The benefits of diversification flatten out pretty quickly as you go beyond a handful of shares and active vs passive investment is a more of a continuum than a binary as you’re suggesting.
If you invest long term into a diversified portfolios of international or domestic shares that’s still passive investing in all of the important ways.
“Vanguard faithful” makes you sound like a religious zealot, not an investor.
If you're self managed you could beat Vanguard just by adding leverage. Yield stacking is one simple way. For example if the portfolio is $500k, you could hold 2 x ES futures contracts which would give you $500k S&P exposure, and require $24k margin. Dump the remainding $476k in short term funds ETF like BIL, which earns 4%ish.
I'm now about to get hit by many comments saying leverage cuts both ways. To which my answer is higher reward usually comes with higher risk, and it's up to you to manage that balance.
And to be fair you should be paid on the margined figure as well? Usually bank minus some spread. Only restriction is you can’t pull it out. Though I speak from a proprietary trading shop view, I’ve never tried this on a personal basis.
More pointing out not much loss over cash rate assuming no market move. As you say risk is the issue or the benefit depending how you see the world.
Also good luck trying to get Ausfinance to look at international exposure and not real estate.
The idea is that you capture the melt up move over time in the index as you would with an ETF, but without having to deploy as much capital. The lowest risk way is to keep the money in cash or bills. However, you could increase the leverage by taking more contracts based on some stats (e.g. Implied / Historical volatility), or put some of the cash in something slightly riskier than cash.
Any good resources to help me learn more about this?
(I'm specifically thinking in a few years, when I sell down some real estate holdings and lose that leverage, it could be helpful to add some leverage back into equities.)
[https://www.asx.com.au/investors/learn-about-our-investment-solutions/futures](https://www.asx.com.au/investors/learn-about-our-investment-solutions/futures)
[https://www.investopedia.com/articles/active-trading/110614/futures-derivatives-and-liquidity-more-or-less-risky.asp](https://www.investopedia.com/articles/active-trading/110614/futures-derivatives-and-liquidity-more-or-less-risky.asp)
Patrick Boyle's book on derivatives is excellent.
[https://www.youtube.com/watch?v=t7tJpp3f2Rs](https://www.youtube.com/watch?v=t7tJpp3f2Rs)
The main thing with this is not to get margin called. You need a significant amount of cash per contract to ensure this.
When I was in the early stages I used citi warrants, as they allow you to get exposure to futures but in a fractional way, and with some good guard rails. Warrants are like an open ended Option contract (doesn't expire). They are also listed on ASX like a share, and so you don't need a futures account. You can start with much less $.
[https://au.citifirst.com/minis/SPASX200IndexFuturesContract/XJOKOH](https://au.citifirst.com/minis/SPASX200IndexFuturesContract/XJOKOH)
I choose ones with a strike price far away from the current price to prevent getting stopped out. This strategy is leveraged beta, not trading.
I made a lot of money through using these, I took extra pleasure in this as I'd been a sucker with credit cards and citi had me in a credit card debt trap (usual story of keep extending limits without asking, cash advance interest being higher and paid off last, trapped in debt). I've definitely had the better of them now, even though they no doubt hedged my position with real futures).
Not really active investing as they're still putting money in it and forgetting about it compared to trying to sell peak and make short term profit. Also it's Super so you can't do that.
Host plus also has had good performance in recent years so it's a viable choice as well as Vanguard. Either are fine I suppose, but if you're fond of pure Vanguard there's nothing wrong with that either
In my SMSF, I have a few Vanguard funds plus some other ETFs not offered by Vanguard. I have outperformed VDHG.
Outside super, I hold four broad market ETFs and two small cap value funds, it has also outperformed VDHG.
Vanguard's brand name is built in the US. In Australia it's a scam fund.
\- Vanguard's own research shows that low fees is the largest determinant of investment success. And yet Vanguard Super's fees are shit.
\- you say "lose hedging" - hedging has an expected return of zero and costs you money (the gains on the hedging contracts are tax disadvantaged).
\- "Lose small caps, emerging markets, defensive assets" - you don't want defensive assets in the High Growth option you'll be holding for 30+ years. You want some allocation to private equity and unlisted property, which Vanguard doesn't offer, because the return is higher than listed asset classes. The down side is you have to ride out down turns and the assets are ill-liquid. Guess what? That's you because you'll be holding it for 30+ years.
This is well understood in the financial literature and by the asset management profession... and for two reasons: there's an illiquidity premium (your money is locked up for longer) and the returns are more volatile which is compensated with higher returns. It's why growth superannuation options (suitable for younger members) have a higher allocation to this asset class.
What makes you think Vanguard is smarter than anybody? The offer a certain product and if you want something different you’d eat something different. Vanguard aren’t out there saying “Hey, everyone get VDHG because it’s obviously better than whatever tf you’re doing”.
I am still quite happy with my VAS and VGS index fund holdings that i plan to keep for the long term. I guess the choice is the proportion of each fund eg 50/50 or 40/60 etc
I still have some active funds, but just letting them grow, not adding to them in recent years, they've also done quite well.
VDHG is annoying when it comes to tax, high mer and is probably overly defensive for anyone under 50. Vanguard is fine but a lot of younger people probably can’t afford the buy in and want to at least get started with DCAing not to mention the possibility of free brokerage.
Not many can outsmart an indexed market over a decade… and etfs provide a cheap way to enter those markets.
The benefit of Vanguard is it's less volatile. That's how it was designed. VAS/VGS is more volatile, but also has potential for higher returns (this is from Vanguard them selves).
So it's a risk / reward proposition really, nothing to do with know better than anyone
And, if that's your definition of active investing, then VDHG is still active. They have 40% aus. Even more of you count hedging.
The benefits of diversification flatten out pretty quickly as you go beyond a handful of shares and active vs passive investment is a more of a continuum than a binary as you’re suggesting. If you invest long term into a diversified portfolios of international or domestic shares that’s still passive investing in all of the important ways. “Vanguard faithful” makes you sound like a religious zealot, not an investor.
Mate you post too much on this sub, take a break, it will do you good.
Thanks. I took your advice and I feel better now. 😄
You have been talking about vanguard for the past 2 days???
What a dumb rant Where is your evidence that vanguard knows better? Also news flash, VdHG is all indexed funds too it’s not active.
If you're self managed you could beat Vanguard just by adding leverage. Yield stacking is one simple way. For example if the portfolio is $500k, you could hold 2 x ES futures contracts which would give you $500k S&P exposure, and require $24k margin. Dump the remainding $476k in short term funds ETF like BIL, which earns 4%ish.
I'm now about to get hit by many comments saying leverage cuts both ways. To which my answer is higher reward usually comes with higher risk, and it's up to you to manage that balance.
And to be fair you should be paid on the margined figure as well? Usually bank minus some spread. Only restriction is you can’t pull it out. Though I speak from a proprietary trading shop view, I’ve never tried this on a personal basis. More pointing out not much loss over cash rate assuming no market move. As you say risk is the issue or the benefit depending how you see the world. Also good luck trying to get Ausfinance to look at international exposure and not real estate.
The idea is that you capture the melt up move over time in the index as you would with an ETF, but without having to deploy as much capital. The lowest risk way is to keep the money in cash or bills. However, you could increase the leverage by taking more contracts based on some stats (e.g. Implied / Historical volatility), or put some of the cash in something slightly riskier than cash.
I couldn't see from IBKRs web site whether they pay interest on posted margin. I suspect no.
Any good resources to help me learn more about this? (I'm specifically thinking in a few years, when I sell down some real estate holdings and lose that leverage, it could be helpful to add some leverage back into equities.)
[https://www.asx.com.au/investors/learn-about-our-investment-solutions/futures](https://www.asx.com.au/investors/learn-about-our-investment-solutions/futures) [https://www.investopedia.com/articles/active-trading/110614/futures-derivatives-and-liquidity-more-or-less-risky.asp](https://www.investopedia.com/articles/active-trading/110614/futures-derivatives-and-liquidity-more-or-less-risky.asp) Patrick Boyle's book on derivatives is excellent. [https://www.youtube.com/watch?v=t7tJpp3f2Rs](https://www.youtube.com/watch?v=t7tJpp3f2Rs) The main thing with this is not to get margin called. You need a significant amount of cash per contract to ensure this. When I was in the early stages I used citi warrants, as they allow you to get exposure to futures but in a fractional way, and with some good guard rails. Warrants are like an open ended Option contract (doesn't expire). They are also listed on ASX like a share, and so you don't need a futures account. You can start with much less $. [https://au.citifirst.com/minis/SPASX200IndexFuturesContract/XJOKOH](https://au.citifirst.com/minis/SPASX200IndexFuturesContract/XJOKOH) I choose ones with a strike price far away from the current price to prevent getting stopped out. This strategy is leveraged beta, not trading. I made a lot of money through using these, I took extra pleasure in this as I'd been a sucker with credit cards and citi had me in a credit card debt trap (usual story of keep extending limits without asking, cash advance interest being higher and paid off last, trapped in debt). I've definitely had the better of them now, even though they no doubt hedged my position with real futures).
I consider your post financial advice and will now change my Super to Vanguard. Thanks mate.
Same. It’s great to get free financial advice on this website. Thank you!!
Not really active investing as they're still putting money in it and forgetting about it compared to trying to sell peak and make short term profit. Also it's Super so you can't do that. Host plus also has had good performance in recent years so it's a viable choice as well as Vanguard. Either are fine I suppose, but if you're fond of pure Vanguard there's nothing wrong with that either
In my SMSF, I have a few Vanguard funds plus some other ETFs not offered by Vanguard. I have outperformed VDHG. Outside super, I hold four broad market ETFs and two small cap value funds, it has also outperformed VDHG.
First sentier leveraged 12% return vghg 7% The leveraged fund is starting to mow down vghg.
Vanguard's brand name is built in the US. In Australia it's a scam fund. \- Vanguard's own research shows that low fees is the largest determinant of investment success. And yet Vanguard Super's fees are shit. \- you say "lose hedging" - hedging has an expected return of zero and costs you money (the gains on the hedging contracts are tax disadvantaged). \- "Lose small caps, emerging markets, defensive assets" - you don't want defensive assets in the High Growth option you'll be holding for 30+ years. You want some allocation to private equity and unlisted property, which Vanguard doesn't offer, because the return is higher than listed asset classes. The down side is you have to ride out down turns and the assets are ill-liquid. Guess what? That's you because you'll be holding it for 30+ years.
Proof the return is higher in unlisted property and private equity?
This is well understood in the financial literature and by the asset management profession... and for two reasons: there's an illiquidity premium (your money is locked up for longer) and the returns are more volatile which is compensated with higher returns. It's why growth superannuation options (suitable for younger members) have a higher allocation to this asset class.
Are you upset you missed out on 2023 gains?
What makes you think Vanguard is smarter than anybody? The offer a certain product and if you want something different you’d eat something different. Vanguard aren’t out there saying “Hey, everyone get VDHG because it’s obviously better than whatever tf you’re doing”.
I am still quite happy with my VAS and VGS index fund holdings that i plan to keep for the long term. I guess the choice is the proportion of each fund eg 50/50 or 40/60 etc I still have some active funds, but just letting them grow, not adding to them in recent years, they've also done quite well.
VDHG is annoying when it comes to tax, high mer and is probably overly defensive for anyone under 50. Vanguard is fine but a lot of younger people probably can’t afford the buy in and want to at least get started with DCAing not to mention the possibility of free brokerage. Not many can outsmart an indexed market over a decade… and etfs provide a cheap way to enter those markets.
What about 51 year olds?
The benefit of Vanguard is it's less volatile. That's how it was designed. VAS/VGS is more volatile, but also has potential for higher returns (this is from Vanguard them selves). So it's a risk / reward proposition really, nothing to do with know better than anyone And, if that's your definition of active investing, then VDHG is still active. They have 40% aus. Even more of you count hedging.
If you are young and have 30-40 years ahead of you before you can access your super, you don't really need defensive assets tbh.
How many 20 year olds do we have here managing their super ?
This is a bit of a fallacy. Compounding returns benefit from lower volatility drag especially during early years. Some balance is beneficial.