More on Retirement Superannuation





Hi folks

Not too long ago I did a post on Superannuation showing the product I use, the why and the how.

Since that post, I have had several emails from readers about how my Superannuation approach compares to Dave Ramsey's investment approach. I love much of what Dave Ramsey stands for and especially what he is helping others achieve with regards to debt busting, money literacy and investing. Much of Dave's core principles he has made freely available on his website.

So, to answer all those emails asking how to emulate Daves's investing approach in the Australia market, I have come up with the following investment portfolio which takes Dave's U.S. concepts ..... but applied in an Australian context. There are significant differences to international tax treatment, dividends, franking and taxation of dividends in Australia compared to the U.S., not to mention that Australians have quite limited access to certain stocks, mutual funds and index funds compared to our U.S. readers.

Mr Home Maker's Australian Superannuation Portfolio

Very simply, we need to be able to access funds and stocks that fulfill the following four categories in an Australian context:

 1. Growth and Income
 2. Growth
 3. Aggressive Growth
 4. International

You will need a superannuation fund that allows you to trade stocks and funds inside your super. See here for details of the one I use.

I think the following interpretation may be a fairly good Australian equivalent to the concept Dave Ramsey illustrates in his four fund method of investment :-

 1. Growth and Income
These are good quality companies that are reliable and show continued long term growth and also pay reliable dividends that are 100% franked for potential excellent tax benefits. Old-school LIC's and Conglomerates would fit this description perfectly.

The ones I use in my super are Argo, AFIC, Milton and Washing H Soul Pattinson . 

I would allocated 10% of my portfolio to each of these 4 stocks thus giving this growth and income category a total of 40% of my total Superannuation portfolio. Dave Ramsey only says to allocate 25% to this category, but this is where Australia has superior dividend payments and superior dividend tax treatments compared to the U.S. hence my higher allocation to this category compared to Dave's.

2. Growth
These stocks capture small or medium sized companies outside of Australia (because Australia is such a tiny percentage of the world stock market). In particular, we are talking U.S. small and mid-sized companies showing strong growth trends but not necessarily much dividend yield.

The ones I use in my super now are ETF's  from Blackrock's iShares : IJR and IJH

I would allocated 10% of my portfolio to each of these 2 stocks thus giving this growth category a total of 20% of my total Superannuation portfolio. Dave is not keen on ETF's and prefers mutual funds, however in an Australian context these are very strong ETF's with very reasonable underlying costs.

3. Aggressive Growth
These stocks can provide both fantastic wins and some really volatile ups and downs - but very worthwhile having in your Superannuation portfolio.  These stocks are from emerging markets all over the world. Emerging markets are where very exciting new markets and booms are discovered.

The ones I use in my super now are emerging market ETF's: Vanguard's VGE and iShare's IEM

I would allocated 10% of my portfolio to each of these 2 stocks thus giving this aggressive growth category a total of 20% of my total Superannuation portfolio. Dave Ramsey is not keen on ETF's and prefers mutual funds, however in Australian, mutual funds with reasonable fee structures and good liquidity can be tricky to source compared to the abundance of offerings in the U.S.

4. International
Australian stocks only represent a tiny percentage of the global share market so it makes sense to ensure our portfolio is taking advantage of all the solid gains and buying opportunities on offer across the rest of the world. To Dave Ramsey, "International" means everything except for U.S. company stocks - however, for Australians this is obviously very different. Seeing as the U.S. has a huge percentage of the world's big companies it is important that this category sees Australians tapping into these non-Australian stocks.

The ones I use in my super now are world ETF's both hedged and unhedged: Vanguard's VGS and VGAD.
Both these are domiciled in Australia which immensely simplifies all the tax agreements between countries and both target the top strongest companies world wide. Approximately `60% of the underlying stocks are top U.S. companies and the approx. 40% of underlying stocks are all the other top companies across the rest of the world (excluding Australia).

I would allocated 10% of my portfolio to each of these 2 stocks thus giving this international category a total of 20% of my total Superannuation portfolio. Dave Ramsey prefers mutual funds, however in Australian, mutual funds with reasonable fee structures can be hard to easily source compared to the wide choice of offerings in the U.S. (Our U.S. readers have a massive array of shares, mutual funds, retails funds, wholesale funds et al to choose from when making investment choises - I'm very envious actually)




So there it is -  that was Mr HM's attempt at creating an Australian version of Dave Ramsey's four-portfolio investment fund approach. I'm not sure Dave would approve .... but you never know - ha ha!


Please remember, I am not a qualified financial planner, so always do your own research.  I have placed links all through this post on all products mentioned  - simply click on the bolded words in the post to help with doing your own research.

With significant volatility now very evident in the stock market right across the world, there will be some very cheap stock prices and funds mentioned in this post happening - it is a wise buyers market as we speak.


Take care folks and stay nice.

Mr HM (Phil)

Comments

  1. Nice roundup Phil. Pretty well balanced portfolio that creates overall in my view.

    Any reason for VGS hedged and unhedged? I would probably just go with unhedged. The distributions from the hedged fund are extremely volatile for some reason. I'd prefer to accept any currency fluctuation and go with the lower cost, easier to understand VGS.

    I hold some VGE in my super also, but just 10% allocation. I'm leaning towards making super all International, while holding all Oz outside super.

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    Replies
    1. The reason for VGAD is to bring into play some (but not total) currency hedging especially against possible hyperinflation with all the different currencies' fluctuations within VGS playing against the $A differently. Interestingly enough VGAD has performed better than VGS over the last few years. Nevertheless just doing VGS would be fine by me too.

      I have mulled over what sits best inside super - so many 'takes' on that, but at the end of the day it comes down to individual circumstances hey. Franking credits inside Super are even better than outside super for those who are still on a high tax bracket income, but the opposite is true if you have retired early and they are your only source of income outside of super. Course for horses.

      The real purpose of this post was to try (!) and translate Dave Ramsey's investing approach into an Australian context - US and Australia are so uniquely different and it is not always easy to find exact equivalents.

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  2. Hi there,

    What are your thoughts on Acorns? Started a couple of months ago as my first step into shares. Have now bought AFI and MLT to start off if. But not sure if I should get rid of Acorns and purchase ETF’s on the share market.

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    Replies
    1. I think the simplest way to answer this is to go to the post I did not too long ago specifically about Acorns. Here is the link https://mistahomemaker.blogspot.com.au/2017/12/acorns.html

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  3. New follower here, I Just found your blog,
    enjoying reading some posts :-)

    Blessings, Renee
    https://homekeepersjournal.blogspot.com/

    ReplyDelete

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