Latest / The Money Puzzle / How to invest for your kids

Transcript

How to invest for your kids · 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.
0:14
Speaker 2: Welcome aboard.
0:15
Speaker 1: You know, a constant question I get from listeners is
0:19
Speaker 1: how do I invest for my kids? It's a simple question,
0:23
Speaker 1: but it's a wide ranging question, you know, and it
0:26
Speaker 1: can be as simple as do I do it in
0:30
Speaker 1: their name or do I do it in my own name?
0:33
Speaker 1: Sometimes it's more advanced. How could I help an adult
0:36
Speaker 1: child purchase their first home? I thought it would be
0:39
Speaker 1: a really good idea to concentrate on this issue today.
0:41
Speaker 1: And my guest is an old friend of the show.
0:44
Speaker 1: You would know him as a financial advisor from the
0:46
Speaker 1: Barron's Top 150 list. These days, he's very involved in
0:50
Speaker 1: a number of investment committees and family offices. It's Dr.
0:54
Speaker 1: Doug Turek. How are you, Doug?
0:56
Speaker 2: I'm terrific, James, and hope so are your listeners.
0:59
Speaker 1: They are terrific and they will be even more terrific
1:02
Speaker 1: when we get going and they hear your wisdom once again. Doug,
1:06
Speaker 1: of course, has been on the show regularly over the years.
1:09
Speaker 1: And this is a subject, folks, that Doug and I
1:13
Speaker 1: talk about off air as well, just as much. So
1:17
Speaker 1: it's time we put it all on the record for you. Doug,
1:21
Speaker 1: I mean, why don't we actually start by just for
1:23
Speaker 1: the everyday listener of whatever age they are, wherever they are,
1:26
Speaker 1: are there any really obvious pros and cons that every
1:32
Speaker 1: listener should know on this issue?
1:35
Speaker 2: Look, it's a great topic and it's good that we
1:37
Speaker 2: got a bit of time to talk to it because
1:40
Speaker 2: what's very obvious is it's complicated. What's very obvious is
1:46
Speaker 2: the government in Australia is deeply suspicious about children investing money.
1:53
Speaker 2: And let's face it, it's probably because it's afraid this
1:56
Speaker 2: is family money that's being invested at a lower tax rate. Right.
2:01
Speaker 1: We're worried people are washing clothes. They're washing their money
2:04
Speaker 1: through their kids. But we're talking about people who sincerely
2:07
Speaker 1: want to do this. I get questions all the time.
2:10
Speaker 2: And as you point out, there's two very honorable goals here.
2:13
Speaker 2: But actually, we should separate them out because I think
2:15
Speaker 2: they have different solutions. So one goal a lot of
2:19
Speaker 2: parents are trying to do is to teach their children
2:21
Speaker 2: to be investors and to get experience about maybe picking
2:26
Speaker 2: shares and to get experience, not panic when share markets
2:29
Speaker 2: go down and to learn to be a capitalist. And
2:31
Speaker 2: that's not a dirty word. The second thing you highlighted
2:35
Speaker 2: is another goal, which is the family wanting to look
2:38
Speaker 2: after the family. And that's about investing monies for a
2:42
Speaker 2: future child's expense, which the two big ones are education
2:46
Speaker 2: and a home deposit. And They're actually a little bit different.
2:50
Speaker 2: And with the first one, we might be able to
2:52
Speaker 2: sneak through some of the challenges the tax office puts
2:55
Speaker 2: in front of parents letting kids invest as well. Although,
3:00
Speaker 2: you know, sadly, this new budget will perversely, even though
3:03
Speaker 2: it was rumored to be helping intergenerationally, it will now
3:07
Speaker 2: all of a sudden create a minimum tax on capital
3:10
Speaker 2: gains for your 18, 19-year-old son, grandson, granddaughter. daughter selling shares.
3:16
Speaker 2: So we're going backwards.
3:18
Speaker 1: A rock bottom level of 30%. Yeah, inescapable.
3:20
Speaker 2: Yeah, we're going backwards here. Okay.
3:21
Speaker 1: But starting at the very start, is there anything that's
3:24
Speaker 1: really obvious that everyone should know? Are there special investment
3:27
Speaker 1: accounts for kids or anything like that? I don't think
3:29
Speaker 1: there is, but let us know.
3:31
Speaker 2: Yeah. So we have this first problem that the tax
3:34
Speaker 2: office doesn't like children investing money. And just to be specific,
3:40
Speaker 2: put some numbers around this. The tax office is very
3:42
Speaker 2: fine for a child to earn $ 416 a year, and
3:47
Speaker 2: they can earn that tax-free. But as soon as they
3:49
Speaker 2: earn a dollar above that, the next nearly $ 1, 000 is
3:52
Speaker 2: taxed at 66%.
3:55
Speaker 1: Okay. So there's no incentive. It's disincentive in the system there.
3:59
Speaker 2: So what that means is a child who owns an
4:02
Speaker 2: asset will be punished if they earn more than $ 416. Now, look,
4:06
Speaker 2: $ 10, 000 in the Australian share market yielding 4% along with
4:12
Speaker 2: frank dividends is only about $ 400. So if your minor
4:18
Speaker 2: child is not trading and generating terrific capital gains, buying
4:22
Speaker 2: tech stocks and Nvidia shares, then they might actually sit
4:26
Speaker 2: below that $ 400 threshold. But once they get above it,
4:29
Speaker 2: they get into trouble. But for sort of buy and hold,
4:32
Speaker 2: a small modest portfolio can be set up. The second
4:35
Speaker 2: problem we run into is financial institutions, not surprisingly, burned
4:39
Speaker 2: by commission, royal commissions and other things, don't want to
4:43
Speaker 2: have a contractual relationship with a minor. So it's very
4:47
Speaker 2: hard for minors to even open up an account. So
4:50
Speaker 2: the way that we get around that is parents can
4:52
Speaker 2: open up an account in trust for their minor child,
4:56
Speaker 2: and these brokers will allow that account to be switched
5:00
Speaker 2: over to a child when they turn 18. And since
5:04
Speaker 2: in theory, those assets were always owned by the child
5:07
Speaker 2: since from the beginning, there may not be a capital
5:10
Speaker 2: gains tax event when that transfer is made.
5:12
Speaker 1: Is that a complicated process, Doug?
5:14
Speaker 2: Not really. Is it worth doing? Yeah, look, your major
5:18
Speaker 2: stock brokering companies will let an adult open up an
5:21
Speaker 2: account for a child. There are some exceptions. So the
5:25
Speaker 2: tax office doesn't want to punish child labor. So if
5:30
Speaker 2: your child worked in a salt mine, and made several
5:33
Speaker 2: thousand dollars, then that earned income is exempt from those
5:38
Speaker 2: penalty tax rates. And furthermore, I believe, check this with
5:41
Speaker 2: your trusted tax advisor, but even investment income on earned
5:45
Speaker 2: income is okay. Another category is estate assets that went
5:51
Speaker 2: to a child. The investment income on it might be
5:54
Speaker 2: also excluded. And of course, this was in the budget
5:57
Speaker 2: as well. Testamentary trusts, very powerful trust. useful asset protection
6:03
Speaker 2: tool to pass money to the next generation also avoids
6:08
Speaker 2: these penalty tax rates.
6:10
Speaker 1: But the distributor, as such, of the money must die, right,
6:14
Speaker 1: for that to be activated.
6:15
Speaker 2: That's a terrible way to create these accounts.
6:18
Speaker 1: That's right. You got to die. So we'll put that
6:20
Speaker 1: one to one side just for a moment. So for
6:23
Speaker 1: the listener who wants to invest with their kids, can
6:25
Speaker 1: they go to ComSec or whoever and say, I want
6:28
Speaker 1: to put, what was the term you used in trust
6:30
Speaker 1: for the children? Like what's the realities of that?
6:32
Speaker 2: Yeah, they can open up a minor account in trust.
6:34
Speaker 2: So the adult is in control, but it's understood that
6:38
Speaker 2: this is the monies that are in trust for the child.
6:42
Speaker 2: And when the child turns 18, you can work with
6:44
Speaker 2: that same institution to do what's called an off-market transfer.
6:48
Speaker 2: And we remove James Kirby in trust for child just
6:52
Speaker 2: to the child's name. And there are a number of
6:55
Speaker 2: brokerage accounts are set up to do this.
6:57
Speaker 1: That's pretty neat.
6:58
Speaker 2: Okay. So it's a good start. But the problem is
7:00
Speaker 2: if there's a lot of earned income earned by that child,
7:04
Speaker 2: either through dividends, interest, rent, or share trading, not just
7:10
Speaker 2: that new 30% minimum tax that's coming. but even a
7:14
Speaker 2: penalty 66% tax clobbers a young child. But it's priceless
7:20
Speaker 2: having a child own a few shares in BHP or
7:24
Speaker 2: Westpac or whatever and learning about the share market and
7:28
Speaker 2: getting an experience early, but as long as that's done
7:31
Speaker 2: in moderation. Or somehow they've been successful working in a
7:35
Speaker 2: family business and it's their own money they have made.
7:39
Speaker 2: I think they can escape some of that, but not
7:41
Speaker 2: gifts from grandparents, gifts from parents. That's when we get
7:44
Speaker 2: into trouble. But, you know, the other good news is
7:48
Speaker 2: there's a great toolkit now available to the modern generation,
7:51
Speaker 2: and these are exchange-traded funds. So if you want, we
7:55
Speaker 2: can talk about, you know, there are almost more exchange-traded
7:59
Speaker 2: funds than there are shares on the market, but you
8:02
Speaker 2: can invest in Australian companies, Australian commercial property, Australian bonds.
8:06
Speaker 2: You can invest in international versions. You can invest in
8:09
Speaker 2: your own thematic.
8:11
Speaker 1: And they're probably particularly appropriate, aren't they, for first timers?
8:16
Speaker 1: Because if nothing else, you're diversified.
8:20
Speaker 2: Yes. It's imperfect diversification in Australia because our market is
8:25
Speaker 2: one third debt, one third dirt, i.e. banks and resource companies.
8:30
Speaker 2: But it's not bad. And we used to say the
8:32
Speaker 2: international markets were diversified, but they are no longer. They're
8:35
Speaker 2: overweight and very expensive, super profitable, we're not sure forever,
8:40
Speaker 2: tech companies. Yeah. Investors have to be very careful saying
8:45
Speaker 2: they're diversified in the ETF these days. And the more
8:47
Speaker 2: you pick a thematic, like you want crypto or cyber ETFs,
8:53
Speaker 2: then the diversification disappears just by focus.
8:57
Speaker 1: So if I came into you and I said, I've
8:59
Speaker 1: got a 10-year-old child and I want to invest for them,
9:03
Speaker 1: it's not a lot of money. Yes, it might just
9:05
Speaker 1: make 400 a year. I think it's okay on the
9:07
Speaker 1: tax side. I have no idea where to start. Once
9:11
Speaker 1: upon a time, someone would have said, well, why don't
9:13
Speaker 1: you buy BHP or why don't you buy ComBank or whatever,
9:16
Speaker 1: which is the default answers. So if you were buying
9:20
Speaker 1: an ETF, an exchange traded fund, what would you do?
9:25
Speaker 1: Would you buy an Australian one? Would you buy a
9:28
Speaker 1: global one, literally like the world market? What would you do?
9:31
Speaker 2: I think those are two great. suggestions. Of course, you
9:35
Speaker 2: and I are not giving advice to anyone out there.
9:37
Speaker 1: Information only, folks. That's very clearly established.
9:40
Speaker 2: I'll start with an ETF that tracks the top 200
9:44
Speaker 2: companies in Australia. Now, keep in mind, about 60% of
9:47
Speaker 2: your money will go in the top 10 companies, but
9:50
Speaker 2: they're not bad. I almost think you should own an
9:54
Speaker 2: ASX 200 ETF, and then you and your child, grandchild,
9:59
Speaker 2: or minor go out and pick a few companies. And
10:02
Speaker 2: I was always fond of Peter Lynch in America who
10:05
Speaker 2: ran the Fidelity Magellan account who encouraged people not to
10:09
Speaker 2: speculate on things they didn't know about. but to only
10:12
Speaker 2: invest in things they bump into uniquely as a consumer.
10:15
Speaker 1: Do you still like that? I mean, the age of AI,
10:18
Speaker 1: do you still like that? I drink Pepsi, so I
10:21
Speaker 1: buy Pepsi. Yeah, I think for a.
10:23
Speaker 2: Child, right? Yeah, I mean, we're trying to contaminate them
10:28
Speaker 2: with a capitalism. It's a good kind of capitalism, not
10:31
Speaker 2: the bad kind. So if dad spends too much time
10:35
Speaker 2: walking the aisles of Bunnings, then they can own the
10:37
Speaker 2: Bunnings Property Trust, and we can joke every time dad
10:40
Speaker 2: goes to Bunnings. that Junior is getting some of that
10:44
Speaker 2: in a rent distribution. And, you know, that's the sort
10:47
Speaker 2: of mindset.
10:48
Speaker 1: And it's a relatively safe way in, isn't it, actually?
10:51
Speaker 2: I mean, yeah. But the good news is also buy
10:54
Speaker 2: an ASX ETF. So then you can go back a
10:56
Speaker 2: year later and say, well, we put $ 1, 000 into the
11:00
Speaker 2: Australian share ETF and we put, you know, 10, we put...
11:04
Speaker 2: you know, five other shares for $ 200. And if we
11:07
Speaker 2: look at it, the ETF did better. So that just
11:09
Speaker 2: shows we're terrible stock pickers.
11:11
Speaker 1: The chances are one of them will probably do better
11:15
Speaker 1: than the ETF. One of them will do way worse,
11:17
Speaker 1: et cetera. And it's learning.
11:19
Speaker 2: And failing is terrific, you know, because why not fail with,
11:22
Speaker 2: you know, a few hundred dollars as a miner than
11:25
Speaker 2: an adult who's never touched the share market until age
11:28
Speaker 2: 50 when they finally paid off their house mortgage and
11:33
Speaker 2: only then start to learn that things go up and down.
11:37
Speaker 2: So yeah, no, a big fan. Unfortunately, if the goal
11:40
Speaker 2: is to teach children about money investing in very small amounts,
11:44
Speaker 2: you can bypass some of the tax office rules that
11:48
Speaker 2: are there to stop parents investing through their children's names.
11:52
Speaker 2: We get into another question, which is if you want
11:54
Speaker 2: to fund your children's expensive private school fees or mortgage.
11:59
Speaker 2: Setting aside a wonderful story I heard the other day
12:01
Speaker 2: of If you were to spend $ 400, 000 over private school
12:06
Speaker 2: fees over seven years, would that be better as a
12:08
Speaker 2: mortgage and send your child to trade school and become
12:11
Speaker 2: an electrician or a plumber?
12:13
Speaker 1: Which ironically, they'd probably be quicker to buy a house anyway.
12:17
Speaker 2: Exactly. So we already know the answer to that funny question.
12:19
Speaker 2: So anyway, then we come up into a big problem,
12:22
Speaker 2: which is that's big money. We can't invest it in
12:24
Speaker 2: the child's name. We don't want the child to take
12:26
Speaker 2: control of that asset pool when they turn 18. So
12:29
Speaker 2: then we're investing for a child expense. which is a
12:31
Speaker 2: related but a completely different question and requires different solutions.
12:36
Speaker 2: There are some companies out there that have education savings structures.
12:40
Speaker 1: Education bonds, isn't it?
12:42
Speaker 2: That's right. Yeah, they're not really a bond, but that's
12:44
Speaker 2: what they're marketed as.
12:45
Speaker 1: Yeah, what do you think of them?
12:47
Speaker 2: I don't like them. And look, there's a couple problems.
12:50
Speaker 2: One is these structures pay tax at 30%. They pay
12:54
Speaker 2: tax every year on unrealized capital gains if you were
12:56
Speaker 2: a share trader. Now, they'll give you that money maybe
12:59
Speaker 2: after 10 years or after a period. But, you know,
13:03
Speaker 2: a tax drag is real. And if you're a parent
13:08
Speaker 2: saving for your child's education or down payment, you probably
13:12
Speaker 2: have a mortgage yourself.
13:14
Speaker 1: But Doug, isn't it better than paying 47 and a
13:16
Speaker 1: half on your marginal tax? I mean, there's very few
13:20
Speaker 1: tax shelters for people apart from super.
13:22
Speaker 2: Yeah. Yeah. Well, I think you've part answered the question.
13:25
Speaker 2: So if you're a parent saving for your child's expense
13:28
Speaker 2: and You have a mortgage. Your best investment, in my opinion,
13:33
Speaker 2: is your tax-free mortgage, which is going to give you
13:36
Speaker 2: a guaranteed tax-free return of 6.5%, 7%. You just need
13:40
Speaker 2: to do some quarantining of that money in an offset
13:43
Speaker 2: account and do some strict accounting.
13:47
Speaker 1: Oh, I like that. Sorry, explain that to listeners. That's
13:50
Speaker 1: really good. So what you're saying is get the mortgage
13:52
Speaker 1: down and use the money.
13:53
Speaker 2: That's right. Let's say you have a mortgage, unfortunately, and
13:56
Speaker 2: it's not paid off, but you're saving for your child,
13:59
Speaker 2: you have to earn more than 10% to be investing
14:03
Speaker 2: in a separate pot of money than instead to be
14:06
Speaker 2: putting that money in your mortgage offset account or, frankly,
14:10
Speaker 2: just simply prepaying your mortgage sooner and maybe drawing that
14:13
Speaker 2: money back later when your mortgage rate's about 6.5%, 7% today.
14:17
Speaker 1: So that's a really elementary thing. It's a really elementary point,
14:21
Speaker 1: but so important. So you're saying, instead of going into
14:24
Speaker 1: a 10-year... a 10-year package that someone's selling as an
14:29
Speaker 1: education bond, look at your own mortgage, get it down,
14:33
Speaker 1: work on the offset and loosen up money for paying
14:36
Speaker 1: those fees. Is that the theory?
14:37
Speaker 2: Yeah, just draw it back from the offset. If you
14:40
Speaker 2: have an offset account, which is a terrific Australian invention,
14:43
Speaker 2: or if you don't have a redraw facility, or just,
14:46
Speaker 2: you know, try to get your mortgage paid off in,
14:48
Speaker 2: you know, 22 years, not 25 years. And that over
14:52
Speaker 2: the last three years, then pay full fee for your child's,
14:56
Speaker 2: you know, maybe for the, if you, managed to just
14:58
Speaker 2: over-save your mortgage, then pretend you still have a mortgage
15:01
Speaker 2: for another two, three years. And that can be you
15:04
Speaker 2: serially trying to fund your child's education or more positive. Yeah.
15:08
Speaker 1: Have the, keep the discipline up. Is that what you mean?
15:10
Speaker 1: The payments you were making?
15:11
Speaker 2: Yeah, that's right. And the other one is grandparents. So
15:15
Speaker 2: grandparents are often, I believe there's some hidden statistic out
15:18
Speaker 2: there that says something like 50% of private school fees
15:21
Speaker 2: are paid by grandparents. Well, grandparents, if they tried to
15:24
Speaker 2: invest in their child's name, we bump into problems of
15:27
Speaker 2: control and tax. But grandparents can, many in Australia, can
15:32
Speaker 2: invest up to $ 2. 1 million tax-free in their retirement savings.
15:36
Speaker 2: So they may no longer have a mortgage, but they
15:38
Speaker 2: essentially have a similar alternate structure and just hoard that
15:42
Speaker 2: money extra in their retirement savings and then draw it
15:46
Speaker 2: out tax-free as you're allowed to over the age of
15:48
Speaker 2: 60 and help pay your grandchildren's school fees then, or
15:53
Speaker 2: help them with their mortgage then.
15:56
Speaker 1: That's pretty neat. Yes, of course. Okay, because they have that.
15:59
Speaker 2: Other countries, the answer's different. I was born in Australia,
16:02
Speaker 2: but grew up in Canada, and also very versed with
16:05
Speaker 2: the US tax system. And they have many complicated tax structures,
16:09
Speaker 2: which genuinely work. But in Australia, for whatever reason, we don't.
16:15
Speaker 2: And we just have a few creative companies that have
16:17
Speaker 2: adapted the insurance bond, investment bond, tax structure.
16:22
Speaker 1: And packaged them as education bonds.
16:24
Speaker 2: Yeah, with a sort of purpose lens to it. And
16:28
Speaker 2: it's because it comes right back to the government is
16:30
Speaker 2: not giving us an incentive for you to privately save
16:34
Speaker 2: for education or certainly And they have alternate ways. So
16:39
Speaker 2: what does the government do instead? It creates a loan
16:41
Speaker 2: scheme with a very low interest rate tied to inflation.
16:45
Speaker 2: I think it's sort of an ideological way of helping
16:47
Speaker 2: people with education. And there is now the complicated first
16:52
Speaker 2: home saver deposit scheme in super.
16:55
Speaker 1: What we might do is we'll take a break and
16:57
Speaker 1: we'll come back and we'll look at that issue. I
16:59
Speaker 1: want to open it up now to a little bit
17:00
Speaker 1: more advanced thinking, folks, about how an advanced education, the
17:05
Speaker 1: older child, if you like, Doug has alluded to HECS.
17:08
Speaker 1: And I also want to look at how to help
17:11
Speaker 1: buy a house. Back in a moment. Hello, welcome back
17:29
Speaker 1: to the Australian's Money Puzzle podcast. I'm James Kirby. I'm
17:32
Speaker 1: talking to Dr. Doug Turek. And we are talking about
17:35
Speaker 1: how to help your kids invest. Now, Doug, we talked
17:41
Speaker 1: in the first segment very usefully, I thought, about a
17:44
Speaker 1: couple of basics, right, about opening accounts for kids when
17:47
Speaker 1: they're really young and that they have shares and they
17:49
Speaker 1: can see how they go over the course of their lives.
17:52
Speaker 1: I bought shares from my kids and the one thing
17:55
Speaker 1: they remember very much was the GFC and how their
17:58
Speaker 1: shares went down so badly. And they did recover, but gee,
18:02
Speaker 1: you know, I tell you what, they were nearly finished
18:03
Speaker 1: school by the time they did.
18:04
Speaker 2: Yeah, but what a good learning, what a good teaching
18:06
Speaker 2: you did, James. It was, absolutely.
18:07
Speaker 1: Yes, and they remember everything about it. That's very true.
18:10
Speaker 1: We also talked about, we looked at a few other
18:13
Speaker 1: issues which were very useful, especially on school fees. More broadly, folks,
18:16
Speaker 1: if you've been listening to recent shows, you would know
18:18
Speaker 1: that the insurance bonds, investment bonds are sometimes dressed up
18:23
Speaker 1: as education bonds. You know what they are. They're a
18:25
Speaker 1: 10-year deal, tax-free when you come out the far end.
18:28
Speaker 1: A lot of advisors don't like them, except to say
18:31
Speaker 1: that many advisors dislike them less than they used to
18:36
Speaker 1: for the simple reason that they look a bit better
18:38
Speaker 1: now that negative gearing has been canned effectively by the
18:42
Speaker 1: government and the CGT changes have also occurred that CGT
18:45
Speaker 1: is higher. So they have become a little more attractive
18:48
Speaker 1: than they used to be. Okay, now we're going to
18:50
Speaker 1: look at two things for the older child. Just briefly,
18:55
Speaker 1: we'll just take a quick look at HECS. I mean,
18:57
Speaker 1: very broadly, you mentioned, Doug, that it's there, that it's interest-free.
19:02
Speaker 1: It's not inflation-free, of course. It's an inflation index, and
19:05
Speaker 1: people make the mistake of thinking that it never goes up,
19:07
Speaker 1: but of course it does with inflation. Hex, yes or no?
19:11
Speaker 1: Do you let it roll? Should you help out? Is
19:14
Speaker 1: it effective to help out? What do you think?
19:17
Speaker 2: Well, it's funny. I think they've renamed it Help.
19:20
Speaker 1: They have, yeah. Hex Help, yeah.
19:21
Speaker 2: Help, help.
19:22
Speaker 1: Help, I have my Hex debt, and it's getting bigger.
19:25
Speaker 2: Yeah. Yeah, and I... So I need someone's help on
19:28
Speaker 2: how you answer this question because I think it depends
19:30
Speaker 2: on the family circumstances. It was my personal philosophy that
19:34
Speaker 2: I wanted my children to start their life without having
19:37
Speaker 2: an anchor, a financial anchor of debt pulling them behind.
19:41
Speaker 2: And look, to be frank, it wasn't very difficult to
19:44
Speaker 2: pay off their help debt because in Australia we don't
19:49
Speaker 2: have these incredible education costs like they do in other countries,
19:53
Speaker 2: you know, in America, for instance.
19:54
Speaker 1: No, but they have gone up. The university fees really
19:57
Speaker 1: have gone up, especially liberal arts compared to science, etc.
20:00
Speaker 1: I'm just saying, if the kid turns around, the adult
20:02
Speaker 1: kid turns around at 26 or something and says, well,
20:06
Speaker 1: I've got an interest-free loan. What's better than that? I mean...
20:09
Speaker 1: It is hard to beat, isn't it?
20:11
Speaker 2: Yeah, we did have this funny anomaly when inflation was running.
20:14
Speaker 2: It was at 7% or 9%, and that was the
20:17
Speaker 2: interest rate that the government applied to that debt. And
20:21
Speaker 2: it was then a problem. So people had to rush
20:23
Speaker 2: out and pay it back because that was unusually high.
20:26
Speaker 2: And I really hope we don't have creeping high inflation again.
20:30
Speaker 2: And as an aside, I think the inflation we have
20:32
Speaker 2: is higher than the published rates, but it's based on
20:34
Speaker 2: the published rate. But You could argue that CPI is
20:38
Speaker 2: a concessional rate compared to interest rates, and therefore maybe
20:41
Speaker 2: you shouldn't be in a hurry to buy it. But
20:44
Speaker 2: when debt is mostly a four-letter dirty word and getting
20:48
Speaker 2: rid of it as soon as you can is a
20:51
Speaker 2: noble thing. And also when you want to go out
20:54
Speaker 2: and buy a house, not having this debt hanging around,
20:57
Speaker 2: which will lower what you can spend on your property,
20:59
Speaker 2: is quite useful.
21:03
Speaker 1: Yeah, it'll lower your lending limits. Yeah, very good point. Okay,
21:08
Speaker 1: which segues beautifully, if I may say, to the issue
21:12
Speaker 1: at hand, how to help your kids buy a house.
21:14
Speaker 1: This is a big one. Let's just talk very broadly
21:18
Speaker 1: about assuming the listener is in a position to help.
21:24
Speaker 1: What are your guidelines for how they do help?
21:26
Speaker 2: Yeah, well, having been... an advisor and had the wonderful
21:32
Speaker 2: privilege of being invited into these conversations about the next
21:35
Speaker 2: generation and complimentary around death and then et cetera. I
21:41
Speaker 2: am very moved by the question of how you help,
21:44
Speaker 2: but one of the privileges I had was having this
21:47
Speaker 2: hat a number of times. It reminds me, I was
21:50
Speaker 2: playing golf in Queensland with a Victorian who was up
21:53
Speaker 2: there and he was asking what to invest in. After
21:56
Speaker 2: I expressing frustrations about expensive share markets, unrewarding bond markets
22:00
Speaker 2: and property markets. I said, invest in your children. And
22:03
Speaker 2: we turns out he has 20 grandchildren and very successful,
22:07
Speaker 2: but I did have the difficult message to convey that,
22:11
Speaker 2: you know, it's quite likely that somewhere between five and
22:14
Speaker 2: 10 of these grandchildren who are in a relationship down
22:17
Speaker 2: the road, we'll have a failed relationship.
22:20
Speaker 1: And a failed relationship, which involves a property.
22:23
Speaker 2: Which most likely involves a property. Yes. And what phrase,
22:28
Speaker 2: sexually transmitted debt and STDs, etc. Yes.
22:32
Speaker 1: You are leading towards an issue here, which is, do
22:35
Speaker 1: you give them the money or do you give them
22:37
Speaker 1: a loan?
22:38
Speaker 2: So the executive summary is you should lend money to
22:41
Speaker 2: your children, not gift money to a child, because there's
22:45
Speaker 2: always a danger that a relationship will break down and
22:49
Speaker 2: your gift will be given away or half of it
22:52
Speaker 2: or some 70% of it depends if there are children
22:56
Speaker 2: involved and mothers, etc. So it's a difficult question to say.
23:02
Speaker 1: So you're a big believer in formalizing a loan agreement
23:06
Speaker 1: to your own children in this situation. How formal is it?
23:11
Speaker 2: It can be a one-page Bush lawyer-generated document, or it
23:17
Speaker 2: can be, and I've seen those, and I've seen 10,
23:20
Speaker 2: 20-page documents put together by lawyers, which you know, it's
23:23
Speaker 2: not a bad investment. And, you know, this is a
23:26
Speaker 2: sensitive thing. But I do remind clients that they can
23:31
Speaker 2: blame me for raising it. And I do remind them
23:34
Speaker 2: to tell their children about the golden rule, which James is,
23:39
Speaker 2: he or she who has the gold makes the rules.
23:43
Speaker 1: Okay.
23:45
Speaker 2: Which is a way of saying, if you want to
23:46
Speaker 2: borrow money, this is the way it's coming from the family.
23:49
Speaker 1: What about the listener who says, look, I sit down
23:52
Speaker 1: and I say, son or daughter, I trust you, you know, but,
23:57
Speaker 1: you know, I don't know about this guy you're married
23:59
Speaker 1: to or this girl you're married to, whatever. Are you
24:03
Speaker 1: implicitly saying that when you ask someone to sign a
24:06
Speaker 1: loan agreement? Because you're asking the other, aren't you, the
24:09
Speaker 1: in-law as such to sign it. That's what it's all about.
24:11
Speaker 2: If a couple has a prenuptial agreement or a binding
24:15
Speaker 2: financial agreement, what are they saying to, right?
24:18
Speaker 1: Yes, but they are uncommon, I would think. Among our listeners,
24:22
Speaker 1: I would think, but perhaps not alone.
24:24
Speaker 2: James, what's not uncommon, what is common is relationship breakdown.
24:32
Speaker 2: So let's just do the statistics. You know, you've got
24:36
Speaker 2: 10,000 fantastic listeners. Unfortunately, three, 4,000 of them sadly have
24:42
Speaker 2: gone through a very difficult period where they've had to
24:45
Speaker 2: split assets. And lately it's even unmarried couples having to
24:49
Speaker 2: split assets, people just living in de facto arrangements.
24:53
Speaker 1: De facto kicks in pretty quickly.
24:55
Speaker 2: Yeah. Look, I think the intent here is you've worked
24:57
Speaker 2: very hard to create these assets through employment, through business,
25:03
Speaker 2: and they're there for the family, and you want to
25:05
Speaker 2: do your best to structure that they stay in the family.
25:09
Speaker 2: And hence, in a deceased situation, you have your assets separated.
25:13
Speaker 2: given into a testamentary trust that tries to protect them
25:16
Speaker 2: for the family. And likewise, for a living event like
25:20
Speaker 2: lending money to your children, you want to make sure
25:22
Speaker 2: it stays with your child no matter what the circumstances are.
25:25
Speaker 1: Could you explain clearly the advantage of the loan? So
25:29
Speaker 1: I'm listening. I'm a listener. My son or daughter has
25:33
Speaker 1: said they want help with the house. The son or
25:37
Speaker 1: daughter has a partner, but the money is really coming
25:40
Speaker 1: from the listener's side, if you like. So they impose
25:44
Speaker 1: a loan agreement. What is the advantage?
25:45
Speaker 2: Well, I don't like the word imposed. They offer very
25:48
Speaker 2: generously money, but in a way that they want to
25:52
Speaker 2: protect that it would be returned to the family in
25:55
Speaker 2: certain events.
25:57
Speaker 1: So just to spell it out, that's what it's all about.
26:00
Speaker 1: Because if the couple break up and in the unfortunate
26:04
Speaker 1: event that the other member of the couple says, well,
26:07
Speaker 1: I was in that house for six years. I own
26:09
Speaker 1: half it. And that is not really the way it
26:12
Speaker 1: worked at all, but legally it might work like that.
26:15
Speaker 1: If you had a loan agreement, then you would say,
26:19
Speaker 1: what would you do? How does it kick in? How
26:21
Speaker 1: does it affect itself?
26:23
Speaker 2: Well, James, you know, maybe we get on the program
26:27
Speaker 2: a lawyer who does this regularly, but they'll tell you
26:31
Speaker 2: that there's no foolproof way of executing. But what one
26:35
Speaker 2: lawyer said to me, a good friend, said, we're building
26:37
Speaker 2: moats around the castle. And the more moats we have,
26:41
Speaker 2: the more chance we have of defending the castle, the
26:44
Speaker 2: financial assets of the family. And, you know, the family
26:48
Speaker 2: court does not want to lose control. And if they
26:52
Speaker 2: see a young mother with children not being able to survive,
26:57
Speaker 2: they'll find a way to breach those moats with some
27:00
Speaker 2: good planks and say, so we don't believe that loan
27:04
Speaker 2: agreement is true. We're still going to split the assets.
27:06
Speaker 2: They're fine. You know, we're going to We want more
27:09
Speaker 2: financial support. So none of this is entirely foolproof, but
27:13
Speaker 2: it's an attempt of saying, look, we're very happy to,
27:16
Speaker 2: we would love to help you out in your journey
27:19
Speaker 2: as a couple getting into the housing market sooner, but
27:22
Speaker 2: realize we don't have infinite financial resources. And if for
27:26
Speaker 2: some reason, both of you change your mind, we want
27:29
Speaker 2: to have that contribution back to perhaps reuse for a
27:33
Speaker 2: brother or sister or to reuse in a different world.
27:36
Speaker 2: And we just come back to you know, the golden rule.
27:39
Speaker 2: And if the other partner is very uncomfortable with it, well,
27:42
Speaker 2: then fine, don't access the family money. But that's the
27:45
Speaker 2: only way it would become available. I don't think it's ruthless.
27:48
Speaker 2: And it's very common for, I know of young couples
27:52
Speaker 2: who've had family loans from both sides of the family.
27:54
Speaker 1: Yes, that would be ideal. I think ideally, it would
27:57
Speaker 1: be kind of a bit of a balance. If everyone
27:59
Speaker 1: listened to the money puzzle, and then everyone would know this,
28:03
Speaker 1: and then it would be no problem. Because if both sides...
28:07
Speaker 1: If you like in the, if both, if a couple
28:09
Speaker 1: were buying a house on both sides of the family,
28:11
Speaker 1: give loans to help the couple, that would be great
28:14
Speaker 1: because then it would be diplomatically even Steven. So best
28:18
Speaker 1: of luck with that. Yes.
28:20
Speaker 2: Yeah. And the, the it's besides luck, you know, speak
28:23
Speaker 2: to the, your family lawyer, speak to your accountant. You
28:27
Speaker 2: can arrange these loans as principal and interest payment free.
28:30
Speaker 2: So there is no cashflow obligation. Generally, you can convince
28:34
Speaker 2: the lender that this loan, while being professionally arranged, is
28:38
Speaker 2: not meaning they have to take it into account in
28:41
Speaker 2: their lending requirements because if they did, then you'd defeat
28:44
Speaker 2: the whole purpose because the bank would then lend you less.
28:47
Speaker 2: You need to work with your loan arranger, your loan broker.
28:50
Speaker 2: You really do need help with a lawyer. I don't
28:54
Speaker 2: believe you have to pay tax on any interest payment
28:57
Speaker 2: that you never received from this loan, but you could
29:00
Speaker 2: speak to your accountant. And the good news is you
29:03
Speaker 2: just blame James Kirby for raising this awful subject.
29:07
Speaker 1: That's right. You see, you see. Look, it was all
29:10
Speaker 1: going well until I listened to this podcast. Okay. Short break, folks.
29:15
Speaker 1: We'll be back in a moment. Hello, welcome back to
29:29
Speaker 1: the Australian's Money Puzzle podcast. I hope you enjoyed that
29:33
Speaker 1: spin through how to invest for your kids. It was
29:35
Speaker 1: a helicopter view, but I think we touched on the
29:38
Speaker 1: main issues and in the second segment, when we talked
29:41
Speaker 1: briefly about HECS and also crucially about how the bank
29:46
Speaker 1: of mom and dad, how, when, and if you are
29:50
Speaker 1: going to help a child, adult child to buy a house.
29:54
Speaker 1: And let's cut to the chase of the average house
29:56
Speaker 1: price being what it is, I think, Everyone who can
29:59
Speaker 1: does these days. How do you do it and what's
30:01
Speaker 1: the best way to do it? And a loan, I
30:03
Speaker 1: don't doubt for a moment, a loan arrangement, interest-free loan
30:06
Speaker 1: is the best way to do it. Just a question
30:09
Speaker 1: of having the diplomacy to be able to do that. OK, well,
30:14
Speaker 1: always on the show, I like to take some listener questions.
30:16
Speaker 1: I've just kept one or two listener questions for Doug
30:19
Speaker 1: and I'm sure he'll enjoy answering them. Doug, have you
30:21
Speaker 1: got the questions you have?
30:23
Speaker 2: Yes. Jenny says, I have read Australia is now Rivaling
30:26
Speaker 2: the UK for corporate bond issuance, if the Google bond
30:30
Speaker 2: is anything as good as Google shares, it would be attractive.
30:33
Speaker 2: Can retail investors participate and are they attractive?
30:37
Speaker 1: Terrific question, Jenny. So that refers, of course, to the
30:39
Speaker 1: recent Google bond, where Google came to Australia, issued a
30:43
Speaker 1: bond in dollars, kangaroo bond they call it, looked for
30:47
Speaker 1: $ 5 billion. Guess what, folks? $ 18 billion went down. There
30:53
Speaker 1: was bids of $ 18 billion for that. It was three
30:55
Speaker 1: times oversubscribed. And a lot of the top wealth advisors
30:58
Speaker 1: and managers were in there bidding for their clients for
31:01
Speaker 1: these bonds because they're offering 6% to 7% top rated.
31:05
Speaker 1: That's as good as a government in terms of its
31:08
Speaker 1: rating from the agencies. You're getting 6%. And people say, oh, well,
31:13
Speaker 1: you know, my CommBank shares these days, they do 3.2%
31:17
Speaker 1: and the hybrid markets close down. Doug, I think that Google...
31:21
Speaker 1: Bond was a watershed moment for our market. I don't
31:24
Speaker 1: think we've ever seen anything of that scale. And I
31:27
Speaker 1: think it's a sign of things to come. How do
31:29
Speaker 1: you read it?
31:31
Speaker 2: Well, it just shows the AI arms race has come
31:35
Speaker 2: to Australia. And it's just a reminder that a company
31:38
Speaker 2: like Google, which printed money, is now negative cash flow
31:43
Speaker 2: as it's trying to build all of these data centers.
31:46
Speaker 2: And it needs cash. And that is unusual. And I
31:50
Speaker 2: do remember working for a wealthy client some years ago,
31:54
Speaker 2: and we arranged Silicon Valley bonds because they paid a
31:57
Speaker 2: premium of about 1% over the government. And I was
32:00
Speaker 2: pretty certain that their finances were stronger than the U.S. Treasury.
32:04
Speaker 2: And we just know now that the U.S. government has
32:06
Speaker 2: gone over $ 40 trillion in debt. Sadly, Australia has gone
32:09
Speaker 2: over $ 1 trillion.
32:10
Speaker 1: But their rating is the same, right? The Google rating
32:12
Speaker 1: and the U.S. Treasury rating is the same.
32:15
Speaker 2: Yeah. And up until about Six, 12 months ago, I
32:19
Speaker 2: would have said that Google's a better investment. Now, the
32:22
Speaker 2: key thing with the sovereign governments is they will always
32:24
Speaker 2: print money if they ever get into trouble. So there
32:26
Speaker 2: is no problem that the Australian government, the U.S. government
32:30
Speaker 2: won't give you your money back. The problem is it
32:32
Speaker 2: just might not buy in purchasing power because of inflation.
32:36
Speaker 2: So they'll solve that. But my confidence in Google has
32:40
Speaker 2: fallen quite dramatically of recent when I reflect on how
32:44
Speaker 2: little Google searches I do and how much Claude searches
32:48
Speaker 2: I do and chat GPT searches. So, you know, Google's
32:50
Speaker 2: got a very narrow model and it just makes a
32:53
Speaker 2: lot of money by overcharging small businesses to put ads
32:57
Speaker 2: out there and no one's going to the ads. So I,
33:00
Speaker 2: you know, I, the thing about tech is it's, it
33:04
Speaker 2: can be boom bust and Just remember the great Motorola
33:07
Speaker 2: phone you had and the Ericsson phone you had. It's
33:11
Speaker 2: quite extraordinary that Apple has survived as long as it has,
33:14
Speaker 2: but there's no rule that says Google will be around
33:17
Speaker 2: 10 years from now.
33:18
Speaker 1: No, I suppose it's whether the Google Gemini can compete
33:21
Speaker 1: with the clothes and everybody else here at ChatGPT.
33:24
Speaker 2: And their economics is fundamentally changing.
33:26
Speaker 1: More generally, in terms of.
33:28
Speaker 2: Generally with Jenny, I mean, it won't be as attractive
33:30
Speaker 2: as Google shares. These are, you know, just zooped up
33:33
Speaker 2: term deposits. Your bank will pay you five, Google will
33:35
Speaker 2: pay you six. That's the only difference. And you can
33:38
Speaker 2: trade these. And to answer Jenny's question, retail investors really
33:42
Speaker 2: can't participate because Google doesn't want to know you. So
33:45
Speaker 2: they raise this through the institutions. And there are bond
33:48
Speaker 2: brokers out there. You can be a client of if
33:51
Speaker 2: you invest substantially. And they had allocations. And I had
33:55
Speaker 2: a couple emails from two different bond brokers during the
33:58
Speaker 2: week saying, would you like to bid for a parcel?
34:01
Speaker 2: But Jenny can't. But what she can do is buy
34:04
Speaker 2: it secondhand because these now will trade for another 9.99
34:07
Speaker 2: years or 4.99 years. But they won't be listed on
34:12
Speaker 2: the ASX. So they're not Generally speaking, these institutions don't
34:16
Speaker 2: want all the troubles of investor protection. So they're basically
34:19
Speaker 2: wholesale products. You know, if you buy a Vanguard or
34:23
Speaker 2: iShares or BetaShares bond ETF, you'll be buying a slice
34:28
Speaker 2: of a Google bond now. You will.
34:29
Speaker 1: Yeah, exactly. And all the hyperscalers, of course, are issuing
34:33
Speaker 1: bonds at a rate of knots like the industry has
34:36
Speaker 1: never seen.
34:36
Speaker 2: It's interesting you say that because the other topical thing
34:39
Speaker 2: is the U.S. government has run into problems raising its bonds,
34:43
Speaker 2: or let's just face it, borrowing money because it's in debt,
34:47
Speaker 2: and they're competing. The size of this, as you point out,
34:50
Speaker 2: of these raising is so big, it's competing with the U.S.
34:53
Speaker 2: government's increased debt issuance. And so the U.S. government bond yields,
34:58
Speaker 2: particularly at the long end, a 30-year bond has broken
35:02
Speaker 2: up in yield, down in price, and such that the U.S.
35:06
Speaker 2: Treasury announced that it is doubling its bond buying. So
35:11
Speaker 2: this is an indebted government buying back its own bonds. Now,
35:15
Speaker 2: there's all kinds of financial trickery to try to explain it.
35:18
Speaker 1: Trying to keep a lid on things, but yeah.
35:21
Speaker 2: Yeah. So the only other thing to point out to
35:23
Speaker 2: Jenny is these are very interesting times in what is
35:25
Speaker 2: very boring, a marketplace, the bond market, bigger than the
35:29
Speaker 2: share market. But right now, maybe the chickens are coming
35:34
Speaker 2: home to roost that maybe debts and deficits matter. And
35:38
Speaker 2: maybe the bond vigilantes are back And we'll see more chicanery,
35:43
Speaker 2: more mischief in the bond markets.
35:45
Speaker 1: Okay. And also, folks, just for the record, that bond
35:48
Speaker 1: issue from Google was the biggest corporate bond ever in Australia.
35:53
Speaker 1: And not only was it the biggest ever, but as
35:55
Speaker 1: I say, they were three times oversubscribed.
35:58
Speaker 2: Okay.
35:58
Speaker 1: Thank you for that, Jenny. Kate, love the pod. I've
36:02
Speaker 1: been listening. For years, I have a question about diversification.
36:06
Speaker 1: You recently spoke to someone about private equity and infrastructure.
36:09
Speaker 1: I like the idea of something completely away from the
36:12
Speaker 1: share market, but I couldn't figure out how to get
36:14
Speaker 1: into this space as a mom and dad investor. And
36:19
Speaker 1: this is such a common question. She finishes by saying
36:23
Speaker 1: the question, as an investor, should I look into private equity,
36:27
Speaker 1: possibly in the form of infrastructure? How do you do that?
36:29
Speaker 1: I'm not a finance person. I'm just keen are setting
36:32
Speaker 1: up our life as best as possible. Thank you very much, Kate.
36:36
Speaker 1: It's a thing, isn't it? We talk on the show
36:38
Speaker 1: about private equity and we talk about private credit and
36:41
Speaker 1: alternatives and it's all sounds like it's easy. And we
36:43
Speaker 1: talked about the Google bonds, but how do everyday investors
36:47
Speaker 1: get at this allegedly non-correlated part of the market where
36:54
Speaker 1: there is defense against the share market crash, for instance?
36:57
Speaker 1: How do they get into it, Doug? Are ETFs the way?
37:00
Speaker 2: It can be, but I like the way you said
37:02
Speaker 2: allegedly safer investors.
37:04
Speaker 1: Always skeptical, yes.
37:05
Speaker 2: Well, look, let's look at private equity. It is basically
37:09
Speaker 2: investments in small companies, some extremely small that they're pre-IPO
37:14
Speaker 2: or pre-stock listing, and maybe some that just have decided
37:18
Speaker 2: they don't want to mess around with listing rules and announcements,
37:22
Speaker 2: and the management has bought out with some private equity funds.
37:25
Speaker 2: So Inherently, these are riskier business. Let's not forget that. Now,
37:29
Speaker 2: all we've done is made them untradeable and all we've
37:33
Speaker 2: done is made them unvaluedable.
37:38
Speaker 1: Not easy to value. Let's put it that way.
37:40
Speaker 2: So there's a wonderful academic hedge fund manager named Clifford
37:43
Speaker 2: Asness who says, why do these funds get to mark
37:47
Speaker 2: their own homework? And the other thing he says is
37:51
Speaker 2: maybe these funds who package these things up are in
37:54
Speaker 2: the business of, get this, volatility laundering. So if you're
38:00
Speaker 2: a giant industry super fund and you don't want to
38:02
Speaker 2: scare your investors and you want to be able to
38:05
Speaker 2: buy the most equities you can, you would love to
38:08
Speaker 2: have stable prices, even things that are not inherently stable.
38:13
Speaker 2: But you hand over $ 100 million to a private equity
38:16
Speaker 2: firm who promises not to frequently report on the value
38:19
Speaker 2: of your equity companies, your building, your loans. And in exchange,
38:25
Speaker 2: you're happy because you still think in seven to 10
38:28
Speaker 2: years time, you'll get your money back. But in the meantime,
38:31
Speaker 2: the prices are stable.
38:32
Speaker 1: How does the everyday investor get at it? I suppose
38:35
Speaker 1: you could say, you mentioned big super funds. Well, if
38:37
Speaker 1: you go and put your money into a big super fund,
38:39
Speaker 1: they can do it. So you've got an intermediary there.
38:42
Speaker 1: An ETF, is there any other way?
38:44
Speaker 2: Yeah, there are a couple of listed ETFs on the
38:47
Speaker 2: share market. Those are particularly popular American, big company, famous
38:52
Speaker 2: in finance history, who offers a listed private equity firm.
38:57
Speaker 2: And you just hope that at some point there's no
38:59
Speaker 2: panic and people want their money out. There is a
39:02
Speaker 2: listed private credit funds out there. The ones in Australia
39:05
Speaker 2: are trading close to reported net asset value, but the
39:08
Speaker 2: ones in America called BDCs are trading at about a 20, 25% discount,
39:13
Speaker 2: which is really interesting. It's saying, hold on, if we
39:17
Speaker 2: trade this in the share market, we suspect there's really
39:19
Speaker 2: 75 cents per dollar of assets here. But if you
39:22
Speaker 2: bought this unlisted as an investment, you're told there's a
39:25
Speaker 2: dollar of assets there. But there are things here that,
39:28
Speaker 2: so they, they, fund managers would love to help you.
39:32
Speaker 2: So they come up with product solutions, bundling these things together,
39:36
Speaker 2: but we have to be very careful that I don't
39:38
Speaker 2: play poker, but apparently if you look around the table
39:41
Speaker 2: and you don't know who the bunny is at the
39:43
Speaker 2: poker table, it's you.
39:46
Speaker 1: Yeah, I'm with you. I'm with you. I'm totally with you.
39:49
Speaker 2: So if you found your way into some private infrastructure fund,
39:53
Speaker 2: which is really the domain of the super big Canadian
39:56
Speaker 2: pension funds, the giant Australian industry funds, and they make
40:00
Speaker 2: it available to you, you're either overpaying or getting crap.
40:04
Speaker 1: Why am I invited to this party, Kate? I think
40:07
Speaker 1: that's what Doug is alluding to. So we don't mean
40:09
Speaker 1: to be facetious, but I suppose be careful. Don't worry
40:13
Speaker 1: too much that you're not getting in to these funds
40:17
Speaker 1: that are opaque, that are difficult to ascertain their value,
40:21
Speaker 1: that will freeze in two seconds if the stock market crashes.
40:25
Speaker 1: Don't worry about that too much. But there are ways in,
40:28
Speaker 1: there are pathways in, A big super fund obviously puts
40:31
Speaker 1: some of your money in big supers one way and
40:33
Speaker 1: ETF is another way. And just to finish, Doug, gold,
40:37
Speaker 1: I suppose, is actually fits that description, doesn't it? Diversification
40:43
Speaker 1: of assets into something completely away from the share market.
40:46
Speaker 1: Doesn't gold rise when share markets drop historically?
40:49
Speaker 2: Gold has been a financial asset for 4,000 years, and
40:54
Speaker 2: I used to be not a fan, and I became
40:57
Speaker 2: a fan when we went to the zero interest rate policy,
41:00
Speaker 2: and I'm still a fan. But it can embarrass a
41:02
Speaker 2: financial advisor or any investor over a short period of time.
41:06
Speaker 2: And even during the start of the Iran war, it
41:10
Speaker 2: was a bit surprising gold went down. And is gold
41:13
Speaker 2: an inflation hedge in the short term? Well, maybe it wasn't.
41:16
Speaker 2: Maybe that's because Iran had to sell some gold to
41:18
Speaker 2: buy missiles from China. or Turkey was selling gold. So yeah,
41:22
Speaker 2: the general rule about gold is it's not really trustable
41:26
Speaker 2: in the short term, but over the long term, history
41:29
Speaker 2: says it'll probably be better than a US treasury, Australian bond,
41:35
Speaker 2: but it's going to bounce around a lot. And the
41:37
Speaker 2: important thing about gold is it's a liability to no one.
41:40
Speaker 2: All the other giant debt instruments really depends on someone
41:44
Speaker 2: paying you back, but it's just a chemically inert metal
41:48
Speaker 2: that we all have decided is pretty useful. There are
41:52
Speaker 2: some younger listeners who will say Bitcoin is the new
41:55
Speaker 2: version of gold, but they also learned that it too
41:59
Speaker 2: can embarrass and isn't always reliable in the short term.
42:02
Speaker 2: But you're right, James, as part of a diversified portfolio,
42:04
Speaker 2: it is entirely possible that could be in your portfolio
42:08
Speaker 2: as an alternative, maybe as a bond alternative is the
42:10
Speaker 2: way I look at it. Some of my colleagues think
42:12
Speaker 2: it's an equity alternative because it's so bouncy. And there
42:16
Speaker 2: are some non-correlating assets out there, things like CTA funds
42:20
Speaker 2: and hedge funds. But that would be for another day.
42:23
Speaker 1: OK, very good. Well, Kate, I hope that was useful
42:27
Speaker 1: to you. And I think it probably was because I
42:30
Speaker 1: think there's two points there. You know, one is, as
42:33
Speaker 1: I say, just watch it in terms of alternative assets
42:38
Speaker 1: and non-correlated assets. Listen to who's selling them. What are
42:42
Speaker 1: they saying? Why are they selling them? Why are you
42:44
Speaker 1: being invited to the party? Very good point from Doug.
42:47
Speaker 1: And the other is that it is accessible through public markets.
42:50
Speaker 1: If you look carefully, there are private credit funds, private
42:53
Speaker 1: equity funds. There are hedge funds. They're all listed on
42:56
Speaker 1: the ASX. There are ETF pathways into this. Big super funds, obviously,
43:00
Speaker 1: if you have some money with big super, they cover
43:02
Speaker 1: that for you. And always, I think, in the long term,
43:06
Speaker 1: as we say, gold is... non-correlated asset in that. It
43:10
Speaker 1: will ultimately rise when markets are down and vice versa.
43:14
Speaker 1: When blood is running in the streets, as they say, Doug,
43:16
Speaker 1: that is when your gold will ultimately come right. Not
43:20
Speaker 1: the first day, but maybe after 100 days or so.
43:24
Speaker 1: Thank you very much, Doug. That was great.
43:26
Speaker 2: Dr.
43:26
Speaker 1: Doug Chirac there, folks. Thanks for coming on the show, Doug.
43:29
Speaker 2: Thank you, James. Good luck, listeners.
43:31
Speaker 1: Always great to have Doug Chirac on the show. Keep
43:34
Speaker 1: the emails rolling. You saw the questions today. You can
43:37
Speaker 1: ask a question on anything you like. We will strive
43:41
Speaker 1: to answer it. The moneypuzzle at theaustralian.com.au is the address.
43:45
Speaker 1: And today's show was produced by Leah Samaklu.