Here in the US I have my investments at Fidelity. I am quite happy with their capabilities and performance.
Many, many years ago I created separate accounts for my kids.
Now my kids are full grown and my daughter lives in Australia (has been there for 4 years and has no immediate plans to move back to the states).
With the recent strength of the US dollar relative to the Aussie dollar, it does not make any sense for her to wire money to the US and suffer the currency exchange losses. For every $1000 AU she only gets a little over $900 US (not to mention the wire and foreign exchange fees).
So, the obvious conclusion is to keep her money in Australia and invest it there. To that end she has asked for my advice on where and with whom.
While my meager research shows organizations that offer investment capabilities in stocks, she prefers the simplicity of mutual funds (as do I). I cannot seem to find out if such a capability even exists in Australia.
I am at a loss. Hence my question here. My fellow Dopers have never let me down.
Does anyone have advice on who to use in Australia to invest in mutual fund instruments?
In Australia they’re known as Managed Funds, so start your search there. To help out I’d see if there were an Australian version of a fee-only adviser.
Managed Funds (as mentioned by Doug, is our name for Mutual Funds) are big business in Australia.
All Australian employees are government mandated to receive superannuation payments from their employer equal to ~9% of their wage/salary, this Super can’t be touched until age 65. There is therefore currently a pool of ~$1.87 Trillion dollars chasing somewhere to invest. As you can imagine the number and range of managed funds is staggering.
Your daughter has two options really, which would depend upon a few things.
A) Invest in a managed fund directly, Here 's a good link from ASIC (The government regulator) about Choosing a Fund. There are any number of websites which review the performance of the various managed funds so she can research where she wants to invest.
B) Talk to a Financial Planner, their core role is after a consultation with a client, to then prepare a financial plan, with recommendations on investments, etc, etc. The Planner will then act as an intermediary to execute the investment plan, organise for funds to be placed with various funds, etc. A Planner will charge a fee for his services though, how much depends upon the complexity of your daughters requirements, a simple straightforward investment plan with no requirement for tax/superannuation/retirement advice, shouldn’t be more than a few hundred dollars.
Thanks GreedySmurf and Doug Bowe for your helpful advice.
One follow-up question if you don’t mind. Does she need to contract with a financial planner / advisor? Or can she create an investment account at a bank or brokerage and select on her own which Managed Funds into which to place her money? Assuming of course that she (or me functioning as her advisor) are prudent and wise in our selections. It’d be nice to avoid fees if possible.
I helped her make her selection(s) for her superannuation fund. By the way, I was astounded at the level of employer contribution! I told her to stay in Australia!
Based on your responses, it appears that there is a good selection of Managed Funds. All she needs is a mechanism to execute the transactions. Here in the USA I do all that online.
Opinions on best course of action? Bank? Brokerage? Financial Planner? (of course, asking for opinions is putting this dangerously close to not being a GQ topic)
If she is purely looking to invest some spare cash, a financial planner is not generally warranted.
Units in Managed Funds can be purchased either directly via the fund itself, however I’m not sure how functional that is in terms of online access and transactions, and presumably would vary between fund managers. Plus if your daughter wanted to spread her investments across several funds, that could get messy.
The easier way, as you suggest, would be to set up an account with an online broker. The two that I’m aware of off hand that provide access to managed funds is Commsec and ETrade, I think Etrade is a global brand (?), and Commsec is a service of the Commonwealth Bank (One of Australia’s ‘Big Four’ banks - so no worries with reputation or reliability there.) I’ve personally never used either platform to buy managed funds, but as a share trading platform Commsec has a reputation as a low cost provider, so I would expect something similar for their managed funds service. Have a look at this link which has some other platform options as well.
One other tip for you, if you’ll be reviewing and advising on the Funds for your daughter, the Australian financial services sector is quite heavily regulated, which means anyone offering ‘financial products’ must offer a readily accessible Product Disclosure Statement (PDS), which will contain everything you need to know about the fund/product, and the PDS must include all possible fees and charges that could/will be payable for that Managed Fund. So it’s a great source of info for each Fund.
So is your daughter an American citizen (and thus a permanent resident of Australia)? Is she a dual citizen (Australia/USA)? In either case, her Aussie income is subject to US federal taxes. Notice I said subject to which does not mean she has to pay US taxes on it if her total income is below the the exclusion limit.
Of course, she’s been there for four years so she knows this already.
She is getting married this year to an Aussie, so she’ll have dual citizenship moving forward. For previous years she has been below the exclusion limit. For 2015 after they are married? Not sure about how the exclusion works if they file jointly, or if filing jointly is even possible with dual citizenship.
Thanks for your excellent advice! I really appreciate it.
To put in my opinion: is there any equivalent in the Australian stock market of an “index fund”. Over my many decades of investing, I’m convinced that index funds are the only reasonable way to invest in the stock market. That is, is there something equivalent to a Standard and Poor’s 500 Index fund?
There are those sort of funds over here, they are considered ‘passive funds’ as they are content to hold a bundle of assets which will closely mirror a particular index. The main Australian stock market index is the All Ordinaries, but I’m sure there would be funds tagged to the S&P as well.
Vanguard’s have a branch and website in Australia, I have no experience with them, people seem impressed with their US operation.
Most people in Australia would invest in a Superannuation fund due to the tax advantages, you can withdraw early when leaving the country but would need to look carefully at how it would then be taxed.
Honestly, I’d just take it to the bank and stick it in a term deposit.
It’s hard to find good unbiased advice, because a lot of financial advisers get kickbac…uh, incentives, from the services they recommend, to recommend them. However, in my own personal case I actually did the experiment a few months ago of comparing the performance of my compulsory superannuation, with how it would have panned out if I’d just been given the super money each year and stuck it in a term deposit. Term deposit won. This is over a period of about 20 years of superannuation payments. The management fees of ‘managed funds’ negate any advantage you might get from their being well-managed … and of course, 50% of them will be worse than average anyway.
The one advantage you do get from putting it into superannuation is that if you’re on a high tax rate you’re insulated from that, because tax on money put into super is only 15% compared with a top tax rate of 45% (she’s probably not on that high of a rate). I know nothing of being able to take money out of super on leaving the country, but I bet there’d be conditions and fees attached, so you’d want to investigate very carefully before heading down that road.
Index funds have always been a component of my investment strategy (of which my adult children are now also following) so it is reassuring that Australia has them available.
I confess to not fully understanding all the ins-and-outs / advantages-and-disadvantages of superannuation. Ask me about our 401(k) or IRA retirement vehicles – no problem. Superannuation? Don’t know what additional monies can be contributed. Don’t know how they are taxed. Don’t know if or how you can withdraw funds. etc.
Term deposit? I don’t know about Australia but here in the US a term deposit doesn’t even keep up with inflation. Actively managed funds have overhead expenses (unlike passive funds) so it is important of course to pay attention to their expense structures and take that into consideration when selecting amongst the alternatives available.
Current inflation in Australia is 1.7%, and you can get about 3 or 4 percent from a term deposit, depending on how long for. Don’t know how that compares to the US.
The Australian compulsory super scheme works like this:
If you are employed by a company (not a contractor), the company is obliged to put 9% of your wages into an account in your name in a superannuation fund. I confess I don’t know if this applies to foreign nationals too - never checked :). The purpose of the compulsory super system is to take pressure off the government pension system, the idea being that people who have been paying into super their working lives will, by retirement, be independently wealthy, or at least independently solvent, and will not need to draw the pension at all. So it wouldn’t strictly be necessary to apply it to those who aren’t eligible for an Australian pension in the first place.
Income is taxed at: 0% for the first $16k or so, 19% from there up to $37k, 32% up to $80k, and so on, topping out at 45% over $180k. You can choose to put extra money in super, in which case it’s taxed at a flat 15%. So you can see that this is a very unattractive prospect for those on the breadline, but a much better deal for high income earners. Once the money’s in, no redrawing - you have to be comfortable with the fact you’re not seeing that cash again until retirement. According to the tax office website you can get it out if you’re a ‘temporary resident leaving Australia’ - not sure if that would apply to your daughter or not. If she could by any stretch be considered a person who might eventually be eligible for a pension here, I would suspect it would not.
One reason why I have a very lukewarm response to super, and to managed funds in general, is that the favourable government climate for all these investment vehicles means they don’t have to compete very hard for our business. They have a client base handed them on a plate, much of which isn’t very financially sophisticated and will happily do things like let the super fund take out life insurance premiums as default, even if their circumstances are such that they’d never be eligible to collect. The generally low rate of growth/interest/inflation means that an insignificant looking “just a percent or so” can really eat into your profits. For instance, my current super fund charges a contribution fee of (from their website) “up to 5%” (my annual statement says I’m paying 1%) of all contributions, management fees of 1.2% and up, and a flat rate account fee of $80 per year. There’s also a fee to close your account, and probably some others that kick in in circumstances I’m not aware of. You can see how all that crap can really mount up, unless you’re paying strict attention.
Thank you! Fascinating, exciting, and a little frightening all at the same time.
Let’s see (compared to the US): income tax rates are a little higher; employer contribution rate is WAAAY higher (but offset by not being able to withdraw early*); and fees of managed funds are higher (than our no-load funds).
will have to look into my daughter’s situation more carefully regarding the possibility of withdrawal if she leaves Australia. She is currently “temporary” but after she gets married I don’t know what her status will be.
Getting married to an Aussie in Australia does not confer citizenship. She has to apply for it in her own right (and there is no guarantee she will get just because she married an Aussie). Assuming she obtains dual citizenship after she’s married, my suggestion she does not file jointly on her US federal tax return. His income is irrelevant to her income when it comes to US taxes. As an Australian, living in Australia, his income is not subject to US taxes, but her income (as a US citizen) is subject to US taxes, regardless of where she lives.
Her mileage (kilometers!) may vary but I recommend she never mix her eventual husband’s finances with hers when it comes to the different countries and their tax implications.
When I lived in Oz (dual citizen) I kept my official Aussie life separate from my official US life. The two never crossed, except I had to declare my Aussie income (and any remaining US income) on my US taxes. That residual US income was interest and dividends from US-based investment. I never acknowledged the existence of any US-based income to Australian authorities when I lived there. As far as I was concerned, it was NOTB.
Today, now in the US, when I file US federal taxes and foreign investment declaration, I am required to report any foreign investment and income on my Australian finances that remain in Oz (because I cannot take them out of the country just yet).
Your daughter should be proud you are helping her. But she needs to remember (and so do you!) all of this legally rests on her shoulders. She needs to remained informed and vigilant about all of her tax and investment obligations with both countries. If anything hits the fan, even what we might consider a minor mistake (even a typo!) one or both countries can be a real pain in the ass about it. Since 9/11, the foreign banking and investment regs have really tightened up with both countries, and forgiveness because of a simple oopsie(!) is not guaranteed.
