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Creating Freedom Through Financial Independence


How I Approach Superannuation as an Income-Focused Investor

October 19, 2019

A few readers have reached out to ask what I do with my super.

What approach do I take?  How do I invest it?  And where does it fit into our overall plan?

Which is fair enough, because my dividend-focused investing style is a bit different to some in the FI community.

So today I’ll answer all of those questions, and more!  Lots of juicy stuff to cover, so let’s dive in!


The history of our super

A number of years ago now, we were both working full-time and had typical moderate-cost super funds.  From memory, these were invested in the high growth option.

Roll forward to 2015.  It was becoming clear in our minds that investing for a growing dividend stream was going to be our way out of the rat race.  After getting over the most common fears about the sharemarket, that is!

We had started buying individual stocks, and receiving dividends.  Then we decided to do the same thing with our super.  I enjoyed looking at different companies and thinking about the future for each one.  And, at least on some level, I thought it was a worthy game to try and beat the market.

In those days, not many super funds allowed you to pick your own stocks.  These days most do.  Anyway, we switched super funds and got started.  Later on, our new super fund (ING) decided to engage in some old fashioned daylight robbery, and jack up their fees.

Given we’d already created the portfolio, we were reluctant to leave.  Especially as there was some capital gains tax owing.  At the time, we had only minimal knowledge of LICs or index funds.

So how did we go?  Well, some of our chosen companies did great.  Some did terribly.  And some did okay.  On average, our return was just okay, and almost certainly less than the market average.

As time went on, I learned more about low-cost LICs (and later index funds) and realised this whole share investing thing could all be made much simpler, for the same or better return (in my case).  Add to that, the conclusion that I’d rather spend my time and mental energy on other things.

A while ago now we decided to end the stock-picking experiment (in and outside super) and invest mostly in diversified funds for minimal fuss.  I realised as much as I like investing, I don’t want to be spending hours upon hours reading about different companies, for no certain payoff.

Earlier this year we sold everything in our super fund and switched from ING to a very low-cost fund.  We chose Sunsuper, and selected an allocation that suits us.  100% shares.  By the way, see a detailed look at low-cost super funds in this 3-part series by Pat the Shuffler.

On this topic, some low-cost super funds seem to use derivatives to get market exposure rather than true ownership.  I won’t pretend to know the ins and outs here, but if it looks too cheap to be true, it probably is.  Sunsuper is one which avoids this and actually gives you true ownership of the underlying investments, managed by Vanguard.  (Pat digs into this too by the way.)


Why 100% shares?

We chose 100% shares because this is likely to offer the highest long term returns.  Especially in the current environment of extremely low interest rates.  It minimises the drag on returns that I would expect cash and bonds to have over the long term.

Personally, I find it hard to stomach having money sitting around earning next to nothing.  But by not including traditional ‘safe’ havens like bonds and cash, this portfolio will be very volatile.  So that’s something we need to accept.

It could be debated all day whether going all-in on shares is a good idea or not.  That goes for a personal portfolio or a super fund.  Going 100% shares is really only suitable for people with a high tolerance for risk.  Or, more accurately, a high tolerance for volatility.

My view is, this money is not going to be touched for decades, so we don’t want or need to reduce the volatility of the portfolio.  And perhaps more importantly, given we’re already financially independent, we see our super as ‘bonus money’ anyway.  So if the market is way down when we can access it, that’s fine, we can wait it out.

Now it’s true that I’ve never been fully invested through a GFC-type scenario.  Many of us in the FI space haven’t.  So maybe my risk tolerance is less than I think.  Who knows?  But I do have conviction in my ability to stay the course.

Also, I’m not a fan of the traditional balanced funds that many super funds offer.  Even some of the very low-cost ones.

It’s cheap sure, but if I’m investing for decades, I don’t want 20-30% of this money in cash and bonds, sitting around sipping tea and doing bugger all, especially when expected real returns are zero!

I want it working as hard as possible.  There are definitely worse ways to invest, but that’s not for me.

We decided against a high growth fund, as these are higher cost and are invested in a less transparent way (many private assets and other investments I’m not familiar with).  There’s nothing wrong with this – I just prefer the simpler, lower cost, all-shares option.


What shares?

OK, so we’ve chosen 100% shares with Sunsuper.  But what shares exactly?  Here’s what we’ve gone with… drum roll please…

100% International shares – indexed.

Why did we choose this option?

Well, it’s very low cost.  All up, including the account fee, the total cost is around 0.20% per annum.  And this is for the developed-world international index, managed by Vanguard.

This is very similar to VGS.  Except Sunsuper tracks a slightly different index which includes small-cap stocks (VGS does not).  There are some other small differences but sector and country exposures are almost the same (within 1%).

Now, not all super funds offer indexed options, but many do these days.  It seems unlikely that super funds can pick a group of managers that combined will do better than the market average, after costs.


Why international shares?

Given my preference is to invest in Aussie shares for a strong and steadily increasing income stream, this might seem a strange move.  But here’s the idea…

We’re living solely on our Aussie-focused portfolio outside super.  Given the high dividend yield and franking credits in Australia, this gives us a solid level of tax-effective cashflow to live on, without having to sell shares or look at market movements.  We can just sit back, collect the income and get on with life.

But this leaves out a whole swathe of great companies that are based overseas.  Companies that many of us use daily – like Apple, Google, Facebook and Amazon.  Then there’s other household names like Disney, McDonalds, BMW and Nike.

So by making our super 100% international shares, we get to own a ton of profitable businesses around the world, without affecting the cashflow of our personal portfolio.  This also gives us a good amount of diversification next to our 100% Aussie portfolio.

Obviously, international shares are based in different countries and currencies.  So some of you are probably wondering if we chose hedged or unhedged?

We chose unhedged shares.  The main reason is, currency movements tend to even out over the longer term.  So leaving super unhedged lets it fluctuate with market and currency movements, and makes sense from a long-term diversification point.

As a smaller reason, if Australia and our economy falls behind the rest of the world over time, then our dollar could also be lower over the long run.

In that case, our international shares would be worth more in Aussie dollars, which would be valuable in this scenario.  And given we see our super as a bonus and/or backup plan anyway, unhedged seems to fit our situation nicely.

Admittedly, this stuff is not my area, so if you feel I’ve got this wrong please let me know!


The overall plan

OK, we’ve covered what we chose and why we chose it.  100% international shares, indexed, unhedged, for the long term.  And the main reason being diversification.

But given our super balances aren’t all that high, does it even matter?  I mean, combined we have a comfortable six-figure account, but it’s hardly huge.  Overall, this means we have around 15% of our total net worth invested in international shares.

Depending on who you are, that either seems reckless or perfectly fine.  Here’s how I look at it…

I believe the long term future of Australia is bright.  I’m taking the risk that our economy and sharemarket does poorly over the next 50 years.  That’s possible.  But I feel comfortable investing this way.  More importantly, I’m confident in our ability to deal with whatever happens in the coming decades.

In our situation, international shares is really another backup plan.  Some added diversification and extra cushion, compounding away in the background should we ever need it later on, which will come in handy if Australia goes backwards.  By the way, check out my 2-part article on Financial Independence backup plans here and here.


“But you’re not really working anymore, so your super won’t do much.”

With only one of us working part-time, it’s true that we’re barely adding to super at all.  But here’s what will happen over time…

We’ll live off the income stream from our Aussie-focused portfolio.  So the actual value of our portfolio will grow by maybe 2-4% per annum, as we consume all the dividends.

Meanwhile, our super will remain completely untouched.  This means it should grow at, say 7% per annum – a fairly realistic assumption for the long-term return from shares.  With this growth rate, our super will roughly double in value each decade.

Since our super will grow faster than our Aussie portfolio, it will become a larger part of our net worth than it is now.  So, our allocation to international shares will actually increase over time.  All without us doing anything!

At a guess, our super and therefore international shares would grow from 15% today, to around 25% of our net worth in 20 years time, with this slothful plan.

I think that’s pretty cool!  And this is what we roughly had planned to do anyway (add international shares over time), which I mentioned in this post on international shares.


“But this means you’re still reliant on Aussie shares for your income.”

That’s correct.  And I’m very comfortable with this.  If we weren’t happy with it, we wouldn’t do it!

The bulk of our income will come from low-cost LICs and an index fund.  And a smaller amount from real estate investment trusts (REITs) and Ratesetter.

I find it very hard to imagine that the Aussie economy doesn’t grow over the next few decades.

As a result, I find it equally hard to imagine Australian companies won’t earn more money and pay larger dividends than they do today.  As I said, I’m positive on the future of Australia for many reasons well articulated by Pete Wargent in our interview.

Keep in mind, we don’t need high returns to sustain our retirement.  Our investment income only needs to grow with inflation from here.  Actually, to be honest, it probably doesn’t even need to keep up with inflation, as we can manage our spending so that our living costs stay roughly the same.

Add to this the fact that both of us are earning at least some income since leaving full-time work.  And that we have our super compounding in the background as an added bonus for later on.


“But super is more tax-efficient, so the high-dividend Aussie shares should go in there, and the low-dividend international shares should go in your personal portfolio.”

I’ve heard this a few times.  And I get the idea behind it.  But I don’t really see it like that.  Let’s do some math and I’ll show you what I mean.

We’ll assume both Aussie and international shares will have a long-term total return of 7% per annum.  To represent international shares, we’ll use VGS.  And to represent Aussie shares, we’ll use VAS.

VGS current dividend yield: 2.4%.  Expected capital growth: 4.6% per annum.

VAS current dividend yield: 4%.  Expected capital growth: 3% per annum.

What are the tax outcomes of this?  Here’s a rough tally, assuming a 40% tax rate…

VGS.  2.4% dividend less tax of 40%, net dividend yield of 1.4%.  Capital growth untaxed.  Roughly 1% lost to tax.

VAS.  4% dividend less tax of 40%, net dividend of 2.4%.  Capital growth untaxed.  Roughly 1.6% lost to tax.

But the story doesn’t end there.  VAS dividends are around 80% franked, which reduces the tax owing, so here’s how it actually works in practice.

A 4% dividend fully franked is 5.7% grossed-up.  To get that figure you go, 4% divide by 0.7 = 5.7%.

This assumes the current 30% company tax rate.  So the full franking credit is worth 1.7%.

This means for VAS, the franking credit is worth about 1.4% (80% of the fully franked value).

At tax time, your 4% dividend becomes 5.4%, and the franking credit also counts as tax paid on your behalf.

Assuming a 40% personal tax rate, your net dividend will be around 3.2%.

This means roughly 0.8% of your dividend was lost to tax with VAS, compared to 1% with VGS.

This doesn’t mean VAS is better.  It means the idea that somehow the higher-dividend Aussie shares will kill you on tax is just wrong.

Our investor pays less in tax overall, due to our franking credit system and the tax-effectiveness of Aussie dividend payments.


“Well, what about inside super?”

How would these figures look inside super?  Let’s take a look.

VGS.  2.4% dividend yield.  Tax of 15% would be 0.36%.  Roughly 0.4% lost to tax.

VAS.  4% dividend yield.  Add franking value of 1.4%.  So for tax-purposes, grossed-up dividend of 5.4%, less 15% tax would be 0.8%.

The result is, no tax owing, and under current rules, leftover franking credits of 0.6% would be refunded.  

This seems to show that wherever you place them, Aussie shares are very tax-effective, despite higher levels of dividend income.

So I don’t personally buy the argument that Aussie shares are best inside super, and international shares are best in your personal portfolio.  But you can, of course, choose whichever suits you best.

Even someone on the highest tax rate of 48%, would see roughly the same level of tax paid on cash dividends.

VGS dividend of 2.4%, would lose almost 1.2% to tax.

VAS dividend of 4% would lose around 1.2% to tax.  (4% dividend, plus franking of 1.4%, less tax of 48%, leaves 2.8% net dividend).


Now you could say, “but franking skews the results!”

Of course it does.  That’s the current tax system we have.  How else should we be calculating it?  Under a tax system that is not in place?

It should be noted that over the last 100+ years, Australian shares have had strong performance, among the best in the world, completely excluding franking credits.

We don’t necessarily need that to continue, but an interesting point nonetheless.


“What about if franking credit refunds are removed?”

If that did happen, our franking system is still tax efficient.  Franking credits would still exist, just franking refunds would not.  So Aussie dividend income would still be tax-effective compared to many other income streams.

In fact, a couple could receive around $190,000 of (fully franked) dividend income and pay zero out-of-pocket tax.  Their portfolio could earn dividends of 4%, after-tax.  How does this work?

Each person receives $95,000 of dividends, fully franked.  The franking credit here is worth $40,000.  Grossed-up income would be $135,000, and tax owing would be around $40,000, equal to the franking credit.

Result: up to $190,000 of cash dividends received with franking covering all tax owing.

Dividend income from Aussie shares inside super would also continue to attract no tax, because tax owing (15%) is less than the value of franking credits (30%).

Yes, it’s likely the market would fall if refunds were scrapped.  That would mean a hit to our portfolio value, but it may mean higher dividend yields too.  Our strategy wouldn’t change.  We’re happy with the ‘cashflow’ approach in our personal portfolio and a ‘growth’ approach with our super.

Tax system changes is a huge topic in itself.  Things can change with any tax system in the world, in any asset class in the world, here and overseas, for wages and investments.

So there’s no real certainty whatever you do.  Tax matters, but should only be a secondary consideration in your investment plan.

Also, remember we’re in a very low tax situation, so we aren’t penalised by higher income investments like people working and paying loads of tax.


What does this all mean for you?

Well, maybe nothing.  You likely have a different life situation than me.

You may have a different outlook on the future of the world or Australia.  A different income, different tax rate, different time horizon, different investment philosophy, different thoughts on diversification or risk, and so on.

But if you plan to live on mostly dividend income from Aussie shares, consider making your super international shares to balance things out a bit.  In the end, only you can decide what’s right for you.

Personally, if I was beginning my FI journey today, our investment plan (including super) would probably be setup the way it is now.  One very important lesson I’ve learned is to keep things simple.  Avoid complexity and avoid aiming for perfection.

One thing I would do, is find out the total running costs of your super fund, and see if you can do better.  With an abundance of low-cost index funds today, your super fund should be costing less than 0.50%, for plain shares-and-bonds/cash portfolios (again ours is 0.20% for true passive ownership).



For our personal portfolio, I strongly prefer investments which pay a healthy income stream, so we can simply switch off and not have to worry about the markets.  I find investing for a growing dividend stream to be a low-stress and enjoyable way to create cashflow for early retirement.

But I respect the power of diversification and the dominance of many overseas companies.  So having our super invested in international shares, ensures a comfy backup plan should Australia fall behind over the long term.

Bottom line:  we’ve combined the benefits of Aussie and international shares in a way that makes sense to us.

The higher, tax-effective income stream from Aussie shares for us to live on.  And higher growth international shares to benefit from the success of global companies and provide increasing diversification in the background.

How does super fit into your FI plans?  Let me know in the comments.

By the way, I created an easy-to-use Dividend Tracker, which I use to keep a running estimate of our annual passive income after every purchase.  Click here to get it for yourself.


58 Replies to “How I Approach Superannuation as an Income-Focused Investor”

  1. Thanks SMA!
    Hey I’ve got a rookie question: I know it’s been answered in terms of percentage in previous posts but I don’t get it in terms of amount $: what is the max amount (yearly salary) that someone should be earning to be able to take advantage of franking credits? And what is the maximum salary that allows to take advantage of the reinvesting plans of AFIC and Whitefield?


    1. Cheers Rick. I’m not entirely sure I understand your question. Franking credits are handy no matter what your salary is. People earning high salaries ($100k+) will pay reduced tax on their dividends. People earning middle salaries $50k-$80k will pay very little tax on their dividends. And people earning less than $40k will pay no tax on their dividends and likely receive franking credit refunds.

      In terms Bonus Share Plans for AFIC and Whitefield, there is no maximum salary to participate. It generally makes sense for people who are investing in those LICs anyway and who have a tax rate well over 30% (for example, someone with a salary of $90k or higher who would be paying 37% tax. More here. You can also check the tax rates to see where you fit here. Hope that helps.

      1. Even though I see now that I didn’t formulate my question that well, you did understand my question, you’ve answered it well thanks!

        Perhaps my only remaining doubt is, what is the cutoff from where those reinvestment plans start making sense, as someone with low income wouldn’t be able to make the most of it (AFIC and Whitefield)? In other words, what is the gross salary that equates the 30% tax?

        1. No worries Rick. You’ll find that from the tax brackets here – – above $37k income is where you start paying 32%. Above $90k you start paying 37%. If your income is below $37k there is zero benefit from those special Bonus Share Plans and you’d be better with typical dividend reinvestment, as explained in the article about these plans here.

  2. Hi Dave

    In 2014, before I learn’t about FIRE (only really heard about it from your blog as it passed by my google feed), I was worried about placing all my money into superannuation only to have the rules change closer to my preservation age.

    To hedge against this problem I thought I would create a passive income through dividend shares and an investment property (probably sell when I’m not working) that covered our household expenses ($41000). I’m 45, high school teacher, married to a part-time working social worker, with one child. We own our own house in Sydney, currently out of debt with a passive income of $36,000, so we are getting close. Turns out we were working towards FIRE before I knew about the term.

    When we hit our presentation age we plan to use our superannuation for discretionary spending (and hip replacemets). The income outside of super for our household expenses.

    I’m not sure if this is the correct approach, but there is always going to be changes to superannuation, and my original strategy was a way to hedge for these changes.

    It turned out my thoughts about superannuation is what put me on a path to financial independence, and led me to your excellent blog.

    Keep up the great posts Dave, your motivation for FI fuels mine.

    1. Hi Mark,
      I’m just curious how you created a passive income of $36000? I just ask as I’m 41, a full-time teacher also, no dependants, but just decided to think about this more carefully after a relationship break-up. I’m not anywhere near that figure… Still owing $200 000 on a home loan and a small share portfolio.
      Cheers Nick.

      1. Hi Nick

        Sorry to hear about your relationship break-up. I hope you are doing well. BTW do you want me to slash her tyres? Wait, just kidding.

        In mid 2009 we paid off our home loan. From 2009 – 2013 we saved approximately $300,000 and were getting a good interest rate from the bank. That’s when I noticed the inflation rate going down and thought I better buy assets with the money and make it work for us.

        In 2014 we purchased an investment property, its in Glebe, Sydney for $540,000 and rent it short term furnished through a company. It has consistently returned 4.4% net yield. So it generates $24,000 (BTW I hate property and wish I only owned shares, can’t wait to sell it). I was also researching shares leading up to this point, including doing one of Peter Thornhill’s courses, and in the same year we invested approximately $160,000 in dividend producing shares. They now return $12,000.

        From 2015 to mid 2019 we reinvested/saved the dividends and saved our income with the goal of getting out of debt. We have now been out of all investment/private debt for three months now. I also started salary sacrificing the maximum amount during these years so I don’t want to sound like I have been neglecting my superannuation. My wife works part time so her level of income was saved instead of being put into super as it is not as tax effective.

        I would say a high saving rate has worked best for us. We don’t drink alcohol, gamble, have any subscription services or costly memberships etc. When we go out as a family we pack our own lunches and do low cost activities such as bush walking and free stuff in Sydney etc. Its all about reducing your expenses and buying income producing assets with your savings.

        My wife does like expensive holidays so I don’t want to sound like we are complete misers. We have done some awesome overseas and interstate trips over the decades.

        Dave’s blog is fantastic and is full of great advice. Its stories like his (I hope mine too since you asked) that can show people that FI is both a worthwhile goal and achievable.

        1. Wow this is a fantastic story Mark, really appreciate you sharing it! It’s a great example of living in Sydney and having a high savings rate, allowing you to build passive income without having a huge household income. I knew it was possible in Sydney 😉

    2. Thanks for that Mark. Many people share the same worries as you about super being changed, and rightly so. Sounds like you’ve done a fantastic job building up a passive income for you guys to live on very soon – well done!

      There isn’t really a ‘correct’ approach in my mind. You’ve done what made sense to you and are now in a great position because of it!

  3. Hi SMA, always enjoy your posts – very useful & importantly, greatly insightful – many thanks!

    The only comment I would like to add is that once you retire & meet the preservation age criteria – both capital gains & return on investments within your SMSF are tax free (assuming one is in pension mode). Also, the franking credits will be refunded as you are in the 0% tax bracket! This may tilt the argument in favour of loading up your super, rather than invest outside super – your thoughts?

    1. Thanks very much Uday. You make a good point! That does favour super (not that I’ll be changing).

      Then it depends on the person’s situation as to whether it will be a greater benefit vs outside super, and whether they want to live on Oz shares or international. Given most here are wanting to retire early, tax on dividends will be very little, so franking is still mostly refunded anyway. Also, that 0% super tax rate may not be around in a few decades when one is hoping to reap the benefits from it, (ditto franking refunds).

  4. That is a good comment Uday. Also I dont believe you need to be in a SMSF to be in that position? Just clarifying? Like SMA I’m with Sunsuper 100% shares though mixed between International 60% Index & Australian 40% Indexed with low fees and no hassles.

    1. That’s correct, franking credit refunds for super in retirement phase apply whether you have a SMSF or a typical super fund invested in Aussie shares. Thumbs up for Sunsuper, I’m really happy with them so far – easy to use platform and transparent fees.

  5. Thanks mate???? – I’ll also eventually wind up my SMSF & move to an industry fund (I’m 65 & retired). Movitation to stay within SMSF is that I generate 50% of my income through writing call/put options that gets compounded yearly. However, there will come a time when I will not be in a position to do so & be forced to look for a ‘passive’ strategy????!

  6. Great post and thanks for sharing.

    Personally this is something I have been thinking about a lot recently. I have recently moved back to Aus form the UK, and now have Aussie super + UK Pension + starting to build a personal investment portfolio. Recently I dived into the asset allocations in both my super and pension and have been pondering and planning how to address this exact concept for maximum personal benefit in my later years.

    Off to read some of the resources you shared to start to put together a plan!

    1. Thanks for the comment Ginger. Asset allocation is a huge topic and highly individual. It is regularly debated and written about by many people much smarter than me, and often the experts have quite different opinions on it, so it’s not easy to navigate.

      Regular reading and coming up with something that fits you personally is likely to be the best course of action. Happy planning!

  7. Great post, as always. Could you estimate the size of the portfolio required to generate the $95000/$190000 in dividends?

    1. Cheers! For a couple to earn a combined $190k of dividends, the portfolio size would be $4.75m (assuming dividend yield of 4%, fully franked), where they would still pay no out-of-pocket tax.

  8. Hi Dave,
    Great read as usual. I am ina similar boat where i transferred my employer Super into ING SMF LITE in Feb 2016 after been made retrenched. As i have dabbled on the share market in the past i decided to transfer the Super to ING so i could buy and sell shares.
    As you would know ING were cheap in 2016 for fees before they hiked up their fees. I have always thought to pull out but i am concerned that to sell all my stock now a lot of them i would not be able to buy at the prices that i got them for over the past few years. So that’s why I have stuck with them, but always on my mind if i should bailout.
    The other thing that crosses my mind is though i am getting dividends on the majority of my stocks ING does not allow you to automatically put the dividends back into the company. So as i accumulate dividends i buy more stocks. This is my version of compounding. Now holding around 20 stocks.But i wonder if its a good thing to just hold the stocks that i have and collect dividends because i am thinking that the prices of stocks go up and down and when they hit a high they come back down again, so if they don’t actually keep going up am i going to really compound my money by just relying on dividends.?
    This is where i am thinking of moving into another fund as i believe being in a fund they are always moving stocks around .
    Also being 61 i do not have decades to invest. I am only working casual so do not put anything towards my super except for what the employer puts in. So just asking if i stay in ING SUPER should i be selling off some stocks where i have got good returns or just keep them and top up on them with the dividends i get or shoud i start building up the cash hub with my dividends and employer contributions. My way of thinking is to build up the cash fund and either buy or top-up when the market crashes or just leave the money in the cash hub as it is and build it up and when i get to retirement start drawing/living on the cash hub and let the super continue building up until the cash hub runs out.

    1. Thanks jdc, sorry to hear you got stung on ING fees too.

      Lots of questions in there. Not easy to answer, there are far too many variables and reasons for doing different things. If you plan on living on your super/cash in the next 5 years or so, then building up a decent amount of cash is a good idea (whether inside your super or outside), then you can use some dividends to live on and cash as a backup.

      Yes your money will compound if you’re using the dividends to buy more shares, because companies will increase in value over time and your dividend payments will also increase – it just takes time. If you sell shares you will lose some money to tax, so it may make sense to wait till you hit retirement mode (0% tax), before you sell down shares, but totally up to you.

      The other option is to switch to a low cost fund where you don’t pick your own shares but stick with an automated option like I’ve discussed, and then simply start withdrawing from that once you hit retirement phase, making sure you keep a good buffer in case the market turns down. Might be simpler, cheaper, and less stressful?

      1. Hi Dave, Thanks for your reply and your opinions. Yeh i know there were many questions in my email but thanks anyway! When you say wait till retirement mode are you meaning any age after 60 as long as i am not working?
        Since my last email i have been trying to work out if it woud be better to to get out of ING and just put all the money in something like afic so i dont have the headaches…LOL . Though now they are at a high.?
        I did some comparisons if i had originally put my money in AFI back in feb 2016 instead of ING and so far my balance would be thereabouts as to what my balance is now. But with what i would have accumalated in dividends on a DRP the balance now would have given me more shares and dividends on that amount would be higher than what i am getting now.
        So finally, if i decided to go that way how do i get to buy AFI in my super ? Do i need to contact AFIC and transfer my ING super to AFIC? Do you have a link with fees that are charged by AFIC, i believe i have seen it somewhere on your site. My idea is to use the DRP over the next 4-5 years and if i am still alive and decide/ or need to retire a couple of years earlier that i can then cancel the drp and get the dividends paid directly to my bank account.

        1. Yes I meant when you hit super pension phase where there is zero tax… that could be a tax efficient time to alter your investments. My understanding is that you won’t be able to buy 100% AFIC inside your super, as you can only put a certain amount of funds into direct investments. If you switch your super to a different low cost provider and choose their 100% shares option, that would probably achieve the same thing that you’re aiming for. The alternative is wait until you can access your super, pull it out, shut your super down and then invest in AFIC in your personal account.

  9. Thanks SM good post.

    Could you confirm that the 0.20% is the total fee for that investment option? (ie admin+investment)

    I’ve been trying to do comparisons on total fees between funds and some of them don’t make it easy.



    1. Thanks Jimmy. I just double-checked and for the option I’ve used the total cost is 0.19% (0.10% account fee plus 0.09% investment fee), plus there is a flat admin cost of $78 per year. So depends on your account balance, but it works out between 0.2%-0.3%. It’s not easy to compare funds that’s for sure! As long as it’s well under 0.50% for a plain-vanilla option then it’s reasonable in my view.

  10. Great read (again) Dave…Thank you. Not sure of all the rules etc, but would it be possible to have your Super working away in the background while growing your own portfolio (LIC’s, Index funds, property etc)…then, when you are closer to retirement age, start selling your own portfolio off and use the funds to put into your super. I realise you could live from the passive income generated from your own “self built” portfolio, but my understanding is that funds inside of super would be more tax beneficial. The sell off would occur a few years out from retirement to cover maximum outside super contributions.

    1. Cheers Martyn. The way you’ve described it is definitely possible, I’m just not sure I would do it. You’ll have to pay capital gains tax and brokerage on all holdings to liquidate and put the funds into your super, which may be a decent hit. And in most cases, the tax paid in a personal portfolio when ‘retired’ wouldn’t be very much anyway. Just not sure the tax hit would be worth it. I’d probably just direct fresh savings to super if preferring to have more in there vs own portfolio.

      I didn’t know about the nifty SMSF rules as Uday mentioned, but SMSFs can come at a cost of increased time spent, paperwork, costs and added complexity. Pros and cons both ways.

  11. Hi Martyn, if you run an SMSF then as per current super rules you will be able to transfer the shares (but not physical property) directly into your SMSF as ‘in-specie transfer’ (i.e. without having to sell them) – of course this will incur capital gains tax.

    The value ascribed to the transfers can be classified as concessional/non-concessional contributions for the year (subject to the max caps) – or as a purchase by the SMSF, in which case the SMSF will have to pay the holder of the shares the ascribed value.

    I don’t think this is super gymnastics is possible within retail/industry super funds 🙂

  12. Hi Dave .
    Thanks again for a very thought – provoking article . Please keep up the good work .
    Cheers , Ramon .

  13. Dave, another great post and great read.

    I invest in two index funds (ETF) which I believe give me great global exposure. First is (IOZ), this etf gives me 100% exposure to the asx200 and my second investment is (IWLD), gives me exposure to a broad range of developed market companies around the world such as Microsoft, apple, visa, Johnson and Johnson, Nestle etc

    I hold other stocks that are more of a growth strategy and once matured will sell to add more to the above etf’s.

    Your probably aware of these, they are similar to yours. This investment is on top of my supper account. As our super is locked in until retirement age, we plan to FIRE first on my self managed investments as above and then on retirement age give the money pot a huge boost.

    Keep up the great posts.

  14. Hi SMA,

    I read from Pat’s blog that FirstState has similar fees as Sunsuper? Have you look into FirstState? And in you’re opinion, what makes Sunsuper superior to FirstState?

    1. Yeah they both have the same fees roughly. I just went on their websites and chose one. Both are fine, no view on one being better than another. I think maybe I found it easier to find info using Sunsuper’s site, but that’s it.

      On insurance, we don’t really hold insurance in or outside super (no need for income protection and don’t feel the need for TPD), but if we were looking at it, we’d likely hold insurance inside super to maximise savings rate outside super to retire earlier. Hope that helps!

  15. Hi Dave,

    Firstly, thank you for writing all these insightful articles. I’m new to the share market game and also being from Perth, these articles have been extremely helpful, educational, and relatable.

    My favourite article so far is ‘An Open Letter to Property Investors and Sharemarket Newbies’.
    This article really opened my eyes to the power of the share investing especially Aussie shares with their franking credits. Most my life I did grow up thinking, like most Aussies, that investment property was the way to financial freedom. Now I am convinced that investing in Aussie shares will help me financially set up my family’s future.

    I just have a question in regards to my current set up.

    So far I have invested 8K in VAS and have a few Ks in international ETFs from Commsec Pocket (IOO and NDQ). Have to start somewhere right?

    I have about 10K available to invest again and wondering if I should spread my risks by buying some AFIC to go with VAS. Would this be double dipping? Would essentially mean I would be paying 2 brokerage fees for 2 different holdings that track similar index.

    Also, is it worth buying some shares in VGS or should I just keep contributing to IOO? Wondering if it’s worth double dipping.

    Thank you.

    1. Thanks for the feedback Hunter, really great to hear you’re getting value from the blog. And nice job getting started!

      Hard to go wrong with VAS. AFIC is a little different to VAS in the sense that it can offer a more reliable income stream and it’s actively managed so will avoid owning speculative stocks and have more of a value focus. This can also be a negative as it causes them to underperform for periods. So it would depend on the purpose AFIC would have in your portfolio. You wouldn’t be paying two lots of brokerage since you’re going to be buying shares anyone (brokerage is charged for each purchase), and you wouldn’t be paying twice the fees because fees are charged on the amount invested, not the number of holdings.

      Also, on VGS, this is much different to IOO – VGS is over 1500 companies, IOO is 100. Also the fee for IOO is quite expensive at 0.40% compared to VGS at 0.18%. VAS and VGS are the most diversified options out of the ones you’ve mentioned. Having other similar ones isn’t really spreading risk any further. Hope that helps.

      1. Thanks for the reply Dave.

        It seems like from your advice, I’m better off just sticking with the trusted VAS/VGS combo.

        The reason I want AFI is to avoid a situation where something funny gets in the water at Vanguard as you sometimes say. However, I understand VAS is an ETF so less management risk. I also like the 100% franking credits AFI provides.

        As for VGS, that is a good point with the fees. Since I’ve only invested in a couple Ks in IOO and there’s not much capital gains, would it be better for me to sell them and invest in VGS? I do like the idea of only having to worry about VAS/VGS and just contributing monthly to which ever requires attention.

        1. No worries mate. I can’t tell you what to do as I’m not an advisor, so this stuff isn’t advice okay 😉

          With index funds like Vanguard run, there is no real management risk, they are literally replicating the top 300 stocks for you (not deciding what to invest in). AFIC’s portfolio might look a little bit like the index but it is fundamentally different and they are picking and choosing what companies to hold – that’s where there is a risk something funny happens (though unlikely for a 90 year old conservative investment company).

          If you like the simplicity of those two holdings, then that’s probably a good way to approach it. Keeping it simple is a very good idea. And yeah it’s generally better to get rid of small holdings earlier, before there is much tax to pay on the gains!

  16. Hi Everyone .
    l very much like the notion of using just plain vanilla ETFs such as the VAS / VGS combo [ ? a perfect portfolio ? ] ; but what worries me about ETFs is what would happen to them in a market meltdown ?
    Does anyone have any stats on a typical ETF drawdown versus the market as a whole in troubled times ?
    Whilst l am very familiar with the LIC world , l have no experience in ETF investments .
    Best wishes , Ramon .

    1. Hi Ramon. An index ETF holds every company in the same proportion to the market, so when the market falls, the index portfolio will fall by the same amount. That’s exactly the way it is designed – to match the market precisely up, down and sideways (minus a small fee). Hope that explains.

  17. Hi again .
    BTW , the Asx site used to publish a comparison chart whereby one could , say , answer my own question put in my prior post . But l suspect the the chart was withdrawn because it could serve as a deterrent to the seeking of advice from members of the brokerage industry !
    Ever the sceptic , Ramon .

  18. Man, it’s hard keeping up with you…lol So much to read since joining! lol
    Anyway, just a quickie this time. In regards to VAS just wondering for people that do not have a lot of money to purchase VAS as they are an expensive stock approx $85. So i did some quick calculations and please tell me if i am wrong. On current approx prices Vas $85 and AFI $6.50, if i bought 200 shares in Vas, with the same amount of outlay i could get 2600 AFI. Let’s say over a year if AFI went up 0.30c, to get the same return VAS would need to go up $5.00.
    So which is more likely to happen? And when the market has a big fall which would most likely fall?
    Or are you thinking over a long term VAS is more likely to go up than AFI. Just curious why ppl would buy VAS being so expensive. Thanks

    1. Ahh this is a common issue. Forget about the share price of comparing holdings like that, it’s completely meaningless. Whichever you invest in, you’ll receive around 4% dividends on the amount of money you’ve invested…. not based on what the share price is. Your gains and losses are also on a percentage basis, so those investments can both just as easy go up 30% or down 30% – the dollar value they’re trading at makes zero difference.

      It’s like a pizza cut into slices. Say you buy a slice for $4. You then cut it in half and sell them for $2 each. The original pizza slice you bought is more expensive, but your two $2 slices amount to exactly the same value. The amount you spent is the important part. You received value (in pizza) based on the amount you spent. Same thing with shares. AFIC could split its shares in half tomorrow and each shareholder would own double the amount of shares, each valued at say $3. Makes no difference overall. Hope that explains.

  19. In defence of SMSF, I achieve FIRE when I accepted a redundancy package just before I turned 40. I rolled a lump sum payout of A$329K into my SMSF. Annual compliance cost was initially a fixed $1395 cost a year. It is currently A$990-00 for the annual tax return and audit. 13 years later, it has grown to A$3.3M balance with A$1.3M in cash and A$2M in Australian listed shares. Net investment return of 8.1% pa CAGR after tax deductible contributions. So if you understand value investing, actively buying shares via a SMSF can deliver more than passive alternatives.

    1. Thanks for sharing your approach Keith, that’s quite impressive! SMSF is usually best suited to those with large balances given the costs and those who want to be more hands-on with their investments – that’ll be right for some people here, but probably not on the radar for most.

      1. I would like to see more enthusiasm in the FIRE community in following Peter Thornhill’s example of direct Australian dividend paying shares rather than accept passive ETFs as the first choice for their retirement savings.

        With long term compounding growth, I would expect a significant number of FIRE enthusiasts would be able to accumulate a balance over the A$500K minimum balance level recommended to justify the costs of running a SMSF. At that minimum SMSF account balance level the 0.20% MER is competitive with the industry funds.

        In my case, the MER falls to 0.03% MER excluding brokerage at a flat rate of A$9.50 a trade.

        My SMSF his comfortably outperformed many of the australian super funds at a significantly lower management expense while allowing me to avoid an overweight position in sectors which have unfavourable headwinds (ie. Australian Banking). Having a third of my SMSF currently in cash is better than having it stuck in mediocre stocks with unrealised capital losses.

        The key question each person must decide comes down to time and interest in being more hands-on.

        Having achieved FIRE, I had nothing but time to pursue my direct share investing passion as a full time activity.

        Separately, my personal direct share portfolio net equity has grown at 24.6% p.a. CAGR over the past 28.54 years.

        Hence the combined rate of growth of my net equity (both personal shares and SMSF) has been 26.7% pa CAGR over 28.54 years.

        1. Thanks for sharing Keith. To be clear, Peter Thornhill actually recommends LICs and suggests people not try to pick their own stocks. He said this when I interviewed him here.

          Also, it’s hard for FI people to build a large super balance of $500k when stopping full-time work at 30 or 40. Sure, eventually it’ll get there, but most people won’t be looking at that, and by the time the balance is big enough, many are already content with the set-and-forget approach.

          Some people in the FI space that I know have tried stock picking (myself included) and many have found whether through lack or skill, bad luck, whatever, that we’re better off investing in diversified funds that where there is no work involved, like low cost LICs and index funds.

          It’s possible to achieve better results through doing it yourself, but as you’ve explained this becomes a full-time activity and something only a fraction of people are interested in. Most FI followers want true passive income – regular cash from investments with zero work. Most people simply prefer to do other things with their free time. For me, I decided that even if I could pick stocks (I probably can’t), writing this blog is more enjoyable, so that’s where I’m directing most of my productive energy 🙂

          1. Successful long term value investing is all about circle of competency.

            Both Warren Buffett and Peter Thornhill recommend LICs and Passive index ETFs as a low risk, low volatility, low return vehicle for the average “no nothing” person who can comprehend the value of business ownership but have no tolerance for significant capital losses.

            However, experienced investors like Peter Thornhill and Myself have a circle of competency that allows us to recognise good businesses and have more money invested directly in large cap Australian growth stocks like CSL Ltd and CBA during their long term share price growth period.

            We are all grateful you have channeled your energy in clarifying FIRE for us all.

            I do wonder had you persisted and achieved similar success in direct share investing by owning quality Australian stocks like CSL, CBA and MQG years ago that you would be as satisfied with comparatively modest returns from passive funds.

  20. Interesting to know and I agree with you 100%. I have my own SMSF and I’m curious to know what sectors do you invest in with your SMSF. I mainly put my money in blue chip shares and ETF’s.

  21. Australian Gold Miners, Health Care, Banking, Telecommunications. I top up my holdings when they are out of fashion.

  22. Hi Dave,

    I was trying to look for what you’re invested with for your international super fund but couldn’t find it..

    On one of your posts you mentioned VGS, is this the only ETF you’re using for International / Super?


    1. In this very post is the answer. My super is setup as 100% international indexed shares (basically the same as VGS) and it’s with SunSuper. Nothing else. Hope that helps.

  23. Thanks for sharing helpful informations. This is one of the best website i ever visited, have real data. i appreciate the author for great effort.

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