We Simplified Our Shares Portfolio

Something had been irking me. And it was to do with our shares portfolio. At nine different index fund holdings, it seemed rather convoluted. Nine is probably not many for some investors, however, I wanted ours simplified to be inline with our investment philosophy and strategy.

The other issues I could see with our portfolio was that it very likely doubled up on funds that had the same holdings; was too complicated for Mr Hack in case something ever happened to me; and, was going to be unnecessarily messy during draw down.

Our Current Portfolio

We currently hold Australian and international shares, plus bonds. Our portfolio stands at 60% in Australian shares, 30% in international shares and 10% in bonds.

Here’s the details of the current portfolio:

Our share holdings were based on research through the Barefoot Investor, Peter Thornhill, Aussie Firebug and Strong Money Australia.

We also felt it was important to only invest in funds with low management fees as this affects the financial outcome.

Comparing Our Australian Shares

To compare our Australian shares I made a chart and listed the top ten holdings of each fund, plus the management fees. I figured if it was in a chart then any doubling up would be visual and easy to recognise.

Our Australian Shares as at May 2020

ASX CODEARGBKIMLTVAS
MER0.15%0.17%0.13%0.10%
1CSLCBACBACSL
2Macq GrpBHPCSLCBA
3BHPAPA GrpSoul PattisonBHP
4CBAMacq GrpWestpacWestpac
5WestpacTransurbanBHPNAB
6WesfarmersWoolworthsMacq GrpANZ
7Rio TintoWesfarmersWesfarmersWoolworths
8ANZNABWoolworthsWesfarmers
9TelstraTPGNABTelstra
10Ramsay HealthASXTransurbanTransurban

Straight away by looking at the chart, I could see all funds had a similar MER (management fee) which ranged from 0.10% to 0.17%.

The other thing that was blatantly obvious was how similar the four funds were to each other. To make the similarities even more obvious, I put a strike through line on any company that was listed three or more times. This would leave only the differences.

ASX CODEARGBKIMLTVAS
MER0.15%0.17%0.13%0.10%
1CSLCBACBACSL
2Macq GrpBHPCSLCBA
3BHPAPA GrpSoul PattisonBHP
4CBAMacq GrpWestpacWestpac
5WestpacTransurbanBHPNAB
6WesfarmersWoolworthsMacq GrpANZ
7Rio TintoWesfarmersWesfarmersWoolworths
8ANZNABWoolworthsWesfarmers
9TelstraTPGNABTelstra
10Ramsay HealthASXTransurbanTransurban

It became crystal clear that all four funds were similar and that I had unnecessarily complicated our portfolio by not only doubling up but by quadrupling.

Now to choose one of the four. Thankfully this was an easy decision. VAS is owned by Vanguard which is a long standing reputable company and it also had the lowest MER of the four funds in the chart.

VAS it is.

Comparing Our International Shares

I then went through the same process with our international shares.

As a re-cap:

  • VGS are international shares, ex-Australia
  • VTS are American shares
  • VAE is Asia, ex-Japan shares
  • VEU are international shares, ex-U.S.

Our International Shares as at May 2020

ASX CODEVGSVTSVAEVEU
MER0.18%0.03%0.40%0.08%
1MicrosoftMicrosoftAlibabaAlibaba
2AppleAppleTencentNestle
3AmazonAmazonTaiwan SemiTencent
4AlphabetAlphabetSamsungTaiwan Semi
5FacebookFacebookAIARoche Hold
6Johnson & JJohnson & JChina ConstrucSamsung
7NestleBerkshirePing An InsurNovartis
8VisaVisaRelianceToyota
9J P MorganProcter & GI & C Bank ChinaAstra Zen
10Procter & GUnited HealthMeituanRoyal Dutch

After completing the international chart, I was surprised at how similar VGS and VTS were. Especially considering VGS are international shares ex-Australian shares and VTS are purely American shares. The two funds were almost replicas of each other. It says a lot about where the world’s most successful companies are located.

Based on the findings between VGS and VTS, we decided to go with VTS with its very low MER of 0.03%.

VAE and VEU had some similarities, however it was only 4 out of 10 that were the same. The approach I had used with the previous comparisons was not going to be applicable here.

VEU are global shares ex-U.S. which is good as we no longer had global exposure due to choosing VTS (U.S.) over VGS (world ex-Aust).

Whilst, comparatively, VAE were only shares in Asia, not global, and had a high MER of 0.40%.

In the end, we chose VEU rather than VAE. This is because VEU has global exposure which we were now lacking and it also had a lower MER of 0.08%.

Our international shares were now narrowed down to a simplified VTS and VEU.

Our Bonds

As we only held one fixed interest index there was no comparison to be made.

However, for transparency, here are the details.

Our Australian Fixed Interest Index ETF as at May 2020

ASX CODEVAF
MER0.20%
1Australia (Commonwealth Of)
2Queensland Treasury Corporation
3New South Wales Treasury Corporation
4Treasury Corporation Of Victoria
5Western Australian Treasury Corporation
6Kfw
7South Australian Government Financing Authority
8European Investment Bank
9Inter-American Development Bank
10International Finance Corp

Our New Shares Portfolio

Based on the comparisons, our new shares portfolio has just four funds.

  • VAS: Vanguard Australian Shares Index (ETF)
  • VTS: Vanguard U.S. Total Market Shares Index (ETF)
  • VEU: Vanguard All-World Ex-U.S. Shares Index (ETF)
  • VAF: Vanguard Australian Fixed Interest Index (ETF)

Our objective was achieved in simplifying our portfolio and in fulfilling our investment strategy. I’m feeling a confidence in moving forwards with this portfolio plan.

The table below shows the allocated percentages to each fund and the dollar amount required in each to reach our target of $1M.

TARGET PORTFOLIO

VAS50%$500,000
VTS20%$200,000
VEU20%$200,000
VAF10%$100,000

The $1M target will allow us to leave the workforce and live in lean FI (financial independence). Based on the 4% safe withdrawal rule $1M provides an annual income of $40K – hence the ‘lean’ budget.

We will live in lean FI until our superannuation funds are accessible at age 60. From this point forward, our income from investments will substantially increase and fund us for the rest of our years.

What are your favourite index funds? Please share the details of your shares index portfolio below.

Have you heard of the online broker SelfWealth – it’s who we use and I can highly recommend them. Each buy or sell trade only costs $9.50 – no matter how much you are investing. Here’s a link if you’d like to try them out. The link entitles you to 5 free trades (and we get 5 free trades as well). https://secure.selfwealth.com.au/Registration/Plan/5/K2qDn

Disclaimer: This article is in no way financial advice or recommendations. I am not a financial advisor. Do your own research and contact a professional as needed. Tread your own path.

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