Eureka Correspondence

International investing, considering bonds and the real cost of property.

International investing

There is a lot of information on investment options. Recently Clay Carter is now recommending certain stocks for the international portfolio model. What is never addressed are the actual costs for an Australian who wants to buy directly these overseas equities. AUD to USD exchange through the banks is a bloody rip off in this country, would it be better to just buy an international ETF, no doubt they would get better forex than myself. Could you please provide some information on these costs, the impact on returns must be significant.

Greg

Editor's response: Thanks for your letter. We published an article last year with some information about the costs to Australians of international investing: Buying overseas stocks: A Eureka guide.

Our international analyst Clay Carter suggests investors look for a broker that offers personalised service, a wide range of markets and low brokerage costs. We're not able to recommend one broker over another - Clay uses Saxo Bank, but there are a range of other options including CommSec, Fortrend and Etrade. 

The real cost of property

Re Scott Francis' article: After-tax share returns can't be beaten (August 5).

I would expect the team at Eureka Report to stop perpetuating the myth that real estate over the past 10/20 years delivers virtually the same return as stocks. When taxes, maintenance costs not to mention purchase and selling costs are considered, real estate does not deliver the returns presented and moves to the bottom of the list very quickly.

Unlike stock you cannot own real estate and not spend any money on it over a 20-year period. I understand, this is a very unpopular discussion and analysis to present to the punters. A whole very large industry has been built on this myth and continues to perpetuate itself.

But remember how we celebrated Vanguard when they were the first to report performance after expense! Perhaps we could celebrate Eureka after a real cost benefit analysis is completed.

John Busselmaier

Scott Francis' response: Thanks for your letter. I agree entirely with your comments about the importance of tax and fees in investing.  

I think that it would be interesting to do a complete cost benefit analysis on sharemarket investing vs residential property, including things like the time that you put into managing an investment property.  I have owned both investment properties and shares, but have tended to prefer shares, as much as anything for the simplicity. 

A copy of the ASX/Russell report that I used for my article is here.  Page 12 discusses the methodology they use for costs associated with calculating the returns for residential property.  They use ABS data to account for any capital adjustments, and then their calculation of rental income includes things like vacancy rates, management fees, and maintenance.  They also take into account selling costs including stamp duty and conveyancing.

The interesting element of their calculations is that they do try to make an estimation of after tax returns - and in the calculations that I did in the article it is clear how much more tax efficient shares are as an investment asset class than property.

Considering bonds

12-18 months ago in Eureka Report there were more regular articles about fixed income investing than there are now.

In particular there is little analysis of the corporate bond market. A recent question by a subscriber during James Samson's introduction to the Income First portfolio was about the relative merits of trying to earn income from dividends and franking compared to earning income from bonds.

I wonder if you would run an article comparing the two.

Mike

Managing editor James Kirby's response: At Eureka Report our team of in-house analysts believe that risk adjusted returns are more attractive at present in an equities portfolio, as a result you will find our recommendations are currently based entirely on income outside the bond market. However, we also know many readers are interested in both bonds and hybrids: To provide coverage in this area we regularly have ongoing analysis of the fixed income markets from Dr Phil Bayley. To read some recent articles on fixed income click here