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#359 - ASX vs Wall St - Which Is The Better Option For Australians · Money Grows on Trees

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  Every Australian investor faces the same question eventually. Do
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  you stay home or do you go global when it comes to investing? Most people default
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  to the ASX, the Australian Stock Exchange, because it feels safe, familiar, and
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  close to home. But the reality is, when you actually run the numbers across 30 years, the
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  answer is not what most Australians expect. And the difference between getting this
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  decision right and wrong compounds into a very large
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  number over time. I'm Lloyd J. Ross, seven figure investor entrepreneur, and I've helped thousands
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  of everyday Australians, Americans, New Zealanders, Canadians, and those from the UK get out of debt and
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  build real wealth. And in this video, I'm going to show you the honest data behind the ASX versus
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  Wall Street debate, where each market generally has an edge and exactly how
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  Australian investors should be thinking about splitting their portfolio. So
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  I'm going to make this very simple and easy for you. In the last, say,
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  10 years, the Australian market's up something like 100 and 120%, depending on
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  which index you look at, the ordinaries or the ASX 200, 300. And the
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  American market is up something like 300% or over. So
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  it's a 3x better off outcome
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  by investing in the United States. If you look at what can generate
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  returns in a marketplace, you have to understand what the
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  market's made up of. Because the market can only do what
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  constituents can do. Like for example, a veggie garden can only
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  produce what is planted. A veggie garden will
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  only produce what veggies are there. Right? So
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  the same as a market, it will only do as well as the businesses in
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  the marketplace. If you've got crappy businesses, it'll do crappy. If
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  you've got great business, it'll do great. So if we understand that
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  concept at the outset, we can see very quickly why the American
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  stock market tends to be the best out of all the markets in the world, because
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  it has the best companies. That's pretty much the end of it. So if it's got the
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  best companies, of course it's going to do the best, because it
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  can only do as well as the companies do. Now, if you think about what generally the
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  American market's made up of, Wall Street's made up of is, geez, like
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  even the best global companies, like even Alibaba, which is a leading Chinese company, is
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  listed on the American exchange. So look, if we look at Apple, Google, Amazon,
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  and so forth, these are great companies because they're innovative. So
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  not only are they innovative, but they also are
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  serving a huge, the biggest consumer base in history
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  of 350 million people. That's why they're also so effective.
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  But here's the other thing, the American visa
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  that attracts the best talent from around the world is
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  also a competitive edge for America. So it may not be the cleanest country,
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  it may not be the most technologically advanced. I think if you go to China, you can
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  see a very advanced, clean country, very well-run country. Even
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  Japan, for that matter, too. But I don't think that US is the best run country for
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  its citizens. And you've only got to visit there and visit other places to see that. But
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  it is like a world hub for the best talent. And
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  it happens to have laws and regulations in place to be pro-business
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  and be pro-innovative. And I think those are the competitive advantages
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  that are hard to break, which is why Warren Buffett has never bet against America. coupled
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  with the fact that it's got the world's greatest military. And it's strategically placed
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  in a way with a specific amount of arable land and
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  soil in a place that's strategically advantageous. So
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  there's all those things that make it great. So if you think about all those
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  constituents, how it was found in revolution and innovation, the
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  laws, pro-business, blah, blah, blah, it's probably going
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  to propagate the best companies. And that's what's
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  happened. If you look at that versus Australia, Australia's
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  also in a strategic location that's effective, but it's not quite the
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  same as America. It's not close to Europe, and it's not close to South America. It's
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  not close to North America. It's not close to Canada. It's not close to those other big trading partners.
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  So we're going to pay a premium of goods shipped here, internationally, because
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  it takes time to get here. But we're safe, because it's
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  hard for forces to force project into Australia, unless
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  they take the other surrounding islands. So
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  strategically we're safe, we've got a pretty sensible political system,
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  we've got a pretty sensible legal system, and we've got a pretty sensible health,
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  you know, it's an advanced society in those areas. So
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  it shares that with the states, but one thing it doesn't share. with the United States.
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  It doesn't share the same risk appetite, because we weren't
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  founded on revolution. So we're conformists here in Australia. We're convict.
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  We conform. We don't revolt. And so we don't innovate
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  so well, necessarily. We used to, but a lot of our manufacturing has
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  gone offshore. We're not an innovative society. We're now really good at
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  digging out holes, pulling the minerals and selling them. Now, the
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  benefit of Australia that it has, similar to America,
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  it doesn't have the same. Like in America, the whole nation is pretty much arable
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  land. It's amazing. We don't have that. We have mainly desert. That's a big
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  disadvantage. But we do have minerals. And so the
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  advantage of the Australian share market is that it can derive a
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  lot of these, it can build wonderful mineral and
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  mining companies because it's got access to these incredible resources. So
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  if you look at the Australian share market, it's primarily built
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  upon those companies that can generate those resources and
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  banks. So if you look at the Australian market over the last
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  10, 20, and 30 years, it's mining and banks. There's
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  no innovative tech companies. There are some, but
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  it doesn't make up the bulk
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  of the stock market. It's banking and mining. Now,
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  if you think about that, there are moments and times, like right now, we're
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  probably gearing up for a big commodity cycle, so the Australian market will do okay, because
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  BHP and Rio and those big miners, they'll do pretty good,
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  but the banks, I don't know if they'll do any good, because of, anyway, that's a
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  whole nother topic, but there's nothing else, you know? So, but if you look at
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  America, there's Google, there's Amazon, there's Apple, these are global companies too, though, it's not
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  just American companies, these are global companies. You know, you've got these incredible innovators. We
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  just don't have that. Innovation doesn't automatically mean success, but
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  if you think about something like Google, How are we going to
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  compete with that? So America just has superior companies.
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  And if it's got superior companies, then it's going to do superiorly better
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  in a stock market. And if it's got superior laws for pro-business and it's superior at risk-taking and
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  it's superior at attracting better talent, which it is, and it's strategically better
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  located and all these things. then you're going to
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  find that there's better businesses propagate. And if better businesses propagate, then
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  it means that those businesses will do better, which means the stock market does better. So if
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  you look at the annual returns of the S&P 500 in the
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  last 10 years, I believe it's 14%. Like insane returns. In
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  the Nasdaq, like 17 or 18, some crazy number. And
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  in Australia, nine. So you can tell that
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  even though we're a commodities-driven economy and index
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  and stock market, we can't keep up with the rapid innovation of some
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  of those incredible companies, particularly in the areas of AI. So I
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  would anticipate that the American economy and the stock market
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  will continue to do better than the Australian stock market. Do we
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  have some reasonably good companies in Australia? We do. We've got West
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  Farmers, which owns Bunnings. We've got, that's pretty
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  much it. We have some others, but like, and
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  Macquarie Bank seems okay. Like, there's a few good ones.
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  BHP is obviously a powerhouse. I think that's going to do really well in the next 10 years because
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  of the copper shortage. And it's, if you watch BHP share price, it's gone from
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  50 something to 67, I think, yesterday. because of copper shortages.
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  So there's going to be wonderful company stories there, but we just outnumbered and
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  it's obvious in the returns. And now where the Australian market
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  can play a part is if
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  the Australian dollar is expected to grow against the US dollar in the
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  next 10 and 20 years, you can get some advantage from
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  that because you're not exposed to the US dollar falling in value against
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  the Aussie dollar. That's one thing. So you don't, you know, you don't worry
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  about your domestic currency. The other thing is
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  that in Australia, we have these things called imputation credits or franking credits,
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  I should say, where the company's already paid the tax on their profits.
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  And so by the time they pay the dividends with after-tax dollars, so
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  by the time the dividends land in your account, the government won't tax you again for
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  them. up to a margin rate of 30%. So if you're on
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  an average tax rate of 30%, you won't pay any income tax on
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  the dividends from a company where it's got 100% frank dividends. So
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  the banks, the miners, they're typically 100% franked. The
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  only time they're unfranked like that is if they derive some of their income
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  from international and US markets. But generally, a
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  lot of them are franked. So you are generating cash returns that
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  are superior because you're not paying tax. And in Australia, they pay
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  higher dividends because the companies pay out
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  progressively more of their profits in dividends because they're
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  not growing. Like the banks, they pay out like 80 to 90% of
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  their profits as dividends. Same as the miners because they have nowhere,
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  they have no real good place for the capital to deploy it to grow it. Whereas if you look at
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  Google, it's got tremendous places to grow capital, which is why Warren Buffett
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  just made his third largest position. He's got $30 billion position in it now. So
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  they're gonna pay out a lot of cash to you. So that's cool. Like you're getting good cashflow in
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  Australian index funds and shares. So that's cool. And you're
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  getting them tax-free, which is even cooler. So I think there's some good benefits.
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  But do I see the Australian share market outperforming the US market? No.
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  Just quickly, if you're ready to take control of your finances but feel stuck on
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  where to start, I have a solution. My book Money Bias Happiness
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  simplifies investing and wealth building with practical steps to help
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  you achieve financial peace. Get your copy via the
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  link in the show notes and let's get your money working for you. Now back
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  to the episode. And people in the comments will probably come and say, Lloyd, but
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  we're at the beginning of a commodity boom, and typically Australia does better in commodities. Sure.
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  But America also has commodity businesses. It's got two of the largest
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  oil companies in the world, and they're doing pretty good right now. So
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  I think there's a broader constituent base of companies
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  in America, or there are, than Australia. So we're probably a large sector-specific
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  market, so when mining and banking does well, the
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  market does well. But in America, when tech's
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  not doing good, oil is doing good. It's
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  kind of more fortified. There's more to it. It's more diversified. And I believe that
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  the propensity of America to take risk and innovate and attract
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  talent, all those things I mentioned, is what creates a superior breeding
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  ground for better quality companies. And they don't have the tall poppy syndrome as
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  much as what we have here, which is good. It still exists there, but it's not as bad. Do
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  I think that China can develop some really effective companies?
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  Absolutely. I think China is a force to reckon with because of just how efficient
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  they run their society. And there's some serious Japanese companies
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  too, like Hitachi and these companies that are big trading houses in Japan that
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  have been around for hundreds of years. And they are very, very, very agile,
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  big businesses too that have high returns and equity capital. So there
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  are opportunities outside Australia. And
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  what you don't want to fall in the trap of is having a home bias,
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  which is where you only invest in your local country because it's what you feel like you understand. I
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  would look in the US. You'll do a lot better. and
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  other markets too, you know, not just Australia. So the
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  difference is Wall Street, yeah, the quality is
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  there, the propensity to grow and be better is there. In Australia,
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  we're very, and especially now in Australia, like we're very, no
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  one understands shit. We have a low IPO market. We
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  don't like taking risk. You know, you go bankrupt in
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  Australia, you become a pariah. In America, they dust you off and say, here's
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  more money, go do it again. It's a Westminster system. It's very
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  conservative. And the Labor government now has put in
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  tax policies that make it even worse. And large
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  companies now, based on those tax policies, are now leaving the country.
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  So the capital flight is now happening in a big way. So that's not going to be good for
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  the Australian market. And you've got housing at an all-time high and all
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  the productivity, the productive capital that could
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  have gone to businesses has gone to things like the NDIS. It's gone
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  to consumption-led policy and consumption-led projects, not
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  production-led projects. All the manufacturing has gone from Australia. You
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  can't, you know, there's a lot of work, environmental things with the Clean
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  Energy Act happening where you can't, we can't even burn our own coal here. This
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  is every morsel of hurdles or
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  problems they could create for us to develop good companies is gone.
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  They've just put too many hurdles. And then you add red tape for business and
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  how hard it is to do business here. And then you add all the tax policies in place. And then you
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  add this love affair with housing, where all the productive capital
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  goes into shelter. And they say, dig holes and build
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  houses. It's not a productive country. And you can tell
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  that from the GDP growth. It sucks. It's dead on arrival. flippin'
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  D.O.A. So I don't think the Australian share market is going to do
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  well because of those things. Where it can do
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  well is in the commodities companies. The
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  BHPs, the RIOs and so forth, I think that'll do well. And
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  that will do the heavy lifting for the Australian economy and the Australian share market.
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  But that's it, that we're a one-trick pony, whereas the Americans are
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  a multi-trick pony. So I hope that gives you some insight as to the principles
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  around where to invest, why to invest in those places, and where it can be
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  effective and ineffective if you're an Australian investor. So I hope you've made
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  some sense of that. If you have, share the episode, hit the subscribe button,
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  and leave me a question or comment below, and I'll come and talk to you in the comments, and