Author Topic: Tax and Dividends  (Read 270 times)

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Offline Andre Lang

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Tax and Dividends
« on: 30/01/2019, 03:02:08 PM »
Hi guys, had a question I was hoping to get help with.

Regarding paying CGT and Dividends on the Australian market ETFS, is the system more advantageous over the past 10 years (post GFC) than buy and hold?

The numbers I ran, accounting for CGT and missing dividends was it came out about the same return.

My question was, firstly did I do my sums wrong, or
Will the system really shine when a bigger correction takes place.

Thanks!
 

Offline Gary Stone

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Re: Tax and Dividends
« Reply #1 on: 31/01/2019, 10:46:12 AM »
Andre,

The entity through which you invest makes a huge difference as there can be widely varying tax rates - income and CGT - viz., personal capacity with marginal PAYG tax rates, trust, company, SMSF or quasi-SMSF (e.g. ChoicePlus).

That said, there are definitely periods, which could be many years, over which there will be little difference between buy and hold of a low cost index ETF (with dividend reinvestment) and executing an active portfolio with SPA3 Trader or SPA3 Investor. In fact, a great performing index ETF such as IJH will mostly win over many periods.

However, research and execution shows that beating the median of Balanced & Diversified Managed Funds, where close to 90% or people have their long-term retirement monies invested, is not difficult to do with SPA3 Investor over the long-term. Such funds' long-term annualised median returns in Australia and the U.S. run at around the low 7% mark.

Your observation is correct that the system (SPA3 Trader & SPA3 Investor) will really shine when there is a large correction is at the crux of systematic (overall market) risk management, that is, moving 100% in cash during severe market downturns.

This is why we talk about SoRRi (Sequence of Returns Risk) so much these days. which basically says that the closer to (or during) retirement that a severe decline occurs in the market the bigger effect it will have on one's wealth.  So the focus becomes protection while still taking some risk to continue growth.

We will be releasing a White Paper in the coming months that discusses ideas using the Core Satellite framework of strategy allocation to have a mix of strategies including B&H in index ETFs and active management that achieves growth but also will protect an allocation of wealth by moving 100% into cash for that allocation.

Regards
Gary
On the journey

Offline Andre Lang

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Re: Tax and Dividends
« Reply #2 on: 01/02/2019, 02:22:05 PM »
Thanks Gary that's exactly the answer I was expecting.
Makes total sense.

Ive really only started taking it more seriously in the past few months and now we are home in Aus again full time I will take some time to set everything up.

Thanks
Andre.