for their SMSF platform
• Indexing option (a nod to Warren Buffet's investing advice)

What:

• Indexed Balanced Option (Beware - different to their default Balanced option)
• 75% Growth and 25% Defensive asset allocation
• Growth Assets are a mix of Australian and International Shares (developed and emerging markets)
• Defensive Assets are a mixture of fixed income and cash

and

• Choiceplus SMSF platform
• Direct investment into Australian shares (S&P/ASX 300 index)
• Direct investment into ETF's (a good selection of both International and Australian)
• Direct investment into LIC's (Licensed Investment Companies)  - a small reliable selection.
• Direct investments into Term Deposits
• Reasonable trading costs

 Fees - Hostplus:

• $1.50 per week = $78 per year flat administration fee
• Indexed Balanced - 0.07% of total holdings fee annually (Investment fee of 0.02% plus Indirect Cost Ration of 0.05% = 0.07%). This would equate to a yearly $700 fee per each $1 million invested.

IMPORTANT - if you were to just use the default Hostplus Balanced investment option, then the default fees would be 1.45% which would equate to a yearly fee of  $14,500 per each $1 million invested !! A massive difference in fees - and this is what happens to most people who have no interest in getting involved with their own Superannuation. Double check that info yourself however.

Fees - Choiceplus:

• $15 per month = $180 per year flat fee.

IMPORTANT - if you were to set up your own SMSF or get a company or accountant to assist, then the fees could easily run into the $1000's per year.  In my humble opinion, Choiceplus is a great way to run a share trading SMSF as you do not have to worry about any reporting or taxation requirements - it is all done for you. However, Choiceplus does not accommodate for any physical investment into real estate, you are only allowed to trade the products listed and available within Choiceplus. Double check that info yourself however.

Returns @ EOFY for Hostplus Indexed Balanced Option:

• 2017 - 10.3%
• 2016 - 2.2%
• 2015 - 10.8%
• 2014 - 14.4%
• 2013 - 18.7%

Investment Rationale:

Due to the rules within Hostplus and its SMSF platform (Choiceplus) I must hold 20% of my entire portfolio in the Indexed Balanced Option within Hostplus.  The remaining 80% I can use in the Choiceplus SMSF platform to trade with as I see fit.

Within Choiceplus SMSF, I can only hold a maximum of 20% of my portfolio in any single security. This means I need a minimum of 4 different securities within Choiceplus to satisfy this reasonable rule.  This is no bother to me however.

The six basic stocks that I currently hold in Choiceplus at similar $ amounts are:

AFIC
ARGO
VHY
VGS
VGAD
IVV

(click on the ticker symbol to take you to info about each)

As you can see I have a 50/50 split of Australian and international stocks. You will also notice that they all are Indexed ETF's or old-world LIC's (used before ETF's were invented). Half are dividend focused and the other half are growth focused. At this stage, prior to retirement I reinvest all dividends.

The major benefit of Superannuation is that only 15% tax is paid on investment earnings and pre-tax contributions (several limits/rules apply however). The other major benefit of Superannuation once in pension mode is that all earnings are tax and CGT (Capital Gains Tax) free. Having said that ..... many, many rules apply to both these major benefits (click the ASIC site for full details).

IMPORTANT - If you want to retire before your preservation age (my preservation age is 60 years old) then you will need to invest outside of Superannuation as all Superannuation funds are locked away till your preservation age. 


PDS:

• PDS stands for Product Disclosure Statement.
• Read every single word of any PDS's for your current Superannuation and any Superannuation you are considering moving to.  That are deeply boring documents yet also enlightening. 

Sand and rocks in a natural formation

So, again, I am not qualified in anything financial and I only share all this information to encourage others (Australians mainly in this case) to start looking seriously at their retirement Superannuation accounts. Potentially, you can save a motza in fees and have much more control over your obligatory government legislated contributions. If I can research and understand this stuff, anyone can!

Do your own research and obtain fair and unbiased professional advice if you need to. One of the very best resources of accurate free advice I know of is the ASIC site here.

Also, Hostplus are not paying me in any way for this post - I'm just openly sharing what I do and trying to break down taboos about talking about finances. Even though our particular dollar amounts etc are certainly our private business, we really are all in this together.

Looking back to the beach house

Take care folks and stay nice.

Mr HM (Phil)

P.S. The  figures and facts quoted in this post were taken from the Hostplus and Choiceplus PDS available at the time of writing this post. Please verify these for yourself.

Your Money Trinity

Hi dear folk

The triangle is of course the strongest geometrical structure known - three sides, three angles, immovable, yet each side and angle totally dependent on the other for its strength and effectiveness. Yet, remove one element and the strongest shape become 100% ineffective and weak.

The concepts of the triangle are used heavily in the realms of architecture and spirituality. The concept of the triangle is also vitally important in the world of personal finances.....or at least it should be.


Your Money Trinity

Our money trinity is simply this:

Wise Investments - Frugality - Earnings

Lets chat about all three elements, because, as we can see, each element also has three sides each too. If we understand even the simplest concepts of architectural engineering we will know that this shape is super strong and safe....push at it from any angle and it will not budge.

Please note that all three elements are of equal size and equal importance - keep that in mind as an underpinning principle.

Earnings

1.  Earnings should never be static. Find ways to increase earnings little by little. I have found that putting my hand up at work to do things no one else wants to tackle gets me noticed - it has served me well over the years.
2. Earnings should come from several streams. Having only one source of income is risky. Even if the other sources of income are smaller, that's OK - spreading income risk is the aim here.
3. Don't fall for the "do what you love" idealism. Instead, do what you are good at - this will guarantee the best possible income and opportunities over time.

Frugality

1. Find ways to continually reduce expenses. Shop specials, DIY, stockpile, use public transport, cook from scratch, turn off lights, choose free entertainment, stay-cation, sun-dry clothes etc. Make reducing expenses a game not a chore and involve the whole family.
2. A dollar saved is much better than a dollar earned. A dollar earned is taxed whereas a dollar saved is not taxed. Also remember that every dollar you save must get banked/invested. It is not truly a saving till it is banked or invested
3. Buy the best quality that you can afford. I would much prefer to buy a good quality gadget second hand with light usage than a cheap and cheerful gadget new. Do not confuse fashion with quality. Self-educate on what quality is in the product that we need before purchasing. The aim is to buy quality so it lasts and we only need to purchase once. Buying cheap and cheerful can often be a false economy.

Wise Investments

1. Invest as early as possible as time is the biggest key to good investing. Encourage children to invest starting at their very first paycheck or even pocket money. Small amounts invested repeatedly over time benefit immensely from the 8th wonder of the world.....compound interest.
2. Self-educate on investing. Understand the power and wisdom of index ETF investing, dividend investing, bond investing, dollar cost averaging, market fluctuations and buy-and-hold investments. Read all the copious and free information on the subject. You probably do NOT need to pay a financial adviser ever.
3. Good investing is slow, boring and repetitive. If it is exciting, addictive and nerve-wracking, then we are doing it wrong. If it comes with a glossy brochure or snazzy website, then don't. Do not day trade. 

Most importantly - equal time and effort need to be given to each of these three elements. Focusing only on frugality will make us miserly and cheap. Focusing only on investing is impossible without something to invest. Focusing only on earning more and more money is just plain dodgy.

A perfectly balanced approach to Frugality, Investing Wisely and Earnings is the foundation of fiscal prudence and wisdom.

This strong trinity of concepts will ensure our finances are safe yet abundant.



Take care folks and stay nice.

Mr HM (Phil)

P.S. I just loved the grey sandstone rock carved into a beautiful pattern by the wind and the waves.  I took this post header picture at the breakwater where we do our evening walks.

Starting Over At Any Age

Hi Folks

Plenty of folk have to start over again for many and varied reasons and the older they are the harder it is - some just give up and sink into the quicksands of poverty.

The younger we are when we have to start over, the easier it is - time is on our side if we are younger. However, starting over older means we have lots of life experience and can be ruthless about our needs and wants based on real life wisdom.

I just had to add another food photo - we eat very well at our house.

So let's not muck around - here are the best budgets (IMHO) for starting over by age. The percentages quoted are those of our NET income.


If you are starting over in your 20's - here's your budget:

 1. 20% Extra Debt Payments 
 2. 60% All living expenses and commitments 
 3. 10% Emergency Fund
 4. 10% Spend on whatever you want

Once all debt is paid, then revert to this version of the budget

 1. 20% Invest in low cost index ETF's
 2. 60% All living expenses and commitments 
 3. 10% Big spend items
 4. 10% Spend on whatever you want



If you are starting over in your 30's -  here's your budget:

 1. 30% Extra Debt Payments 
 2. 55% All living expenses and commitments 
 3. 7.5% Emergency Fund
 4. 7.5% Spend on whatever you want

Once all debt is paid, then revert to this version of the budget

 1. 30% Invest in low cost index ETF's
 2. 55% All living expenses and commitments 
 3. 7.5% Big spend items
 4. 7.5% Spend on whatever you want



If you are starting over in your 40's  - here's your budget:

 1. 40% Extra Debt Payments 
 2. 50% All living expenses and commitments 
 3. 5% Emergency Fund
 4. 5% Spend on whatever you want

Once all debt is paid, then revert to this version of the budget

 1. 40% Invest in low cost index ETF's
 2. 50% All living expenses and commitments 
 3. 5% Big spend items
 4. 5% Spend on whatever you want



If you are starting over in your 50's or older - here's your budget:

 1. 50% Extra Debt Payments 
 2. 40% All living expenses and commitments 
 3. 5% Emergency Fund
 4. 5% Spend on whatever you want

Once all debt is paid, then revert to this version of the budget

 1. 50% Invest in low cost index ETF's
 2. 40% All living expenses and commitments 
 3. 5% Big spend items
 4. 5% Spend on whatever you want

Roses - a simple delight

Some of us will look at this, snort, roll our eyes and say it is impossible.  It is not impossible.  In fact there are a whole community of folk world-wide living happily and meaningfully on budgets just like these - go find them and be encouraged.

The longer we stay in injury time-out mode, the longer and harder it will be to start over. Release the past without judgement, wish it well, smile, shoulders back and then take action. You're in good company.

Do it now - talk about it later.


Take care folks and stay nice.

Mr HM (Phil)

Worthwhile Money Reads

Hi Folks

Here are some sites and blogs that I read regularly in regards to financial matters.  All of them are very focused on educating the reader on all things financial, be it saving those pennies right through to investing wisely. Whilst the details may not be specific to your home country, the principles are globally true and utterly relevant - enjoy.

Our Christmas tree went up last night - feeling happy.

In no particular order (just click on the heading)

The Mad Fientist

Strong Money Australia

The Barefoot Investor

Mr Money Mustache

The Simple Path To Wealth (I'm currently re-reading his excellent Stock Series)

Aussie Firebug

All About Balance

Think Save Retire . com

My new glasses - 1940's style (my favourite era)

The beauty of all these writers is that they are DOING what they are writing about.  They all generously share the bulk of their content freely and engage enthusiastically with their readers.

Enjoy!


Take care folks and stay nice

Mr HM (Phil)

Bubble 'n Squeak

Hi folks

I just love bubble and squeak made from left-overs from the previous night's lamb roast.  All those lovely leftover baked veggies and scraps of lamb all fried up together make the perfect breakfast. So, we were shopping in Aldi the other day and lo-and-behold ..... pre-packaged bubble and squeak for $3 something per packet!  What the?!

Bubble and squeak is one of the epitomes of frugal living at its finest and now it has been commercialised. Fancy that.  I'm not surprised really I guess. We are now expected to pay for prepackaged leftovers! The world is mad.

So in the spirit of spreading a better message, here are some food photos that have been cooked from scratch at our place lately - you know how I love food photos.

Fried southern chicken with peach salad

Waldorf salad

Crispy skin salmon, chicken skewer, quinoa salad
and asparagus. 

Cooking from scratch not only saves huge dollars out of the budget, it is also a act of love and care for those for whom we cook.


Take care folks and stay nice.

Mr HM

An Elegantly Simple Investment Plan (Australia)

Hi folks

I have received a lot of comments and have also received plenty of emails enthusing about my investment musings here on Mr Home Maker. However, many of these comments and emails also express fear and paralysis about actually investing (AKA doing it as opposed to just talking about it!).

Again, I am not a financial adviser and the information I share now is purely for your encouragement in becoming more fiscally responsible. Absolutely do your own research and analysis please.


A Simple Elegant Investment Plan for Australians

•   50% invested in old Australian Licensed Investment Companies like Argo and/or AFIC.
•   50% invested in Vanguard MSCI Index International Shares ETF (VGS).

That's it folks - as simple and elegant as that. Uh huh.

Happy to answer any questions on why etc in the comments below for everyone's mutual benefit.

Take care folks and stay nice.

Mr HM (Phil)

Who's Behind These Products?

Hi folks!

Do you like the home made Arancini balls in the picture above? With a little patience, anything can be cooked from scratch at a fraction of the broughten price.

So anyway, here is a bit of a quiz:

Question: What do all the things on this list below have in common?

FaceBook

Ben and Jerrys (icecream)

H&R Block (tax agents)

Calvin Klein

Westfield shopping centres

Max Factor cosmetics

Goldman Sachs

SlimFast

TED talks

Valium 

Many generic pharmacy prescriptions

SodaStream
Stanley Black & Decker (power tools)
Dreamworks (movies)
Sandisk (usb memory sticks)
Max Brenner Chocolate
Power Ranger (action man toys)
Pentium and Celeron (computers)
Disney Company
Estée Lauder
Ralph Lauren

World Trade Centre (Sept 11)

Q-tips (cotton buds)

Levi (jeans)

Google

RSS (web feed)

20th Century Fox (movies)

Carnival Cruise Liners 

Hyatt Hotel

Four Seasons (resorts and hotels)

Cosco

U-Haul (removal rentals)

Jim Beam (whisky)

Visyboard (cardboard products)

Meriton (hotels/suites)

Bagels (as in bread)

Answer: They're Jewish ....owned and/or founded and/or invented.

A lovely fruit and homemade
 yoghurt breakfast

  Interestingly, the very fact that you probably will not be able to knowingly match a single Jewish name to any one of these things reveals another interesting Jewish wealth principle viz. that Jewish folk promote their product to society not themselves. Of course there are exceptions when the product is themselves e.g. Jewish actors (the list is too long to write here!)

Jews believe in the morality of business. They believe in offering a service or goods to wider society as an act of being able to genuinely fulfill the needs of society. A product well placed in the lives of others is something to be proud of.....and the money earned are just notes of appreciation for the product from those who needed it.

My office....the kitchen table

Incidentally, the list above is rather small (I was just thinking of things Australians would know) - our USA and UK readers would be able to add another 100 products to this list easily.

Take care and stay nice!

Mr HM (Phil)