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Buying shares when you should be selling? · 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. I don't know about you,
0:16
Speaker 1: but this share market to me is looking very toppy. Indeed,
0:20
Speaker 1: we've got records breaking on Wall Street and on the ASEX.
0:26
Speaker 1: And you wonder why in Australia's major listed companies are
0:30
Speaker 1: actually going to have lower earnings It is expected this
0:35
Speaker 1: year than last year. And as for the sort of
0:39
Speaker 1: headwinds against the international markets, particularly Wall Street, well we
0:43
Speaker 1: don't really have to reiterate those except to say that
0:46
Speaker 1: there's an extremely volatile administration in the US presiding if
0:52
Speaker 1: you like, over Wall Street and really trying to preside
0:54
Speaker 1: over trying to preside over everything, including the Federal Reserve.
0:58
Speaker 1: So here we are, it's August. You know, we're going
1:01
Speaker 1: into the most dangerous season of the year historically for
1:04
Speaker 1: share markets, the northern winter. All the great crashes were
1:08
Speaker 1: in September and October. Don't forget that. So the point
1:12
Speaker 1: I'm making is what do we do as investors, as
1:15
Speaker 1: active investors having just had a very good year, No doubt.
1:18
Speaker 1: If you've got a self managed super fund, it's probably
1:19
Speaker 1: done thirteen fourteen percent. If you've got it your savings
1:23
Speaker 1: in a major fund, a big fund, it's probably done
1:27
Speaker 1: ten and a half percent. That's the media in return.
1:31
Speaker 1: So it's time to recalibrate, rebalance. Perhaps it's time to
1:36
Speaker 1: sell when you might feel like buying. My guest today
1:39
Speaker 1: is one of the oldest friends of the show. It's
1:41
Speaker 1: doctor Doug Turek, financial advisor and family office chair of
1:46
Speaker 1: a family office that we can't name unfortunately still under wraps.
1:50
Speaker 1: Oh you Doug.
1:51
Speaker 2: I'm terrific, James.
1:53
Speaker 1: Lovely to have you on board in your world advising
1:58
Speaker 1: wealthy investors and specifically advising a family office. Is there
2:03
Speaker 1: that sense that we are looking at overheated markets?
2:09
Speaker 2: I think people have been worried for a while. And
2:12
Speaker 2: I heard a wonderful phrase, which is, you know, are
2:14
Speaker 2: we in a bubble that's just in search of a pin?
2:19
Speaker 1: Oh? I think we are, by the way, Yes.
2:22
Speaker 2: For sure. Yeah. Look, there is a nuance to some
2:26
Speaker 2: of these very high valuations in the share market, and
2:28
Speaker 2: we should remember that the market is not uniformly overvalued.
2:32
Speaker 2: That there is a very large spread between the cheapest
2:35
Speaker 2: companies in the market and the most expensive and a
2:39
Speaker 2: lot of the excess are in what we can call
2:42
Speaker 2: large growth companies, and there is a kind of growing
2:45
Speaker 2: suspicion that it could be the fault of the popularity
2:49
Speaker 2: of indexing that every American employees dollar goes into a
2:54
Speaker 2: four toh one k which then puts you know, now
2:57
Speaker 2: eight percent in Nvidia, and these are price sensitive buyers,
3:01
Speaker 2: not price in sensitive buyers, and that if Invidia goes
3:05
Speaker 2: up three times in price, the index will buy three
3:08
Speaker 2: times more of it. So just a reminder that they're
3:12
Speaker 2: One way of kind of dealing with this concern about
3:15
Speaker 2: excess of prices in the share market is to diversify
3:18
Speaker 2: within the share market. There are value strategies. There are
3:22
Speaker 2: also small companies, both of which have underperformed, but they
3:26
Speaker 2: are at least attractive on a value for money basis.
3:29
Speaker 1: We have a bit of that in the Australian market,
3:31
Speaker 1: don't we, with common Work Bank exactly.
3:33
Speaker 2: Commonwealth Bank is our Nvidia, and we could say we've
3:37
Speaker 2: had just fantastic conditions as we've had interest rates falling
3:40
Speaker 2: from very big highs of twenty years ago down to lows,
3:44
Speaker 2: and it looks that they're not going to hopefully get
3:46
Speaker 2: back to zero and we have inflation is back. People
3:50
Speaker 2: know that when they go to the supermarket, and that's
3:52
Speaker 2: perhaps a dampen error on seeing interest rates go too
3:55
Speaker 2: low for too long. So it is quite possible that
3:59
Speaker 2: we have tough conditions ahead. So the hence your question,
4:02
Speaker 2: you know, do we do something about it? And that
4:04
Speaker 2: brings us back to rebalancing, which is really a risk
4:08
Speaker 2: management strategy. It's the risk of having too much equities
4:11
Speaker 2: in your portfolio and being vulnerable to a large transition.
4:16
Speaker 2: And I think in America the statistics that the US
4:19
Speaker 2: investor has never been so exposed to the share market,
4:22
Speaker 2: and it's kind of been a good strategy, a lucky
4:25
Speaker 2: strategy not to have been a disciplined rebalancer in the
4:27
Speaker 2: last few years, because you're rebalancing is taking profits off
4:32
Speaker 2: the table and parking them in the underperforming assets or
4:34
Speaker 2: the less performing assets and just riding up this return
4:39
Speaker 2: would have done well, but when you have a downturn,
4:42
Speaker 2: you'll be very grateful that you listened to this podcast
4:45
Speaker 2: and you took some profits and put them elsewhere.
4:48
Speaker 1: Is it harder to sell? Do you reckon? And this
4:52
Speaker 1: is not a scientific question to bias question, but is
4:55
Speaker 1: it harder to sell winners when you know when the
4:59
Speaker 1: market's strong than to buy shares when you know the
5:02
Speaker 1: market's deep doodoo.
5:06
Speaker 2: It is, but look, institutions, professional investors and smart investors
5:10
Speaker 2: should manage their portfolio to targets, and those aren't dollar
5:14
Speaker 2: targets or percentage targets. And if you have you know,
5:17
Speaker 2: if you say I want to have seventy percent in
5:19
Speaker 2: equities and now you have seventy five, then the math
5:22
Speaker 2: should override your your optimism of continued profiteering, and you
5:27
Speaker 2: should sell five percent of your equities and put those
5:30
Speaker 2: Let's say, if it's just a simple two part portfolio,
5:33
Speaker 2: put five percent back into bonds, which fortunately at the
5:36
Speaker 2: moment are giving you good returns. And the opposite happens.
5:41
Speaker 2: If there was a twenty percent fall in the share market,
5:44
Speaker 2: your you know, seventy five percent in shares might fall
5:47
Speaker 2: to sixty five percent, and then the math will tell
5:50
Speaker 2: you buy shares because you now have a risk of
5:52
Speaker 2: not having enough shares. So rebalancing work terrifically during the
5:57
Speaker 2: global financial crisis era of two thousand and seven, because
6:00
Speaker 2: the downturn was prolonged and people had time, you know,
6:04
Speaker 2: they would have sold before the crash, before the peak,
6:07
Speaker 2: and then the down was long enough unfortunately that people
6:11
Speaker 2: would be buying into the market at the dips. But
6:14
Speaker 2: lately the behavior of the market has been very quick recoveries,
6:19
Speaker 2: and there is a kind of behavior about buy the
6:22
Speaker 2: dip being practiced, which means, you know, a typical rebalancing strategy,
6:26
Speaker 2: which can often be calendar based. It might be six monthly.
6:30
Speaker 2: You can miss that opportunity and you're not being able
6:34
Speaker 2: to buy on the cheap because the cheap sales only
6:36
Speaker 2: last a few weeks and the market bounces back so quickly.
6:39
Speaker 2: So yeah, in short, rebalancing is a very sensible strategy.
6:44
Speaker 2: It wouldn't have worked in the last few years, but
6:46
Speaker 2: you can't predict the future. And if you're right, James,
6:48
Speaker 2: that the market is a bubble in search of a pin,
6:51
Speaker 2: and a pin is found, then you would have been
6:53
Speaker 2: very wise to take some of those profits off the table.
6:56
Speaker 2: They can be of the entire equity part of your portfolio,
6:59
Speaker 2: but you can also have some internal controls. You might say,
7:03
Speaker 2: I don't want ten percent of my retirement to be
7:05
Speaker 2: based on any one company, so you don't want to
7:08
Speaker 2: have ten percent in CBA so you'll have to trim
7:10
Speaker 2: that or you don't want to have ten percent in Nvidia,
7:13
Speaker 2: because you know, history reminds us that these companies never
7:16
Speaker 2: stay at the top. If you look at the top
7:18
Speaker 2: ten stocks in the world every ten years, they're very
7:21
Speaker 2: often not the same.
7:23
Speaker 1: It's really hard. Course, we'll take it on board that
7:25
Speaker 1: it's very hard to sell a winner. But let's assume
7:28
Speaker 1: that we all have the gumption to do that and
7:30
Speaker 1: the sort of scientific rationale to do that, because we
7:35
Speaker 1: know history proves it's the correct thing to do. You
7:38
Speaker 1: mentioned bonds as a whatever you buy in the rebalancing,
7:43
Speaker 1: it must not be shares. It would it be the
7:45
Speaker 1: case that it must not be listed securities. What I'm
7:48
Speaker 1: driving at here is, perhaps people the easy way in
7:51
Speaker 1: for most of our listeners to bonds is bond dtfs.
7:54
Speaker 1: You know they're going buy these bond ETFs. Are they
7:56
Speaker 1: what you're thinking of? Do they fit the bill? Well?
8:00
Speaker 2: I was just describing this in the general kind of
8:04
Speaker 2: barbell of equity at one end, bond at the other.
8:06
Speaker 2: But most portfolios are more sophisticated. They might have a
8:09
Speaker 2: ten percent allocation to reads, they might have a ten
8:12
Speaker 2: percent allocation to infrastructure, they might have a ten percent
8:15
Speaker 2: allocation to floating rate cash like securities. They might have
8:19
Speaker 2: a ten percent allocation to fix rate government bonds. They
8:23
Speaker 2: might have a ten percent allocation to hybrids. So, you know,
8:26
Speaker 2: periodically or perhaps at events where you have cash flow
8:30
Speaker 2: coming in or out of the portfolio, you can reset
8:33
Speaker 2: everything by buying a little bit of everything in a
8:36
Speaker 2: differential bait way to get back to those ten percent
8:39
Speaker 2: targets of your ten asset classes. And likewise, if you're
8:44
Speaker 2: in pension phase, you can fund your pension for the
8:46
Speaker 2: next six or twelve months by you know, maybe taking
8:49
Speaker 2: a little bit more out of the equities and a
8:51
Speaker 2: little bit less out of your money market fund or
8:55
Speaker 2: property trusts and some things you might Yeah, so you
8:58
Speaker 2: either top up differently or you take out differently. And
9:01
Speaker 2: if you're for some reason your portfolio is completely steady state,
9:05
Speaker 2: then yes, you would sell your winners by your losers.
9:08
Speaker 2: And it really depends on how you Generally, the opposite
9:12
Speaker 2: we often consider the opposite of an equity is a bond,
9:16
Speaker 2: But you know, lately some people have found that gold
9:19
Speaker 2: is the opposite of an equity.
9:21
Speaker 1: Yes, I was going to say to you when you
9:22
Speaker 1: listed out. It's interesting, isn't it this whole thing about
9:25
Speaker 1: sixty forty or whatever? And then you know one side
9:28
Speaker 1: of the book was shares and the other side was bonds.
9:30
Speaker 1: But really what constitutes the other side of the book
9:34
Speaker 1: that isn't shares? Has really changed, hasn't it? Of late?
9:38
Speaker 1: And people are I mean, goal is included now regularly,
9:41
Speaker 1: Private equities included, private credit is included, so all those
9:45
Speaker 1: categories they would come into that that they do.
9:48
Speaker 2: The rebalancing works well, but it runs into problems if
9:53
Speaker 2: you have substantial allocations to private assets. And at the moment,
9:56
Speaker 2: we're aware that some of the very famous endowment funds
10:00
Speaker 2: like Harvard are suffering from this problem that private equity
10:04
Speaker 2: is not listing, isn't giving money back to investors, and
10:08
Speaker 2: they can't fund their spending needs. So they've actually had
10:11
Speaker 2: to go to the bond market and borrow several billion
10:14
Speaker 2: dollars because they.
10:16
Speaker 1: Can't can't get they can't send this.
10:18
Speaker 2: Yeah, and we had this problem back in the GFC
10:21
Speaker 2: with austriand industry superfunds that also have a large allocation
10:26
Speaker 2: to private assets. Because you know, the valuers right wrongly
10:30
Speaker 2: or rightly say these assets haven't fallen in value, so
10:33
Speaker 2: the rebalancing thing is, oh, well, we've got to buy
10:36
Speaker 2: some more BHP and CBA because it's just fallen forty percent,
10:39
Speaker 2: but our private equity has only gone down four percent.
10:43
Speaker 2: So I want to sell some private equity and buy
10:45
Speaker 2: some public equity, but I can't get my money out
10:47
Speaker 2: of private equity. So you know, rebalancing doesn't work terribly
10:52
Speaker 2: easily when private market assets are a big part of
10:55
Speaker 2: your portfolio, and when private markets aren't working, and they
10:59
Speaker 2: often free in difficult times. I think this week we
11:02
Speaker 2: saw a private credit fund suspend redemption, so that one
11:06
Speaker 2: that might contribute to your fear, James of things the
11:09
Speaker 2: economy softening.
11:10
Speaker 1: Absolutely well, it confirms my skepticism. I think, tell me
11:13
Speaker 1: you mentioned gold, right, Gold is liquid, Right, it's always liquid.
11:16
Speaker 1: Got to say that whatever is it is, it's got
11:18
Speaker 1: lots of.
11:18
Speaker 2: There does seem to be lots of buyers. And in
11:20
Speaker 2: a crisis. Ironically, when you think gold is a safe have,
11:23
Speaker 2: and sometimes gold does dip because it's the only thing,
11:26
Speaker 2: some investors can sell.
11:29
Speaker 1: That.
11:29
Speaker 2: Yeah, they're well they've got to. Maybe it's a margin call.
11:31
Speaker 2: There's incredible indebtedness behind the market at the moment, and
11:35
Speaker 2: if you if you're in a crisis, you can't sell
11:38
Speaker 2: your beaten up small cap that there's no buyers for,
11:41
Speaker 2: so you only sell the good stuff. And yeah, so
11:44
Speaker 2: generally speaking, especially paper gold or electronic gold sold as
11:48
Speaker 2: ETFs is very popular where you're really tray selling the
11:51
Speaker 2: gold price not gold that is very liquid.
11:56
Speaker 1: That thing about people will sell anything in a crisis,
11:59
Speaker 1: and they'll sell their gold because they want cash. Okay,
12:01
Speaker 1: we take it that dimension, But that isn't it that
12:05
Speaker 1: I imagine that doesn't undermine your notion that gold is
12:09
Speaker 1: a good feasible diversifier.
12:11
Speaker 2: Yeah, diversifier. Yeah, that's right. Absolutely, No, I think it's
12:15
Speaker 2: just one of the nuanced behaviors of gold. No assets
12:18
Speaker 2: work perfectly, and you could actually say it just proves
12:22
Speaker 2: you the fact that gold is available is working, that
12:26
Speaker 2: it can be sold in a crisis.
12:28
Speaker 1: People want it.
12:29
Speaker 2: You know, We'll be interesting to see what happens during
12:31
Speaker 2: the next crisis because the nature of the crises are
12:34
Speaker 2: always evolving, and the current fears are around government solvency
12:38
Speaker 2: and debasement of currency. So I'd be surprised if gold
12:43
Speaker 2: is sold off quickly this time. But you know, as
12:46
Speaker 2: much as it was back in two thousand and seven,
12:48
Speaker 2: which was only a sort of a few back in COVID,
12:50
Speaker 2: I think it's sold off very quickly, but it recovered
12:53
Speaker 2: very quickly. Yeah, so I wouldn't. I wouldn't abandon gold
12:57
Speaker 2: is proven. It has come back as a viable defensive asset.
13:02
Speaker 1: Even in the GFC it didn't. It didn't pop straight away,
13:05
Speaker 1: probably because just what you're saying, people were using it
13:08
Speaker 1: to sell to get some cash because they well.
13:12
Speaker 2: They probably didn't take the treasuries. You know, they might
13:14
Speaker 2: sell a treasury. But we did see some government bond
13:18
Speaker 2: malfunction during COVID twenty twenty, which was unusual. The bond
13:22
Speaker 2: market wasn't working very well, and you might require that's
13:25
Speaker 2: why the US and the Australian and many other central
13:29
Speaker 2: banks of the world bought government bonds with printed money.
13:33
Speaker 2: So that's they didn't print gold. So as a reminder
13:36
Speaker 2: to be maybe some of the assumptions we have around
13:39
Speaker 2: government treasuries being the safest security need to be challenged.
13:44
Speaker 1: Yes, we put that, Just put that to one side
13:47
Speaker 1: for the moment because that's another show. Just finally, look
13:50
Speaker 1: on yes on gold and the notion of the alternative
13:55
Speaker 1: two shares, the non correlated asset. We have to put
13:59
Speaker 1: it to you a crypto and bitcoin. I've had Chane Oliver,
14:04
Speaker 1: chief economists at A and P on the show. A
14:06
Speaker 1: and P have actually both bitcoin. What's your view as
14:11
Speaker 1: on bitcoin as a alternative in the manner that gold is.
14:21
Speaker 2: I struggle with an asset that we don't know who
14:28
Speaker 2: invented it. It hasn't been around for four thousand years.
14:33
Speaker 2: For much of its life, it's behaved like an equity,
14:36
Speaker 2: not a bond. And I've heard one commentator said, if
14:38
Speaker 2: you know gold and crypto are different, and if you
14:41
Speaker 2: want them, you know, put ten percent gold in your
14:43
Speaker 2: defensive portfolio and put ten percent crypto into your equity portfolio.
14:47
Speaker 1: So based on that logic, that's making the assumption that
14:51
Speaker 1: bitcoin is correlated.
14:52
Speaker 2: Yeah, that's right.
14:53
Speaker 1: Yeah, are you of the view that it is? And
14:55
Speaker 1: so it's not an un correlated asset. So it's not
14:57
Speaker 1: a gold.
14:59
Speaker 2: Oh, it's quite different to gold in my opinion. It's
15:01
Speaker 2: not a central bank held asset. Banks commercial banks who
15:05
Speaker 2: hold it don't get credit for it.
15:08
Speaker 1: It.
15:08
Speaker 2: Look, it's an incredibly clever system and there are some
15:11
Speaker 2: appeals to its logic, but there's also enough question marks
15:15
Speaker 2: to make me worry about using it in a portfolio.
15:18
Speaker 2: But that's not a universal held view. And maybe i'm
15:20
Speaker 2: because I'm turning sixty this year. I'm just an old
15:23
Speaker 2: fart James, and you need to ask that question of
15:25
Speaker 2: someone younger.
15:26
Speaker 1: But I don't know what were the reasons. One of
15:29
Speaker 1: the reasons I asked Shane to come on was because
15:32
Speaker 1: he was definitionively the chief economist at AMP, which is
15:35
Speaker 1: one of the oldest institutions in Australia. The Australian ritual
15:38
Speaker 1: problem will fond of whatever it was. I thought that
15:41
Speaker 1: was really interesting that their economics, their investment portfolio committee
15:45
Speaker 1: had a meeting and they passed it off, they signed
15:47
Speaker 1: it off, and they put twenty seven million into it.
15:50
Speaker 1: So I think we're moving beyond that actually to a
15:54
Speaker 1: sort of more nuanced view of Okay, this is an asset.
15:58
Speaker 1: This would appear to be an old term of assets.
16:00
Speaker 1: Some say it is soon to be included in US
16:03
Speaker 1: strategic reserves. If you don't mind, it's not going to
16:06
Speaker 1: go away. So then the question is what is it
16:08
Speaker 1: and is it correlated or not? And yes, it's interesting
16:12
Speaker 1: that you say that you're ob view that history suggests
16:16
Speaker 1: it's correlated. By that, folks, we mean when shares go
16:20
Speaker 1: it goes up. When shares go down, it goes down.
16:22
Speaker 1: And if that's the case, it's not a match for gold.
16:26
Speaker 1: Is that a fair summary of Yeah.
16:29
Speaker 2: It might be more a substitute for equity, James. Yeah,
16:32
Speaker 2: it certainly is a speculative asset and some people have
16:36
Speaker 2: become very rich on it, and we're thrilled for them.
16:42
Speaker 1: That's a speculative assid you might as well just go
16:44
Speaker 1: and by a speculative share. All right, We leave it
16:48
Speaker 1: there for the moment. We have some very I know
16:50
Speaker 1: that we have enormous interest of course in the super tax,
16:53
Speaker 1: but we dealt with it quite a bit on the show.
16:55
Speaker 1: We've left it alone for a while. There has been
16:57
Speaker 1: various developments and people are really starting to think about
17:01
Speaker 1: it for the simple reason that, folks, it's going to happen.
17:04
Speaker 1: It's going to go through. It's going to go through
17:06
Speaker 1: as planned. I don't believe there's going to be any
17:08
Speaker 1: deviation or concessions on this from our sources in the
17:12
Speaker 1: Australian through Canberra. We will be back to you in
17:15
Speaker 1: a moment. Hello, Welcome back to The Australian's Money Puzzle podcast.
17:25
Speaker 1: James Kerby here talking to doctor Douc Turek, regular on
17:28
Speaker 1: the show, one of my oldest and most favorite guests
17:32
Speaker 1: on the show who goes way back and has always
17:35
Speaker 1: featured regularly with his very distinct views on investment. For
17:40
Speaker 1: you now on the new supertax, just through recap. It
17:44
Speaker 1: is a tax which comes in above three million on
17:47
Speaker 1: earnings above three million in Super. It is a news tax.
17:52
Speaker 1: It is a fifteen percent tax. There is already a
17:55
Speaker 1: fifteen percent tax on amounts above two millions, so it
17:58
Speaker 1: becomes effectively thirty percent tax. That's the simple part. The
18:04
Speaker 1: bigger issue is that it's a completely new tax that
18:06
Speaker 1: we've never seen before in Super and it's based on
18:09
Speaker 1: realized gains paper gains. So whatever the value of the
18:13
Speaker 1: stated value paper value of your portfolio is at the
18:17
Speaker 1: end of the year compared to the start of the year,
18:20
Speaker 1: the taxes imposed on the alleged paper profit made through
18:26
Speaker 1: that period very controversial and everything the Treasurer says suggests
18:29
Speaker 1: it's going to put it in exactly as planned. Also,
18:33
Speaker 1: it's not index for inflation, which means more people will
18:36
Speaker 1: be caught in it every year. In your world, Doug,
18:40
Speaker 1: are they now making the assumption along the lines of
18:44
Speaker 1: what I've just said that it's going to happen, and
18:46
Speaker 1: it's going to happen as they have framed it.
18:50
Speaker 2: In my world? No, I'm not. I'm maybe naively hopeful
18:55
Speaker 2: that the Frankenstein nature of this tax is being worked,
19:00
Speaker 2: being understood, and maybe there'll be some modifications. And you know,
19:04
Speaker 2: we really can't because there is no penalty, there's no
19:08
Speaker 2: urgency to act now. It really is wait and see
19:11
Speaker 2: in our professional world. But it doesn't stop us thinking
19:13
Speaker 2: what are some of the strategies we may implement, But
19:16
Speaker 2: we don't. You know, if this is going to be implemented,
19:19
Speaker 2: it's going to have to be. It may not be retrospective.
19:22
Speaker 2: We're already you know, time is flying or almost through July.
19:26
Speaker 2: So are we going to you know, go backwards in
19:28
Speaker 2: time with this tax or will it start eleven months
19:31
Speaker 2: from now?
19:31
Speaker 1: It will be retrospective because it's when it's legislated. It's
19:36
Speaker 1: it's legislated for July one, twenty twenty six, which would
19:40
Speaker 1: refer to the previous financial year, which is already upon us.
19:45
Speaker 2: Well, it's one argument. The other one is you're looking
19:47
Speaker 2: backwards in time at a balance before the legislation even started.
19:52
Speaker 2: So anyway, I live in Hope, James, you are You're
19:56
Speaker 2: not optimist that guy. I live in Hope, and in
19:58
Speaker 2: terms there is no I'm not a aware of any
20:00
Speaker 2: penalty for urgent action, and I guess I live more
20:05
Speaker 2: in fear than hope to be frank, and that is
20:07
Speaker 2: the insatiable demand of government to keep spending simply means
20:12
Speaker 2: there'll be more and more tax and so I worry
20:15
Speaker 2: more the bigger picture of what are the other taxes coming?
20:18
Speaker 2: Are they coming for franking credits? Are they coming for
20:20
Speaker 2: capital gains tax? Are they coming to introduce a wealth tax?
20:23
Speaker 2: That this tax can very be easily extended to be So, do.
20:28
Speaker 1: You mean this tax, this unrealized gains tax, could be
20:32
Speaker 1: easily extended. Is that what you mean?
20:34
Speaker 2: Yeah, that's right. Well let's just call it a I
20:36
Speaker 2: like to think of it as a balance difference tax,
20:38
Speaker 2: because you actually use the phrase thirty percent on earnings. Well,
20:44
Speaker 2: as you pointed out, it's not earnings, it's just on
20:47
Speaker 2: the difference of the balance. You may not have earned
20:49
Speaker 2: that money. Earnings to me are money that's been paid
20:51
Speaker 2: to you. This is just the fact that you're imagine
20:55
Speaker 2: if a Commonwealth bank goes back two hundred dollars a
20:57
Speaker 2: share and stops being the most expensive bank in the
20:59
Speaker 2: world world. But along the way, if it just happened
21:02
Speaker 2: to be two hundred dollars a share on thirty June
21:05
Speaker 2: twenty twenty six, you'll have been paid tax on that
21:09
Speaker 2: you never earned it. You to me, a dividends an earning,
21:12
Speaker 2: or a sale, a crystallized gain is an earning. So
21:15
Speaker 2: I consider just a balanced differential tax. And all we're
21:19
Speaker 2: doing is counting your super based on inputs given to
21:22
Speaker 2: the ATO. Well, maybe the ATO wants to know the
21:24
Speaker 2: value of your company, your value of your share portfolio
21:29
Speaker 2: outside super, maybe it wants to know the value of
21:31
Speaker 2: your home. And then we have a wealth tax, which
21:34
Speaker 2: you know is alive and working in Europe as we speak.
21:37
Speaker 2: It's just a active annual version of a state tax.
21:42
Speaker 2: So maybe just skip bringing back a state taxes and
21:46
Speaker 2: gift taxes just goes straight to the annual wealth tax.
21:49
Speaker 2: Get them while you're alive. So anyway, that's where my
21:53
Speaker 2: naivety says, there's no urgency to act, and the rules
21:56
Speaker 2: may change because it is such an obviously badly designed
22:00
Speaker 2: tax for and designed understandably for administrative reasons. But we're
22:04
Speaker 2: turning superannuation into Frankenstein. You know, three different taxation regimes
22:09
Speaker 2: of income, three different taxation reams of money you take
22:12
Speaker 2: out of Super.
22:13
Speaker 1: It's oh, it's so complicated. Only that I create every day.
22:17
Speaker 1: The only reason I can remember how it all works.
22:19
Speaker 1: Just one thing. People are doing the opposite of what
22:23
Speaker 1: you say. They're dashing to do things, set up family trusts,
22:29
Speaker 1: put money into education boonds, anything they can find that
22:32
Speaker 1: they feel is an alternative tax shelter. Do you think
22:37
Speaker 1: what do you think of people who are doing that?
22:39
Speaker 1: I mean, my gut feeling is they should be careful
22:41
Speaker 1: because I imagine the treasure is quite aware of what
22:44
Speaker 1: the alternatives are and could easily chase them down those
22:47
Speaker 1: paths as well well.
22:50
Speaker 2: And that's one of the reasons we want to wait
22:51
Speaker 2: and see, because maybe rushing the money out of Super
22:54
Speaker 2: isn't a good idea. So, and it's interesting, it's a
22:57
Speaker 2: very individual circumstance ridden solution to what you do if
23:02
Speaker 2: the tax comes out as proposed. So if you've got
23:04
Speaker 2: a for instance, if you've got a couple who you know,
23:07
Speaker 2: have four million in SUPER and nothing else because they've
23:10
Speaker 2: been so diligent putting it into a tax free regime,
23:14
Speaker 2: well they just they'll be reminded that they pay zero
23:17
Speaker 2: tax on the first twenty five thousand each of income.
23:20
Speaker 2: That's fifty thousand of taxable income. So they should just
23:24
Speaker 2: pull a million dollars out of SUPER and invest it
23:25
Speaker 2: tax free, Which you know, is why these ideas that
23:28
Speaker 2: we should just have a uniform percentage tax rate and
23:32
Speaker 2: SUPER makes no sense to me, because we have What
23:34
Speaker 2: we're going to do is empty the SUPER of a
23:36
Speaker 2: whole bunch of people who can invest tax free using
23:39
Speaker 2: the very generous tax free thresholds we have in Australia.
23:42
Speaker 1: To clarify for listeners, and just to ensure that I
23:44
Speaker 1: understand what you're saying, and I imagine that the listeners too.
23:47
Speaker 1: What you're saying is, don't forget folks, that all income,
23:51
Speaker 1: regardless of your age, you don't pay tax upen to
23:54
Speaker 1: a certain point. Yeah, so you can have the investment
23:58
Speaker 1: income outside of SUPER. It doesn't matter that it's investment income,
24:01
Speaker 1: it's just income. And you don't pay tax on Did
24:04
Speaker 1: you say, what was the number you used with that?
24:06
Speaker 1: For a couple.
24:07
Speaker 2: Yeah, for a senior retired couple, they can generally earn
24:10
Speaker 2: around twenty five thousand dollars each tax free. So if
24:12
Speaker 2: you have a million dollars, you pull out of SUPER,
24:14
Speaker 2: put it in a joint term deposit, and say you
24:17
Speaker 2: get fifty thousand dollars of income, split it twenty five
24:21
Speaker 2: thousand each. There's zero tax to pay. So if someone
24:25
Speaker 2: comes up with the idea and I've read it that
24:27
Speaker 2: we should, I think it was can't one of Ken
24:30
Speaker 2: Henry's suggestions you make a uniform single tax rate and Super, Well,
24:34
Speaker 2: that'll just lead to the perverse emptying of of people
24:37
Speaker 2: holding a million dollars out of SUPER. So that look,
24:40
Speaker 2: one regime is take it out, invest in your other name.
24:43
Speaker 2: Another thing for ultra wealthy, which this tax will hit
24:46
Speaker 2: is probably buy a bigger principal place of residence, enjoy
24:50
Speaker 2: its tax free land tax. The next thing is to say, look,
24:53
Speaker 2: eventually we're not going to spend this money, so let's
24:55
Speaker 2: help the kids. So the bank of mom and dad
24:58
Speaker 2: becomes bigger, and that we get your kids, our kids
25:02
Speaker 2: into houses bigger houses than they might have before we
25:05
Speaker 2: pay off their mortgages. We do things like that. I'd
25:08
Speaker 2: like to propose a you've heard a bank of mum
25:10
Speaker 2: and dad BOMAD, Well, I wouldn't be surprised if we
25:14
Speaker 2: will make people so mad. And we'll talk about SOMAD,
25:18
Speaker 2: which is super annuation on mum and dad. And you
25:21
Speaker 2: might recall a self managed super fund can now have
25:23
Speaker 2: up to six members. So a family can take out
25:28
Speaker 2: one hundred thousand dollars per child, their grandchild and put
25:31
Speaker 2: it right back into their self mad superfund in the
25:34
Speaker 2: names of their children or grandchildren and top up the
25:38
Speaker 2: kids super and yet still manage it in the self
25:41
Speaker 2: mad superfund. And even worse, and this will hurt the
25:43
Speaker 2: government's revenue. They can even help the kids claim a
25:47
Speaker 2: tax deduction for some of that contribution. So if you
25:51
Speaker 2: know a child was making one hundred thousand dollars a
25:53
Speaker 2: year very successfully and their employer put ten thousand into super, well,
25:57
Speaker 2: mum and dad could help the children put another twenty
26:00
Speaker 2: thousand dollars and the child could claim a tax deduction
26:03
Speaker 2: on that, and the government's going to be out of pocket.
26:05
Speaker 2: You know, a few the childre are gonna get about
26:08
Speaker 2: a six thousand dollar tax return.
26:10
Speaker 1: So there's plenty you can do. I think in some
26:13
Speaker 1: way there are.
26:14
Speaker 2: And they're very personal. They'll depend on your tax rate,
26:16
Speaker 2: They'll depend on your asset position. Do you have another pension,
26:20
Speaker 2: do you have other taxable income. They'll depend on your
26:22
Speaker 2: family circumstances and your right family trusts and beneficiary companies
26:26
Speaker 2: are you know, quite a possible alternate structure. I prefer
26:29
Speaker 2: them more than insurance bonds slash investment bonds, which really
26:32
Speaker 2: have the same tax structure but have some inflexibilities and
26:35
Speaker 2: fees associated with them. And of course it's a dynamic
26:38
Speaker 2: situation because the government will just come up with another tax,
26:42
Speaker 2: so one should be careful pulling money out of super
26:45
Speaker 2: just to put it into another frying pan.
26:47
Speaker 1: Okay, all right, keep that in mindful, so be back
26:50
Speaker 1: in a moment. We have some really interesting questions. Us
26:52
Speaker 1: it back in a moment. Hello, Welcome back to The
27:03
Speaker 1: Australian's money Plussing podcast. James Crave here with Doug Trurek.
27:07
Speaker 1: We're going to have a look at some pretty interesting
27:09
Speaker 1: questions I've had put aside for Doug on all sorts
27:12
Speaker 1: of things. I suppose, Doug, we might start with the
27:13
Speaker 1: first one because it was about two nine three. We've
27:16
Speaker 1: just been talking about that. The new supertax is from Susie.
27:19
Speaker 1: Interested in your views on the division to nine three tax? Okay? Now,
27:23
Speaker 1: two nine three tax, folks, is the existing high income
27:26
Speaker 1: earner super tax. It kicks in when you make two
27:31
Speaker 1: one hundred and fifty thousand a year or more. If
27:34
Speaker 1: you're in that category or make more than that, you paid. Basically,
27:38
Speaker 1: you want to contribute to super you pay thirty percent. Okay. Now,
27:41
Speaker 1: Susie says, it seems to be another tax that hasn't
27:45
Speaker 1: been indexed, but I have personal discussion about it when
27:47
Speaker 1: tax reform is mentioned. Just quickly, Susie, you're absolutely right,
27:52
Speaker 1: and it is not indexed. And let me tell you something.
27:56
Speaker 1: It was introduced from two twelve and it's never been inxed.
28:01
Speaker 1: That's thirteen years ago. So when people say, oh, look,
28:06
Speaker 1: don't worry about this new supertax not being indexed, of
28:09
Speaker 1: course it'll be indexed. Don't wait for it to be indexed.
28:14
Speaker 1: The existing high ironer supertax has never been indexed after
28:17
Speaker 1: twelve years, so there's no reason historically to believe that
28:21
Speaker 1: the new supertax will be indexed either. Just put that
28:23
Speaker 1: one out there, okay.
28:24
Speaker 2: And also, Susie, remember in twenty nineteen Federal Labor took
28:28
Speaker 2: to the election that threatshold was supposed to be two
28:31
Speaker 2: hundred thousand, so it was the opposite of indexed. They
28:34
Speaker 2: wanted to tinker with it and make it even more punitive,
28:38
Speaker 2: and some suggested it should be linked to the top
28:40
Speaker 2: marginal rate of one hundred and eighty thousand, which is
28:43
Speaker 2: now about up to ninety. And a reminder, the most
28:46
Speaker 2: important thresholds are not indexed, and that's your income tax.
28:51
Speaker 1: That's right, That's why you have bracket creep. And in
28:53
Speaker 1: a way, this is bracket creep too, isn't it every
28:55
Speaker 1: year because it's not indexed.
28:57
Speaker 2: And it's just another example of how we've muddied Super
29:00
Speaker 2: that your money in Super is tack going in it's
29:02
Speaker 2: taxed at zero, fifteen or thirty. And unfortunately, an average
29:09
Speaker 2: intelligent Australia Australian cannot manage their affairs to an optal
29:13
Speaker 2: position without getting professional advice. There's so many tinkerings with
29:18
Speaker 2: the system.
29:19
Speaker 1: Yeah, okay, if one final question, it's from Joshua, would
29:22
Speaker 1: you like to read that question about Enron.
29:23
Speaker 2: I've been reading about Enron, which is really fascinating. The
29:27
Speaker 2: blurb on the affair doesn't do it justice. It is
29:29
Speaker 2: a winding path of greed, deception, ambition, among other things.
29:33
Speaker 2: Amazing story. I understand there are more safeguards in place
29:37
Speaker 2: nowadays to prevent something like this happen at the scale
29:40
Speaker 2: that Enron achieved. I'm wondering though, could it happen again?
29:44
Speaker 2: And a suggestion could be an ao AI crypto pe
29:49
Speaker 2: Interested in your thoughts?
29:51
Speaker 1: Yes, okay, well, just in case Auel doesn't remember Enron.
29:55
Speaker 1: It was the most spectacular corporate collapse. I think it
29:59
Speaker 1: was a this collapse ever. Actually in the US it
30:02
Speaker 1: was an energy company, but it became synonymous with corporate fraud,
30:08
Speaker 1: and it had some extraordinary dimensions. But essentially it was
30:13
Speaker 1: put forward as a stunningly innovative company run by some
30:19
Speaker 1: of the allegedly most sophisticated financial brains in the world,
30:24
Speaker 1: the smartest guys in the room. Wasn't that the phrase
30:26
Speaker 1: they used, And of course it turned out to be
30:28
Speaker 1: an enormous fraud. Now we're not saying anything else is
30:32
Speaker 1: an enormous fraud here, and I'm sure Josh isn't implying that. However,
30:37
Speaker 1: could it happen again? Could it happen in the world
30:39
Speaker 1: of crypto? Could it ever? I mean, my short answer
30:43
Speaker 1: is to to that, Josh is you bet it could.
30:46
Speaker 1: We've had small versions and I'm sure we're going to
30:49
Speaker 1: have big versions in the future. What do you think, Hug.
30:53
Speaker 2: I'm fraid it's just human nature and there are some
30:55
Speaker 2: bad apples in society, and they can be individuals and
31:00
Speaker 2: just see that with a failure of super Fund in
31:02
Speaker 2: the last few weeks, or it can be giant corporates.
31:06
Speaker 2: And Ron was an accounting scandal where they did a
31:08
Speaker 2: lot of off the books accounting. It is disappointing that
31:11
Speaker 2: the federal government now does off the books accounting. So
31:15
Speaker 2: the NBN is off the books and some of the
31:17
Speaker 2: other things. And I have a feeling that we're actually
31:21
Speaker 2: in a worse place than better place. I think I've
31:24
Speaker 2: heard it said we're living in the age of grift,
31:27
Speaker 2: and some politicians even overseas, you know, are it's paid
31:31
Speaker 2: to play or pay for patronage involving crypto is a
31:35
Speaker 2: payment mechanism. So I am not optimistic that there won't
31:39
Speaker 2: be more of this happening. So we come back to,
31:42
Speaker 2: you know, dealing with reputable organizations being very under careful
31:47
Speaker 2: about who who has custody of your assets, spreading your assets.
31:51
Speaker 2: I in fact listen to one of the fathers of
31:53
Speaker 2: AI recommending you should have multiple banks because he thinks
31:57
Speaker 2: there'll be a crypto a I bank cyber attack on
32:02
Speaker 2: a major bank. So yeah, I don't see things getting better.
32:06
Speaker 2: And you know magice AI is allowing voices and images
32:11
Speaker 2: to be impersonated. So yes, so not to be too pessimistic,
32:15
Speaker 2: but I don't think things will get better.
32:18
Speaker 1: Not to be too pessimistic, Josh. But yes, of course
32:21
Speaker 1: it could happen again. It may not happen in duplicate
32:24
Speaker 1: fashion to end on, but the notion of a very
32:26
Speaker 1: large operator in the center of the financial system, possibly
32:30
Speaker 1: in the.
32:30
Speaker 2: US, well even I've heard it said in video's accounts
32:34
Speaker 2: are a bit creative in how they book sales, and
32:36
Speaker 2: they're selling to themselves chips and how do we It's
32:40
Speaker 2: beyond some of my understanding.
32:43
Speaker 1: Could be anything anywhere except to say that it will
32:45
Speaker 1: happen again, just like there is a sense of history
32:47
Speaker 1: repeating very good. Okay, none of that was advice, of course,
32:51
Speaker 1: it's information only terrific to TOLTI, don't you rech love
32:54
Speaker 1: you to have you on the show again. We must
32:56
Speaker 1: talk again soon.
32:57
Speaker 2: Always enjoy it and safe investing.
33:00
Speaker 1: Thank you Doug, and thank you everyone, and keep those
33:03
Speaker 1: emails rolling. The money puzzle at the Australian dot com
33:06
Speaker 1: dot au dot you soon