Thursday, April 03, 2008

Investing for Snork Maiden

Snork Maiden had a lot of cash in a U.S. checking account. We've decided to invest $8000 of that. As you know, I am bullish on the US Dollar, though so far that hasn't paid off :) Anyway, I don't want to transfer the money back to Australia and buy Australian Dollars. On the other hand I don't want to set up a U.S. investment account for her. In the long-run I think an Australian account will be a better idea tax-wise and simpler. I'm looking at a more or less buy and hold managed fund (mutual fund) strategy for her. Also I do want to get some assets in her name. Because married couples are taxed separately in Australia there are tax advantages to each partner having investments in their own name. Right now, my income is lower and so it doesn't make a lot of sense to have investments in her name, but I hope this situation won't persist :) On the other hand, judicious choice of investments should result in little additional taxes for her to pay. There is no gift tax in Australia (or inheritance tax), though transfer of assets between a married couple triggers the capital gains tax even if the asset is not sold. So my plan is to transfer the $8000 to one of my brokerage accounts in the US, reducing my margin loan and investing money we have here in Australia in its place in an account in her name. I won't do the full $US8000 right off the bat but dollar cost average over a period of time.

I am thinking of buying her funds on the First Choice platform of Colonial First State. This provides access to many different managers. There is a $A5000 minimum investment which is rather steep I think. CFS's own funds only require $A1000 as an initial investment. I wonder why that is? Is the additional diversification worth it?

We would invest via Commonwealth Securities, a discount broker, who will rebate 100% of the fund application fees (loads). Though I'm an advocate of not paying too much attention to fund expense ratios, never pay a fund load if you can possibly avoid it!

3 comments: said...

I haven't checked recently, but I think when I started my investment in the CFS geared international share fund I could invest a minimum of only $500 if I also signed up for a "savings plan" (min $100 per month).

I have the investment within my StGeorge margin loan account, so each month I add in $100 and I get a matching $100 loan. (This made more sense though when interest rates were lower!). This means that the dividends paid by the investment are offset by the tax deductible interest charges, and are balanced out (hopefully) over the long term by getting a double dose of capital gains (or losses:) )

Even though the investment is held within the St George margin loan account I still applied for the investment via Comsec so I got the application fee rebated.

I once managed to also get the trailing fees rebated when I made a managed fund investment processed via a Count Wealth Accountants franchise (Cartwright Brown), but they only did it for my first son's superannuation account. When I asked for the trail to be rebated on a later investment I did for my second son they refused ;)

However, there is some other company that advertised rebating the up front application fees AND half (I think) of the trails if you nominate them as your non-advice 'planner'. It's worth shopping around, as a 0.4% trail rebate will add to performance over the long term.

mOOm said...

Thanks! I just checked and the minimum for First Choice is $1000 if you do a regular savings plan. So maybe we'll do that and then we can always stop the plan if we want to :) I guess. I never thought to get tailing fees rebated. I assumed the broker was doing a tradeoff between fat up-front fees vs. happier customers with bigger accounts and lots of continuing trailing fees. The real con is if you apply direct to First State yourself they get to keep the 4% load which is really outrageous. said...

I couldn't remember where I'd seen the trail rebate advertised so I did a quick google. offers 100% upfront fee rebate plus rebate of all trails above $395 pa. This would be good if you have a large amount invested in managed funds. seems to offer 100% upfront fee rebate plus 50%-70% trail rebate, so this would be better for smaller total amounts.

I haven't tried either of these, so I can't vouch for them.