VHY is the new king? Numbers below.

Core assumptions

- inflation 3%

- marginal tax 47%

VHY assumptions

- capital gains 3% (no tax on capital component)

- 5.5% dividend yield (I'll just use spot, historical is higher so this is understating returns of VHY)

- 100% franking (historical is lower at ~80%, so this overstates returns of VHY. Using this as this makes calculations easier)

- tax is deducted from annual dividend and then reinvested into VHY

IVV assumptions

- capital gains 9.8% (this is the goal seek to match the VHY and IVV after tax end values. This assumes 100% of IVV returns are from capital gains vs history where dividends are 20 to 30% of total gains. This overstates returns on IVV as dividends would be 47% taxed when paid. Done to make calculations easier).

- cost base rises at 3%

End results after 20 years with initial $100 invested

- IVV pre-tax portfolio of $650, tax of $220, end value of $430

- VHY end portfolio of $430. No tax paid on capital.

If the marginal tax rate is 30% then the required annual return from IVV is closer to 11% for the portfolio values to be equivalent.

Standard deviations are all over the place for both, but consistently VHY is below IVV which makes sense given the constituents. If risk adjusted returns are your thing then it's another point to VHY.

Funny how investing in banks and miners just got more attractive...