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New financial year - Get ready to reset your portfolio · The Money Puzzle

0:10
Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
0:13
Speaker 1: James Kirby. Welcome aboard everybody. It is the first week
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Speaker 1: of the new financial year, brimming with opportunities for you,
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Speaker 1: and I want to explore opportunities and risks in the
0:25
Speaker 1: new financial year with my special guest today, the author
0:29
Speaker 1: Noel Whitaker. Who better to join us for a panoramic
0:33
Speaker 1: look at what's in store for investors over the next
0:38
Speaker 1: twelve months. It's an ambitious agenda. I will concede immediately,
0:42
Speaker 1: so I think we should split it into Property Super
0:48
Speaker 1: then we'll do shares and we'll have a look at
0:50
Speaker 1: some questions as well. How are you, Noel?
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Speaker 2: Very good, James, so nice to be back with you again.
0:56
Speaker 1: Delighted to have you on. I know that you are
0:58
Speaker 1: skeptical about the very notion of a property market. Why
1:03
Speaker 1: is that you don't even like this notion that we
1:05
Speaker 1: could talk about the property market terminology.
1:09
Speaker 2: There is no such thing as a property market that
1:11
Speaker 2: we've been pointed by per houses or Black Town units
1:14
Speaker 2: or Cairne's apartments. I mean, I can talk about property
1:18
Speaker 2: in a very general way, but people need to understand
1:22
Speaker 2: that there are many property markets or maybe doing different things.
1:27
Speaker 1: I think that's actually come Just this morning, the Rehite
1:30
Speaker 1: Group have issued a report which is really interesting with
1:33
Speaker 1: six years of data, and they are saying that the
1:37
Speaker 1: Australian property landscape has fundamentally changed and that basically the
1:43
Speaker 1: Queensland coastal regions, Gold Coast, particularly on Sunshine Coast are
1:47
Speaker 1: the new hotspots in the market. That their price gains
1:50
Speaker 1: have outpaced the city of Melbourne for instance, four years now,
1:55
Speaker 1: and that this new order, if you like, where it
1:58
Speaker 1: always was Sydney first, Melbourne second, Brisbane third, and prices
2:03
Speaker 1: kind of went into predictable fashion. That they think that's
2:05
Speaker 1: fundamentally changed. I mean that's relevant, isn't it if you
2:08
Speaker 1: were an investor.
2:11
Speaker 2: Yes. And I also think investing in property is difficult
2:15
Speaker 2: as we know in Victoria they have passed very harsh
2:18
Speaker 2: laws against landlords, which is one of the reasons. The
2:22
Speaker 2: key to property is to add value, which you can't
2:27
Speaker 2: do to an apartment, which means houses. Now the medium
2:31
Speaker 2: home in Brisbane's about over one million dollars. Now to me,
2:35
Speaker 2: it'll be a big leap of faith to buy a
2:38
Speaker 2: one million dollar investment property when you can be buying
2:41
Speaker 2: a million dollars of shares. It's a no brainer. Yeah.
2:45
Speaker 1: But in terms of this year and the you know,
2:48
Speaker 1: the parameters of this new financial year, we've had pretty
2:51
Speaker 1: ordinary property prices performance around the country this year, spectacular, spectacular,
2:57
Speaker 1: very strong year for shares. Property is about to experience
3:04
Speaker 1: the impact of interest rates dropping, so I think, I mean,
3:09
Speaker 1: wouldn't it be a reasonable thing to say that the
3:11
Speaker 1: outlook for property is promising whatever it might be.
3:15
Speaker 2: Well, as you say, interest rates are dropping, and the
3:19
Speaker 2: more they drop, there are more buyers. Every state government
3:23
Speaker 2: in the federal government is doing instead for first home buyers.
3:28
Speaker 2: So you're creating an increasing demand for property, but no
3:32
Speaker 2: more supply. I mean, they talk about supply, so I
3:36
Speaker 2: think it's going to be an even type of market
3:37
Speaker 2: for first home buyers.
3:40
Speaker 1: What about foreign investors? I take your point about the incentives.
3:42
Speaker 1: I mean, Brisbane's leading the pack, aren't they. The state
3:45
Speaker 1: budget has a scheme for a two percent deposit and
3:49
Speaker 1: you can buy a million dollar home. I know it's
3:51
Speaker 1: shared equity, but it stands for two percent twenty thousand dollars.
3:56
Speaker 1: You can get a million dollar home under a government
3:59
Speaker 1: scheme in Brisbin and now in the state budget. What
4:01
Speaker 1: do you think of it.
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Speaker 2: I think that's a copy of the federal government scheme. James.
4:05
Speaker 2: It seems fairly much the same to me. All I
4:08
Speaker 2: know is that the bar is getting higher and higher,
4:10
Speaker 2: but also much say, as an investor for a long time,
4:14
Speaker 2: I don't like property as an investment. It's got big
4:18
Speaker 2: entry costs. It's the friends of ours just bought a
4:21
Speaker 2: four million dollar apartment two hundred and fifty thousand dollars
4:26
Speaker 2: in stamp duty, and you've got big exit fees, and
4:30
Speaker 2: you've got on the land taxes going up. So with
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Speaker 2: land tax and rates and insurance and vacancies, you know,
4:39
Speaker 2: plus the fact that all governments are making it hard
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Speaker 2: to be a landlord, I think you're much better off
4:43
Speaker 2: in shares. Shares are so simple. There's nothing to do.
4:47
Speaker 1: There's nothing to do when it goes right. But there's
4:49
Speaker 1: nothing to do when it goes wrong either except dowd
4:51
Speaker 1: there and watch it. If you have a property, you
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Speaker 1: can at least improve it, just as you're making that
4:57
Speaker 1: point at the start.
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Speaker 2: But that's what they call the curse of liquidity. Because
5:01
Speaker 2: shares are liquid, it means that we can buy and
5:05
Speaker 2: sell any time. We like a an liquidity place with
5:07
Speaker 2: your mind. If your shares going well, that's great. If
5:12
Speaker 2: it's not, that I sell or keep. That's why I
5:15
Speaker 2: think for most people the index fund is just such
5:17
Speaker 2: a lovely investment. It's average nine percent for one hundred
5:20
Speaker 2: and twenty years and there are no decisions to make.
5:23
Speaker 2: You just hang in there. Whereas if you go for
5:27
Speaker 2: speculative share then there's the bit do I buy or
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Speaker 2: do I sell?
5:31
Speaker 1: Yes, And in terms of just the immediate, as I said,
5:35
Speaker 1: in terms of the year ahead, in terms of property,
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Speaker 1: the consensus is that rests will fall, the property prices
5:44
Speaker 1: will improve. They're currently doing about two percent a year,
5:46
Speaker 1: two or three, they're going to move to five percent
5:48
Speaker 1: a year. That's the kind of consensus. How do you
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Speaker 1: sit with that? Are you would you think that's a
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Speaker 1: sound or.
5:55
Speaker 2: Well, again, it depends on the type of property in
5:59
Speaker 2: the low Mark and I'd say yes. You talked about
6:02
Speaker 2: the Sunshine Coast and the Gold Coast. They are two
6:05
Speaker 2: different markets. The Gold Coast now is just a concrete
6:09
Speaker 2: jungle with a tower going up on every corner with
6:13
Speaker 2: no more roads. That's why people are going to the
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Speaker 2: north coast because you've got trees and no traffic lights.
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Speaker 2: It's a different area.
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Speaker 1: So all property is highly particular, highly localized.
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Speaker 2: Very much.
6:28
Speaker 1: So Yeah, I mean.
6:31
Speaker 2: You're either on the beach or off the beach if
6:33
Speaker 2: you're buying beachfront property. Big key factors are close to
6:37
Speaker 2: infrastructure like transport and shops, major key. And I've also
6:44
Speaker 2: said if you're buying property, the key factory is location
6:47
Speaker 2: because you can't change that.
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Speaker 1: And do you think these other factors and property are
6:53
Speaker 1: marginal housing incentives, tax lures, or inducements.
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Speaker 2: Well, they talk about negative gearing, but given the thirty
7:03
Speaker 2: percent van now goes to one hundred and thirty five
7:06
Speaker 2: grand a year, if you lose ten thousand dollars, you
7:10
Speaker 2: pay seven thousand dollars at that. I mean, negative gearing
7:13
Speaker 2: is not the magic pudding they think it is. You're
7:17
Speaker 2: still paying seventy percent.
7:20
Speaker 1: Yes, you're still paying out. You're still paying out week
7:23
Speaker 1: after week or a month after month as you try
7:25
Speaker 1: to get these capital gains.
7:27
Speaker 2: Sure, and if you've got two million dollars in property
7:30
Speaker 2: and I've got two million dollars in shares, and we
7:32
Speaker 2: both want one hundred thousand dollars you can't sell the
7:36
Speaker 2: back bedroom. I can just ring the broker and I've
7:38
Speaker 2: got the money next day. And that's the big difference.
7:41
Speaker 1: Ye hyeah, you can you can't. You can't sell a
7:44
Speaker 1: part of a property. It's very true. Okay, what we're
7:47
Speaker 1: going to do is we're going to talk in a
7:49
Speaker 1: moment about the share market. That's obviously that what everyone's
7:52
Speaker 1: interested in this year. We've just had an amazing year
7:55
Speaker 1: ten percent plus on the local market, even better in
7:58
Speaker 1: the US despite all the distractions. Let's have a look
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Speaker 1: at the yearhead in one moment. We'll be back in
8:03
Speaker 1: a minute. Hello, Welcome back to the Australians Money Puzzle
8:14
Speaker 1: podcast James Kirby with Noel Whittaker. Now we are going
8:18
Speaker 1: to talk about the share market for a few minutes
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Speaker 1: and have a look at the year ahead. So let's
8:23
Speaker 1: just put it on the table. What happened in the
8:27
Speaker 1: year to June? Noel, a ten percent plus on the
8:30
Speaker 1: share market eleven or twelve percent plus in the US.
8:35
Speaker 1: On top of that, dividendial still holding up at four
8:40
Speaker 1: over four percent in our market. How did you respond
8:44
Speaker 1: to that performance this year? I mean, was it better
8:46
Speaker 1: than you might have expected?
8:49
Speaker 2: Well, when Donald Trump got in, I'm being asked to myself,
8:53
Speaker 2: and I say, it's a long game. Hang in there.
8:57
Speaker 2: No one can pick the short term movements of the market,
9:01
Speaker 2: but we do know long term it's got an upturned bias.
9:05
Speaker 2: And as interest rates fur shares are realty more attractive.
9:10
Speaker 2: So it's interest rates four. If I can get an
9:13
Speaker 2: effective yield of six percent franc it's much better than
9:17
Speaker 2: three percent on the term deposit. Yeah, but it's interesting
9:22
Speaker 2: that every time I make a speech, I ask two
9:25
Speaker 2: questions tax would you rather pay income tax or GST
9:31
Speaker 2: or capital gains tax? And nobody knows. Now the no
9:36
Speaker 2: brain is capital gains tax because you don't pay it
9:39
Speaker 2: till you sell the asset and death doesn't trigger it,
9:42
Speaker 2: and you get fifty percent discount when you do that.
9:45
Speaker 2: I say, who understands franking? No one gets it. They
9:49
Speaker 2: don't understand it's money for nothing. So once people understand
9:54
Speaker 2: the unique benefits of shares and franking, credits still go
9:59
Speaker 2: for them. See I had an investment property. It cost
10:03
Speaker 2: me two hundred and thirty thousand dollars twenty years ago.
10:07
Speaker 2: An apartment I've just solved for seven forty I'm only
10:12
Speaker 2: stell in because it's old. If that would have been
10:15
Speaker 2: in the index, it would have been worth one point
10:17
Speaker 2: four million dollars and there would be no sale needed.
10:21
Speaker 2: That's the big difference with Shees. She could hang on in. Yeah.
10:26
Speaker 2: But also, as I'm all say too, don't forget the
10:29
Speaker 2: supervaluation is going to twelve percent this month in July.
10:34
Speaker 2: That's more money which we're going into the share market
10:38
Speaker 2: and what I'm moving my portfoilion and that more and
10:41
Speaker 2: more overseas investment. It's a bigger market, and I'm only
10:45
Speaker 2: using good managed funds. I would never try to pick
10:49
Speaker 2: oversea shares on my own, and your accountant says to me,
10:53
Speaker 2: don't do it. It's a tax nightmare. So stay away
10:56
Speaker 2: from direct share investment, but you can use good managed funds.
11:00
Speaker 1: So when you look at the share market, we did
11:02
Speaker 1: ten percent. What's a long term average? What would people
11:05
Speaker 1: reasonably expect on the share market on the AX the.
11:08
Speaker 2: Long term average for the all lords accumulation. That's interesting.
11:12
Speaker 2: Dividends a sorry growth and dividends is about nine percent.
11:17
Speaker 2: But don't forget there are normally four negative years and
11:20
Speaker 2: six positive years, and the biggest rises always come after
11:25
Speaker 2: the biggest falls because people say, how about I jump
11:29
Speaker 2: out now and get back when the time is right.
11:32
Speaker 2: When the time is right, it's too late. This is
11:35
Speaker 2: the whole point. So also, if you look at a
11:39
Speaker 2: one month, sorry, a one year chart, almost every year,
11:44
Speaker 2: there'll be up months and down months. See, you've got
11:47
Speaker 2: a long term upward trend, but you've got a short
11:50
Speaker 2: term up and down trend. And that's what scares people.
11:53
Speaker 1: Yeah, so that's why you're a lot of surprised. I
11:55
Speaker 1: think that we finished with a ten percent for the year.
11:58
Speaker 2: It just happens. I'm and it's to me, it's no
12:01
Speaker 2: point forecasting. All I know is if you hang on
12:04
Speaker 2: there for long term, it's going to be great again.
12:06
Speaker 1: And again, tell me your views on the ETFs and
12:09
Speaker 1: also on frank dividends and do they overlap to some extent.
12:13
Speaker 2: Okay, most people don't understand the difference between ETFs and LICs. Now,
12:19
Speaker 2: an ETF is an exchange traded fund, which means it's
12:23
Speaker 2: listed on the stock market and it always trades at
12:27
Speaker 2: net asset value, which to meets a great it's a
12:31
Speaker 2: great advantage. Now ETFs it's a broad church. I mean,
12:37
Speaker 2: there's bitcoin and there's gold, and there's shares. It's there's
12:40
Speaker 2: all kinds of them, but the essences they are liquid
12:44
Speaker 2: and they trade at net value a listed investment company.
12:49
Speaker 2: They trade at what the market pays. So if I've
12:53
Speaker 2: got one hundred million, if you've got one hundred million
12:55
Speaker 2: dollar portfolio, the ETF, it will be one hundred million,
13:00
Speaker 2: but that could be worth as an ally six ninety
13:03
Speaker 2: five million dollars because it could be. That's why I
13:06
Speaker 2: much prefer et allies alwise.
13:08
Speaker 1: Yes, just to frame it for people listening about the
13:12
Speaker 1: in terms of looking at this year ahead, you mentioned
13:15
Speaker 1: that SGC everyone should be alert, of course to the
13:18
Speaker 1: fact that take a look at your take home pay, folks,
13:22
Speaker 1: and you will find that it's actually it would have reduced,
13:26
Speaker 1: I'm sure, because your compulsory mandatory payment into the superannuation
13:32
Speaker 1: system has now lifted to twelve percent from July one,
13:36
Speaker 1: twenty twenty five, and that hopefully is the top of
13:38
Speaker 1: the ladder. Hopefully that's about as far as it goes.
13:40
Speaker 1: It's going to stop there, we think. But no, just
13:43
Speaker 1: so you're one of the things you were saying was
13:45
Speaker 1: because of this more money pours into the market, is
13:48
Speaker 1: that it literally has to find a.
13:50
Speaker 2: Home more demand and I have funds now have to
13:53
Speaker 2: go up shore because there's not enough Australian shares. But
13:56
Speaker 2: also just one point there, the boss would normally pay
14:00
Speaker 2: the superanui himself themselves. You don't. They don't normally reduce
14:06
Speaker 2: your salary for the for the super.
14:08
Speaker 1: But your take home package, if it's inclusive of Super,
14:13
Speaker 1: the amount going into super actually goes up from eleven
14:16
Speaker 1: and a half twelve, so your take on cash would
14:19
Speaker 1: go down in many instances, wouldn't do.
14:21
Speaker 2: That's if you've got to take package probably.
14:23
Speaker 1: Okay, yes, yes, yeah, all right.
14:25
Speaker 2: But for the average working person, the boss will play sleeper.
14:29
Speaker 2: It's just another on cost on the.
14:31
Speaker 1: Boss, right right, okay. And if you're in that, if
14:36
Speaker 1: you're better off. If you are, if you have that arrangement,
14:39
Speaker 1: you are better off. But for people are interested in
14:41
Speaker 1: terms of the share market, then you were talking about
14:44
Speaker 1: a couple of things you think are very enduringly attractive,
14:49
Speaker 1: and you mentioned two things. One was frank dividends and
14:52
Speaker 1: the second was actually you're increasing disposition if you'd like
14:56
Speaker 1: to invest overseas, explain it. For most people who are
15:00
Speaker 1: interested in the share market and looking at the new year,
15:04
Speaker 1: how that might play out this year for them or
15:06
Speaker 1: should play out for them.
15:08
Speaker 2: Well, our share market is only about three percent of
15:10
Speaker 2: world markets. If you stick to Australia, you're missing out
15:14
Speaker 2: of ninety seven percent. So I'd rather invest with good
15:17
Speaker 2: fund managers and they've been doing very good returns in
15:21
Speaker 2: the Ambassa's market. But you don't get franking. That's the
15:24
Speaker 2: big difference.
15:26
Speaker 1: And your dividends aren't as good.
15:27
Speaker 2: No, but the growth is better, yes, And that's going
15:32
Speaker 2: to be interesting when when the new super reels come
15:34
Speaker 2: in from next year, because maybe you're better off not
15:39
Speaker 2: having such huge growth, depends on your portfolio. What I'm
15:45
Speaker 2: really hoping is we finish this year on a strong note.
15:50
Speaker 2: So what I wouldn't like is to finish this year
15:52
Speaker 2: on a very low note, which means there's a much
15:55
Speaker 2: bigger chance of a big unreal life capital gain in
15:58
Speaker 2: the twelve months going forward.
16:00
Speaker 1: Would Yeah, Actually, what we do we talk about super
16:04
Speaker 1: in the in the next segment, but just on share market. Okay,
16:07
Speaker 1: So you make that point that you like many investors
16:11
Speaker 1: in Australia have gradually and incrementally put more money offshore
16:17
Speaker 1: than you used to outside the ax and how do
16:19
Speaker 1: you approach that? You said you really like ETFs, which
16:22
Speaker 1: you said you also like fund managers, So which how
16:24
Speaker 1: do you access? How do you start? You're skeptical about
16:27
Speaker 1: going in and buying a share like Apple or Brukshire
16:30
Speaker 1: Hathaway or whatever. You think funds are the way.
16:32
Speaker 2: In my Accountain told me, don't you did buy any
16:36
Speaker 2: direct shares I sites, he said, do not do it.
16:40
Speaker 2: I won't name them, but there's some very good IBOSS
16:42
Speaker 2: fan managers here. I don't particularly like an Ibos's index
16:47
Speaker 2: fan because there's too many fans. I'm very happy with
16:50
Speaker 2: a local index fan, but I did not like an
16:52
Speaker 2: ices index fan.
16:54
Speaker 1: Right. How about buying an index fund that's an Australian
16:58
Speaker 1: based fund that's investing internationally.
17:01
Speaker 2: Well, I'm happy. Well, no, I don't like any I
17:05
Speaker 2: don't like an indexed obceas portfoilio. I'm very happy with
17:09
Speaker 2: the OSSI portfoil Yoh. Yes, but I really don't. I
17:13
Speaker 2: want my overseas manager to be picking the tests and
17:16
Speaker 2: the palentes and the VIDs.
17:18
Speaker 1: Right, yeah, So index for a home base active for overseas, yes, okay, interesting? Yes?
17:27
Speaker 1: And on the frank dividends front. You mentioned how you
17:29
Speaker 1: say from many people ETFs side of the way, then
17:32
Speaker 1: you also say that franking is perhaps underestimated by the
17:35
Speaker 1: wider population. Are there ETFs that zone in on franking?
17:40
Speaker 2: Look, I invest in an ETF which invests in the
17:44
Speaker 2: top two hundred Ossie shares. But as I said before,
17:48
Speaker 2: you could have a gold ETF, you can have a
17:51
Speaker 2: bitcoin e T if you can have any sort of ETF.
17:54
Speaker 2: What I like about the ETF is liquidity and trains
17:58
Speaker 2: a net asset and at net asset value. That's what
18:03
Speaker 2: I like about them. And they're simple.
18:05
Speaker 1: Yet, and what do you think in terms of returns
18:09
Speaker 1: for the year? Had people think that the AESX is
18:12
Speaker 1: already at the level that it was supposed to reach
18:14
Speaker 1: at the end of the calendar year. But here we
18:17
Speaker 1: are at the start of July and the AESX has
18:19
Speaker 1: basically done its dash. According to many researchers, they think
18:23
Speaker 1: that it's this is as high as it gets for
18:24
Speaker 1: the year. What's your view on that.
18:27
Speaker 2: After fifty years in this business, I've given up on forecasts.
18:33
Speaker 2: All forecasts do is give great newspaper headlines. And my
18:38
Speaker 2: friend Don Stammer had a thing called Factor REX and
18:43
Speaker 2: don in fact Rex was it was like the black swan,
18:47
Speaker 2: the thing we never expected like COVID was that factor Rex.
18:52
Speaker 2: The market plunged with COVID. Remember when Donald Trump did
18:56
Speaker 2: his tariff thing a few months ago, we had the
18:58
Speaker 2: biggest fall in the biggest rise in about sixty years.
19:04
Speaker 2: And that's why I say with shares you must take
19:07
Speaker 2: a long term view.
19:09
Speaker 1: And when these incidents occur, then these X factor incidents
19:14
Speaker 1: or these black Swan incidents, which is which, as you see,
19:17
Speaker 1: is what really matters, and you can't forecast them. So
19:20
Speaker 1: everyone has a forecast for the market, but what they
19:22
Speaker 1: don't have they couldn't have, and if they did, there
19:24
Speaker 1: would be zillionaires. Is the item of the event we
19:28
Speaker 1: can't see coming. Yeah, yeah, so this year's was the tariffs.
19:33
Speaker 2: But also what happens is the papers have shock headlines
19:39
Speaker 2: and this confirms the you of many people's shares. It
19:42
Speaker 2: too risky for me, and they can't afford to invest
19:46
Speaker 2: in property and they have and they just sit with
19:49
Speaker 2: cash in the bank and so don't get the returns
19:53
Speaker 2: they could get if they knew to hang in there.
19:57
Speaker 1: Yeah, this is obviously a concern, isn't it for older Australians.
20:01
Speaker 1: They're holding on to too much cash. All the reports
20:04
Speaker 1: show us that, the ATO show us that, but the
20:06
Speaker 1: returns would have been a little bit better known for
20:08
Speaker 1: cash recent times.
20:10
Speaker 2: Yes, but it's going down. And don't forget that cash
20:13
Speaker 2: is attacked by inflation and there's no franking. I always
20:19
Speaker 2: say to people keep if you're retired, keep three years
20:25
Speaker 2: money in cash or in reliable income streams so you're
20:29
Speaker 2: never forced to dump good assets when the market's having
20:33
Speaker 2: one of its normal downturns. And I stress normal downturns.
20:39
Speaker 2: Once you get around your head that downturns are normal,
20:41
Speaker 2: it's okay.
20:42
Speaker 1: That would apply for everybody, wouldn't it that they should
20:44
Speaker 1: never sell? Yeah, you don't ever want to sell at
20:48
Speaker 1: the time. You don't want to sell. You don't ever
20:50
Speaker 1: want to sell into a distress market.
20:52
Speaker 2: And absolutely so, how do.
20:54
Speaker 1: People do that if they are when people are in
20:56
Speaker 1: accumulation phase, is it should they have some cash buffer
20:59
Speaker 1: or how would you approach that?
21:01
Speaker 2: Well, if you're an accumulation funds, you're probably a salary
21:04
Speaker 2: and wagers earner. I'm talking about mainly with people with
21:08
Speaker 2: no other income than their portfolio, and then you simply
21:12
Speaker 2: you can have it all in SUPER and have it
21:14
Speaker 2: in buckets inside that you can have x in the
21:16
Speaker 2: cash component. But the trouble there is a lot of
21:19
Speaker 2: supervanuation funds don't pay very well in the cash components,
21:24
Speaker 2: and a couple can have eight hundred thousand dollars outside
21:27
Speaker 2: SUPER and paino attacks. So I'd be keeping my two
21:32
Speaker 2: or three years cash buffer outside the system.
21:36
Speaker 1: Yes, right, outside Super entirely.
21:38
Speaker 2: Well, it's easier, you'll get better returns. I mean most
21:41
Speaker 2: of these funds have allows the cash balance, as I
21:43
Speaker 2: can tell you.
21:45
Speaker 1: Right, So as a structure, you'd have your SUPER, but
21:47
Speaker 1: you'd also have a cash buffer and that would be
21:49
Speaker 1: outside SUPER.
21:50
Speaker 2: Sure, I think, yeah.
21:52
Speaker 1: And this is something you recommend regularly, is it?
21:55
Speaker 2: Yes?
21:56
Speaker 1: Okay? Very interesting And.
21:58
Speaker 2: Also don't forget if you're an older retired couple and
22:02
Speaker 2: one person dies, the last thing he wants all the
22:05
Speaker 2: money in Super because it might take you twelve months
22:07
Speaker 2: to get it. And that's why cashplaff is very important,
22:11
Speaker 2: particularly if you're.
22:12
Speaker 1: Ouder Okay, And I think it's an interesting point for anyone. No,
22:16
Speaker 1: at any point, as you say, imagine if you had
22:20
Speaker 1: a cash puffer in earlier this year when the market
22:23
Speaker 1: took a turn with the tariffs, you'd actually have been
22:26
Speaker 1: able to take up opportunities. It's something that we don't
22:28
Speaker 1: talk about very often on the show.
22:31
Speaker 2: Sure, but again you must keep that cash. Remember, the
22:35
Speaker 2: wisest man knows not when the Big four might be
22:38
Speaker 2: a precursor to another four.
22:41
Speaker 1: Yes, well, I.
22:43
Speaker 2: Think you're better off just to hang in there. And
22:46
Speaker 2: how the steady coset irrespective if there's rough seas.
22:49
Speaker 1: Yes, okay, very interesting. I want to move into Super
22:54
Speaker 1: for that. We have a segment coming, folks. We are
22:56
Speaker 1: going to do some really interesting questions which I've kept.
22:59
Speaker 1: I've spent kept for No because they're particularly tricky. And
23:02
Speaker 1: I say to myself, these are the sort of questions
23:05
Speaker 1: that if no Foot can't answer them, no one can.
23:08
Speaker 1: I've got them. Are you ready for those? All right, Look,
23:12
Speaker 1: we take a break. We'll just have a quick look
23:13
Speaker 1: at Super and then we'll do the questions. Hello, welcome
23:21
Speaker 1: back to the Australians Money Puzzle Podcast. No, just before
23:23
Speaker 1: we do go to questions on Super, I think we
23:25
Speaker 1: should bring people up to speed on two very important things.
23:29
Speaker 1: One is that the SGC is now moving to twelve percent.
23:33
Speaker 1: And as we say, there's two dimensions to that. First
23:35
Speaker 1: of all, be aware of how much your super mandatory
23:41
Speaker 1: super is to you. Now twelve percent is quite a lot.
23:44
Speaker 1: How much of your salary is going into super That's
23:46
Speaker 1: one thing. And also to weigh that up in terms
23:49
Speaker 1: of what else you do, how else you save, how
23:51
Speaker 1: else you invest? And as Node says, the flip side
23:54
Speaker 1: of that, he said, it's twelve percent of every Australian worker.
23:59
Speaker 1: If their money is going into a super fund, it's
24:01
Speaker 1: a big super They in turn must invest and in
24:04
Speaker 1: a way as part of the momentum of the markets. No,
24:08
Speaker 1: what about the we won't go too far on this,
24:10
Speaker 1: but Division two ninety six the new super tax fifteen
24:15
Speaker 1: percent on earnings on amounts above three million, on indexed
24:20
Speaker 1: and based on realized and on realized gains, very controversial.
24:27
Speaker 1: Do you think it'll pass in the form that it's
24:29
Speaker 1: designed and what do you think the impact will be?
24:32
Speaker 2: I think they've got the numbers to do it in Parliament.
24:35
Speaker 2: First thing, I think it's wrong. But be very careful
24:39
Speaker 2: about moving your affairs around because the more I research this,
24:45
Speaker 2: you'd probably better staying in sleep with and moving out
24:48
Speaker 2: of it. This is the whole thing. Now, if your
24:52
Speaker 2: balance is under three million dollars at June next year,
24:57
Speaker 2: you are not affect that. You can forget about it.
25:00
Speaker 2: But the first era of people are making is I've
25:02
Speaker 2: got a four million dollar fund. I've got I've got
25:06
Speaker 2: a five million dollar fund. I'm fine, No, you're not.
25:08
Speaker 2: It's per member, not per fund. So if a five
25:13
Speaker 2: million dollar fund has got one member with four and
25:16
Speaker 2: one with one, the four member four billion member is affected.
25:21
Speaker 1: Yeah, it's a per capita individual.
25:24
Speaker 2: Yes. And the second thing is I keep getting asked
25:26
Speaker 2: what are my how will it affect my siege by
25:29
Speaker 2: cost base. What people don't get is their balance sheet
25:33
Speaker 2: will be prepared as normal. This is not going to
25:36
Speaker 2: affect their profit loss or balance sheet one iota. This
25:40
Speaker 2: is just a separate tax as a method of calculating
25:43
Speaker 2: a super tax. But what they probably don't get is
25:48
Speaker 2: if you've got a four million dollar balance and your
25:51
Speaker 2: total capital gain hypothetic. We will say one hundred thousand
25:55
Speaker 2: dollars on the twelve months, you're only paying fifteen percent
25:59
Speaker 2: of a core because only the difference. So if you've
26:03
Speaker 2: got four million dollars in Seper, then it's one quarter
26:07
Speaker 2: of one quarter of your phone is affected. So the
26:11
Speaker 2: tax is fifteen percent of one quarter of the gain,
26:14
Speaker 2: which probably isn't that much. And I spoke to a
26:18
Speaker 2: doctor who's got sixteen million dollars in Super, mainly in property.
26:22
Speaker 2: We worked out for him it's going to be about
26:24
Speaker 2: ninety eight thousand dollars. It's quite small in relation to
26:28
Speaker 2: his portfolio, and the cost of moving property would be
26:32
Speaker 2: milliontant stamp duty.
26:34
Speaker 1: Right, So you're saying that, whatever it is, and whatever
26:39
Speaker 1: it's false, that moving it outside Super would be more expensive.
26:44
Speaker 2: Possibly because see it's hard to get money out. If
26:49
Speaker 2: you're wealthy enough to have over three million in Super
26:53
Speaker 2: each you've probably got a fair bit of money outside Seeper,
26:57
Speaker 2: and it's very hard to get under the thirty percent racket.
27:01
Speaker 2: So for most my strong advice is, as I've done,
27:04
Speaker 2: talk to your account and run the numbers, and I've
27:08
Speaker 2: decided you're better to stay in even though we hate it.
27:13
Speaker 2: But also one more thing, one more thing, the transfer
27:16
Speaker 2: balance cap was increasing to two million dollars. People don't
27:20
Speaker 2: understand the transfer balance cap. It's the amount you can
27:24
Speaker 2: transfer to Super Now I did my transfer years ago
27:30
Speaker 2: at one point six million, my transfer cap is over.
27:36
Speaker 2: But if I were to put one million dollars, I'd
27:39
Speaker 2: still have six hundred thousand left to do. So many
27:42
Speaker 2: people have only used part of the transfer balance cap.
27:46
Speaker 2: Then they can use part of the remaining if they
27:48
Speaker 2: wish to to transfer more to Super. And the other
27:50
Speaker 2: misconception is it does not limit what your pension can
27:54
Speaker 2: grow to. I know two people have had a very
27:57
Speaker 2: good year. Their pension balances down four million, but that's
28:01
Speaker 2: the growth. So if your money in pension mode is
28:05
Speaker 2: earning more than your withdrawals, then it's growing, which is fine.
28:10
Speaker 1: Interesting, okay, all right, as you say it's a very
28:14
Speaker 1: hot area. I'man just interested in the broad sweep of
28:17
Speaker 1: what you're saying that in most cases, most of the time,
28:20
Speaker 1: it's worth reconsidering the tax that even if it arrives,
28:23
Speaker 1: the difficulty will be moving it will be moving it
28:25
Speaker 1: outside could be more expensive. And the second short there,
28:28
Speaker 1: as you say two million, it goes to two million.
28:30
Speaker 1: That is, folks, two million tax free the amount you
28:32
Speaker 1: can happen super tax free.
28:34
Speaker 2: Now not the amount you could happen super. Yeah, you
28:37
Speaker 2: can transfer to super after Jene thirtieth, Yes, you haven't
28:40
Speaker 2: done anything before.
28:42
Speaker 1: Then, transfer balance cap. That's right. Strictly technically the taxfer
28:45
Speaker 1: balance cap, which is our guidance on how much is
28:48
Speaker 1: tax free and super each year, which is moving from
28:50
Speaker 1: one point nine to two. Isn't that right?
28:51
Speaker 2: July want how much you can move to super? It
28:54
Speaker 2: can then grow as long as your earnings exceed your withdrawals.
28:58
Speaker 2: It'll grow.
28:59
Speaker 1: That's fine, Yes, and it can as you say, there's
29:03
Speaker 1: no limit on that. It can grow as much as
29:05
Speaker 1: it wants.
29:06
Speaker 2: Sure. Yeah, but you're still going to take your mandatory
29:09
Speaker 2: withdrawals and they get bigger as you get out.
29:11
Speaker 1: Yeah, that's right. They start at four percent or so
29:14
Speaker 1: and they go okay, now, questions, all right, where will
29:17
Speaker 1: we start? I think that we'll start with Mix says, notwithstanding,
29:22
Speaker 1: that's super bigan a lot smaller than today. It's now
29:25
Speaker 1: twelve percent as we said, and it starts goes from
29:28
Speaker 1: eleven point five to twelve percent. This did I want
29:31
Speaker 1: it started? Mick says. Pension outflows will usually be four percent.
29:37
Speaker 1: That is the amount that must be spent. Do you
29:39
Speaker 1: expect someone like me in my thirties will see superannuation
29:43
Speaker 1: invested more conservatively, given that the big super funds will
29:47
Speaker 1: have to consider shorter investment horizons to have their liquidity
29:51
Speaker 1: mixed accurate in the next decade, And what could that
29:55
Speaker 1: do to my returns? Really good question, Mick. So, what
29:59
Speaker 1: Mick is saying is he's thirty or so. He knows
30:02
Speaker 1: that super is changing. He knows that the context in
30:05
Speaker 1: which are SUPER operates. It used to be that nearly
30:08
Speaker 1: everybody was in accumulation. It's going to the point where
30:12
Speaker 1: nearly everybody would be in retirement. Basically, what I'm saying
30:15
Speaker 1: here is that the emphasis change. The funds must pay
30:18
Speaker 1: more than they used to, They must pay more pensions
30:21
Speaker 1: than they used to. Well, that change the nature of
30:23
Speaker 1: them and SUPER returns ultimately for people like Mick.
30:26
Speaker 2: Do you think no, Well, bear in mind, there's a
30:28
Speaker 2: baby boomer bulge in thirty years. The baby boomers are
30:33
Speaker 2: all dead and we have a live birth rate and
30:40
Speaker 2: Marcaels will be wrong. So I've got no fear of
30:42
Speaker 2: that at all, No fear at all.
30:44
Speaker 1: Right, what about pressure on the funds to pay pensions
30:47
Speaker 1: that weren't there before?
30:49
Speaker 2: Yes, but that will be gone by the time he's
30:51
Speaker 2: sixty five, there will be gone right, the bulge will
30:54
Speaker 2: be over.
30:55
Speaker 1: I see, and I've got a sign.
30:57
Speaker 2: If you take control the things you can control, you
31:00
Speaker 2: won't need to worry about the things you can't. His
31:03
Speaker 2: major issue now should be investing while he's trying to
31:07
Speaker 2: get the benefit of compounding. Don't worry about things. Why
31:10
Speaker 2: a miscontroled.
31:11
Speaker 1: Yes, yes, that's there's an observation for you make and
31:14
Speaker 1: remember this is not advice, information only all right from
31:18
Speaker 1: David A constant listener. I bought an exchange traded funds
31:23
Speaker 1: in US small cap shares. I think David is implying
31:29
Speaker 1: that he bought them having listened to the show directly.
31:32
Speaker 1: Volatility no problem, but the distributions are at pittance and
31:36
Speaker 1: on franked. Yes, okay, bringing us back to what we were
31:41
Speaker 1: talking about at the start of the show, moving cash
31:45
Speaker 1: out of Australia looking for investments. An easy way, a practical,
31:49
Speaker 1: pragmatic way into offshore markets is to buy funds. Some
31:53
Speaker 1: people will buy ETFs, some people will buy active funds.
31:56
Speaker 1: One thing they have in common know is us dividends
31:59
Speaker 1: are are really small, right, They're like one point something percent.
32:02
Speaker 1: Hours are four percent, and you don't get to franking,
32:06
Speaker 1: so David was surprised when he got his small cap returns.
32:12
Speaker 1: I think with the US you have to you have
32:14
Speaker 1: to take that on board, don't you. You The game
32:16
Speaker 1: is all about growth of the price of your shares
32:19
Speaker 1: or your fund, not the dividends.
32:21
Speaker 2: Hey, James, I think forty years ago you and I
32:23
Speaker 2: bought Berkshire Hathaway never paid a dividend. I think we'd
32:27
Speaker 2: be very happy.
32:28
Speaker 1: Yes, yes, yeah, very happy because American companies reinvest the profits.
32:36
Speaker 1: Why don't we? Why don't we.
32:38
Speaker 2: Because as sherhowlders want their Frank dividends and they got
32:41
Speaker 2: to have them.
32:42
Speaker 1: So the Frank dividends actually a negative then for the
32:45
Speaker 1: economy in some ways.
32:47
Speaker 2: I don't think they are. But I'm saying that investors
32:50
Speaker 2: in Australia like Frank dividends and expect companies to pay dividends.
32:54
Speaker 2: We are more dividend driveling company than most people. This
32:58
Speaker 2: is why I'm concerned about this unrealized capital gains business
33:03
Speaker 2: because overseas shares will tend to grow quicker than Australian
33:06
Speaker 2: shares because we've got more in the yield, we've got
33:09
Speaker 2: more distributions.
33:12
Speaker 1: So you think that's a structural thing that's going to
33:14
Speaker 1: just that's the way it is now from now on.
33:16
Speaker 2: The way it is. Yeah. Right, if you invest the
33:19
Speaker 2: other thing overseas, you've got a risk in the currency.
33:21
Speaker 2: That's another issue.
33:24
Speaker 1: And how do you account for that?
33:26
Speaker 2: Well, it's just life. I mean you're either buy something
33:28
Speaker 2: hedged or just copied.
33:31
Speaker 1: Yes, and what do you do?
33:33
Speaker 2: Well, every investment has good points and bad points. I
33:36
Speaker 2: only invest to manage funds from Australia and most of
33:41
Speaker 2: them are hedged, but some aren't.
33:43
Speaker 1: Okay, So no strict rule on that. Okay. Now finally
33:47
Speaker 1: question from Ben. This was off the back of course,
33:49
Speaker 1: we did two shows No lo on crypto. We did it.
33:52
Speaker 2: Don't stop me on that.
33:53
Speaker 1: Yes, here we go, Yes, yes, I wonderful side you
33:55
Speaker 1: would have been on. We had a cryptoskeptic who put
33:58
Speaker 1: forward the skeptics case, and then we did a crypto supporter, which,
34:05
Speaker 1: believe it or not, was AMP, which of course reacent
34:07
Speaker 1: if we're twenty seven million into crypto. So we had
34:11
Speaker 1: the two sides of the bitcoin and we were debating
34:15
Speaker 1: it basically in the show with two consecutive shows. Now
34:18
Speaker 1: from those shows, Ben asks isn't a stable coin from
34:22
Speaker 1: Walmart just like a souped up gift card. Why would
34:27
Speaker 1: you give Walmart real money for a stable coin just
34:29
Speaker 1: so they can give you real money back without interest.
34:33
Speaker 1: I think you're really onto something, Ben. I think the
34:35
Speaker 1: arrival of very big players into crypto JP Morgan, Walmart, Amazon,
34:44
Speaker 1: I think they are seeing the payment system change before
34:47
Speaker 1: their eyes and there it's a grab for territory and power,
34:51
Speaker 1: and they are getting involved because they say, this is
34:53
Speaker 1: a new payment system and if we can get a
34:55
Speaker 1: slice of it early, we will increase our power in it.
34:58
Speaker 1: I think that's actually self explanatory. The harder it is
35:01
Speaker 1: people actually investing in it, because they are putting forward
35:05
Speaker 1: an investment case. And we had Shane Oliver aren't chief
35:07
Speaker 1: economist of AMP, and he was explaining why AMP put
35:11
Speaker 1: twenty seven million, twenty seven million into crypto even though
35:15
Speaker 1: there's no intrinsic value. And I thought to take away
35:18
Speaker 1: from Shane's explanation was that investment can operate without intrinsic value.
35:25
Speaker 2: What do you think, No, Well, think about the tulips
35:28
Speaker 2: in Holland. Yeah. I mean, look, if you want to
35:34
Speaker 2: back a horse, you can pick the race and the
35:35
Speaker 2: jockey and the track. If you want to buy property,
35:39
Speaker 2: you can pick location. Everything else. You want to buy shares,
35:42
Speaker 2: you can pick all sorts of factors. You only buy
35:45
Speaker 2: crypto because you think it's going up. I just don't
35:49
Speaker 2: like to invest that way, you know. I mean, I
35:54
Speaker 2: just like things. I know, I understand cash, property in shares.
35:58
Speaker 2: I don't like dambing and things know nothing about. Look,
36:01
Speaker 2: it's a gamble to me if you want to gamble, gamble.
36:04
Speaker 1: Do you think if if you saw more action in
36:07
Speaker 1: this area of the RBA AMP, maybe major super fund
36:11
Speaker 1: coming next, that is an industry fund comes in next,
36:13
Speaker 1: would you change review?
36:15
Speaker 2: No?
36:17
Speaker 1: Right?
36:19
Speaker 2: You know. The main thing about bitcoin, it's supposed to
36:22
Speaker 2: be anonymous. This is the point. It suits people who
36:26
Speaker 2: don't want to be chased by the ato. You know.
36:30
Speaker 2: But let's see, ok, let's see.
36:34
Speaker 1: Let's see, let's see. Indeed. All right, very good, No God,
36:38
Speaker 1: thank you very much for coming on the show today.
36:40
Speaker 1: Great to have you on board again. Lovely to talk
36:42
Speaker 1: to you.
36:42
Speaker 2: We'll talk again always, pleasure lovely.
36:46
Speaker 1: Thank you, Noel, and thank you everyone for that. Responses
36:50
Speaker 1: on a crypto shows interesting. I must say we got
36:53
Speaker 1: a lot much more. We got much more complaints about
36:58
Speaker 1: Jackie's approach and her skepticism than we did about AMP being,
37:05
Speaker 1: you know, a century old financial institution putting twenty seven
37:08
Speaker 1: million into crypto, even though it has yet to be
37:12
Speaker 1: determined in many ways. If ever, it'll be determined whether
37:15
Speaker 1: it has intrinsic value or not. That's the debate that
37:17
Speaker 1: sits there. I thought it was very interesting today looking
37:19
Speaker 1: forward to the new financial year, and I like where
37:22
Speaker 1: NOL was coming from. Really, it's not the time you
37:26
Speaker 1: join the market, it's your time in the market, and
37:29
Speaker 1: I think that's appropriate for all the acid classes. We
37:31
Speaker 1: had to look at, Okay, the money puzzle at the
37:34
Speaker 1: Australian dot com dot au. If you need to tell
37:38
Speaker 1: us something, to send in something, talk to you soon.