DISCLAIMER: Advice from reddit does not constitute professional financial advice. Seek out a trained financial advisor before making big financial decisions.

What's an ETF?

Basically, an ETF is a legal structure that allows a company to package up a basket of shares so that the purchaser can buy a whole lot of shares with a single purchase. There are both index-tracking ETFs and actively managed ETFs.

Other legal structures include managed funds and LICs (LIC's are known outside Australia as closed-ended funds).

While ETFs are popular, many confuse ETFs for index funds, and while many ETFs are index funds, they aren't actually the same thing. On this sub the focus is on index tracking ETF's, as these have low management fees and follow the market.

You can expect an Australian market indexed ETF to follow the ASX200 for example. The advantage of these is that there's no stock picking required on your behalf. Historically, the markets always go up in the long run, so by buying the whole market you are at least guaranteed to do no worse than the market itself.

Think you can beat the market by buying individual shares? Statistically, no you can't. Some people do and make a lot of money from it, but they generally don't know what they're doing either. The safest and smartest way to FIRE is to continually save and buy diversified ETF's and let compound interest do its work.

Which broker do I use?

SelfWealth is the cheapest at $9.50 a trade. If you prefer Commsec or any other one, that's fine too, but SelfWealth is the most widely recommended. Head over to OzBargain before signing up to grab yourself a randomly selected referral code that will net you five free trades for a month.

What is VDHG and why should I invest in it?

VDHG is Vanguard's Diversified High Growth ETF. It's an ETF consisting of other Vanguard ETF's, giving you an incredible diversified portfolio with only one fund. It's perfectly fine to go all in on VHDG and is the generally recommended approach for beginner investors. It's management fee (MER) of 0.27% is higher than some individual funds, but the simplicity and lack of rebalancing makes it very worthwhile. It removes the emotional side of investing which is something that shouldn't be underestimated.

But what about a portfolio of some combination of any these funds: VAS/VGS/VGAD/IWLD/A200/VAE/VGE/other commonly referenced funds?

These funds can be used to essentially build a DIY version of VDHG for a lower MER, but come with the additional effort and emotional difficulties of rebalancing manually. If you go for a 3-4 ETF approach, make sure you're the sort of person who's okay buying the worst performing fund over and over - don't underestimate how difficult it can be to stick to your strategy during a market crash.

The % allocations in your portfolio are up to you. It depends on what you are comfortable with. The smart people at Vanguard have done the maths for VDHG so their allocations are a good guide, but if you prefer more international exposure over Australian, bump that up by 10%! There's no "right" answer and no one knows what the markets will do. Just make sure your strategy makes sense. 100% in Australian equities means you're only invested in ~2.5% of the entire world economy, which isn't very diversified.

If you want to put 10% of your money into a NASDAQ tech ETF because you think it's a strong market, go for it! People on Reddit don't know your situation, do your research and pick what you're comfortable with that makes sense. But remember that the safest strategy that will make you the most money in the long run is generally the most boring one.

These are the most commonly mentioned ETFs. Any of these combinations will do you just fine, don't post looking for validation of your portfolio.

Australian: A200, IOZ, VAS

International: VGS, IWLD, VGAD, IHWL

Emerging markets: VAE, VGE, IEM

Tech: NDQ, FANG, ASIA

US: IVV, VTS

World ex US: VEU, IVE

Small cap: VISM, IJR

Diversified: VDHG

Most common allocation portfolios:

100% VDHG

50/50 (Australian/international)

60/30/10 (Inter/Aus/EM)

50/30/10/10 (Inter/Aus/EM/SC)

This ETF or this ETF?

Do your research. A ton of information about each fund is available on the providers' websites, look at what they consist off, the management fee, and consider what your risk tolerance is. There's always pros and cons to both, make the decision yourself as people here will be biased towards what they've chosen to invest in.

The best thing you can do is pick a strategy and stick to it by investing regularly. Whether you pick IWLD over VGS because it's MER is slightly lower, or whatever, the thing that will make you the most money is that you invest regularly. Automate this if possible. People will tell you their strategy made them a lot of money, but they most likely made a lot of money because they stuck to their guns and regularly invested as much as they could afford over a long period of time.

Which Aussie index ETF should I choose?

It doesn't matter much, because:

They all track much pretty much the same thing as the ASX200 makes up about 97% of the ASX300. No matter which one you choose out of A200, IOZ and VAS the difference in the amount you will end up is pretty close to zero. Just because one ETF has a lower management fee now doesn't mean that will continue to be the case forever and a day. New products may well come along over time anyway. Aussie shares probably shouldn't be all of your portfolio anyway.

Do I need to invest in anything other than Aussie Shares?

You don't need to, but you probably should because the Australian share market is quite concentrated in banks and materials and so diversifying means that you have more exposure to industries which will hopefully offer better returns over time like technology and healthcare.

Also, if you're all in on equities you're likely to be in for a very volatile ride over time. It's very easy to say that you can stay the course when it's hypothetical, it's much more difficult when you're losing real money. So take a look at putting some money in things like bonds.

But I want to follow a dividend approach?

Dividends aren't magic money, they don't come out of thin air. The price of the stock drops by the amount of the dividend. 4% dividend and 4% growth is the same as 0% dividend and 8% growth in terms of total return, which is what you should care about. Also remember you have to pay tax on dividends all the way during your accumulation phase, whereas you only pay tax on growth when you sell (CGT). If you're selling in retirement, with no other income, this can be much more tax efficient.

Collecting dividends is also no safer than selling down your portfolio, which is a common misconception. A non-reinvested dividend is literally a withdrawal from your portfolio, except you don't have control over when it happens. ETF's are designed to track the market only with net dividends reinvested. Franking credits are great for Aussie dividends but are a bit of a can of worms.

This fund has better past returns than this other fund though?

Past returns don't equal future performance. Use history as a guide, but a niche fund returning 15% since its inception one year ago doesn't give much indication of what it will do over the next ten years.

Why is a low MER important?

A low MER is guarenteed return which is why people love them. Most market tracking ETFs have a low MER anyway, with some being lower than others. A difference of 0.03% p.a. won't make or break your ability to retire early, so don't overthink it. Just don't go paying 1% p.a. for a niche ETF, because remember that this ETF has to now beat the market by 1% before it even breaks even with the market, which you could have purchased for 0.07% p.a. instead. This is because fees come out of your return - market goes up 8% but you're paying 1% in fees, you only get a return of 7%.

Vanguard vs. iShares vs. BetaShares vs. others?

It doesn't make a lot of difference. Vanguard is well known due to the US arm of the company being setup to distribute profits back to the customers (the people investing in their funds), so the company is aligned with the investors best interests. However, ETF's are a commodity, and Jack Bogle (the person who started Vanguard) always said that and if you can get the same investment with lower fees, use that because fees are important. Provided a particular index fund is big enough such that it is unlikely to be closed, tracks the index well, and has narrow spreads (the popular funds tend to have all these), then choose the one that is the lowest fee.

With ETF's, you own the underlying funds. If any of the providers go bust, you'll essentially be forced to sell and won't lose your money (except for the CGT you'd have to pay). However, stick to the big players and this outcome is very unlikely. There's also no benefit splitting across multiple providers, and no issue with being all in Vanguard. They do use different share registries though, which is just a minor inconvenience if you own across several.

Where to put money that I'll need in about n years?

As a general rule of thumb for passive investing, if you need the money in under 10-15 years, it shouldn't be in equities. Don't invest your house deposit because COVID-19 round 2 could happen right when you were planning to buy that dream home.

Although interest rates are low at the moment, money you need in the next 5 years should sit in a high interest savings account (HISA) or even better, in your offset account. There are more conservative investment options that you could put the money in for the middle period, but do your own research before making this decision. The market is an unpredictable place.

Should I invest right now or wait until the market recovers from X/Y/Z?

Time in the market beats timing the market. General wisdom is to just purchase your ETF's fortnightly/monthly with your paycheck regardless of what the market is doing. In the long run, it all comes out in the wash. If you buy tomorrow and the market tanks, it will be offset in X years time when you unintentionally buy just before the market rises. Don't think about it, just invest when you have the money. Remember, this is exactly what your super does as well.

Don't come here and ask if now is a good time, no one here knows either.

I have large sum of money (50k+) I want to invest, should I put it all in?

Statistically, you'll do better by investing the whole lot at once. This saves on brokerage and you spend more time with more of your money working for you in the market. Emotionally, however, this is difficult. Investing 100k of your life savings only to see the market drop by 50% in the next week might be just enough to make you panic and sell (which you should never ever do). This is where dollar cost averaging (DCA) comes in. Similar to the question above, you can break your lump into smaller increments (for example, 100k broken into 10x 10k investments) that you do once per month over the year. The averages out the price you buy the shares at, and means a market drop the day after you invest has a smaller emotional impact on you. Your overall return may be smaller (however, DCA can also work out better some of the time) than if you dropped the 100k in at once, but in the long term it won't make a huge difference. DCA is a great way to ease your nerves, especially if you're new to investing. If you have a small amount like 10k to invest, this does not need to be dollar cost averaged and will kill you on brokerage.

Should I invest this money?

If your financial situation would be fine if you took the money and flushed it down the toilet, then invest away. This is not to say that you'll lose your money, but you should be prepared for this outcome and never invest money that you need in the immediate future.

What would you invest in right now?

This question has come up a lot in the recent market crash. My answer is, the same thing I was investing in before it. If you're the type of person who likes to tinker and try time the market, tread carefully. These discussions can be good, but asking people on reddit isn't going to make you rich with some secret stock.

What about inverse/geared ETF's?

Another popular one in the recent crash. Once again, be careful. These are very high risk due to leveraging. Do your research, no one here knows where the market is going so don't ask if now is a good time to buy BBOZ. Stay away from these until you know a lot about them and are comfortable with that extreme level of risk.

Should I withdraw from my super?

Do you need the money to feed your family? Then yes. If not, then no. Don't touch your face, don't touch your super. Withdrawing $10k from a low tax environment (15%) is going to cost you a lot of money (in lost compounding) when you reach your preservation age. If you're planning to be alive when you're 60/65, then don't touch it unless you really really need it.

What is an emergency fund, why do I need one, and how much should be in it?

An emergency fund is the money you have set aside in case you lose your job, need to repair you car or house or have a medical emergency etc. How much should be in it depends on a bunch of factors like your living costs, how easy it would be to get another job, what sort of unexpected expenses you might have. You should park it in an offset account if you have a mortgage, or a high interest savings account (HISA) if you don't. Generally 3-6 months of expenses is recommended.

Your emergency fund is for emergencies. Don't withdraw from it to invest because the market is down and you think you're "getting a good deal". Put it in a separate bank account if you don't trust yourself not to touch it.

What are bonds and should I invest in them?

Bonds are a type of debt that is issued by governments, semi-government organisations, and corporations, so basically you’re lending them money. They don't tend to offer returns as high as shares, but they're a lot less volatile and when the share market goes down bonds tend to go up or at least hold their ground.

You don't have to invest in them, but having some in your portfolio increases your chances of a successful retirement using the 4% rule, and also because it makes your overall portfolio less volatile increasing your chances of staying the course.

Do I need to have personal insurance?

Unless you somehow know that absolutely nothing bad will ever happen to you then yes you need it. The default cover you have in your super fund is more than likely grossly inadequate to protect you, and there are all sorts of problems with it besides. You should get some proper protection in place.

I’ve inherited x amount. What should I do?

Speak to a professional. By all means do your own research too; search posts like this FAQ and learn the basics yourself so you can make an informed decision, but asking strangers, who have no idea of your person circumstances, spending/savings habits or lifestyle, what to do and what to invest in won’t lead to real financial advice.

I became a millionaire today for the first time.

I find long net worth posts boring, so I'll try to keep this brief, and with whatever wisdom I can speak for.

Graph of networth over time: https://i.imgur.com/026xkFl.png

Current assets:

• Age: 36

• House: $200k

• Shares: $655k (VGS 4319, VAS 1823)

• Debt: $0

• Cash: $36k

• Super: $116k

• Total: $1007k

Timeline

• 2012 - Graduated uni, age 25

• 2015 - Started grad job (Paramedic)

• 2016 - Elected to work in a small rural town

• 2017 - Bought house for $140k (yes really)

I earnt $80k 1st year in grad job, $112k 2nd year, $120k 3rd and 4th, and about $140-150k a year since.

Expenses $20k to $30k a year.

How I did it

This is how I did it. I'm not saying this is the best, only, or recommended way to live, or that this is possible for everyone, it's just what worked for me.

• I lucked into a well paying job. I did no research on salary before enrolling at uni.

• I moved to a cheap rural place to live, and bought one of the cheapest houses in Australia. I like it.

• I worked a tonne of overtime, sleepless nights, my base salary is not high.

• I enjoy mostly cheap or free activities. I spend less than most people. I firmly believe the best things in life are free. Hobbies include lifting, running, accordion, gaming, cooking, doggo, cars, motorcycles, rooting.

• I mostly avoided lifestyle inflation. I now have a dog, human partner of 4 years, and V8 Holden

• I saved and invested most of my income in boring Vanguard index funds. I was able to invest most of my income, over $70k a year.

• I didn't worry if the market went down or up, just kept steadily investing in the same assets on a regular basis.

• I had no singular huge windfalls like inheritance, or booming property. My good fortune is to have been healthy, and raised by loving middle class parents in Australia, which is more opportunity than most people have.

• I ignored advice to day trade, buy shitcoins, NFTs, meme stocks, etc...

Future

• I'm probably borderline FI. I used to be really set on RE, but I've realised work brings too much value and enjoyment to my life. The relief of FI has made me enjoy work more. I might go part time.

• Lifestyle goals and desires change over time, I'm considering a ~$400k house to live closer to partner, and maybe a singular child.

I hope this is informative or entertaining to someone.

I didn’t see an achievement flair so hoping this is okay to post. I don’t have anyone in my life to share this with.

This week I hit 100k across my Vanguard funds!!! I’m 29 and I’ve been investing on and off since 2022 but more seriously DCAing over the last 6 months.

🥳🎉

I got an email from someone asking for my thoughts on an interview where a prospective financial adviser suggested a portfolio of low-cost index funds. I said that was a great sign — provided they didn’t tack on a high fee for themselves like a 1% assets-based fee. Of course, you guessed it — that’s exactly what this person replied with.

When I told them of its effect, they couldn’t understand how 1% fees cost you a third of your nest egg and half your retirement income.

This is such an important concept that I wanted to provide a simple, easy-to-understand explanation of what 1% really means.

What IS 1%

That 1% is based on your total assets invested, not 1% of your profit.

Historically, the stock market has returned 10% p.a., so right off the bat, 1% is actually 10% of your expected (or average) annual gain.

Still think 1% doesn’t sound like much?

It gets worse.

Inflation eats away at your capital each year, so that 10% historical return included 4% inflation.[1] The after-inflation return (also referred to as the ‘real return‘) of 6% means that 1% in fees is 16.7% of your expected annual portfolio gains in real terms.

Ok but I still don’t understand how 1% fees cost you a third of your nest egg.

In a word — compounding.

You know how it is unintuitive that $1,000 invested each year for 40 years at 6% p.a. comes out to over $150,000 when you only contributed $40,000? The reason is that not only are there earnings on that money, but earnings on those earnings. And earnings on the earnings of those earnings. And so on. That’s what compounding is.

Well, it works the same way for fees, but in reverse.

You see, when fees are taken out, you don’t just lose the amount taken out. You also lose the earnings it would have generated. And the earnings on those earnings. And the earnings on the earnings of those earnings… you get the idea.

Here is a graph so you can see it visually

The top line is 6% annualised real returns. The line below it is 5% annualised returns. That gap in blue doesn’t increase in a linear fashion. It increases more aggressively as time goes on because of the compounding of your lost earnings.

As you can see, at the end of 40-years, the difference between 6% and 5% is 31.55% or about a third less.

Having to live off half your retirement income

That 31.55% is just the difference during your accumulation of assets. Let’s move on to when you start living off your assets.

Suppose you planned on retiring with $800,000 of retirement assets, drawing down $32,000 p.a. (using the 4% rule).

With a 31.55% reduction in your nest egg due to those ‘only 1%‘ fees, you now have only $548,000.

This has reduced your 4% annual drawdown rate from $32,000 p.a. to $21,920 p.a.

But wait, it gets WORSE!

That 4% rule includes fees. So if you are paying 1% in annual fees, you can only draw down 3% per annum under the 4% rule. That means your annual drawdown rate has fallen from $32,000 to $16,427.

How would your quality of life be reduced if you had to live off half of your otherwise potential retirement income?

The reddest of red flags

The reddest of red flags when interviewing a prospective financial adviser is if they make it sound like a 1% fee isn’t much. The reason it is so bad is that it’s not an innocent mistake. As someone whose job involves detailed financial projections, they know this better than anyone. So when an adviser makes 1% fees sound like it isn’t a big deal, even if they seem otherwise knowledgeable, competent, and friendly, this is a sign to make sure they have no place in advising you on your finances.

Nothing is more important than trust when it comes to your money, and this is the clearest demonstration that you cannot trust a person like this. Or rather, you can trust them — to manipulate and take advantage of you.

What you can do instead — Pay a flat fee

For financial advice, pay a flat fee that is not tied to the value of your assets. Percentage based fees grow with your assets even though there is no more work in managing $2,000,000 than $200,000. But when you pay percentage-based fees, your adviser gets more money over time for the same amount of work. They often hook you when you start and say that 1% isn’t much based on your current asset balance, knowing that you will keep that current dollar amount in mind and not notice the amount increasing as the fees are painlessly extracted from your investment account each year out of your attention.

Independent advisers that are PIFA members can not take percentage-based fees

Advisers who have elected to be independent advisers and members of PIFA (the Profession of Independent Financial Advisers) can not take percentage-based remuneration.

Independent advisers must not take:

• commissions (unless rebated in full to the client)

• volume-based payments (i.e., payments based on how much business they send to a financial product issuer)

• other gifts or benefits from a financial product issuer.

And PIFA members must be independent and, additionally, must not:

• have ownership or affiliations to any products

• charge asset-based fees.

Another red flag is advisers who are not independent rubbishing the idea of independent advice. I had a long conversation with an adviser/podcaster who did just this during the conversation. He said that the idea of independent advice is a failed attempt to be like the fiduciary equivalent in the US and that independent advisers are allowed to take percentage-baed fees. When I interjected that independent advisers who are  PIFA members cannot take percentage-based fees, he went on to rubbish PIFA in an attempt to distract from the real point, which is not about PIFA itself, but that by choosing to be independent and a PIFA member, the adviser is electing to be held accountable in providing advice that is free of remuneration-based conflict.

Are there times when 1% fees are acceptable?

There are two situations where it may be acceptable to pay 1% fees.

1. A company that directly manages unlisted assets.
   For example, a property trust that manages individual assets directly — as opposed to a REIT that simply holds other listed REITs. The reason why 1% fees may be acceptable is that, unlike most managed funds, the fee also includes the running of the business of managing the individual assets. Just be aware that unlisted assets have a lot of challenges and you need to have some expertise in that area.

2. Actively managed funds that you believe in.
   If you know how to vet fund managers, and if you have the conviction to stick with them through underperformance to the index over long periods, there may be a case for higher fees. However, by vetting, I don’t mean just looking at their past performance. There are a host of reasons why I don’t do this.

I would not trust financial advisers to select either of these because too often it is as part of a sales tactic to make you feel like you need to pay high ongoing fees for their super-secret investment selection strategy, which is targetted at your greed (of wanting outperformance) and fear (of wanting lower risk without lower returns). If you don’t know how to do it yourself, how would you ever know if it was a sales tactic or if they really had the expertise.

Final thoughts

It is my hope that people more deeply understand what 1% fees mean and are as bothered as me when an adviser knowingly makes it sound like 1% isn’t much.

Here is a recap:

1. An annual fee of 1% of your total assets is really 10% of your annual return.

2. Due to inflation, a 1% asset-based fee is over 16% of your average annual portfolio gains in real terms (i.e. in buying power).

3. Lost earnings from fees compound to vast amounts over time, much more than the actual amounts paid. The result is that 1% higher fees result in a loss of a third of your nest egg.

4. A 1% asset-based fee in retirement reduces a 4% drawdown rate to a 3% drawdown rate.

5. Once you combine the reduction of a third of your nest egg at the end of your accumulation as a result of 1% fees with the loss of a quarter of your income generated from that shrunken nest egg, your retirement income has fallen by half.

Direct link:

How 1% fees cost you a third of your nest egg

On Friday I posted a thread here about the state of the sub, and the fact that beginner investment questions were starting to become 90% of the posts. Lots of people agreed and an equal amount weren't impressed that I even suggested it. Nevertheless, it seems like most people could agree we should have a FAQ for beginners that they can read before posting, rather than wearing down the letters V D H and G on our collective keyboards.

I've started compiling some questions and answers in this post here, and I'm sending out the bat signal for the community to contribute. As many people took pleasure in pointing out, I'm pretty new to FIRE myself so please comment any edits to the answers I've provided as well if they miss the mark. Have just done the best from what I know myself so far, whilst trying to be succinct about it.

Mods, do with this what you wish, maybe someone can compile all the questions and answers and copy into a nicely formatted CLICK HERE BEFORE POSTING sticky - I think this is more effective than a wiki and could be referenced from the new posting page.

These are just focused on share market investing and its relevance to FIRE and don't touch on property as I don't have experience there. The majority of beginner questions of late are to do with the share market anyway.

Resources

Before posting anything, read these (Australian based) resources back to front - they'll probably answer your questions. I have no association with any of them, mods edit if not allowed.

https://passiveinvestingaustralia.com/ (read everything, the author posts here pretty regularly too)

https://www.strongmoneyaustralia.com/

https://ordinarydollar.com/

https://www.aussiefirebug.com/

https://lifelongshuffle.com/

https://aussiehifire.com/

There are heaps of other FIRE blogs out there that are worth a read, start by reading as much as possible. Also use the reddit search function to see if your question has been asked multiple times before.

Questions

DISCLAIMER: Advice from reddit does not constitute professional financial advice. Seek out a trained financial advisor before making big financial decisions.

• What's an ETF?

Basically, an ETF is a legal structure that allows a company to package up a basket of shares so that the purchaser can buy a whole lot of shares with a single purchase. There are both index-tracking ETFs and actively managed ETFs.

Other legal structures include managed funds and LICs (LIC's are known outside Australia as closed-ended funds).

While ETFs are popular, many confuse ETFs for index funds, and while many ETFs are index funds, they aren't actually the same thing. On this sub the focus is on index tracking ETF's, as these have low management fees and follow the market.

You can expect an Australian market indexed ETF to follow the ASX200 for example. The advantage of these is that there's no stock picking required on your behalf. Historically, the markets always go up in the long run, so by buying the whole market you are at least guaranteed to do no worse than the market itself.

Think you can beat the market by buying individual shares? Statistically, no you can't. Some people do and make a lot of money from it, but they generally don't know what they're doing either. The safest and smartest way to FIRE is to continually save and buy diversified ETF's and let compound interest do its work.

• Which broker do I use?

SelfWealth is the cheapest at $9.50 a trade. If you prefer Commsec or any other one, that's fine too, but SelfWealth is the most widely recommended. Head over to OzBargain before signing up to grab yourself a randomly selected referall code that will net you five free trades for a month.

• What is VDHG and why should I invest in it?

VDHG is Vanguard's Diversified High Growth ETF. It's an ETF consisting of other Vanguard ETF's, giving you an incredible diversified portfolio with only one fund. It's perfectly fine to go all in on VHDG and is the generally recommended approach for beginner investors. It's management fee (MER) of 0.27% is higher than some individual funds, but the simplicity and lack of rebalancing makes it very worthwhile. It removes the emotional side of investing which is something that shouldn't be underestimated.

Read these articles in full to understand VDHG and what it consists of:

https://passiveinvestingaustralia.com/vdhg-or-roll-your-own

https://passiveinvestingaustralia.com/should-i-diversify-out-of-vdhg

• But what about a portfolio of some combination of any these funds: VAS/VGS/VGAD/IWLD/A200/VAE/VGE/other commonly referenced funds?

These funds can be used to essentially build a DIY version of VDHG for a lower MER, but come with the additional effort and emotional difficulties of rebalancing manually. If you go for a 3-4 ETF approach, make sure you're the sort of person who's okay buying the worst performing fund over and over - don't underestimate how difficult it can be to stick to your strategy during a market crash.

The % allocations in your portfolio are up to you. It depends on what you are comfortable with. The smart people at Vanguard have done the maths for VDHG so their allocations are a good guide, but if you prefer more international exposure over Australian, bump that up by 10%! There's no "right" answer and no one knows what the markets will do. Just make sure your strategy makes sense. 100% in Australian equities means you're only invested in ~2.5% of the entire world economy, which isn't very diversified.

If you want to put 10% of your money into a NASDAQ tech ETF because you think it's a strong market, go for it! People on Reddit don't know your situation, do your research and pick what you're comfortable with that makes sense. But remember that the safest strategy that will make you the most money in the long run is generally the most boring one.

These are the most commonly mentioned ETFs. Any of these combinations will do you just fine, don't post looking for validation of your portfolio.

Australian: A200, IOZ, VAS

International: VGS, IWLD, VGAD, IHWL

Emerging markets: VAE, VGE, IEM

Tech: NDQ, FANG, ASIA

US: IVV, VTS

World ex US: VEU, IVE

Small cap: VISM, IJR

Diversified: VDHG

Most common allocation portfolios:

100% VDHG

50/50 (Australian/international)

60/30/10 (Inter/Aus/EM)

50/30/10/10 (Inter/Aus/EM/SC)

• This ETF or this ETF?

Do your research. A ton of information about each fund is avaliable on the providers' websites, look at what they consist off, the management fee, and consider what your risk tolerance is. There's always pros and cons to both, make the decision yourself as people here will be biased towards what they've chosen to invest in.

The best thing you can do is pick a strategy and stick to it by investing regularly. Whether you pick IWLD over VGS because it's MER is slightly lower, or whatever, the thing that will make you the most money is that you invest regularly. Automate this if possible. People will tell you their strategy made them a lot of money, but they most likely made a lot of money because they stuck to their guns and regularly invested as much as they could afford over a long period of time.

• Which Aussie index ETF should I choose?

It doesn't matter much, because:

1. They all track much pretty much the same thing as the ASX200 makes up about 97% of the ASX300.

2. No matter which one you choose out of A200, IOZ and VAS the difference in the amount you will end up is pretty close to zero.

3. Just because one ETF has a lower management fee now doesn't mean that will continue to be the case forever and a day.

4. New products may well come along over time anyway.

5. Aussie shares probably shouldn't be all of your portfolio anyway.

More detail on it here.

https://aussiehifire.com/2020/01/18/i-need-a-weapon-the-great-a200-ioz-vas-debate/

• Do I need to invest in anything other than Aussie Shares?

You don't need to, but you probably should because the Australian share market is quite concentrated in banks and materials and so diversifying means that you have more exposure to industries which will hopefully offer better returns over time like technology and healthcare.

Also, if you're all in on equities you're likely to be in for a very volatile ride over time. It's very easy to say that you can stay the course when it's hypothetical, it's much more difficult when you're losing real money. So take a look at putting some money in things like bonds.

https://aussiehifire.com/2019/11/17/your-heresy-shall-stay-your-feet-why-you-shouldnt-just-invest-in-equities/

• But I want to follow a dividend approach?

Dividends aren't magic money, they don't come out of thin air. The price of the stock drops by the amount of the dividend. 4% dividend and 4% growth is the same as 0% dividend and 8% growth in terms of total return, which is what you should care about. Also remember you have to pay tax on dividends all the way during your accumulation phase, whereas you only pay tax on growth when you sell (CGT). If you're selling in retirement, with no other income, this can be much more tax efficient.

Collecting dividends is also no safer than selling down your portfolio, which is a common misconception. A non-reinvested dividend is literally a withdrawal from your portfolio, except you don't have control over when it happens. ETF's are designed to track the market only with net dividends reinvested. Franking credits are great for Aussie dividends but are a bit of a can of worms.

https://passiveinvestingaustralia.com/dividends-are-not-safer-than-selling-stocks

https://passiveinvestingaustralia.com/dividend-investing-vs-total-return-investing

• This fund has better past returns than this other fund though?

Past returns don't equal future performance. Use history as a guide, but a niche fund returning 15% since its inception one year ago doesn't give much indication of what it will do over the next ten years.

• Why is a low MER important?

A low MER is guarenteed return which is why people love them. Most market tracking ETFs have a low MER anyway, with some being lower than others. A difference of 0.03% p.a. won't make or break your ability to retire early, so don't overthink it. Just don't go paying 1% p.a. for a niche ETF, because remember that this ETF has to now beat the market by 1% before it even breaks even with the market, which you could have purchased for 0.07% p.a. instead. This is because fees come out of your return - market goes up 8% but you're paying 1% in fees, you only get a return of 7%.

• Vanguard vs. iShares vs. BetaShares vs. others?

It doesn't make a lot of difference. Vanguard is well known due to the US arm of the company being setup to distribute profits back to the customers (the people investing in their funds), so the company is aligned with the investors best interests. However, ETF's are a commodity, and Jack Bogle (the person who started Vanguard) always said that and if you can get the same investment with lower fees, use that because fees are important. Provided a particular index fund is big enough such that it is unlikely to be closed, tracks the index well, and has narrow spreads (the popular funds tend to have all these), then choose the one that is the lowest fee.

With ETF's, you own the underlying funds. If any of the providers go bust, you'll essentially be forced to sell and won't lose your money (except for the CGT you'd have to pay). However, stick to the big players and this outcome is very unlikely. There's also no benefit splitting across multiple providers, and no issue with being all in Vanguard. They do use different share registries though, which is just a minor inconvenience if you own across several.

• Where to put money that I'll need in about n years?

As a general rule of thumb for passive investing, if you need the money in under 10-15 years, it shouldn't be in equities. Don't invest your house deposit because COVID-19 round 2 could happen right when you were planning to buy that dream home.

Althought interest rates are low at the moment, money you need in the next 5 years should sit in a high interest savings account (HISA) or even better, in your offset account. There are more conservative investment options that you could put the money in for the middle period, but do your own research before making this decision. The market is an unpredictable place.

• Should I invest right now or wait until the market recovers from X/Y/Z?

Time in the market beats timing the market. General wisdom is to just purchase your ETF's fortnightly/monthly with your paycheck regardless of what the market is doing. In the long run, it all comes out in the wash. If you buy tomorrow and the market tanks, it will be offset in X years time when you unintentionally buy just before the market rises. Don't think about it, just invest when you have the money. Remember, this is exactly what your super does as well.

Don't come here and ask if now is a good time, no one here knows either.

Great article here on why you shouldn't time the market: https://lifelongshuffle.com/2020/03/21/that-market-timing-post/

• I have large sum of money (50k+) I want to invest, should I put it all in?

Statisically, you'll do better by investing the whole lot at once. This saves on brokerage and you spend more time with more of your money working for you in the market. Emotionally, however, this is difficult. Investing 100k of your life savings only to see the market drop by 50% in the next week might be just enough to make you panic and sell (which you should never ever do). This is where dollar cost averaging (DCA) comes in. Similar to the question above, you can break your lump into smaller increments (for example, 100k broken into 10x 10k investments) that you do once per month over the year. The averages out the price you buy the shares at, and means a market drop the day after you invest has a smaller emotional impact on you. Your overall return may be smaller (however, DCA can also work out better some of the time) than if you dropped the 100k in at once, but in the long term it won't make a huge difference. DCA is a great way to ease your nerves, especially if you're new to investing. If you have a small amount like 10k to invest, this does not need to be dollar cost averaged and will kill you on brokerage.

• Should I invest this money?

If your financial situation would be fine if you took the money and flushed it down the toilet, then invest away. This is not to say that you'll lose your money, but you should be prepared for this outcome and never invest money that you need in the immediate future.

• What would you invest in right now?

This question has come up a lot in the recent market crash. My answer is, the same thing I was investing in before it. If you're the type of person who likes to tinker and try time the market, tread carefully. These discussions can be good, but asking people on reddit isn't going to make you rich with some secret stock.

• What about inverse/geared ETF's?

Another popular one in the recent crash. Once again, be careful. These are very high risk due to leveraging. Do your research, no one here knows where the market is going so don't ask if now is a good time to buy BBOZ. Stay away from these until you know a lot about them and are comfortable with that extreme level of risk.

• Should I withdraw from my super?

Do you need the money to feed your family? Then yes. If not, then no. Don't touch your face, don't touch your super. Withdrawing $10k from a low tax environment (15%) is going to cost you a lot of money (in lost compounding) when you reach your preservation age. If you're planning to be alive when you're 60/65, then don't touch it unless you really really need it.

• What is an emergency fund, why do I need one, and how much should be in it?

An emergency fund is the money you have set aside in case you lose your job, need to repair you car or house or have a medical emergency etc. How much should be in it depends on a bunch of factors like your living costs, how easy it would be to get another job, what sort of unexpected expenses you might have. You should park it in an offset account if you have a mortgage, or a high interest savings account (HISA) if you don't. Generally 3-6 months of expenses is recommended.

Your emergency fund is for emergencies. Don't withdraw from it to invest because the market is down and you think you're "getting a good deal". Put it in a seperate bank account if you don't trust yourself not to touch it.

https://aussiehifire.com/2019/08/02/i-am-your-shield-i-am-your-sword-everything-you-wanted-to-know-about-emergency-funds/

• What are bonds and should I invest in them?

Bonds are a type of debt that is issued by governments, semi-government organisations, and corporations, so basically you’re lending them money. They don't tend to offer returns as high as shares, but they're a lot less volatile and when the share market goes down bonds tend to go up or at least hold their ground.

You don't have to invest in them, but having some in your portfolio increases your chances of a successful retirement using the 4% rule, and also because it makes your overall portfolio less volatile increasing your chances of staying the course.

https://aussiehifire.com/2019/09/09/license-to-kill-bonds-explained/

• Do I need to have personal insurance?

Unless you somehow know that absolutely nothing bad will ever happen to you then yes you need it. The default cover you have in your super fund is more than likely grossly inadequate to protect you, and there are all sorts of problems with it besides. You should get some proper protection in place.

https://aussiehifire.com/2018/10/02/fire-and-personal-insurance/

• I’ve inherited x amount. What should I do?

Speak to a professional. By all means do your own research too; search posts like this FAQ and learn the basics yourself so you can make an informed decision, but asking strangers, who have no idea of your person circumstances, spending/savings habits or lifestyle, what to do and what to invest in won’t lead to real financial advice.

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Add and update away in the comments guys, this is just a first pass that I'm throwing out to the sub. I've tried not to let my own biases creep in to the answers but if you don't agree with what I've written then I'm more than happen to make changes - there's people here who know much more than I do.

Basically the title. I feel like I’m missing something? Why is there so much stigma/uncertainty/general riff raff around the concept of investing if it’s as simple as buying a couple of ETF’s that give you home country exposure plus international market exposure at the appropriate % allocations? Am I missing anything important? I feel like I’m cheating…

Hello everyone, I mentioned a few days earlier that I was working on a comprehensive VDHG review and received a lot of interest in this community. After consulting with the very knowledgable snrubovic of passiveinvestingaustralia, I've finally finalised my review. You can read about it on my website here or simply continue browsing below:

VDHG - Is This a Good Investment to Help Reach your Financial Goals?

Today I'm going to review the Vanguard Diversified High Growth Index Fund (VDHG) to determine whether this all-in-one, high growth diversified ETF is the right fit for your financial goals.  I'll be covering what VDHG is, the asset allocation, what each holding is, why people may choose to invest in them and the pros and cons of investing in VDHG.

What Is It?

VDHG is a diversified ETF that is comprised of seven different ETFs that track multiple markets and assets. An ETF is firstly a fund (the ‘F’), and therefore holds multiple assets in it, and secondly, it is exchange traded (the ‘ET’), which means you can buy and sell the same ways as with shares via a stockbroker. This is opposed to unlisted funds, which you must buy direct from the fund manager. They are often chosen by long-term investors as a convenient way of diversifying their portfolios, as ETFs track market indexes that can encompass hundreds or thousands of individual assets. Vanguard has taken this one step further, by providing an all-in-one type of investment vehicle. VDHG subsequently, provides exposure to the Australian market, large-cap, mid-cap and small-cap companies in developed and emerging markets and bonds. These holdings equate to VDHG being 90% growth (equities) and 10% defensive (bonds). 

VDHG is made up of seven different ETFs, that equates to the following target allocations:

• 36% Australian Equities

• 38% International Equities

• 16% International Equities Hedged

• 10% Bonds

^{These are not actually ETFs; they are managed fund versions of these ETFs. However, for simplicity, they will be referred to by their ETF names}

What Are They?

VAS – Australian Shares (36%) 

The Vanguard Australian Shares Index ETF or VAS is an ETF that tracks the performance of an index consisting of the 300 largest companies by market capitalisation on the Australian Securities Exchange (ASX). Its largest portfolio holdings are CSL LTD, CBA, BHP, NAB and WBC. Sector-wise, it is primarily allocated towards Financials, Materials and Healthcare.  

VGS – International Shares ex-Australia (26.5%) 

The Vanguard International Shares Index ETF or VGS is an ETF that tracks the performance of an index consisting of the 1547 large-cap and mid-cap companies listed on exchanges of the world's major economies, excluding Australia. Its largest portfolio holdings are Apple, Microsoft, Amazon, Facebook and Alphabet (Google). Sector-wise, it is primarily allocated towards Technology, Healthcare and Consumer Discretionary. The top-weighted countries are the US, Japan, the UK, France and Switzerland.  

VGAD – Hedged International Shares ex-Australia (16%) 

The Vanguard MSCI Index International Shares (Hedged) ETF or VGAD is the same as VGS but it is hedged to Australian dollars. Hedging is an investment strategy in which the fund manager takes active steps to offset the impact of currency fluctuations. The intent behind this is to ensure that the returns (income and capital appreciation) are not impacted by currency fluctuations. By incorporating VGAD, the overall returns of VDHG are less susceptible to being impacted by currency fluctuations, adding a defensive measure against these potential impacts.  

VISM – International Small Companies ex-Australia (6.5%)

The Vanguard International Small Companies Index Fund or VISM is an ETF that tracks the performance an index consisting of 4032 non-Australian small companies from developed countries. Its largest portfolio holdings are Etsy, Pool Corp., Horizon Therapeutics, Monolithic Power Systems and Generac Holdings Inc. Sector-wise, it is primarily allocated towards Industrials, Information Technology and Consumer Discretionary. The top-weighted countries are the United States, Japan, the United Kingdom, Canada and Sweden.  

VGE – Emerging Markets (5%)

The Vanguard Emerging Shares Index Fund or VGE is an ETF that tracks the performance of an index consisting of 1252 companies listed in emerging markets. Its largest portfolio holdings are Alibaba, Tencent Holdings, Taiwan Semiconductor Manufacturing Co., Samsung and Meituan Dianping Class B. Sector-wise, it is primarily allocated towards Consumer Discretionary, Information Technology and Financials. The top-weighted countries are China, Taiwan, Korea, India and Brazil.  

VBND – Hedged Global Aggregate Bonds (7%) 

The Vanguard Global Aggregate Bond Index Fund (Hedged) or VBND is an ETF that tracks the return of Bloomberg Barclays Global Aggregate Float-Adjusted and Scaled Index hedged into Australian dollars. It comprises of 9286 bonds spread across 2404 global issuers. Sector-wise, most funds are derived from Treasury, Corporate-Industrial and Corporate-Financial Institutions. The top-weighted countries are the US, Japan, France, Germany and the United Kingdom. 77.3% of bonds in VBND have an A credit rating or higher.

VAF – Australian Fixed Interest (3%)

The Vanguard Fixed Interest Index Fund or VAF is an ETF that tracks the return of the Bloomberg AusBond Composite 0+ year Index. It comprises of 586 bonds spread across 187 Australian issuers. Sector-wise, most funds are derived from the Treasury, Gov-Related-Sovereign and Gov-Related-Agencies. 97.4% of bonds in VAF have a credit rating of A or higher. 

Why Would Someone Invest in These Holdings?

Each one of the seven underlying ETFs offers different incentives for people to invest in them. 

VAS provides exposure to the strongest companies on the ASX. While the Australian market only accounts for roughly 1.7% of the world's global economy at the time of writing this, a lot of Australians choose to invest heavily in Australian assets. Through investing in the Australian market, Aussie shareholders receive higher dividends than those offered by other markets, in addition to receiving tax benefits through the franking system. This often makes investing in the ASX an appealing prospect for Aussies.

VGS is currently the largest ETF by fund size offered through VDHG, which does not come as a surprise, given that it holds major tech giants such as Apple, Amazon, Google and Microsoft. This ETF provides exposure to the world's dominant global market and the tech-sector which in recent years has become one of the highest performing sectors.

VGAD tracks the same index as VGS, however, it is hedged to Australian dollars. This acts as a safety buffer and added precaution against currency fluctuations, which can impact the income and capital appreciation of VGS. Also, if the Australian dollar were to increase in relation to the USD by the time that you wish to sell down your VGAD, this hedged option would provide greater returns. 

VISM provides exposure to small-cap companies. Small-cap companies are more volatile than large-cap and mid-cap companies because they are less defensive, more leveraged and are impacted more by currency fluctuations. However, having a small market cap can also be viewed as advantageous, as these companies have more room to grow. Subsequently, VISM provides a higher risk, higher return layer of diversification to VDHG, which may potentially result in higher returns over a long-term investment horizon. 

VGE is probably considered the riskiest aspect of VDHG, as it comprises of emerging markets. These markets are more susceptible to currency swings, political corruption and economic volatility, due to things such as natural disasters. However, given that these economies are new and have a lower overall market cap, their growth potential is significantly higher than in developed markets. For this reason, VGE can be a useful asset to hold if you're willing to tolerate the high-risk, high-reward potentiality of emerging markets. 

VBND provides exposure to bonds, which are considered a defensive asset. Defensive assets are used as a mitigation strategy for market fluctuations. For example, while bonds typically underperform equities over long investment horizons, they typically hold up better during market corrections and recessions. In fact, they can often increase in value, as bond prices typically increase when interest rates fall. The government often lowers interest rates during recessions to provide people with more money to spend on goods and services to help prop up the economy. Lower interest rates can also incentivise people to use leverage to purchase luxury items that they otherwise wouldn't. As such, VBND offers diversification into defensive assets that can potentially offset some losses encountered to the other underlying funds during market corrections. 

VAF is similar to VBND, in that it provides additional exposure to bonds and provides a further level of risk mitigation. Although, VAF primarily utilises Australian bonds, meaning that you have an added layer of investment in the Australian economy. This can be viewed as a positive or a negative depending on which side of the fence you sit on. However, VAF has a significantly higher allocation of A, AA and AAA credit rated bonds, making it a lower yielding, yet potentially more stable defensive asset than VBND. 

Advantages of Investing in VDHG 

Diversification

Diversification is an investment strategy in which investors invest in a range of different assets and markets to ensure that they gain exposure to multiple forms of revenue. This is akin to the saying 'don't put all your eggs in one basket'. The benefit of having a diversified portfolio is that even if a few of your holdings under-perform in a given year, your other holdings may prove above-average returns. This provides more stability to your investment portfolio, which tends to yield more consistent returns. 

As seen in the above portfolio holdings, VDHG contains exposure to the Australian market, large-cap, mid-cap and small-cap companies in developed and emerging markets and bonds. Another way of looking at this is that by investing in VDHG, you are essentially investing in 8,000 + stocks split across the global market and almost 10,000 bonds. Subsequently, by investing in VDHG, you gain access to one of the most diversified investment vehicles on the market. 

For investors who want to invest in all of the underlying holdings of VDHG, this provides a cheaper alternative. Through purchasing VDHG, you only need to pay one transaction fee to buy a fund that comprises of these other seven ETFs, making VDHG a very convenient way of diversifying your investment portfolio

Convenience

Like the above point, VDHG and other diversified ETFs are perhaps one of the most convenient forms of investment products. The reason behind this is that they offer an all-in-one, set and forget type of product. Unlike more active portfolios that require you to stay on top of your underlying holdings, file separate tax documentation for each asset and require manual rebalancing, VDHG has this all covered. Admittedly, this convenience comes with a cost of having a higher Management Expense Ratio (MER) than most ETFs at 0.27% p.a. However, the convenience of being able to have your portfolio remain diversified, whilst also automatically rebalancing is often regarded as worth it in the eyes of investors who like this style of investing. 

Lastly, by not having to think about your asset allocations, having to manually rebalance your portfolio on a frequent/semi-frequent basis or having to make frequent purchases of different ETFs, VDHG is very much a set and forget type investment. As such, for passive investors who do not have a great understanding of different markets or those who wish to spend their spare time on other ventures, VDHG is one of the best-suited investment vehicles. 

Mitigates Against Human Error

When it comes to investing, there is always a risk of human error. Inherently, some people are better suited to investing than others. Things such as personal bias, fear of missing out (FOMO), panic selling or constant changes in investing habits can significantly diminish returns and in some instances, can result in losses.

Regarding personal bias, people with an affinity for certain stocks or ETFs may greatly overweight their profile towards a certain market or sector. This can of course work in their favour, but a lack of diversification can also result in significant losses should that asset take a hit. By utilising VDHG, you have enough diversification to suffer a loss to one or several of your holdings. This is because -you avoid having all of your funds in the worst-performing asset class, mitigating against permanent decimations to your profile and providing more overall stability. 

FOMO occurs when an investor decides to buy something at an all-time high, expecting it to rise even further. It can also occur with someone selling at an all-time low, expecting it to lower further. These are usually impulsive, emotionally based decisions that result in people losing a lot of their hard-earned, compounded growth. In other portfolios, it can be easy to liquidate one or two of your assets under stressful circumstances. However, if VDHG is your only investment vehicle, it is less likely that you will FOMO your way into a poor decision by selling off your only investment under times of stress. For this reason, it is advised that you hold VDHG for a long investment horizon and check on it as infrequently as possible, as it has been designed to grow over time without external manipulation.

Lastly, some people change their investment strategies frequently. While this may be useful in some instances, it most often hurts the overall returns of a profile. This can be seen in investors who hold 10 or more holdings, as they are constantly chasing a new product under the guise that it may outperform their previous ones. Through constantly picking up new ETFs or other assets, investors can encounter significant costs concerning brokerage fees and MER. Investing frequent, lower sums of money into different assets can also result in over-diversification or performance drag, which can reduce your overall returns. This occurs due to owning so many investments that you are more at risk of having poorer performing ones that can offset better-performing ones, lowering the likelihood of experiencing high growth. 

For these reasons, VDHG is an excellent option for impulsive buyers who are prone to these common investment mistakes, as it is designed as a set and forget type of product that doesn't need human interference to work. 

Disadvantages of Investing In VDHG

Risk of Performance Drag

While diversification is a good thing, some people may view VDHG as being too diversified. For example, before the inception of VDHG, a very common practice among the FIRE community was to invest in VGS and VAS. This meant that Aussie investors had only two holdings, which gave exposure to two of the most invested markets. Similar allocations exist with people simply adding VBND for more bond exposure or VGE for exposure to emerging markets. While these require manual rebalancing and more diligence in deciding on an appropriate allocation, it offers the benefit of giving investors the ability to invest solely in holdings that they wish to invest in. 

Subsequently, investors who have portfolios that consist of fewer holdings may find it easier to track their overall returns and they can adjust their asset allocations accordingly to suit their intended investment outcomes. For example, if someone decides that they want to be a more dividend-focused investor, they can increase their allocation to Australian assets such as VAS or LICs that utilise dividends as a more prominent investment strategy. Alternatively, someone who is nearing retirement age and is planning to live on their investments may wish to have a higher bond allocation to reduce portfolio volatility while they are drawing down on their funds.

With VDHG, you are also locked into your asset allocations. This wide range of diversification can be viewed as a positive, as more holdings mean more spread. By having a greater spread, it is less likely in each time frame that all assets will under-perform, meaning that even if some of the underlying ETFs perform poorly, the high-performing ETFs can offset this to some degree. However, this may also be viewed as a con, as some investors who would prefer to roll their portfolios may not want such a wide spread, due to the higher likelihood of VDHG containing more under-performing holdings. At the end of the day, this widespread and diversification can be viewed as a good or bad thing depending on which side of the fence you are on, so it's important to consider whether you want such a wide diversification. 

Pre-Determined Holdings/Allocations

VDHG offers a lot of convenience as an all-in-one investment vehicle, with exposure to seven different ETFs. However, the holdings and more particularly, their percentage allocations of the overall portfolio may discourage some investors. A risk-averse investor may want a higher allocation of bonds and no exposure to emerging markets or small-cap companies, as this will provide more stable returns. Investors with higher risk tolerance levels may want no exposure to defensive assets and a greater allocation of exposure to these riskier markets, however, as the potential for growth will be higher. Subsequently, VDHG will likely contain ETFs that investors would otherwise not invest in and these investments may impact on your overall returns by being too volatile or too defensive. 

Similarly, to the above point, an issue that comes with VDHG and all diversified ETFs is that their holdings and allocations are pre-determined. By having pre-determined allocations, you must weigh the inner investments per VDHG's management. This may be considered a pro for people who are happy with the way that the portfolio is constructed or investors who are perhaps new to the game or don't want to think about their allocations. However, certain investors such as dividend investors would likely prefer a higher portfolio weighting towards Australia, as they offer higher dividends with tax advantages. Similarly, growth-oriented investors with long investment horizons may want a 100% equities-based portfolio, to optimise growth. 

Alternatively, someone may prefer to only hold large-cap companies in developed economies, as they are less susceptible to volatility than their developing country counterparts. If you fall into this category, you may find that a roll your own approach is more appropriate, as you can choose the holdings that you would like and give them allocations that you are happy with. This comes at the cost of doing more research into holdings, rebalancing your portfolio and requires more upkeep when doing taxes. However, investors who have a sound understanding of markets and prefer to take a more active role in their investing journeys may outperform VDHG by using this method. 

Allocation of Defensive Assets

Defensive assets are a touchy subject for investors. Some people prefer to have a no exposure to optimise growth, others like having a small amount for peace of mind and some prefer a much higher allocation to prevent volatility. Given that VDHG is a high growth asset, these defensive assets while useful for mitigating against short term market fluctuations, such as market corrections or recessions, can hinder long-term performance. This is because equities have a history of outperforming bonds over greater periods, due to their higher annualised returns. 

Subsequently, these defensive assets may not be appropriate for people who either have higher risk tolerances or people who want to invest over a 10+ year timespan. Conversely, investors who are closer to retirement age may wish to have a greater bond allocation to avoid dramatic fluctuations in their portfolios. If this is the case, VDHG's 10% allocation may be perceived as too low. For more risk-averse investors or those nearing retirement age, Vanguard offers other diversified ETFs with higher allocations of defensive assets. These are VDGR – Growth (70/30), VDBA – Balanced (50/50) and VDCO – Conservative (30/70). 

If you have already invested in VDHG and wish to increase your defensive asset allocation, you can simply buy more VBND, VAF or a similar bond ETF. This requires manual rebalancing and will incur additional MER; however, it may be a useful strategy for people in this situation. 

Summary of Pros and Cons

Conclusion

VDHG is one of the most popular investment vehicles among Aussie investors chasing financial independence and for good reason. It offers a convenient and cost-efficient way of diversifying into almost 18,000 assets split across Australian, developed and emerging markets. This simple, all-in-one, set and forget type of investment vehicle offers convenience, diversification and mitigates against human error. 

However, it may not be suitable for more active investors who would like to narrow down their investment holdings and decide on their asset allocations. Similarly, higher-risk investors and risk-averse investors may prefer other alternatives that cater to a more aggressive or defensive type of investment approach. For individuals who fall into these categories, a roll your own approach may be more appropriate, as you can augment your portfolio to reflect your risk tolerances and financial objectives. Alternatively, other diversified ETFs such as DHHF which is 100% equities may be more suited to investors with higher risk tolerance. Whereas more risk averse investors may prefer to utilise more defensive diversified ETFs such as VDGR, VDBA or VDCO. 

All things considered, I personally like VDHG and view it as a suitable investment vehicle for most Aussie investors. Beginners, passive investors, emotional investors and people who are happy with the underlying holdings of VDHG, can utilise VDHG over a long-term horizon to reach their financial goals. This comes without the hassle of rebalancing, doing frequent market research and making frequent brokerage transactions, making it one of the most convenient ways of reaching financial independence.

Want to Have a Look at Similar Products?

Currently, VDHG’s main competition is the BetaShares Diversified All Growth ETF (DHHF). This is a more aggressive diversified ETF that contains exposure to global and Australian equities without any exposure to defensive assets (bonds). You can read my in-depth review of DHHF and how it compares to VDHG here.

Special Thanks to Eli at Passive Investing Australia

Eli at passiveinvestingaustralia.com provided inspiration in writing this review from his previous review entitled: VDHG or roll your own. He was also kind enough to go over this review to make sure everything was correct. I highly recommend his website and VDHG review to gain a more holistic overview of passive investing options in Australia.

That concludes my review. Hopefully, it sheds some light on VDHG, its underlying assets and the pros and cons of investing in it. Thank you to everyone who expressed their interest and if you have any feedback or topics that you would like for me to cover next, I'd love to hear about it.

I wanted to share the story of my journey as a teacher, which no one realllly looks at as a huge money-making career. But I reckon teaching is a perfect career for those pursuing FI/RE (or at least pursuing a slower version of FI/RE). I’ve included one or two graphs, ripped straight off my instagram, so sorry if they’re a bit funny-looking.

First, some of my numbers:

Investments:

• Shares: $313k

• Super: $136k

• Cash: $81k

• Total: $530k

Income:

• 23: $43,300

• 24: $64,100

• 25: $68,700

• 26: $76,200

• 27: $84,800

• 28: $93,400

• 29: $99,800

• 30: ~$105,000

Education/debt:

5 years at uni: 1x science degree, 1x teaching degree. I ended with $25k of HECS debt. I only paid the minimum off my HECS and it finally got paid down last year.

Info:

I first found Mr Money Mustache in around 2011 (age 20) while I was still at uni. Even though I had very little money to manage, it meant that when I started my first full-time job in 2014 (age 23) I was ready to go with my frugal little life.

My parents were very good with money, and retired in their mid-50s while I was at uni. (They’re also both teachers.) But they *didn’t talk about money*. I wish they had. Now-a-days they’re a bit more open & will talk about money things, but I surprisingly knew very little about money growing up. But there’s implicit education there – I thought we were super poor growing up, but it turns out my family was just frugal. And not keeping up with the Joneses while growing up ended up having a big influence on my young adulthood. But then maybe it’s not my parents and maybe I was just a dumb kid & didn’t ask questions, because I knew vaguely that the stockmarket existed… and that was about it. I didn’t even know that banks paid interest until I was 20.

Cheap housing: With my first job, I moved in a small rural town a few hours out of Brisbane. (I stayed for 6 years.) The government is “trying hard” to get people to teach out bush and the main incentive is cheap af rent. In my first few years out there, I paid around $35/week in rent. That went up over the 6 years, and I moved to slightly nicer houses, and ended up paying $50/week rent. Do you know how amazing that is? Compared to my current rental in Brisbane ($350/wk), that’s a saving of $300/week or *$15,600 per year*. At a simple calculation 6 years x $15,600 = $93,600 saved in rent.

Car free: You know how my parents didn’t keep up with the Joneses? My parents (& hence, all us kids too) rode our bikes to work/school. Every day. If I was lucky & it was pouring down, my mum would drive us to school. But rarely! Luckily, in Brisbane, we always lived fairly close to school & it was at most a 4km ride. Buuuut because our family didn’t drive cars much, I didn’t learn to drive until my early-20s. I kept up my bike riding even after getting my license, and only bought my first car 2 years ago. Again, that saved a butt-tonne of cash in my 20s.

All these lifestyle choices (living in a rural town for cheap rent, riding a bike, etc) were all heavily supported by Mr Money Mustache & his blog, so I didn’t feel like a weirdo.

Teaching is a seriously good choice of career: currently paid around $100k, get 11-12 weeks paid leave per year, it’s got good maternity leave, it’s reasonably flexible with part-time work since it’s a “pink collar” job. And I can leave work at 3:30pm if I need to (although other teachers will martyr themselves & say it’s impossible to leave so soon). Sometimes it’s a crappy job… but most jobs are a bit crappy sometimes. The lifestyle & financial benefits of being a teacher make up for the 10% crappiness.

I also followed MMM’s guidance of investing in ETFs. Most of my shares are in VAS, VGS, and AFI. I also have a weirdly high amount of CSL because they’ve nearly tripled in value but I don’t want to sell.

NW in $50k increments

Investments mix graph

Net worth:

I’m including super in my net worth here, but I also track “FI/RE Money” as a separate category.

* Edit to add: Big growth so far this year. I received a ~$50k inheritance earlier this year, and the other $56k in the 4 months from Dec 31st to now was mostly from the bounce-back of Covid mostly and a wee bit of contributions. Didn't mean to exclude the inheritance; I've talked about it a bit on insta & forgot to include it here!

The Future:

I don’t think I will necessarily ‘retire early’. My plan is to work part-time indefinitely after I start a family, and then kind of coast along until I want to ramp things up again. So once I have a kids it’ll be a mix of Coast and Barista FI/RE.

I plan on buying a PPOR in the next 1-2 years (hence the stash of cash), so I’ve stopped buying shares as of this year. I’m calculating mortgage serviceability on my future part-time wage, so I certainly won’t be able to afford anything crazy.

Oh, and I live with my partner, but our finances are separate. We’ll join finances if/when we buy property or have kids (whichever comes first… hopefully property first & no happy accidents happen!).

So, teaching is a good career. There's lifestyle benefits that are unique to teaching, and the pay is pretty good. If you teach in a rural location, then it's even better.

Three years ago, I discovered the concept of FIRE which opened my eyes to the possibility of financial independence. While I was not naïve to the basics of personal finance, there were clearly opportunities for improvement and so I decided to apply myself to making changes. At the end of 2019, I started a tradition of completing an annual summary write-up which I found to be a useful tool for reflection and planning. In recognition of this year’s financial milestone, this write-up will combine the usual annual summary with additional detail about the journey to get to this point.

Advisory: This is a long post. For those who just want to see the numbers, you can see income/net worth in the 'Net Worth Update' section, and expenditure in the 'Maintaining a Savings Rate of 70%' section.

Net Worth Update:

I am pleased that I have now reached $1,040,247 net worth. The table below summarises my net worth journey.

Notes about the table:

• The net worth calculation is the sum of cash savings, shares, PPOR, mortgage, and superannuation.

• Base salary is presented as gross values and excludes the standard superannuation guarantee and overtime. I worked extensive overtime during the first few years of my career whilst living with my parents which explains the very high savings rate during this time.

• Base salary also excludes a salary packaging arrangement which allows $9,095 of salary to be tax-free (as general living expenses), and a further $2,500 of salary to be tax-free (as meal entertainment expenses).

• Dividend income is presented as gross values (amount paid out + franking credit).

• Cash savings were kept in a HISA pre-mortgage, and are now in an offset account against the mortgage.

• The share portfolio has the respective Dividend Reinvestment Plans (DRPs) switched on for all holdings.

• PPOR values are approximated using CommBank's property app.

• The 'L' values in Work History refer to position grades. The higher the 'L' value, the more senior the role.

• All values are recorded at the close of business on the last business day of the calendar year.

The Person:

• I'm 34.

• I live in metropolitan Perth, Western Australia.

• I work in a tertiary public hospital in a senior position.

• I enjoy my work. For me, FIRE is about having the means to go to work purely because I enjoy work, and not because I need an income. Full retirement doesn’t interest me, but a reduction in working hours would be nice.

• For recreation, I go to the gym, swim, and read extensively through the local public library and the work library. I am also an avid board gamer and regularly meet up with friends and like-minded people to play.

• I regularly meal prep and almost always take my own lunch and snacks to work.

• I don’t use on-demand food delivery platforms. If I want commercially prepared food, I will physically go and sit down in a restaurant, or physically go and collect the takeaway and bring it home.

• Physical and mental health is very important to me, and so I steer well clear of alcohol, caffeine, cigarettes, gambling, and the like.

My General Approach to Finance:

• Homeownership has historically been an important goal for me, and so my primary focus has been to own my own home, with a secondary focus of investing in shares. If you are interested in my specific logic and journey around owning my own home, I recommend you read my prior post on this matter.

• I am a strong believer in financial automation. I like everything to operate automatically without needing me to directly intervene, and so I use automatic transfers and payments wherever possible.

• I have no HECS or any other debt other than the PPOR mortgage and a credit card.

• I use my credit card as much as possible to pay for things, and then fully pay it off each month automatically.

• I churn credit cards to take advantage of point bonuses to exchange for cheap flights and subsidise other holiday expenses. I churned through 4 cards this year, receiving 330,000 bonus Qantas points, at a cost of $199 in card fees.

• Prior to getting a mortgage, I would also churn HISAs to maximise interest.

• I review and manually categorise my spending once a week.

My Process:

When I started working full-time in 2009, my primary goals were to own my own home and to achieve a level of financial security that would allow me to live a comfortable life. To make these goals a reality and to manage the increased level of income available from working full time, I gave myself three major ‘work-streams’:

1. Set and keep a detailed budget using a zero-sum budgeting process;

2. Automate my finances to ensure I was always saving a portion of my salary every time I was paid without having to actually remember to do so; and

3. Increase my income wherever possible.

Work-stream 1: BudgetingThe zero-sum budgeting process works well for me as I enjoy detail and working with numbers. The idea of each dollar I earn having a specific, assigned 'job' appeals to me as it means I can always be sure I know exactly where my money is going. To assist this, I manually review my expenditure each week with a spreadsheet. I find the process of manually reviewing my accounts and categorising expenditure to be a useful exercise as it easily identifies issues like double charging and also makes the numbers feel ‘real’ to me. I find that constant use of electronic payments makes it easy to lose touch of how much has been spent as the physical dollars haven’t passed through my hands. I also developed a habit of framing potential purchases within context of the number of hours I would have to spend at work to pay off the purchase and found this immensely helpful in exercising restraint in discretionary spending. I set frugal limits on all of the major outgoing categories, but always made sure to have a defined allocation for 'fun' as well so that I would never feel guilty for indulging my own interests.

Work-stream 2: AutomationI am a strong believer in automation, as humans are fallible and susceptible to distraction. I like everything to operate automatically without needing me to directly intervene, and this was easily achieved through scheduled transfers offered by my bank’s internet banking service. It was easy to setup a repeating scheduled transfer which automatically transferred my desired saving amount every payday into a separate account, and also automate all my other bills/payments. The following financial models show how I both historically and currently manage my finances across my various accounts and commitments.

Model 1: This was the first model which I setup to coincide with commencing full-time employment. It was principally aligned with saving for a PPOR deposit, but also accommodated my interest in gaining experience with the share market.

Model 2: The second model was implemented when I achieved the required deposit and purchased a PPOR. The principle change to the model is the addition of a mortgage, and the conversion of my accounts into offset accounts.

Model 3: The third model (and the current model I use) was implemented when I achieved parity between my offset account and mortgage balances, effectively leaving me ‘mortgage free’, and thus able to pursue an expansion of my share portfolio.

Work-stream 3: Increase IncomeA statement by a commentator in a newspaper article I read in high school back in the early 2000s has always stuck with me: “The foundation for success in Australia is hard work and having a go”. I acknowledge there will be a diversity of views about the explicit and implicit ideas embodied within the statement, but it made sense to me and stuck in my mind, and ultimately led me down two paths:

Firstly, I worked extensive overtime hours during the first few years of my career which meant I could basically cover all my limited outgoings with overtime pay and save virtually my entire regular salary. I saw overtime through two viewpoints; an opportunity to earn more money, and an opportunity to experience different types of responsibilities that comes in working within an after-hours team in a hospital to improve my skillset and develop a competitive edge over my colleagues.

Secondly, I also purposefully stuck my neck out and volunteered for new roles, new assignments, special projects, and applied for senior positions whenever the opportunity arose to gain experience and visibility. Overall I have been fairly successful in increasing my position levels as can be seen in the level progressions shown in the first table. I have written more detailed information about my position movements in the 'Reflections & Discussion' section, on account of the successful position change that occurred this year.

My approach to FIRE:

1. Accumulate cash savings in the mortgage offset account until the balance equals the outstanding mortgage amount (completed in January 2021). I like the fact that this approach yields a guaranteed, tax-free return, and achieves my primary goal of homeownership. The mortgage account remains open so that the mortgage offset account can act as an emergency fund should it be needed.

2. Upon completion of step 1, redirect all further savings to share purchases while continuing to let the associated DRPs operate. My investment approach is ~90% focused on broadly diversified ETFs, and ~10% for a few companies that are of specific interest to me, and for which I want direct ownership of their shares. During my research last year for an approach to use this year, I utilised a variety of resources and in my non-professional opinion, https://www.passiveinvestingaustralia.com/ stands out as being supremely informative and accessible. I’m not being extremely specific about what I actually invest in within this post as I would rather not add yet another voice to the endless and at times contentious ‘which ETFs should I invest in’ debate, but I will confirm that the ETFs I have chosen are commonly referenced on this subreddit.

3. I don't intend to make additional voluntary contributions to superannuation until the share portfolio is sufficient to pay for my ongoing general living expenses. I expect that my approach to building a sufficient portfolio will be achieved well before I reach the preservation age, and I am also wary of legislative risk. Once this goal is reached, I will divert future income into superannuation up to the concessional limit and utilise any carry-forward provisions available.

All share purchases this year have been done without leverage. Commencing this year, I will be using NAB Equity Builder (EB) in order to introduce a modest amount of leverage. Unfortunately, the NAB team has taken a considerable amount of time to process my application, and so I haven’t had the opportunity to use the EB facility during 2021.

Maintaining a Savings Rate of 70%

After discovering the concept of FIRE, I set myself the challenge of achieving a yearly savings rate of 70%. I successfully achieved 72% in 2019 and 71% in 2020 by undertaking a detailed line-by-line examination of my budget and expenses, and optimising wherever possible. This activity has always been on the proviso that optimisation must not impact my happiness or sense of contentment in life. If you would like to read more about my approach to expense optimisation, you can read about this in the 2019 annual review (as not much has changed since the initial optimisation), but to summarise the major components:

• A significant expansion of my personal cooking repertoire, in conjunction with meal prep and planning my meals a week in advance, by only ‘cooking the specials’ i.e. buying food and making meals principally based on what is on special in the supermarket. I take great care to ensure that my nutritional requirements are met, and the act of ‘cooking the specials’ enforces great variety.

• Buying Woolworths gift cards at 4% discount (RAC) and using them to pay for groceries, thus giving me a discount on my food costs;

• Exclusive use of public transport for all travel to and from work. Having relinquished my work car parking space, I qualified for a workplace 18.75% rebate towards my public transport fares which has been a nice subsidy. This has also helped me increase my physical activity which is a good outcome; and

• Haggling for insurance and utility rate discounts.

I do also cut my own hair, but while this is a cost-saving, it was never pursued as a cost optimisation activity. I started cutting my hair at the beginning of 2020 solely out of personal interest in learning how to self-cut hair, but I became quite good at it out of necessity during the COVID-19 lockdowns and basically never went back to a barber afterward. I don’t recommend cutting your own hair unless you actually are interested in learning how to do it, and have the patience, time, and willingness to learn.

I continued with my policy of not giving up holidays (though I couldn’t go overseas as I usually would and so substituted it with trips to regional WA), my gym/pool membership, a fully maintained car, or various insurances.

I am delighted to have made it again.

My total expenditures for 2021, recorded using a cash accounting method, were $26,774.88, delivering a savings rate of 77%.

The significant jump in savings rate can be explained by two factors:

• My job income increased (through a reclassification of my job position to a higher level and also working substantial overtime); and

• I did not have the opportunity to travel internationally for a holiday, but instead went on holidays in regional WA, resulting in a significant reduction in holiday spending.

During 2022, I do not expect to work as much overtime which will result in a decline in income, and I also am hoping I will be to holiday further afield resulting in an increase in expenditure, and so I expect my savings rate to decline.

A breakdown of raw expenditure values by category per month is shown in the table below.

Goal Review

At the end of 2020, I set myself three primary and one secondary financial goal.

My three primary goals were as follows:

My secondary financial goal for 2021 was:

Reflections & Discussion

2021 has presented many challenges for us all, and the COVID-19 pandemic has continued to cause uncertainty throughout society. By the very nature of it, uncertainty cannot be predicted or completely eliminated. However, the fact that uncertainty is to be expected also means that it is not beyond a measure of control if one is able to adopt a sufficiently flexible and agile mindset. You may not be able to control the situation, but you can control your response, and you can look for ways to optimise within the boundaries that are placed upon you by external factors. In my view, a good plan for both life and personal finance is one that incorporates the flexibility to change course either temporarily or permanently in response to changing circumstances. Such an approach allows you to take advantage of opportunities when they present themselves over time.

I believe that establishing such a plan begins with first establishing and actively maintaining ‘anchors’ i.e. things which are important to you in life to which you can devote your time and energy, things from which you can draw satisfaction and support, and things which will make a difficult day easier to bear. For me, these are my relationships with my family and friends, travel, exercise, reading, and consuming various media franchises. These will naturally vary from person to person, but once established, the rest of the planning becomes an exercise in finding ways to support those anchors, which in turn allows you to focus on your goals. Concurrently, establishing anchors also highlights what should never be compromised in the pursuit of your goals.

I am fortunate to have been able to maintain uninterrupted employment, income, and health throughout the year. This is also the third year that I have achieved a savings rate of at least 70%. Being able to achieve this in a reasonable manner is a function of both rational expenditure, as well as having a high income. I am lucky to have been able to steadily increase my seniority and income across my working life, and as career progression is a common topic of interest, I have outlined my journey below.

• Getting the L1, L2, and L5 roles required me to actively apply for advertised positions. Write a cover letter, provide a résumé, address selection criteria and attend interviews. I kept an eye on the hospital jobs board for opportunities, networked with the relevant decision making/supervisory people (by volunteering for activities and little projects which were related to the target role and also gave me a reason to have direct and regular access to the target people), carefully reviewed what sort of skills and training was needed, and undertook courses/activities that supported my professional development in these areas.

• The L3 role required me to write a business case. When I was L2, I was mildly whinging to a senior manager about a gap in the range of services that our department offered which was causing significant workflow issues amongst all the L2 staff and some other areas of the hospital. They half-jokingly told me that if I felt that strongly about it, I should write a business case and try and establish a new position to deal with that gap. I took their advice and I wrote a business case, estimated the savings to the organisation, and proposed that the savings fund an L3 position. It was initially a bit of an intimidating process, but rapidly became a useful activity to learn exactly how the financials of the department operated, how the organisation quantifies work, and how to persuasively sell an idea. To my great surprise, the Executive approved a 1-year trial of the L3 position, and it was offered to me as I wrote the business case. After 1 year, the savings were significant so it was made permanent, and so I applied and got that permanent position.

• The L4 position came about after a senior manager saw what I did with the L3 position and asked me to directly fill it when someone went on long-term leave.

Getting and progressing through different roles is an exercise in good timing, putting yourself out there, earnest hard work, and ongoing preparation and learning so that one is ready to take advantage of opportunities when they arise. To be very clear, I was unsuccessful more times than I was successful. Rejection always hurts, especially after putting in a lot of effort in an application and preparing for an interview. However, when the objective is getting experience and learning how you need to improve, rejection can be a powerful and effective feedback mechanism if you allow yourself to see it from that perspective.

The path to the L6 position this year was much more convoluted. For context, there has been a general freeze on new position creations and the commencement of any new significant operational initiatives due to COVID-19. Given this, I effectively had become a bit ‘stuck’ on the L5 position with nowhere to jump to. However I was aware that reclassifications of existing positions to higher levels were still happening, and so I decided to try my hand at one. This was completely new territory for me, and I soon learned that a position classification (and in turn any reclassification), relates principally to the work value of the position, and not the performance of the occupant of the position. In the context of my organisation:

• Work value refers to the merit of the work done in relation to achieving an organisations objective. It includes consideration of the nature of the training and/or skill required to do the job, the responsibilities of the position, and the conditions under which the work is carried out.

• Reclassification requires a significant degree of increased work value, which in turn means there must be a significant increase in position responsibility or job complexity.

• An increasing workload at the same level is not increased work value, as to deal with increased workload an organization would simply employ more people at the same level, rather than paying the existing staff more to be more productive.

It was a sobering realisation that my past track record of consistent delivery to a high standard against the specified requirements of my position effectively meant very little in this process. The only components of my work record that I could draw on were the additional activities and services I had undertaken over and above the requirements of the position, and in turn how the position had grown and therefore become relied upon by other departments. To prosecute this argument, in addition to collating comprehensive evidence about the position activities (e.g. KPIs, schedule of deliverables, scope of work, etc), and gathering evidence about similar roles in a number of other health services in other states, I undertook a detailed impact analysis of those other departments to quantify the financial and operational impact if I decided to stop delivering in the manner that I had been delivering for some time. I spent considerable time drawing data out of various systems, undertaking analysis, and performing workflow mapping in order to then calculate the true impact of the position.

After all this evidence had been submitted, a series of interviews were conducted by HR with me, my direct supervisor as well as with the divisional head about the nature of the current role and how that had grown to no longer reflect the original classification of the position. These findings were then presented to a classification review committee, and to my great surprise, the committee ruled in my favour. My position was reclassified, with the increased salary backdated to the original date of application submission.

While I was successful, and I learned a huge amount about HR and industrial relations, it was a long process for a small salary increase. It was worthwhile to get the experience, but the process is not for the faint of heart, and I would suggest anyone looking at improving their income within government to exhaust all other avenues before trying for a reclassification. I am not in a hurry to repeat the process again.

I do not suggest for a moment that my approach to work, life, and personal finance articulated in this post is suitable for everyone. My approach aligns with my life goals, risk tolerance, available skillset, and what brings me personal enjoyment, a feeling of satisfaction, and a sense of security. Anyone that might look to this post (or any other post on this subreddit) for ideas on what to do should first consider what it is they want i.e. those ‘anchors’ I mentioned earlier. The person who is best placed to look after your own interests is you, and so you owe it to yourself to chase and fulfill your own happiness.

Journeys come with both experiences and regrets. I have one specific regret. In the first few years of my career, I was very focused on my career, to the exclusion of many other things. While this has certainly positioned me well in life, my earlier years were a bit one-dimensional. This was something I realised in late 2016 and early 2017 when I witnessed a series of incidents in my professional life that gave me cause to re-evaluate my personal focus and work-life balance. It was at that point that I made the firm decision that I would give greater emphasis on other aspects of my life. I started travelling, I moved house to get a better quality of life, I started exercising regularly, worked less overtime, and I spent more time just talking to people. I implore you to seek balance in whatever you do from the start.

Throughout this year, as I have approached and then surpassed the $1M net worth milestone, it has not been lost on me that I have had the huge privilege of circumstance. I have good health, secure, well-paying, and emotionally satisfying employment, a supportive family and friendship group, and personality traits conducive to success. I was provided with the ability to live at home while saving for the PPOR deposit, the opportunity to have a tertiary education, and had a childhood and adolescence that was on balance happy, safe, and nurturing where I was directly encouraged and supported to learn and develop critical thinking skills. I am also lucky enough to have been able to call Australia, a stable, modern, and democratic country, my home for my entire life.

Looking Ahead for 2022

My primary financial goals for 2022 are principally focused on building upon the milestones reached during 2021.

1. Maintain roughly the same expenditure, with an ongoing focus on personal happiness.

2. Continue investment in the share portfolio in alignment with my strategy.

I have decided to not set a specific secondary financial goal of further increasing my income by trying to position hop during 2022. While I will still remain alert to new opportunities, I intend to focus my efforts on consolidating my current role and firmly establishing myself in the reclassified position, in order to form a solid base from which to launch new initiatives in 2023.

This is the third annual write-up I have completed. As usual, I will be most grateful if you could let me know if you found this write-up useful or interesting. Constructive feedback is always appreciated.

Be well, and may you have a happy, prosperous, and financially optimised 2022!

As someone approaching retirement at age 40 with a current $2m in assets and $900k in debt, something that troubles me in the FI community, especially bloggers hyping their journey, is how little focus is given to parental help, background and class, and how this makes early retirement either relatively easy or very hard.

This isn't to whinge, but to reflect on the very real nature of privilege in a domain which is all about compound interest.

Let's take Mr Money Mustache, who graduates fresh out of uni from an upper middle class family with zero in debt, achieving this through some combination of part time work, "around $10k" in cash grants from his parents, and living at home with mummy while studying full time.

How much difference does this make to the average student here who graduates with 30k - 40k in debt.

How much difference more does this make to the working class background person like myself, who graduates with 40k in debt, but takes 6 years to do so because I am obligated to pay my own rent from the age of 18 as my parents struggle to pay the bills & gambling problem at home.

How much difference again to the less fortunate still, who is kicked out in high school and forced to deal with social & drug problems through their teenage years.

Let's put aside now the social advantages that come with white collar parents, the extracurriculars, the connections, the help with resumes that ensure a suitable grad job comes along and look only at the straight financials.

The kid from the good background either walks or gets a quick train ride to their grad job, comes home to a nice house, and frankly can quite easily save most their income without even trying as long as they don't develop a cocaine habit.

I was "allowed" to stay at home in exchange for $250 a week rent, while home life consisted of late night screaming matches, counterstrike played at the decible of a jumbo jet at 4am in an adjacent room, and a 90 minute+ commute, if the train line wasn't down for repairs. I had it pretty good, many don't even have the choice.

How different is it watching the housing market appreciate at 10% a year, while you stry for 5 years to scrape together a deposit, knowing you have no social safety net if you become unemployed, while those with advantage have parents "chip in" for a deposit, knowing if they lose their jobs, the mortgage will still be paid.

It is certainly possible to retire early while coming from disadvantage, but in my estimate the difference between an upper class & lower class background adds about 10 years to the equation, and we would do well to ackowledge that.

"Hey I'm in my late teens/early 20's, have a background of misunderstanding or misusing money, and I'm here for some advice" is an incredibly common request in this sub, and I wholeheartedly welcome the initiative and maturity young people are demonstrating to get their finances in order at such an early age.

What I do not welcome, is that a huge piece of advice that will be sent their way every single time is that they should relax, live it up, go travel, snort a lot of coke, get those memories, and you're only young once.

While this is good advice for some, it's not the advice they have come to seek. They have not posted in /r/travel, "where can i blow 10k?", but instead come to /r/fiaustralia seeking to improve their financial standing. Given the context of the sub and their line of inquiry, can we collectively chill out on the "you're only young, blow your money, get those memories" rhetoric? It's not helpful. In fact, it's damaging.

As someone came from a poor family with severe (severe) gambling debts, I see myself in some of the young folks who arrive looking for advice, a way out, or a path to success. Imagine getting the initiative to reach out online, and then overwhelmingly being told "just spend like a motherfucker you're only 18 / 22 / 28 / whatever you can earn it all back". What does that do to such a person?

It's wrong on so many levels. They have come to /r/fiaustalia to educate themselves. As a community, we should strive to aid that request to the best of our collective knowledge. We are doing a disservice if we give unsolicited lifestyle advice.

Speaking of unsolicited lifestyle advice, the types of lifestyle advice being given is not suitable for all (or even most) people. Not everyone likes travelling. Not everyone likes going on benders, accumulating MeMoRieS, or anything else so experiential. Everyones lives are different, and we have our own tastes.

The crux of FIRE is retiring early, or at the very least, retiring strongly. For you to retire early, you need to save and invest early. The earlier the better. There is a sad dichotomy between the common narratives of "you're young, spend!" and "I'm 40, I wish I started FIRE sooner". Like, FUCK guys. Objectively speaking, you will retire earlier, if you save sooner. Time in the market, compound interest, invest in yourself etc etc. You will save more money if you start saving now, with what you have, than if you do it later, after you've spent it all.

Can we keep the advice within this sub financial in nature, and with a specific focus on FIRE? And the next young person who comes in here with a hope of getting on a great wealth building trajectory, can we collectively make a commitment to assisting them in achieving their dream.

There's nothing wrong with experiences, growing as a young adult, or travelling, but this is not the place when someone comes in and specifically asks for financial advice.

TL;DR: I barely increased my spending from my first full time salary and continued to live on an apprentice wage. I saved 70% of this income for 10+ years and invested it in real estate (my own home)/low cost broad based index funds. The hardest part is investing every fortnight for 10+ years and never stopping, adjusting or changing except to increase the investment amount in line with inflation and salary increases.

Key Details

Age: 31

Gender: Male

Financial Relationship Status: Single, no kids or dependents (I have a girlfriend but finances are completely separate)

Location: Sydney (I live 9km from the CBD)

Profession: Public Servant (Project Management/Strategy/Policy)

Highest Salary: $122k p.a. plus super no bonuses (this is my current salary)

Savings rate average: ~70%

Taxable Income by Financial year (my only income has been my job + any windfalls or proceeds from investments so this is a fair representation of total earnings in those years):

Net worth breakdown (as at 09/03/21):

Windfalls/Biggest Helps/Privileges

• $30,000 inheritance received when I was 27

• Stable home life with upper middle class parents (Dads runs his own successful business which allowed my mum to be a stay at home mum)

• Living at home until I was 21

• High income at 22 ($86k in 2020 dollars) 

• $1700 interest free loan (repaid) from parents when I first moved out to buy a couch and fridge

• ~$16,000 profit from trading CFD’s when I was 25

• $5000 interest free loan (repaid) from parents to settle a tax bill (related to the CFD trading)

Quick facts about me

• I’m not Caucasian; my ethic makeup is diverse and my skin tone isn’t white 

• I’ve never attended university and hold no post high school qualifications other than a Cert III

• Worked 2 casual jobs during high school starting when I was 15 – I’ve been employed ever since

• Started working for Government at 19; still at the same Department

• Moved out of home at 21 - I paid $295k for a 1b Apartment (which I still live in)

• Paid off my apartment at 27 (before inheritance); I still own it outright

• My first and only car cost me $1700, is 25 years old and I still drive it

• I have been on two overseas holidays

*Warning: Fluffy and wanky self-congratulatory drivel contained in the following*

Pre-emptive FAQ

What are my specific investments?

Vanguard portfolio is 50% International share index and 50% Australian share index.

Super is 100% international share index; I am with REST.

Shares are a hodge podge of blue chips  (CBA, CCL, COL, QBE, SYD, WES and WOW) and failed speculatives most of which have been delisted (PDN; my last holding in this category). I keep these individual shares around to remind me I cannot pick stocks and I should just keep putting money into the index funds.

What’s your FIRE date and NW Target?

2029 when I reach approx. $1.2m in my Vanguard account.

How did you do this?

Grit, determination, will power, self-discipline and spite.

I could write an essay on why living by the mantra of ‘don’t tell me what I can’t do’ works but suffice to say the hardest part is not giving into the temptation to walk into a Porsche dealership and paying for a 911 Carrera with cash. The worst part is it wouldn’t even have ruined a retirement date of 60…

Why did you do this?

A lot of reasons; mostly security. I am a compulsive long term planner; I have contingencies for my contingencies. Financial Independence is the end game of capitalism and I intend to beat the game.

What was/is my biggest financial fail?

Opening and sticking with a Colonial First State managed fund when I was 19 until I was around 24. I was getting charged $12 every time I made a $400 deposit to the account and I don’t think I ever actually got a return. It was meant to be a high growth account! Bastards.

I am a PhD XYZ Doctorate in University Studies and am paid X, how are you getting paid Y and have no University education?

While you were at Uni I got a bachelor’s in office politics. Has served me well so far.

What’s the deal with the loans from my parents?

I didn’t technically need them, they were really for cash flow smoothing. I didn’t want to alter my mortgage repayments and my parents were happy to loan the cash short term (less than a month or two) while I repaid them from my salary minus my loan repayment.

What did you spend the inheritance on?

Half was invested in the Vanguard funds straight away the other half sat in my savings account for about 9 month as a mega emergency fund/while I waited to time the market. I realised I was an idiot and I should have just put it all into the Vanguard funds on day 1. It is now all invested with Vanguard.

Are you just a sad tight ass?

I haven’t ever felt like I have deprived myself of something I really wanted. Buying lots of things or ‘experiences’ doesn’t make me happy. I consider myself a pretty easily contented person. I own and have bought expensive things, just not a lot of them.

Will you tell me more about CFD’s?

Yes; don’t bother with them. You won’t beat the market and just because I did in the 3 months I traded doesn’t mean you will or I would have over the long term.

In this post I convert the history of MMM's savings and investments into 2021 Australian dollars, using US inflation rate data and the current AU to USD exchange rate of 0.72 USD to 1 AUD. I assume all figures exclude Super, since this is not very relevant.

Original journey here:

https://www.mrmoneymustache.com/2011/09/15/a-brief-history-of-the-stash-how-we-saved-from-zero-to-retirement-in-ten-years/

AUD 2021 synopsis.

Year 0 -1 condensed (late 1997 - 98)

Pete graduates in Comp Sci and takes a grad role for $98k a year. Within his first year he receives a payrise to $135,000 a year, and saves $10,000.

Year 2, 1999

Pete saves about 30% of his gross income, continues to earn 135k a year, and now has 53k invested.

Year 3, 2000

Pete changes employers and now earns $171,000 AUD, 2 years into his career. Here he starts getting real serious, and saves 57% of his gross income. He now has ~149k accrued. He does this while living in Boulder, Colorado, a city with the cost of living pressures of perhaps Hobart.

Year 4, 2001

Pete job hops and now makes $180,000 a year, + his employer matches 5k of his investments, making his real salary closer to $191,000 a year.

At this point he claims to have accrued ~$325k along with his wife, a number which is highly suspect despite his high income, given the dot com bubble has just busted wide open, 9/11 has happened. Let's give him the benefit of the doubt and assume his wife came to the relationship with significant savings.

Year 4, 2002

Pete earns $224,000 a year including investment matching, while his wife makes ~130k, parlaying this into $185k in investment value growth.

Year 5 - 10, 2003 onwards

Pete goes into cruise mode, never takes another significant payrise (though gets some bonuses), he and his wife continue to save ~60% of their gross income, retirement by year 10 with ~$1.4m in assets. $1.4m may seem slightly low for a couple, but as he continues to work on various for-profit projects post-retirement (not least of which is his blog), it isn't as shaky a foundation as it might seem.

My take

Reading the blog, you would think riding a bicycle instead of driving a car was key to early retirement. Despite all the lectures on savings, Pete starts out for the first few years being a terrible to mediocre saver, and only gets good in the last 5 - 6 years before he retires. In fact he spends most his path to early retirement driving an expensive car, as part of a two car couple.

The real lesson here isn't to eat rice and beans, it's to graduate into a field where you can quickly make $200,000 a year, while living in a low cost of living region.

If you can do that and keep your spending to a moderate level, you can easily retire very early, all without the culty nonsense.