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Too late to join Wall Street’s bull run? · The Money Puzzle

• 0:11
  Speaker 1: Hello and welcome to The Australian's Money Puzzle Podcast. I'm
• 0:14
  Speaker 1: James Kirby, the Wealth Editor at The Australian. Welcome aboard, everybody.
• 0:19
  Speaker 1: I imagine you're galloping towards the end of the year.
• 0:21
  Speaker 1: Certainly I am. And so is the show. We have
• 0:24
  Speaker 1: a few episodes left. And also, of course, folks, remember
• 0:29
  Speaker 1: that over the summer break, we will be running the
• 0:32
  Speaker 1: series on the outlook for 2025 and we will cover
• 0:35
  Speaker 1: all aspects. of what you need to know next year
• 0:38
  Speaker 1: with shares and ETF and property and super. It's a
• 0:42
  Speaker 1: very good series. I'm able to tell you that because
• 0:44
  Speaker 1: we're halfway through recording it. And look out for that. Now, today,
• 0:49
  Speaker 1: I want to just talk about, I imagine, looking back
• 0:53
  Speaker 1: over this year, you've had a couple of issues, I'm sure,
• 0:57
  Speaker 1: in your efforts to build wealth and create a portfolio,
• 1:01
  Speaker 1: create an investment portfolio for you and for anyone else
• 1:04
  Speaker 1: that is linked with you. And it's the same for advisors.
• 1:07
  Speaker 1: And I wanted to talk to a regular guest on
• 1:10
  Speaker 1: the show, Tim McKay of Quantum Financial, about the key
• 1:14
  Speaker 1: issues that's come up for him and for advisors this year.
• 1:17
  Speaker 1: And I imagine that will give you some insights and
• 1:20
  Speaker 1: useful pointers for your own endeavors. How are you, Tim? Hello, James.
• 1:25
  Speaker 2: Thank you very much for having me.
• 1:27
  Speaker 1: Lovely to have you on the show. So I don't
• 1:29
  Speaker 1: want to guess, right? I mean, I sent you some
• 1:31
  Speaker 1: notes where I guessed what your issues might be. But
• 1:36
  Speaker 1: I'm thinking, for an advisor like yourself, just tell me,
• 1:40
  Speaker 1: how are people feeling about everything as they come in
• 1:44
  Speaker 1: the door? It's almost like it's a touch of it's
• 1:46
  Speaker 1: all too good to be true. Is there an element
• 1:48
  Speaker 1: of that in terms of returns this year? Potentially.
• 1:50
  Speaker 2: I mean, Trump 2.0 has obviously loomed large over markets
• 1:54
  Speaker 2: throughout the year, even though he wasn't president. In some ways,
• 1:57
  Speaker 2: it felt like he was. And his election in November
• 2:01
  Speaker 2: certainly put a rocket under US markets, and other markets
• 2:04
  Speaker 2: followed suit.
• 2:05
  Speaker 1: So.
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  Speaker 2: That has been obviously a key issue through the year,
• 2:08
  Speaker 2: plus falling interest rates in the U.S. and Europe, which
• 2:11
  Speaker 2: again has helped support markets.
• 2:13
  Speaker 1: So you have these two enormous sort of thematic issues,
• 2:18
  Speaker 1: which is a Republican president coming in the U.S., a
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  Speaker 1: Republican president like Whit Nobzon, who's going to do all
• 2:26
  Speaker 1: the things you would expect a Republican president to do, deregulate,
• 2:29
  Speaker 1: cut taxes, stimulate the market. You wouldn't expect a Republican
• 2:34
  Speaker 1: president necessarily to be pro-crypto, but they are. And also,
• 2:39
  Speaker 1: as you say, just in time for that, you have
• 2:42
  Speaker 1: a sense that U.S. rates will fall. So these things,
• 2:46
  Speaker 1: of course, will really push. They have pushed markets higher.
• 2:51
  Speaker 1: Is there a risk, as there always is, that everyone's
• 2:55
  Speaker 1: getting too excited too quickly?
• 2:57
  Speaker 2: Undoubtedly. I mean, for the last two years, we've had, well,
• 3:00
  Speaker 2: the U.S. has had stellar returns. Can that keep going
• 3:03
  Speaker 2: on forever? No, no, certainly. But there's probably enough drivers
• 3:07
  Speaker 2: for it to keep going for probably another six, 12
• 3:10
  Speaker 2: months at least. The optimism around Trump coming in and he's,
• 3:14
  Speaker 2: as you said, deregulating lower taxes, those sorts of significant
• 3:18
  Speaker 2: actions stimulate economic activity.
• 3:20
  Speaker 1: So if I did come into you and said, look,
• 3:22
  Speaker 1: it's great and I'm delighted and hey, gosh, I never
• 3:24
  Speaker 1: expected to get, you know, 10% plus on my Australian shares.
• 3:30
  Speaker 1: total return. And I sure as hell didn't expect to
• 3:32
  Speaker 1: get 20 on my US ones again. And property has been,
• 3:39
  Speaker 1: direct property, that is residential property, has been ticking along solidly.
• 3:43
  Speaker 1: Everything else is going up. Crypto is going through the roof.
• 3:45
  Speaker 1: Gold has been going up. My alternative assets perhaps are
• 3:49
  Speaker 1: going up, though I can't see how because it's entirely opaque.
• 3:52
  Speaker 1: I don't mean to be cynical there. But tell me,
• 3:54
  Speaker 1: if I said all that to you, what would you say?
• 3:56
  Speaker 1: Would you say, Would you say to clients, look, the
• 3:59
  Speaker 1: share market, you just said it there. You can't expect
• 4:02
  Speaker 1: it to keep going. So what does somebody do in that?
• 4:06
  Speaker 1: What does someone do about that?
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  Speaker 2: We encourage our clients to focus on asset allocation. So
• 4:10
  Speaker 2: if your target asset allocation is, say, 70-30, 70% growth
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  Speaker 2: and 30% defensive assets, if because the markets have gone up,
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  Speaker 2: which they have, it's changed, your portfolio has changed to 75-25,
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  Speaker 2: then take some of that money off the table. So
• 4:24
  Speaker 2: rebalance back to your target, take some of that cream,
• 4:28
  Speaker 2: and that way sort of de-risk your portfolio on an
• 4:31
  Speaker 2: ongoing basis.
• 4:32
  Speaker 1: Do people find it hard to sell a share that's
• 4:34
  Speaker 1: been going great?
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  Speaker 2: Psychologically, yes. For the same reason that when markets fall,
• 4:38
  Speaker 2: they psychologically find it difficult to buy, right? So by
• 4:41
  Speaker 2: having a very stringent approach and sticking to it, then
• 4:46
  Speaker 2: you take those emotions out of it. So yes, it
• 4:48
  Speaker 2: feels counterintuitive to be selling when it's high. But that
• 4:51
  Speaker 2: forces you to sell high. And then again, when markets fall,
• 4:53
  Speaker 2: it forces you to buy low. So if you can
• 4:56
  Speaker 2: adopt that strategy and adhere to it come hell or
• 4:58
  Speaker 2: high water, then you'll be better for it in the longer,
• 5:01
  Speaker 2: medium to longer term.
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  Speaker 1: So in some ways, it's easy to, the easy part
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  Speaker 1: is to sell. It's what you do with the, it's
• 5:11
  Speaker 1: what you do with the money that you've raised. I
• 5:14
  Speaker 1: know we can't talk individual terms and everyone's different, but
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  Speaker 1: very broadly speaking to our audience, which are active investors
• 5:22
  Speaker 1: in Australia of all ages, if someone wants to do that,
• 5:27
  Speaker 1: where would you be looking to reallocate that money?
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  Speaker 2: Well, if it's going from growth to defensive, there's only
• 5:33
  Speaker 2: a couple of places it can go to. I mean,
• 5:36
  Speaker 2: some people define hybrids as defensive. I personally don't.
• 5:39
  Speaker 1: Do you mean hybrids aren't hybrids gone?
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  Speaker 2: Well, exactly right. That was my point, that they're being
• 5:43
  Speaker 2: phased out. They're not gone yet, but over the next
• 5:45
  Speaker 2: couple of years, they will be phased out. So that's
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  Speaker 2: an asset class, an Australian asset class that's disappearing. Cash, yes,
• 5:51
  Speaker 2: it's quite attractive rates, but we know for a fact
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  Speaker 2: that they're going to go down in the coming years.
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  Speaker 2: So it might feel good now, but if you keep
• 5:57
  Speaker 2: it in cash for the next two or three years,
• 5:58
  Speaker 2: you'll probably go backwards. Potentially bonds, if we are in
• 6:02
  Speaker 2: a falling interest rate environment, then potentially bonds could give
• 6:06
  Speaker 2: a higher return than cash on that defensive portion of
• 6:08
  Speaker 2: the portfolio.
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  Speaker 1: They've disappointed regularly, haven't they?
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  Speaker 2: They have, but interest rates have been going up, right?
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  Speaker 2: So in recent years, until recently when the Fed dropped rates,
• 6:19
  Speaker 2: In a rising interest rate environment, bonds are not going
• 6:21
  Speaker 2: to do particularly well. But again, on the flip side,
• 6:23
  Speaker 2: in a falling interest rate environment, they can do better.
• 6:26
  Speaker 1: Right. Do you include bond ETFs in that? Yes. Okay. Yeah.
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  Speaker 1: Do you see them as a realistic proxy for actual
• 6:35
  Speaker 1: individual bonds?
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  Speaker 2: Bond ETFs aren't necessarily as good as equity ETFs in
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  Speaker 2: the sense that an equity ETF will reflect, say, for instance,
• 6:43
  Speaker 2: the S & P 500 or the ASX 200 quite well.
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  Speaker 2: Whereas a bond ETF will only represent a portion of
• 6:49
  Speaker 2: a bond index. So in many ways, it's much easier
• 6:52
  Speaker 2: for an active bond manager to outperform the bond index
• 6:57
  Speaker 2: than it is an equity.
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  Speaker 1: I hear what you're saying. Could you explain to our
• 7:01
  Speaker 1: listeners why that is? Because most of them, I imagine,
• 7:06
  Speaker 1: their first step into ETFs, exchange traded funds or index funds,
• 7:10
  Speaker 1: as we used to call them, would have been in shares.
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  Speaker 1: And now they're probably thinking, oh, you know, these are
• 7:16
  Speaker 1: really good. I'll broaden my– I'll diversify my portfolio and
• 7:20
  Speaker 1: I'll get some bond ETFs. Could you explain to listeners
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  Speaker 1: why they're not quite so– not as good basically a
• 7:27
  Speaker 1: proposal as a share ETF?
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  Speaker 2: Well, they're good. They're just not as good a proxy
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  Speaker 2: in the sense that– The ASX 200 is made up
• 7:35
  Speaker 2: of 200 stocks. So to mimic that with an exchange-traded
• 7:38
  Speaker 2: fund is quite easy. Basically, you need a spreadsheet. It's
• 7:40
  Speaker 2: not done in a spreadsheet, but in a system.
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  Speaker 1: It's an incredibly elaborate spreadsheet with hundreds of people employed
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  Speaker 1: to run it.
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  Speaker 2: Exactly right. Christmas elves beavering away. But a bond ETF,
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  Speaker 2: if you think of the bond universe, A, there's far
• 7:53
  Speaker 2: more issuers. The US bond market, for instance, there's thousands
• 7:56
  Speaker 2: of issuers. But then even one issuer will issue bonds
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  Speaker 2: at different times for different maturities. Right, so there's not one.
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  Speaker 2: The universe is so much greater. So for a bond ETF,
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  Speaker 2: they will take a portion of those bonds. They can't
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  Speaker 2: replicate the entire universe. And so there will be good
• 8:13
  Speaker 2: bonds in there that they miss out on, by definition,
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  Speaker 2: because they just cannot capture the entire universe. So hence
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  Speaker 2: my point that active bond managers have more scope to
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  Speaker 2: outperform their index.
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  Speaker 1: Because there's more price discrepancies in arbitration. There's more opportunities, basically,
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  Speaker 1: to pick.
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  Speaker 2: But as an individual investor... Potentially a bond ETF is
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  Speaker 2: better than just buying one or two bonds yourself. At
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  Speaker 2: least you get a far degree of more diversification at
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  Speaker 2: a low cost.
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  Speaker 1: And being honest about it, most Australian investors, retail investors,
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  Speaker 1: including listeners to this show would never have bought bonds anyway.
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  Speaker 2: No, it's a cultural thing in the US. They do
• 8:48
  Speaker 2: buy bonds in the US and in smaller lots. We
• 8:52
  Speaker 2: don't have that cultural sort of approach to having direct
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  Speaker 2: bonds in your portfolio.
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  Speaker 1: Apart from cash and bonds or bond ETFs, What else
• 9:01
  Speaker 1: might someone look at?
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  Speaker 2: Well, term deposits, but I mean, that's a cash proxy.
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  Speaker 2: I mean, you might want to lock... If your view
• 9:07
  Speaker 2: is that interest rates are going to fall in the
• 9:08
  Speaker 2: next 6 to 12 months in Australia, as the RBA
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  Speaker 2: feels like it's getting inflation under control, then perhaps locking
• 9:14
  Speaker 2: in money for 6 to 12 to 18 months may
• 9:17
  Speaker 2: be a win if rates are going to fall.
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  Speaker 1: Yes. Okay. Right. And of course, the banks... The thing
• 9:22
  Speaker 1: about this, listeners, is... The banks move faster than you'll move.
• 9:26
  Speaker 1: Just as you think, gosh, I might lock in that
• 9:29
  Speaker 1: term deposit, someone in the bank has already dropped the rate,
• 9:33
  Speaker 1: in my experience anyway. Yeah, okay. Very good. Now, as
• 9:37
  Speaker 1: an advisor again, I imagine you had a lot of people,
• 9:41
  Speaker 1: not a lot of people, but I imagine you had
• 9:43
  Speaker 1: a significant number of people in all sorts of angst
• 9:47
  Speaker 1: about the potential, what seemed at one stage like the
• 9:50
  Speaker 1: for sure arrival of a new super tax. which was
• 9:54
  Speaker 1: to kick in at the 3 million level, which was
• 9:57
  Speaker 1: meant to be another 15%. on top of the 15%
• 10:01
  Speaker 1: you pay if you're over 1.9 million in assets, that
• 10:05
  Speaker 1: is the earnings on assets over that number. One of
• 10:08
  Speaker 1: the things that that also had was a plan to
• 10:11
  Speaker 1: tax on realized gains, which was daft, and everyone knew
• 10:15
  Speaker 1: it was daft, to mention ghastly and how they might
• 10:19
  Speaker 1: actually practically do it. But here's the million dollar question.
• 10:25
  Speaker 1: Is that gone or will they try again?
• 10:28
  Speaker 2: In some ways, I liken it to Waiting for Godot,
• 10:31
  Speaker 2: the play where everyone's sitting around waiting for Godot and
• 10:34
  Speaker 2: Godot doesn't seem to ever turn up.
• 10:36
  Speaker 1: This tax might turn up, Tim.
• 10:38
  Speaker 2: Yes and no. It didn't get passed. It got passed
• 10:41
  Speaker 2: by the lower house. It didn't get passed by the Senate.
• 10:43
  Speaker 2: And that has closed for the year now. So their
• 10:45
  Speaker 2: ability to get that passed is gone for 2024. They
• 10:49
  Speaker 2: do have the potential ability in February to pass it.
• 10:52
  Speaker 2: Their focus will more than likely shift to the election,
• 10:55
  Speaker 2: not horse trading with the crossbenchers over a policy which
• 10:59
  Speaker 2: is probably not one of their high priorities. So it's
• 11:03
  Speaker 2: probably buried but not dead. It remains on the statutes
• 11:08
  Speaker 2: in the sense that it's still in their budget, so
• 11:10
  Speaker 2: they're still projecting the revenues from it. So they're sort
• 11:13
  Speaker 2: of being optimistic. It's still Labor Party policy. And if
• 11:17
  Speaker 2: they win the election, it will probably come back onto
• 11:19
  Speaker 2: the agenda. So there's a lot of ifs in there.
• 11:21
  Speaker 2: But again, if they do win the election, that also
• 11:23
  Speaker 2: presupposes that they control the Senate again. So they could
• 11:26
  Speaker 2: be forced back into the same situation they are now.
• 11:29
  Speaker 1: Yes, that's a very practical observation. Yes, of course. But
• 11:34
  Speaker 1: they could go to the election with it. It could
• 11:36
  Speaker 1: be item number 660. Yeah, and they.
• 11:38
  Speaker 2: Could claim a mandate. But then the crossbenchers could say
• 11:41
  Speaker 2: the exact same thing. We opposed it, went to the
• 11:43
  Speaker 2: election with an opposition to this. And so we have
• 11:45
  Speaker 2: the exact opposite mandate to negotiate in good faith about
• 11:48
  Speaker 2: the things we objected to being the lack of indexation,
• 11:51
  Speaker 2: being the taxation on unrealized capital gains.
• 11:54
  Speaker 1: Yeah. Okay. So I think, folks, you can put it
• 11:57
  Speaker 1: in the bottom drawer for the moment because that's what
• 12:00
  Speaker 1: the government is doing. But don't assume it's gone. I
• 12:03
  Speaker 1: certainly don't assume that new taxes and super are gone because...
• 12:07
  Speaker 1: The system is so fabulously rich now that it is
• 12:12
  Speaker 1: a revenue, potential revenue earner for any government and will
• 12:17
  Speaker 1: always continue to be so for governments of either stripe,
• 12:20
  Speaker 1: by the way, either stripe. And it was the coalition
• 12:24
  Speaker 1: that brought in the original taxing of super at 1.6.
• 12:27
  Speaker 2: Yes, 100%.
• 12:27
  Speaker 1: Which was the Morrison government. Okay, take a short break.
• 12:30
  Speaker 1: We'll be back in a moment. Hello and welcome back
• 12:48
  Speaker 1: to the Australian's Money Puzzle podcast. I'm James Kirby, the
• 12:51
  Speaker 1: wealth editor at The Australian. I'm talking to Tim McKay
• 12:54
  Speaker 1: of Quantum Financial Advisor. I'm sure many of you know Tim.
• 12:57
  Speaker 1: He is quite a high profile financial advisor, very experienced
• 13:00
  Speaker 1: financial advisor. As I've mentioned on the show before, his
• 13:03
  Speaker 1: sister is a financial advisor and his dad was a
• 13:05
  Speaker 1: financial advisor, second generation financial advisor. We haven't had many
• 13:08
  Speaker 1: of them on the show. Tim, I wanted to ask you,
• 13:13
  Speaker 1: One of the things I imagine people have been bringing
• 13:16
  Speaker 1: up with you, or if they haven't, you've been bringing
• 13:18
  Speaker 1: up with them, is the point that, hey, you're probably
• 13:20
  Speaker 1: paying less tax than you were. What are your plans
• 13:23
  Speaker 1: for it? Did you do anything about it? Because everybody is.
• 13:28
  Speaker 1: And that means, A, it means you're paying less tax,
• 13:33
  Speaker 1: and B, it means tax... effective strategies mightn't be as
• 13:38
  Speaker 1: effective because you weren't paying as much tax as you were.
• 13:40
  Speaker 1: Is there anything that would be worth telling listeners about
• 13:43
  Speaker 1: that even still? Because we're still only six months into it.
• 13:46
  Speaker 2: Yeah, 100%. I mean, so a reminder to listeners, on
• 13:50
  Speaker 2: the 1st of July, the new tax rates came in,
• 13:52
  Speaker 2: the tax cuts across the board. For someone on $ 100, 000,
• 13:56
  Speaker 2: they effectively had a tax saving of just over $ 2, 000
• 13:59
  Speaker 2: a year, which if you equate that to a weekly basis,
• 14:03
  Speaker 2: it's just $ 42. So, for me, a man, if I
• 14:07
  Speaker 2: had haircuts, it'd be basically a haircut sort of thing.
• 14:09
  Speaker 2: So it's not the largest sum in the world. But
• 14:14
  Speaker 2: my anecdotally in speaking to clients and with regards to
• 14:17
  Speaker 2: their children, most of that money has gone to, in
• 14:20
  Speaker 2: a cost of living crisis, has gone to supporting their lifestyle.
• 14:22
  Speaker 2: Most people haven't saved it or invested it. They literally
• 14:25
  Speaker 2: have just used it to prop up their ongoing expenses.
• 14:28
  Speaker 1: And inflation, of In a way, it's something of a
• 14:31
  Speaker 1: cushion against 3% inflation for most people.
• 14:34
  Speaker 2: Yeah, exactly. So supporting, so basically treading water.
• 14:37
  Speaker 1: So yeah, to keep the exact same spending power as
• 14:40
  Speaker 1: you had a year ago, it helped.
• 14:42
  Speaker 2: Yeah, and to be honest, it probably stimulated economic growth
• 14:44
  Speaker 2: a little bit as well. So I mean, if people
• 14:45
  Speaker 2: are spending it, then it helps the economy.
• 14:48
  Speaker 1: Is there something that you found yourself continually saying to
• 14:50
  Speaker 1: clients this year that is worth telling our audience in
• 14:53
  Speaker 1: terms of opportunities that they may have missed or dangers
• 14:56
  Speaker 1: that they are facing?
• 14:58
  Speaker 2: Two things. A, For the last two years, we've had
• 15:02
  Speaker 2: higher US exposure than Australian exposure on our equities portfolios.
• 15:07
  Speaker 2: And that has put our clients in a very good position.
• 15:10
  Speaker 2: Trump is coming in. We know that. In January, he's
• 15:13
  Speaker 2: being inaugurated. If you believe in the American exceptionalism, that
• 15:19
  Speaker 2: sense that America first, then he will implement policies potentially
• 15:24
  Speaker 2: that will protect those companies even more to the detriment
• 15:26
  Speaker 2: of Europe, to the One thing is to just focus
• 15:31
  Speaker 2: on how much Australian exposure you have versus the US.
• 15:34
  Speaker 2: The other key thing to note is try not to
• 15:37
  Speaker 2: panic when geopolitical events happen. If you look at this year,
• 15:40
  Speaker 2: we had some remarkable things happen. We had martial law
• 15:43
  Speaker 2: declared overnight in South Korea.
• 15:45
  Speaker 1: For six hours. Yeah.
• 15:46
  Speaker 2: We had Syria overthrow its government. We had Israel firing
• 15:51
  Speaker 2: missiles at Iran and Iran firing missiles at Israel. In
• 15:54
  Speaker 2: each of those three absolutely bizarre cases, The markets did nothing.
• 15:59
  Speaker 2: If anything, they went up.
• 16:00
  Speaker 1: There was no response. There was no negative response from markets.
• 16:03
  Speaker 2: So next time, next year, there will be out of
• 16:07
  Speaker 2: the blue events that happen. Don't immediately panic about your investments.
• 16:12
  Speaker 1: It sounds like you're also saying it's not too late
• 16:15
  Speaker 1: to lift your exposure to US shares.
• 16:21
  Speaker 2: Well, to date, the US, a lot of that growth
• 16:24
  Speaker 2: has come from those magnificent seven tech stocks, right?
• 16:27
  Speaker 1: Mm-hmm.
• 16:27
  Speaker 2: The hope or the belief is that growth will then
• 16:31
  Speaker 2: spread across the other stocks. So perhaps don't overindulge in
• 16:35
  Speaker 2: the tech exposure, given how well it's done. But certainly
• 16:38
  Speaker 2: the rest of the US economy can probably keep growing
• 16:42
  Speaker 2: quite well under this new deregulated Trump environment.
• 16:46
  Speaker 1: I saw even like the most, not even the conservatives,
• 16:49
  Speaker 1: the consensus estimates on the ASX are basically zero plus
• 16:55
  Speaker 1: dividend yield. But the consensus estimate in the US is 8%. Now, 8%
• 17:02
  Speaker 1: would only be about a third of what they're going
• 17:04
  Speaker 1: to romp home with this year. But 8% is 8%.
• 17:06
  Speaker 1: It's a hell of a lot better than nothing. Yeah, exactly.
• 17:08
  Speaker 2: And if you believe that Trump is going to come
• 17:10
  Speaker 2: down hard on China, then that will have an indirect
• 17:12
  Speaker 2: flow through to Australia as well, right?
• 17:13
  Speaker 1: Yeah, right. And your clients, would it be through passive
• 17:19
  Speaker 1: ETFs or active funds that they go through there?
• 17:22
  Speaker 2: Yeah. Or both? Yeah, well, I've been on a journey.
• 17:24
  Speaker 2: I used to be a sell-side analyst for Deutsche and
• 17:27
  Speaker 2: UBS in London, New York. And so I've come from
• 17:29
  Speaker 2: a completely active background and gone 180 to focusing on
• 17:33
  Speaker 2: passive and asset allocation. So that's been a journey for me.
• 17:38
  Speaker 2: And so most of our clients are invested in broad-based ETFs, US, Australian,
• 17:44
  Speaker 2: European and like.
• 17:46
  Speaker 1: It's funny, I won't say who, but I was reading
• 17:48
  Speaker 1: this morning about a well-known, important fund manager fund that had,
• 17:57
  Speaker 1: fund of funds, that had announced that they were going
• 18:00
  Speaker 1: with a certain small to mid-cap fund manager. And this
• 18:05
  Speaker 1: particular fund manager was delighted, obviously, with this and was
• 18:08
  Speaker 1: announcing it and telling everybody and putting out press statements
• 18:11
  Speaker 1: and mentioned, you know, also in passing how much, what
• 18:15
  Speaker 1: their percentage return was in their area of activity. And
• 18:20
  Speaker 1: I looked and I said, that's really good. And then
• 18:22
  Speaker 1: I said, Yeah, it's more or less the same as
• 18:24
  Speaker 1: the ETF in the same space. I mean, it's cruel,
• 18:27
  Speaker 1: but you've got to be not just good. You've got
• 18:31
  Speaker 1: to be like dynamite, I think, in active now to
• 18:35
  Speaker 1: beat passive.
• 18:37
  Speaker 2: It's even more than that. As an investor, you have
• 18:40
  Speaker 2: to be a brilliant fund manager picker to pick which
• 18:43
  Speaker 2: of those fund managers is going to be that outperformer.
• 18:47
  Speaker 2: So it almost doubles or reduces your odds by half.
• 18:50
  Speaker 1: How do you think you can do that? Is it
• 18:53
  Speaker 1: old people?
• 18:55
  Speaker 2: I think it used to be. Increasingly, we're seeing with
• 18:58
  Speaker 2: the fall of some of these previously great houses, perhaps
• 19:01
  Speaker 2: we're starting to see that the emperor didn't wear the
• 19:05
  Speaker 2: clothes that we thought they did.
• 19:06
  Speaker 1: Well, maybe they were. I mean, I think we can
• 19:08
  Speaker 1: name them. I mean, obviously, Magellan had Hamish Douglas, who
• 19:11
  Speaker 1: was a marvelous front person for that group. And in
• 19:15
  Speaker 1: its day, Platinum had Karen Nielsen, who was a marvelous
• 19:18
  Speaker 1: front person. But I'm not really talking about that, where
• 19:22
  Speaker 1: you have a charismatic sort of leader of a fund.
• 19:26
  Speaker 1: I mean, I think it's teams of stock pickers. And
• 19:30
  Speaker 1: there are people who can do it. And there are
• 19:32
  Speaker 1: people who can do it year after year. But how
• 19:33
  Speaker 1: do you find out about them?
• 19:35
  Speaker 2: Well, I suppose you focus on the areas where you
• 19:37
  Speaker 2: think that they can outperform. So for instance, small caps. Again,
• 19:40
  Speaker 2: it's hard to mimic an ETF for small caps.
• 19:43
  Speaker 1: So you're saying small caps has... more chance of a
• 19:46
  Speaker 1: better active manager an active manager has more chance than
• 19:49
  Speaker 1: small caps just like we were saying about the bonds.
• 19:51
  Speaker 2: And emerging markets is another area where exchange-traded funds can't
• 19:57
  Speaker 2: mimic the entire universe. And so there is the ability
• 20:00
  Speaker 2: of active managers to outperform and do so quite well.
• 20:03
  Speaker 1: Yes, that's a very good point. Okay, keep that in mind, folks.
• 20:06
  Speaker 1: And I would tend to completely agree with that. and
• 20:09
  Speaker 1: from the figures I see, that we're always saying ETFs
• 20:12
  Speaker 1: are good, and they are, of course they are. But
• 20:14
  Speaker 1: there's always individual shares that are going to beat the
• 20:16
  Speaker 1: daylights out of your ETF, and funds. And the likelihood
• 20:20
  Speaker 1: is that those funds will be in areas like Australian
• 20:24
  Speaker 1: small caps, global small caps, emerging markets, and to an extent,
• 20:29
  Speaker 1: bond markets, for the very reason that Tim outlined there
• 20:34
  Speaker 1: a few moments ago. Okay, now I think... Just while
• 20:40
  Speaker 1: we have you, before we go to questions, is there
• 20:44
  Speaker 1: an area of investing that you find that your clients
• 20:47
  Speaker 1: are resistant to and should consider crypto being the obvious
• 20:53
  Speaker 1: one because it is now, well, it is now the
• 20:57
  Speaker 1: US SEC chief, Tim Besant is, I mean, they're talking
• 21:02
  Speaker 1: about not just kind of ticking the boxes and saying
• 21:04
  Speaker 1: crypto is okay. They're talking about putting it into US
• 21:06
  Speaker 1: strategic reserves and everything. Is it time to Is it
• 21:10
  Speaker 1: time to look again with new eyes at this, what
• 21:16
  Speaker 1: we would have to call an asset class?
• 21:18
  Speaker 2: Well, for younger tech savvy investors, a fair few of
• 21:22
  Speaker 2: them already have direct exposure to that. I wouldn't recommend
• 21:24
  Speaker 2: most older, more traditional investors sort of go out and
• 21:28
  Speaker 2: set up a tether account or a Bitcoin account.
• 21:31
  Speaker 1: No, but we have all ages listening. And I will
• 21:36
  Speaker 1: say that The correspondence I get on crypto goes, it
• 21:41
  Speaker 1: escalates with the price. Yes. When it goes down, guess what?
• 21:45
  Speaker 1: We don't talk about it as much. But so I
• 21:47
  Speaker 1: go into you, right? And you've said to me, James,
• 21:51
  Speaker 1: you know, crypto, you don't understand it, blah, blah, blah.
• 21:54
  Speaker 1: You're skeptical about it. So, you know, but now I
• 21:57
  Speaker 1: go back into you and I say, look, hey, you know,
• 22:00
  Speaker 1: the titans of Wall Street are interested in this. The
• 22:03
  Speaker 1: US SEC commissioner is pro-crypto. So is the president. Should
• 22:07
  Speaker 1: I have it?
• 22:09
  Speaker 2: Well, I suppose in some ways it's like gold, right?
• 22:11
  Speaker 2: So my problem.
• 22:13
  Speaker 1: I don't think it's like gold, actually, to be honest.
• 22:15
  Speaker 1: I don't think so because gold, I think, is non-correlated
• 22:17
  Speaker 1: and I think Bitcoin's correlated. Discuss.
• 22:20
  Speaker 2: Well, the way I liken it to gold is the
• 22:23
  Speaker 2: sense that neither of them throw off yield, right? There
• 22:25
  Speaker 2: is no income. So traditionally, as a sell-side analyst... we'd
• 22:29
  Speaker 2: build valuation models and it would be based on the
• 22:31
  Speaker 2: yield these things would throw off. So if there's no yield,
• 22:33
  Speaker 2: how the hell do you value it? So that's my
• 22:35
  Speaker 2: starting point. That's why I liken it to gold. Having
• 22:37
  Speaker 2: said that, there is obviously a flight to safety for
• 22:41
  Speaker 2: both of those investments. And I think a lot of
• 22:43
  Speaker 2: the people who invest in cryptocurrency today, if it didn't exist,
• 22:47
  Speaker 2: would be invested in gold. A similar sort of mind frame.
• 22:50
  Speaker 1: And you're thinking that that is generational, demographic?
• 22:54
  Speaker 2: Yeah, 100%. So if crypto didn't exist, those people would
• 22:56
  Speaker 2: probably be investing in gold. So You can get exposure
• 23:00
  Speaker 2: to it via ETFs, I hate to say it, but again,
• 23:03
  Speaker 2: exchange-traded funds here now launched in Australia, actively on the market,
• 23:07
  Speaker 2: they will hold the Bitcoin, they'll have a custodian that
• 23:10
  Speaker 2: looks after it. And so if you are gonna go
• 23:13
  Speaker 2: down that route, that would probably be the safest and
• 23:16
  Speaker 2: less tech-exposed, to hacking and the like, route. So for
• 23:22
  Speaker 2: many of our clients who operate through a financial plan,
• 23:25
  Speaker 2: one of those large organizations, That firm will not allow it.
• 23:28
  Speaker 2: Their mandate will not allow those people to be put
• 23:30
  Speaker 2: into those investments.
• 23:31
  Speaker 1: But they let them have an ETF?
• 23:34
  Speaker 2: Yes, but they might not have that ETF on their
• 23:36
  Speaker 2: allowed list of approved products, right? So it won't be
• 23:38
  Speaker 2: an open gamut of all ETFs allowed. So you'll probably
• 23:43
  Speaker 2: find that retail investors are bigger users, directly investors, than
• 23:47
  Speaker 2: through the large institutions.
• 23:49
  Speaker 1: But you can put them in your SMSF?
• 23:53
  Speaker 2: Depending on your... your investment strategy, if it allows it
• 23:56
  Speaker 2: or not. So check that first.
• 23:58
  Speaker 1: If it allows an ETF, then it surely allows an
• 24:01
  Speaker 1: ETF on crypto.
• 24:03
  Speaker 2: No, it depends on the asset class, right? So your
• 24:05
  Speaker 2: investment strategy may be written around asset classes rather than
• 24:09
  Speaker 2: investment types. Like for instance, you can get an ETF
• 24:12
  Speaker 2: that has one stock in it. You could have NVIDIA in,
• 24:14
  Speaker 2: you know, three times leveraged in it. So not all
• 24:16
  Speaker 2: ETFs are vanilla products.
• 24:18
  Speaker 1: Sure, I'm talking about vanilla ETFs.
• 24:20
  Speaker 2: But again, I wouldn't describe a cryptocurrency ETF as a
• 24:24
  Speaker 2: vanilla ETF. ETF, maybe in 10, 15 years time, it
• 24:26
  Speaker 2: may be. But at the moment, they're still new cabs
• 24:28
  Speaker 2: off the rank, increasingly accepted. From our perspective, some of
• 24:32
  Speaker 2: our younger clients, we do it on execution. So they
• 24:35
  Speaker 2: want to get that exposure. So we'll facilitate that, but
• 24:37
  Speaker 2: we're not actively recommending that.
• 24:39
  Speaker 1: It makes up 5%. You're in the camp where you say,
• 24:43
  Speaker 1: if you want to do it, we won't stop you,
• 24:45
  Speaker 1: but you're not recommending it.
• 24:46
  Speaker 2: Oh, we'll help you.
• 24:47
  Speaker 1: Yeah.
• 24:47
  Speaker 2: On instruction. Yes.
• 24:48
  Speaker 1: Yeah. Under instruction.
• 24:49
  Speaker 2: Yeah.
• 24:49
  Speaker 1: Okay. Very interesting. Under instruction. You see, they're the important
• 24:53
  Speaker 1: words there, folks. Okay, we'll take a break and we'll
• 24:56
  Speaker 1: have some questions from Lisa and Imran and Carl and
• 25:00
  Speaker 1: Lofty Big Chopper, whoever Lofty Big Chopper is. Okay, back
• 25:04
  Speaker 1: in a moment. Hello, welcome back to the Australian's Money
• 25:20
  Speaker 1: Puzzle podcast. I'm James Kirby, Wealth Editor. at The Australian
• 25:23
  Speaker 1: and I'm talking to Tim McKay of Quantum Financial. Tim,
• 25:26
  Speaker 1: of course, is a financial advisor, well-known financial advisor. He's
• 25:29
  Speaker 1: been on the show several times and delighted to have
• 25:32
  Speaker 1: him on the show today. Okay, what we might do,
• 25:35
  Speaker 1: why don't we just read them out alternately, if you like,
• 25:38
  Speaker 1: and I'll read the first one, which is from Lisa. Hello, Lisa.
• 25:43
  Speaker 1: I will be looking to invest outside of super until 2027.
• 25:46
  Speaker 1: There's a very precise reason for this, which Lisa explained.
• 25:51
  Speaker 1: As I mentioned on the last show, We have some
• 25:53
  Speaker 1: very long questions which I have to edit. So this
• 25:56
  Speaker 1: is just a distillation of Lisa's issue. Here we go again.
• 26:00
  Speaker 1: I will be looking to invest outside of super until
• 26:03
  Speaker 1: 2027 when I can again contribute to my super account.
• 26:06
  Speaker 1: I am not in need of an income from this
• 26:08
  Speaker 1: amount as I am still able to draw down on
• 26:10
  Speaker 1: an adequate income stream. After your recent podcast outlining the
• 26:16
  Speaker 1: history of share market corrections and crashes, I My gut
• 26:20
  Speaker 1: feeling is to put the cash into a savings account.
• 26:22
  Speaker 1: And she mentions one from a regional bank where she
• 26:25
  Speaker 1: says she can earn 4.85% monthly with no terms or conditions. Lisa,
• 26:31
  Speaker 1: I would love to know if that has no terms
• 26:34
  Speaker 1: or conditions because that would be a new one for me.
• 26:40
  Speaker 1: But in any event, Lisa's question obviously is, having heard
• 26:44
  Speaker 1: of the history of crashes and corrections, she thinks maybe
• 26:47
  Speaker 1: she should put more into cash. This is never advice,
• 26:51
  Speaker 1: it's information only. Maybe if you didn't know the history of...
• 26:55
  Speaker 1: The point of that show was to tell people who
• 26:59
  Speaker 1: hadn't recalled or experienced a crash that they happen. And
• 27:03
  Speaker 1: not only can they happen like COVID where it's short
• 27:06
  Speaker 1: and sharp, but they can happen over an agonizingly long
• 27:10
  Speaker 1: period of time. GFC 207 to 209 where our market
• 27:14
  Speaker 1: fell 50%, but it didn't do it fast, it did
• 27:16
  Speaker 1: it in a painfully glacial fashion over two years. And
• 27:20
  Speaker 1: when we hit the bottom, we didn't know we'd hit
• 27:22
  Speaker 1: the bottom either. So that was the reason with Alex
• 27:25
  Speaker 1: Moffat that we did that show on the anniversary of
• 27:27
  Speaker 1: the great crash of 87. But what do you think
• 27:30
  Speaker 1: of Lisa's disposition to say, well, I've only got a
• 27:33
  Speaker 1: two-year timeframe. I have a certain amount of money. I
• 27:36
  Speaker 1: really shouldn't do anything. I should put it in cash.
• 27:38
  Speaker 2: It's a valid position. But to counter it, I would say,
• 27:42
  Speaker 2: Over the next two years, depending on when in 2027,
• 27:44
  Speaker 2: if it's mid-year, when the 1st of July, 2027, that's
• 27:48
  Speaker 2: two and a half years away. Markets will more than
• 27:51
  Speaker 2: likely be up over the next two and a half years.
• 27:54
  Speaker 2: Whereas we know interest rates will likely be down over
• 27:57
  Speaker 2: the next two and a half years, right? So 4.85% today,
• 28:00
  Speaker 2: potentially dropping by 25 bps, you know, next quarter after.
• 28:04
  Speaker 2: So that 4.85 certainly is not locked in over that period.
• 28:08
  Speaker 2: we know if inflation is sort of coming under control,
• 28:12
  Speaker 2: then interest rates will come down and potentially significantly. So
• 28:15
  Speaker 2: potentially that could start going backwards at some stage over
• 28:18
  Speaker 2: that two and a half year period. Also, it's not binary.
• 28:21
  Speaker 2: It's not like that money either needs to be in
• 28:23
  Speaker 2: cash or to market. You could put a portion of
• 28:26
  Speaker 2: it into the market over the next two years and
• 28:28
  Speaker 2: keep some in that cash earning interest. So that's not
• 28:32
  Speaker 2: the worst idea in the world. And the other point
• 28:34
  Speaker 2: to reiterate is your point about buying into the dip,
• 28:39
  Speaker 2: it sounds rational and sounds so sensible. But when the
• 28:42
  Speaker 2: market falls, that is the hardest time to actually make
• 28:46
  Speaker 2: that emotional decision to invest it. Because the fear at
• 28:49
  Speaker 2: that time.
• 28:49
  Speaker 1: Is that it'll keep falling.
• 28:51
  Speaker 2: It's palpable.
• 28:51
  Speaker 1: Yeah.
• 28:51
  Speaker 2: Yeah.
• 28:52
  Speaker 1: Literally.
• 28:52
  Speaker 2: And to make that, to remove yourself from that fear
• 28:54
  Speaker 2: and just to step around it or step over it
• 28:57
  Speaker 2: and make that decision is so hard. So it sounds
• 29:00
  Speaker 2: like a wonderful plan, but it's so hard to execute.
• 29:03
  Speaker 2: when emotions come into the story.
• 29:04
  Speaker 1: Okay, very interesting. And to Lisa and all the Lisas
• 29:07
  Speaker 1: out there, diversify. It's always a useful way to approach
• 29:15
  Speaker 1: any investment amount, be it big or small, long-term or short-term.
• 29:20
  Speaker 1: I don't think that's individual advice. I think that's very instructive,
• 29:24
  Speaker 1: general observation and information for everybody. Okay, Imran, a financial
• 29:29
  Speaker 1: planner on one of your episodes mentioned that some super funds...
• 29:33
  Speaker 1: Behind the scenes, Link spouse accounts to reduce fees if
• 29:37
  Speaker 1: the combined balance was substantial enough. In other words, there's
• 29:40
  Speaker 1: a couple, whatever, they've got, you know, 200 grand each,
• 29:44
  Speaker 1: suddenly it becomes 400 grand, their fees drop. But Imran's
• 29:47
  Speaker 1: experience with his industry fund, and he names Unisuper, and
• 29:51
  Speaker 1: they had no idea about this, and he's wondering what
• 29:55
  Speaker 1: funds do it. Okay, Imran, I'll have to come back here,
• 29:59
  Speaker 1: I really have to do this, but I couldn't immediately
• 30:01
  Speaker 1: recall who said it. Tim, do you know anything about that? Yeah,
• 30:04
  Speaker 1: I do.
• 30:05
  Speaker 2: Industry funds typically don't offer this service. They have low fees.
• 30:08
  Speaker 1: It's not typical. No, they don't.
• 30:10
  Speaker 2: Having said that, retail funds, some retail funds do. So
• 30:12
  Speaker 2: for instance, Colonial certainly offers it.
• 30:14
  Speaker 1: I see.
• 30:15
  Speaker 2: So if you've got a couple with various accounts or
• 30:19
  Speaker 2: with their kids, you can link that family group and
• 30:22
  Speaker 2: reduce your fees. So that optionality is there, but not
• 30:25
  Speaker 2: across the board.
• 30:27
  Speaker 1: Why don't they all do it? Is it too hard?
• 30:31
  Speaker 2: Well, industry funds evolved out of employment arrangements. You got
• 30:35
  Speaker 2: into Australian Sue because you worked in a particular industry
• 30:37
  Speaker 2: sort of thing. So they were never family focused in
• 30:40
  Speaker 2: that sense, whereas retail funds made more of an effort
• 30:44
  Speaker 2: to sort of serve client groups.
• 30:46
  Speaker 1: Do you think there's minimums on that?
• 30:48
  Speaker 2: Yes, there is. That's 100%. So it's an encouragement to
• 30:51
  Speaker 2: put more towards that platform. So it's linked to farm.
• 30:53
  Speaker 1: Is there a minimum?
• 30:54
  Speaker 2: Yeah.
• 30:55
  Speaker 1: You don't know what it might be?
• 30:56
  Speaker 2: No, not off the top of my head.
• 30:57
  Speaker 1: Okay. Very good answer, though. Thank you for that. And
• 30:59
  Speaker 1: I imagine Imran is... You got an answer there, Imran,
• 31:01
  Speaker 1: from Tim, not from me, which was very good.
• 31:03
  Speaker 2: Okay. Listener Carl has a wonderful question as well. So
• 31:06
  Speaker 2: I'll read that one out. Whenever I buy or sell shares,
• 31:10
  Speaker 2: I still receive by post a new holding statement in
• 31:13
  Speaker 2: hard copy format. These are dispatched in the month following
• 31:16
  Speaker 2: the relevant share transactions.
• 31:18
  Speaker 1: Yeah.
• 31:19
  Speaker 2: I cannot see the purpose of these pieces of paper.
• 31:23
  Speaker 2: They are not proof of current share ownership, as there
• 31:26
  Speaker 2: may have been further share trades between the last end
• 31:28
  Speaker 2: of month statement cutoff and the current day. Have not
• 31:32
  Speaker 2: computerized share registries accessible online made shareholding statements redundant, just
• 31:37
  Speaker 2: like hard copy bank statements.
• 31:40
  Speaker 1: Good on you, Carl. You really want to help those
• 31:42
  Speaker 1: brokers save money. It's really funny though. It's so true.
• 31:45
  Speaker 1: I mean, I get them too. They come in on
• 31:46
  Speaker 1: the post. I look at them, oh, this post. Oh yeah, well,
• 31:48
  Speaker 1: I know that. I put it in the bin. Yeah.
• 31:52
  Speaker 2: It does my head in too. I mean, if you
• 31:53
  Speaker 2: think of the cost of the postage and the printing,
• 31:55
  Speaker 2: but I'd put one caveat on that. There are some
• 31:58
  Speaker 2: older investors who perhaps not as tech savvy, who if
• 32:01
  Speaker 2: you think about it, you place your instructions or your
• 32:04
  Speaker 2: orders through your broker. This is coming from a third party.
• 32:06
  Speaker 2: This isn't coming from your broker. This is coming from
• 32:08
  Speaker 2: the registries, right? So In some ways, it's a third
• 32:13
  Speaker 2: party confirmation of what you've done, albeit coming not via pigeon,
• 32:17
  Speaker 2: but carry pigeon via the snail mail. I think for
• 32:21
  Speaker 2: some of the older clients, they probably appreciate the validity
• 32:24
  Speaker 2: of what, and to be honest, it's really hard to hack.
• 32:26
  Speaker 1: Put them on a nail, what do you call those
• 32:28
  Speaker 1: files that have the spike file? Put them on a
• 32:30
  Speaker 1: spike file and pile them up.
• 32:31
  Speaker 2: But it's pretty hard to hack a letter.
• 32:33
  Speaker 1: Yes, it is hard to hack a letter. And you
• 32:35
  Speaker 1: made me think of something there, reading about the early
• 32:38
  Speaker 1: days of Wikileaks and all that and how they operated
• 32:43
  Speaker 1: and often how international clandestine groups do operate. But Wikileaks,
• 32:49
  Speaker 1: Everyone thinking of it in its day of being this
• 32:51
  Speaker 1: sort of really interesting, high-tech. You know, they use the post. Really?
• 32:57
  Speaker 1: They use the post to correspond to each other.
• 32:59
  Speaker 2: Good Lord.
• 32:59
  Speaker 1: Out of Bermuda. Nothing beat the post because it wasn't
• 33:03
  Speaker 1: intercepted compared to over the internet. So there you are.
• 33:07
  Speaker 1: So there is a sense to it, Carl. I'm sure
• 33:11
  Speaker 1: the registries would love to stop it. I'm sure Australia
• 33:13
  Speaker 1: Post would think it's a really good idea that we
• 33:16
  Speaker 1: keep getting those vetters, but you can see that. You
• 33:18
  Speaker 1: can see the sense of it. But a really good question.
• 33:20
  Speaker 1: Thank you. Okay, the last one from Lofty Big Chopper.
• 33:23
  Speaker 1: He asks.
• 33:25
  Speaker 2: He thanks us for our great show. I have a
• 33:27
  Speaker 2: question about tax in super. I'm invested primarily in low-cost
• 33:32
  Speaker 2: index funds, Australian and international, through an industry super fund.
• 33:36
  Speaker 2: I've heard recently that tax is withheld from returns to
• 33:39
  Speaker 2: provide for future capital gains. Is this true? And would
• 33:42
  Speaker 2: this not cause a measurable tax drag on the portfolio
• 33:45
  Speaker 2: over the longer term? Enough to make a mockery of
• 33:47
  Speaker 2: all the squabbling about saving X basis points investing in
• 33:50
  Speaker 2: this fund over this one. I've recently hit $ 500, 000.
• 33:54
  Speaker 1: Well done.
• 33:54
  Speaker 2: And I'm wondering if I should start an SMSF to
• 33:57
  Speaker 2: gain more control over what is sold and when. It
• 34:01
  Speaker 2: is my understanding that if I don't sell anything until
• 34:03
  Speaker 2: pension phase, there will be no capital gains tax to pay.
• 34:06
  Speaker 1: Yes. Okay. Well, Lofty, a couple of things there. First
• 34:11
  Speaker 1: of all, I think you've got it all right. He
• 34:14
  Speaker 1: has it squared up pretty accurately. Let me tell you
• 34:17
  Speaker 1: something about all this. So this is how it goes
• 34:20
  Speaker 1: in the big industry funds. They do snip the ticket,
• 34:25
  Speaker 1: not snip the ticket, but they collect what capital gains
• 34:30
  Speaker 1: tax that you may be exposed for, and they collect
• 34:34
  Speaker 1: it as you go, as the years go by, on
• 34:36
  Speaker 1: the basis that they may somehow have to pay it someday. Now,
• 34:40
  Speaker 1: someone awfully clever one time came up with this idea,
• 34:43
  Speaker 1: and it is common in the big funds. When you
• 34:48
  Speaker 1: go to retire, if you say, by the way, look,
• 34:54
  Speaker 1: thanks for everything, and I'm leaving the fund. They say, oh,
• 34:57
  Speaker 1: that's a pity. Oh, and also, by the way, we've
• 34:59
  Speaker 1: been collecting your potential capital gains tax liability, and it's
• 35:05
  Speaker 1: worth whatever. Let's pick a number. It's worth $ 6, 000. So
• 35:08
  Speaker 1: if you leave us, unfortunately, you won't be getting that.
• 35:11
  Speaker 1: But if you stay, you'll get it. All perfectly legal,
• 35:14
  Speaker 1: all perfectly sensible, and a ruse, I reckon, which works
• 35:19
  Speaker 1: very well for keeping people in funds. It's controversial. I've
• 35:23
  Speaker 1: tried to do something about it. I've tried to explain
• 35:25
  Speaker 1: to people. I've written stories about it. But that's how
• 35:27
  Speaker 1: it works.
• 35:29
  Speaker 2: Yeah, it's a switching cost, effectively. They're trying to make
• 35:32
  Speaker 2: it sticky to stay in their funds.
• 35:35
  Speaker 1: Well, who's going to say? I tell you what. I
• 35:37
  Speaker 1: don't want that six grand I'm going to leave. Who's
• 35:39
  Speaker 1: going to say that?
• 35:40
  Speaker 2: I mean, just to put a caveat on that, in
• 35:42
  Speaker 2: the sense that Australian super taxes at the fund level,
• 35:45
  Speaker 2: not at the individual level, right? So that's the key difference.
• 35:47
  Speaker 2: Having said that, industry funds, right? The reason I raised
• 35:50
  Speaker 2: Australian super is because they and others have a member
• 35:53
  Speaker 2: direct option, right? Where you can invest directly in your
• 35:56
  Speaker 2: own shares, your own ETFs and the like. And in
• 36:00
  Speaker 2: that option, you do get the direct taxation implications of
• 36:04
  Speaker 2: your own transactions. So even within industry funds, They have
• 36:07
  Speaker 2: a service that.
• 36:08
  Speaker 1: Mimics the same sort of- But that would be a minority.
• 36:11
  Speaker 2: A hundred percent, a tiny minority. But they're trying to
• 36:13
  Speaker 2: mimic the benefits of a self-managed super fund. So if
• 36:15
  Speaker 2: you think taxation is going to be a key driver
• 36:17
  Speaker 2: of your returns, for whatever reason, you might want to
• 36:19
  Speaker 2: invest in a property that's going to have a substantial gain,
• 36:22
  Speaker 2: then yes, the self-managed super fund could be the option
• 36:24
  Speaker 2: to derive some tax savings rather than industry fund where
• 36:28
  Speaker 2: you have no control over it whatsoever.
• 36:30
  Speaker 1: The taxation of your super is hardly a reason to
• 36:33
  Speaker 1: switch to SMSF.
• 36:34
  Speaker 2: Yeah, it's the towel wagging the dog if you're reading
• 36:37
  Speaker 2: my text.
• 36:38
  Speaker 1: Yeah, if you want to do SMSF, Lofty, you want
• 36:40
  Speaker 1: to do it because you reckon you can do better
• 36:44
  Speaker 1: than the funds and that you pay less fees and
• 36:47
  Speaker 1: that you'll be more nimble and reactive and have more control.
• 36:52
  Speaker 1: And that might be the case or it may not
• 36:54
  Speaker 1: be the case. Your call. Okay, terrific. Well, thank you
• 36:57
  Speaker 1: very much, Tim McKay of Quantum Financial for today. Lovely
• 37:00
  Speaker 1: to see you. Lovely to have you in the studio.
• 37:02
  Speaker 2: Thank you, James. Thank you.