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HECs - what just happened to your bill? · The Money Puzzle

0:10
Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm
0:14
Speaker 1: James Kirby, the Wealth Editor at The Australian. Welcome aboard everybody.
0:18
Speaker 1: Lots happening on the markets as we speak because it
0:22
Speaker 1: is the morning after Donald Trump's resounding, resounding clear victory.
0:27
Speaker 1: Only the second time in a century that a US
0:30
Speaker 1: President who lost an election came back to win again.
0:34
Speaker 1: And what's really interesting from an investment point of view,
0:36
Speaker 1: and we're not talking much about this today. If you
0:38
Speaker 1: guys want us to do something on this, we will
0:40
Speaker 1: go deeper into it another day. But what's really interesting
0:43
Speaker 1: is that the US market went up 3.5% last night.
0:48
Speaker 1: And that's all fine and dandy. And if you see
0:52
Speaker 1: a day where the US goes up 3.5%, then the ASX,
0:56
Speaker 1: as a rule, runs up behind it. But it didn't
0:58
Speaker 1: happen this morning. Now, the market's only open an hour
1:01
Speaker 1: or so, and it is Flat.
1:03
Speaker 2: Zero.
1:04
Speaker 1: Nothing. No response. And I'll tell you why. Because there's
1:08
Speaker 1: a certain point at which we can't keep going up
1:10
Speaker 1: on the back of a market in the US which
1:14
Speaker 1: is thriving on the basis that it's going to be
1:17
Speaker 1: protectionist and it's going to turn in on itself. And
1:20
Speaker 1: it's particularly going to turn hard on China because we're
1:22
Speaker 1: a China proxy on the ASX and global markets. And
1:26
Speaker 1: that is what all the institutional desks around the world
1:28
Speaker 1: would say this morning. Don't know about the ASX anymore.
1:31
Speaker 1: Don't know about that. under a Trump regime. We will
1:34
Speaker 1: be talking about that as we go. But actually, folks,
1:39
Speaker 1: I imagine, I hope at least, that most of you
1:42
Speaker 1: have a more burning issue in mind, which is how
1:44
Speaker 1: much you have, how much you have in the bank,
1:47
Speaker 1: how much you're going to make in your life, and
1:50
Speaker 1: how you're going to achieve the elementary, what do you
1:57
Speaker 1: wealth building, which might be, for instance, to own your
2:00
Speaker 1: own home, which might be to have some decent amount
2:03
Speaker 1: of super as a start, and then to do wider
2:07
Speaker 1: things that you might wish to do. And dragging, I imagine,
2:10
Speaker 1: on that is HEX, your HEX bill. Now, the average
2:14
Speaker 1: HEX bill is $ 27, 000, $ 26, 500. Many people listening to this show,
2:16
Speaker 1: I know from the demographics that we see, will have
2:18
Speaker 1: HEX bills and they will be $ 27, 000 or $ 37, 000 or
2:30
Speaker 1: $ 47, 000 or higher. And we had some really big news
2:32
Speaker 1: this week, which I hope didn't get lost in our
2:36
Speaker 1: distraction on the US, which is that the government has
2:39
Speaker 1: announced quite remarkably, I think the biggest thing that's happened
2:43
Speaker 1: to HECS for many years. Number one, all HECS bills
2:46
Speaker 1: are going to be cut by 20%. Number two, the
2:50
Speaker 1: way you pay HECS and how much you have to
2:52
Speaker 1: pay is going to be as simple as that. And
2:55
Speaker 1: a few other things as well. My guest today is
2:58
Speaker 1: a regular on the show. He's also in the top
3:01
Speaker 1: reaches of the top advisors list and one of the
3:04
Speaker 1: youngest at the top of that list. I don't know
3:07
Speaker 1: if he has a hex bill. It's Hugh Robertson of Centaur.
3:11
Speaker 1: How are you, Hugh? Have you got a hex bill?
3:13
Speaker 2: I do not.
3:13
Speaker 1: You paid it off.
3:14
Speaker 2: I paid it off.
3:15
Speaker 1: You do not. You paid it off. And now you say,
3:18
Speaker 1: why did I pay it off? I could have had
3:19
Speaker 1: a 20% discount.
3:20
Speaker 2: Exactly the first thing I thought when I saw that. Yes.
3:24
Speaker 1: I wonder what percentage of the population have paid off
3:27
Speaker 1: their egg spill. I wonder. That's not a figure I'm
3:30
Speaker 1: familiar with. Okay. When people come in to you, I
3:33
Speaker 1: want to talk to you both as an individual and
3:35
Speaker 1: as an advisor. Let's first of all tell people, explain
3:38
Speaker 1: to people what is due to happen. Now, this is
3:41
Speaker 1: important because... The mechanics of how you pay is going
3:46
Speaker 1: to change. And the 20% discount is due to kick
3:51
Speaker 1: in on June 1 next year. The mechanics of how
3:55
Speaker 1: you pay is going to change from July 1 next year.
3:58
Speaker 1: This is a typical complication. So each thing makes sense
4:03
Speaker 1: in and of itself. But of course, as a whole,
4:04
Speaker 1: it looks, as usual, ridiculously complicated. In any event, that's
4:09
Speaker 1: the plan. But of course, the government, that is the
4:11
Speaker 1: ALP Albanese government, will have to win to implement this.
4:15
Speaker 1: But Hugh, could you, first of all, would you explain,
4:17
Speaker 1: if I came into your office and said, as part
4:20
Speaker 1: of my plans, I've got a HEX bill of 50
4:21
Speaker 1: grand and there's some big changes, what should I do?
4:23
Speaker 1: What would you say?
4:25
Speaker 3: The first one is the 20% one-off. Interestingly, it wasn't
4:29
Speaker 3: a recommendation of the University Accord panel. So this has
4:33
Speaker 3: come in independently of that, which probably is curious as
4:38
Speaker 3: to the timing. So that's going to cost about 12,
4:40
Speaker 3: 13 billion in It might even be as much as
4:42
Speaker 3: $ 16 billion when I was trying to look at the
4:44
Speaker 3: numbers that they're going to give as the one-off.
4:47
Speaker 2: So if you've got the.
4:47
Speaker 3: Average HECS debt of around $ 27, 500, $ 27, 600 thereabouts, that will
4:53
Speaker 3: reduce to $ 22, 800. So the idea of that is to
4:58
Speaker 3: help with debt and to help with cost of living pressures.
5:02
Speaker 3: So there might not be a direct correlation there, and
5:07
Speaker 3: that will be applied before the indexation as well.
5:10
Speaker 2: So I think that's probably interesting.
5:12
Speaker 1: Yeah, that's a very important point. So listeners, I'm sure
5:15
Speaker 1: they'd remember, there was always this thing, you know, don't
5:18
Speaker 1: worry about your HECS bill, you don't have to pay interest.
5:20
Speaker 1: And that was all fine. That did not mean it
5:23
Speaker 1: didn't go up. People thought it did. There was no
5:25
Speaker 1: inflation for so many years, it didn't matter. Suddenly, we've had,
5:29
Speaker 1: I think it was a 7%, followed by a 4%
5:32
Speaker 1: lift in HECS. And at the way we're going this year,
5:35
Speaker 1: I would think it's coming in at about three and
5:37
Speaker 1: a half. That really kicks up your bill. So when
5:40
Speaker 1: Hugh mentions the indexation, he's talking about the fact that
5:43
Speaker 1: the government have also promised that this 20% cut will
5:46
Speaker 1: come before they kick in the indexation. And the indexation's
5:50
Speaker 1: on June every year, and that's why this part of
5:52
Speaker 1: the plan is due to come in on June 1
5:55
Speaker 1: next year. Okay, so that's the big thing.
5:58
Speaker 3: So that person that comes in the office is going
6:01
Speaker 3: to be better by $ 5, 500.
6:03
Speaker 2: Which is good.
6:04
Speaker 3: And then we've got the change in the minimum income level.
6:07
Speaker 3: So this is really overdue. coming in for a 25-26
6:10
Speaker 3: financial year. So that's going to move up. Everyone's wages
6:14
Speaker 3: have moved up. So that's going to go from 54,435,000
6:20
Speaker 3: up to 67,000. So if you earn less than that, 67,000,
6:24
Speaker 3: you don't have to make any repayments.
6:28
Speaker 1: Yes, if you earn less than 67,000 a year, you
6:32
Speaker 1: don't have to make any repayments. That doesn't mean that's
6:36
Speaker 1: just kicking your bill down the road, right? You take
6:38
Speaker 1: the repayments. But your bill is going to keep going up.
6:41
Speaker 2: So this is where the financial planning element comes in.
6:43
Speaker 3: When you start being given these things, even thinking about
6:47
Speaker 3: this debt reduction that people have been given or not
6:52
Speaker 3: needing to make as much in repayments, people tend to
6:55
Speaker 3: treat it as a bonus. And if they treat it
6:58
Speaker 3: as a bonus, then they spend it and they blow it.
7:00
Speaker 3: I was looking at just from $ 100, 000. So say you
7:02
Speaker 3: had an income of $ 100, 000 that currently you'd be paying $ 5, 500.
7:10
Speaker 3: And with the changes, it's going to be $ 4, 950. So $ 550.
7:16
Speaker 2: More in your pocket.
7:18
Speaker 3: So really, we're then saying, what would they do with that?
7:20
Speaker 3: With an extra $ 10 a week, most people probably aren't
7:23
Speaker 3: going to look to do something substantial with that. But
7:26
Speaker 3: you've got to really make sure that you're not just
7:29
Speaker 3: leaving these debts outstanding.
7:32
Speaker 1: Okay. And there's another thing which everyone should be aware of.
7:37
Speaker 1: I haven't done the maths on this, but hey, I've
7:40
Speaker 1: got a financial advisor on the show and I'm sure
7:42
Speaker 1: he's really numerous. That doesn't mean he can answer straight away.
7:47
Speaker 1: But here's the thing. The other change is they're introducing
7:51
Speaker 1: a system called marginal repayment, which was recommended. And what
7:55
Speaker 1: it means is you, up till now, you paid what
8:01
Speaker 1: was the interest on your bill, whatever that bill might be, from...
8:07
Speaker 1: July 1 next year, you pay the interest on your
8:11
Speaker 1: bill above the threshold. So if you have a 70,000,
8:20
Speaker 1: can you bring us through it? Whatever you owe over 67,000,
8:25
Speaker 1: is that how it will actually come to pass?
8:28
Speaker 3: The rates are 15 cents in the dollar up until
8:32
Speaker 3: I think it.
8:33
Speaker 2: Might've been $ 120, 000.
8:33
Speaker 1: And then above that, Above that, no change.
8:39
Speaker 3: From that perspective, we still want to incentivize people to
8:43
Speaker 3: go out there and work. But then in terms of
8:46
Speaker 3: years to pay off with the new amounts, because of
8:48
Speaker 3: the reduction that they're giving, so say this example of
8:52
Speaker 3: the $ 27, 000 average with the 20% discount, it now takes
8:53
Speaker 3: the debt to $ 22, 080. And on that person for $ 100, 000,
8:57
Speaker 3: we know that they're going to be They're going to
9:06
Speaker 3: be paying less because of the changes, but now they'll
9:08
Speaker 3: get it paid off in 4.46 years versus 5.02 years.
9:14
Speaker 3: So because of the 20% reduction, they're still going to
9:17
Speaker 3: be paying it off quicker, which I think is important.
9:21
Speaker 1: So what do you say to people? Have you got
9:22
Speaker 1: a default position on HECS?
9:26
Speaker 3: Yes, we've always let that run in the background and
9:30
Speaker 3: it's usually a matter of paying off. The majority of
9:33
Speaker 3: people that are coming to see us are also HECS.
9:36
Speaker 3: with a debt, with a mortgage. And usually we're just saying, look,
9:38
Speaker 3: pay that off more quickly. If you have additional repayments,
9:43
Speaker 3: pay that off at your principal place of residence, because
9:45
Speaker 3: that's not a tax deductible debt. And the interest rate
9:48
Speaker 3: volatility's been pretty extreme. And it just gives you more capability.
9:53
Speaker 3: When you're paying down your debt, you can either use
9:55
Speaker 3: that to reinvest, you can save up for your kid's education,
9:59
Speaker 3: you can, you know, use the money to just pay
10:03
Speaker 3: down debt in an absolute term.
10:06
Speaker 1: And you're comparing it to tax-deductible debt, which is you're
10:09
Speaker 1: saying you had an investment property versus HECS, at least
10:12
Speaker 1: with the investment properties tax-deductible. What about the home itself?
10:15
Speaker 3: What The interest rate differential, the interest rate is higher
10:21
Speaker 3: on your home loan than it is on the indexed
10:24
Speaker 3: amount of the debt with HECS.
10:27
Speaker 2: I think that that important.
10:28
Speaker 3: Point that you raised is that people really do need
10:30
Speaker 3: to understand that the HECS does go up and you're
10:34
Speaker 3: forced to repay. So with those repayments, years gone by,
10:38
Speaker 3: do you remember when there was benefit in paying it
10:42
Speaker 3: off at a quicker rate?
10:43
Speaker 2: The government incentivized it?
10:45
Speaker 1: Well, yeah, there was in this whole package. That was announced.
10:50
Speaker 1: There is no incentive whatsoever that I can detect to
10:54
Speaker 1: pay it off earlier. And there used to be, was
10:56
Speaker 1: it a 10% discount if you paid early? And they
11:01
Speaker 1: dropped that in 2009. And there's no incentive. Is there
11:04
Speaker 1: an incentive? Maybe I've missed it.
11:05
Speaker 2: No.
11:06
Speaker 3: And I think for the majority of people, they're happy
11:09
Speaker 3: just to take on the debt. There's talk about different
11:11
Speaker 3: degrees having different costs associated with. Obviously, a medical degree
11:15
Speaker 3: is going to give you a very clear career pathway
11:18
Speaker 3: and there's conversation that they should pay more and there's
11:21
Speaker 3: people that maybe do an arts degree that probably pay less.
11:26
Speaker 2: It's difficult.
11:27
Speaker 3: The advice that you would give someone who's going to
11:29
Speaker 3: university is just make sure the degree is relevant and
11:31
Speaker 3: it's something that you're going to need. Don't take on
11:33
Speaker 3: a debt that you don't need if you're thinking about
11:35
Speaker 3: postgraduate studies in your mid-career. Make sure it's really applicable
11:40
Speaker 3: to you because it's going to be with you a
11:42
Speaker 3: long time, the debt.
11:43
Speaker 1: It's interesting, though, the academics say and the studies show
11:47
Speaker 1: that essentially what occurred when the coalition did something that
11:51
Speaker 1: had never been done before, which is they tried to
11:56
Speaker 1: price education in a fashion that tilted the market towards
12:04
Speaker 1: maths and science. And the evidence so far is that
12:11
Speaker 1: there is no evidence... that people change their mind. If
12:16
Speaker 1: I'm going to do medieval art history and someone says, hey,
12:22
Speaker 1: accountancy is much better value. You should do that. I'm
12:26
Speaker 1: not going to change my mind. And I think that's
12:29
Speaker 1: one point I just want to make to listeners. The
12:31
Speaker 1: other thing is, which I only thought was really interesting,
12:34
Speaker 1: is someone was doing some modeling on this. This is
12:39
Speaker 1: the hex as it stands, by the way. Her name
12:41
Speaker 1: is Alison Preston. I haven't talked to her. She's an economist,
12:44
Speaker 1: University of Western Australia. And she says that in terms
12:49
Speaker 1: of paying off HECS, sorry, this is post, if the
12:53
Speaker 1: government's thing comes through, if the government's plan comes through
12:56
Speaker 1: and the 20% comes through, that men, this is interesting,
13:01
Speaker 1: men on average will have their student loans paid off
13:04
Speaker 1: at 36 and will have none left. And women will
13:09
Speaker 1: still be repaying theirs until the age of 50. And
13:13
Speaker 1: if you think about it, that's actually instantly explained from
13:17
Speaker 1: an economic or rational point of view. Because A, they
13:20
Speaker 1: earn less. B, the higher earning, some higher earning professions
13:29
Speaker 1: are more dominated by men at this point. Still though,
13:35
Speaker 1: it's bad. It's a hell of a gap. So that's
13:37
Speaker 1: something to think about.
13:39
Speaker 2: That's great research done and Isn't it interesting?
13:42
Speaker 3: We've sort of really got to factor in that family
13:44
Speaker 3: unit and how you have some equality there.
13:48
Speaker 1: Yeah, it's certainly something that wasn't considered. Just one last thing.
13:55
Speaker 1: If I said to you, is there anything better than
13:58
Speaker 1: HECS on student debt? There probably isn't, is there? Since
14:01
Speaker 1: at the end of the day, it's interest-free.
14:04
Speaker 2: That's right. We looked at it. Obviously, when I had it,
14:06
Speaker 2: I'd looked at it in a lot more detail. And there...
14:11
Speaker 2: There really isn't. It's one of those necessary evils.
14:14
Speaker 3: I think in some ways we're very fortunate the amount
14:17
Speaker 3: the inflation applied to our debt has been more generous than, say,
14:21
Speaker 3: over in the UK or New Zealand or other systems.
14:24
Speaker 3: When in America, there's very much that family savings or
14:29
Speaker 3: people just borrow money. We're kind of lucky you get
14:31
Speaker 3: an interest-free loan from the government for your education. We're
14:35
Speaker 3: still the lucky country in many ways. And there's nothing
14:39
Speaker 3: that we can say about it. I'm happy with the
14:40
Speaker 3: income above the threshold. That was overdue. And that's something
14:44
Speaker 3: that when you start your career and you're trying to
14:46
Speaker 3: get your wealth creation engine going, the more money you've got,
14:50
Speaker 3: the better. You're also combining that now with the cost
14:53
Speaker 3: of rent. Straight away when I saw maybe an extra
14:56
Speaker 3: couple of bucks, $ 10, $ 20 in someone's pocket a week,
15:00
Speaker 3: that helps with the cost of living and rent. The
15:03
Speaker 3: one thing that I did question when we're allocating $ 16
15:06
Speaker 3: billion in a budget to an area, I probably think
15:11
Speaker 3: that we could have helped more people. The numbers here
15:14
Speaker 3: is that you're going to help 3 million people, which
15:18
Speaker 3: is great, but I reckon with 16 billion, we could
15:20
Speaker 3: have helped more people.
15:22
Speaker 1: Yes, and of course, anyone who's paid off says, oh,
15:28
Speaker 1: you know, I would have liked that. And anyone who's
15:30
Speaker 1: coming in the future, obviously, they just simply get the reset.
15:35
Speaker 1: Can I ask you just one thing, one last thing
15:38
Speaker 1: which is just looking at it more generally, does it
15:41
Speaker 1: change your view in any way about the speed at
15:44
Speaker 1: which people should do it? And should people not bother
15:50
Speaker 1: to pay a damn thing till this comes through? Why
15:52
Speaker 1: would you?
15:53
Speaker 2: 100%. I would hold off.
15:56
Speaker 3: And I think if you're looking at debt, it's going
15:59
Speaker 3: to take you, on the average, when you look at
16:01
Speaker 3: the average tables, if you had the average amount of debt,
16:04
Speaker 3: you're looking at, and you currently have that, I should say,
16:08
Speaker 3: six six and a five four and a half to
16:10
Speaker 3: six and a half years to pay it down there's
16:12
Speaker 3: no benefit in paying it off quicker than that you'd
16:14
Speaker 3: get a better benefit better bang for buck paying down
16:17
Speaker 3: your home loan or saving a deposit and no but
16:19
Speaker 3: no benefit for parents to offer to pay down their
16:22
Speaker 3: kids either.
16:23
Speaker 1: No because there's no incentive as i said at the
16:25
Speaker 1: start that's right oh yeah that's a really really glaring
16:30
Speaker 1: error i think in what they did okay we'll be
16:33
Speaker 1: back in a moment folks Hello, welcome back to the
16:48
Speaker 1: Australian's Money Puzzle podcast. I'm talking to Hugh Robertson of
16:51
Speaker 1: the Centaur, C-E-N-T-A-U-R group, financial advisor, regular on the show. Now, Hugh,
16:58
Speaker 1: before we go to questions on Trump and the election,
17:02
Speaker 1: I did make the point at the start that the
17:05
Speaker 1: US markets went up 3.5% and the Australian markets didn't
17:08
Speaker 1: follow that. They didn't follow that because, why would they?
17:12
Speaker 1: Because This particular regime that has been elected is protectionist
17:18
Speaker 1: and is particularly so in relation to China. We are
17:21
Speaker 1: seen as a China proxy on global markets. You can
17:24
Speaker 1: see that straight away. That's why the dollar is going
17:26
Speaker 1: the wrong way this morning. But what do you say
17:30
Speaker 1: to clients who say, is there any broad guidance you
17:34
Speaker 1: can give us to allocation for investors in the view
17:41
Speaker 1: of this new presidency?
17:44
Speaker 2: Great.
17:45
Speaker 3: Yes, the Dow going up 3.57 last night is definitely
17:49
Speaker 3: a pro-US story. Are you saying there is going to
17:53
Speaker 3: be greater protectionism? Trump's going to implement all the Republicans
17:57
Speaker 3: are going to tax cuts for corporate. There's going to
18:00
Speaker 3: be higher tariffs tied to immigration. So we're really Trump
18:04
Speaker 3: 2.0 is that continuation of the anti-globalization perspective. So from
18:09
Speaker 3: our perspective, it does it. It's a worry for Australia
18:13
Speaker 3: from that perspective. So you really need to take a
18:15
Speaker 3: global outlook when you invest. And I think we've seen,
18:18
Speaker 3: and I think we've talked about it previously, the rise
18:21
Speaker 3: and rise of index funds, not giving financial advice, but
18:25
Speaker 3: now we're really looking to go from those market cap
18:28
Speaker 3: weighted index funds that have really high concentration risk into
18:32
Speaker 3: more of those equal weighted kind of opportunities there.
18:35
Speaker 2: Because you look at America and the S & P 500,
18:37
Speaker 2: we've talked about.
18:40
Speaker 3: Spend a year talking about just that magnificent seven, there's
18:43
Speaker 3: 493 other companies. And when you looked at it, I
18:47
Speaker 3: was really curious to see if the Dow beat the NASDAQ.
18:50
Speaker 2: And it did. So I think from a collective.
18:52
Speaker 1: It did, that's right. And it doesn't vary up. So
18:56
Speaker 1: you're saying you like equal weighted US?
19:00
Speaker 2: I do. And I think you've... ETFs.
19:02
Speaker 1: To strip out the big tech, is that it?
19:04
Speaker 2: Yeah.
19:04
Speaker 3: And I think from an Australian perspective, the majority of
19:07
Speaker 3: clients we see are very overweight in Aussie.
19:09
Speaker 2: And that's going to be a real challenge.
19:11
Speaker 3: I think Europe is coming out of some pretty rough years,
19:13
Speaker 3: so there's opportunity there. I think there's still continued opportunity
19:17
Speaker 3: in America outside of that top seven. And from the
19:21
Speaker 3: client perspective, it's really to sort of don't be scared
19:24
Speaker 3: of going global because it might actually be safer than
19:27
Speaker 3: domestic because we are a China proxy and we're, what, 2%
19:31
Speaker 3: or 3% of the world market cap. So unless we've
19:34
Speaker 3: got resources doing well or banks doing well, If we
19:37
Speaker 3: think that the tailwinds of technology through AI or healthcare
19:41
Speaker 3: through the GLP-1s and all those, then we're not getting
19:44
Speaker 3: exposure to that in the Australian market.
19:47
Speaker 1: Okay, very good. All right, very interesting. Now, the first
19:52
Speaker 1: question was actually from Pete who said, if Anthony Albanese
19:55
Speaker 1: is going to cut student debt, is there any point
19:57
Speaker 1: in paying off HECS debt early? I think we answered that, Pete.
20:00
Speaker 1: There certainly isn't any point in rushing to pay it
20:02
Speaker 1: off early before we see whether this gets through on
20:06
Speaker 1: June 1 next year, which would then implied that the
20:10
Speaker 1: government must somehow be able to get that legislation through,
20:15
Speaker 1: which would suggest that this government would have to be
20:17
Speaker 1: re-elected or at least hold power in June 1 next year. Tim,
20:22
Speaker 1: is it normal that income protection, by that he means
20:26
Speaker 1: income protection insurance, is going up 20% year on year
20:29
Speaker 1: for the older contracts? And is any advisor advising to
20:34
Speaker 1: keep the old terms? I bet they are. But you
20:37
Speaker 1: can tell us, Hugh.
20:39
Speaker 3: It is, this is one of the conversations advisors are
20:43
Speaker 3: having every single day with their clients. Tim might be
20:46
Speaker 3: referring to an actually an agreed value income protection policy.
20:51
Speaker 3: These were ones that were already marked up a little
20:53
Speaker 3: bit more expensive, but you agreed to the value of the,
20:56
Speaker 3: on the terms at the time when you took the
20:58
Speaker 3: insurance policy out, as opposed to an indemnity one, which
21:01
Speaker 3: is a time of claim. You prove what you weren't,
21:04
Speaker 3: but we, we, If you have an income or a
21:07
Speaker 3: salary that's highly volatile, then the agreed value is still important.
21:12
Speaker 3: What we are seeing, though, is people are really, due
21:15
Speaker 3: to the income protection, people are really assessing their needs again.
21:18
Speaker 3: And maybe you took out the income protection when you
21:21
Speaker 3: had a higher level of.
21:22
Speaker 2: Debt or kids' education expenses.
21:24
Speaker 3: So you can insure yourself for up to 75% of
21:28
Speaker 3: what you own, but you don't have to. You can
21:30
Speaker 3: toggle around with your waiting period, whether it be 30
21:34
Speaker 3: days and now you've got more money in your offset
21:36
Speaker 3: account in your home you might be able to go
21:38
Speaker 3: 90 days you might be able to go a couple
21:41
Speaker 3: of six months a year without needing to claim on
21:44
Speaker 3: your income protection so you could use your home loan
21:47
Speaker 3: or you can offset account or you can use sick
21:50
Speaker 3: leave at work so you've got to be clever around
21:52
Speaker 3: building your plan onto what your lever is how much
21:55
Speaker 3: financial risk are you going to transfer to you personally
21:58
Speaker 3: and be self-insured versus the insurer so that's The things
22:03
Speaker 3: we've changed a lot are we look at the waiting period,
22:05
Speaker 3: we look at the benefit period. Most people don't need
22:07
Speaker 3: to get paid till 65. It might only be a
22:09
Speaker 3: two-year benefit period. And the actual sum insured, you might
22:12
Speaker 3: not need a full 75% of what you earn. We're
22:14
Speaker 3: not seeing people cancel it, but we're definitely modifying a lot.
22:18
Speaker 3: And the stuff that we're always cautious of is don't
22:21
Speaker 3: just go to something that's cheap because if you get
22:25
Speaker 3: a cheap policy, you might get a cheap outcome. We
22:28
Speaker 3: just want to make sure you get something that's appropriate
22:30
Speaker 3: to you. So definitely that's a seek advice part.
22:33
Speaker 1: That's a really good answer. Okay, very interesting. Interesting, isn't it?
22:37
Speaker 1: That crosses over in all insurances. I did something on
22:40
Speaker 1: private insurance, private health insurance, that is. And 400,000 people
22:45
Speaker 1: in the last two years downgraded their health insurance from
22:49
Speaker 1: gold to silver or whatever, silver to bronze. Same thing.
22:53
Speaker 1: They say, okay, I'm not going to drop it, but
22:55
Speaker 1: I'm going to really look at it and say, is
22:57
Speaker 1: it applicable to me? And that just means that once
23:00
Speaker 1: a year having a damn hard look at it.
23:03
Speaker 2: Okay.
23:03
Speaker 1: Rob says, would it make a big difference to government
23:06
Speaker 1: deficiency if all public servants traveled economy always? Are they
23:10
Speaker 1: our servants or are we the increasingly vexed public?
23:16
Speaker 2: Yes. Okay.
23:19
Speaker 1: This is that we're keeping away from politics, Rob.
23:22
Speaker 2: Yeah. I don't know.
23:24
Speaker 1: They all seem to, they all like to treat themselves.
23:26
Speaker 1: It seems to me on all sides of parliament. That's
23:29
Speaker 1: all I have to say.
23:30
Speaker 2: Did I see the Singapore Prime Minister recently traveling in
23:34
Speaker 2: a plane? He always flies economy. Did I see that?
23:39
Speaker 1: He flies economy. Isn't he great? Reminds me of the
23:43
Speaker 1: wonderful Chuck Feeney, who was the Atlantic philanthropist man, who
23:48
Speaker 1: was a billionaire. He gave all his money to charity
23:50
Speaker 1: later on. Huge benefactor of universities around the world. And
23:55
Speaker 1: he created, basically, he didn't create Judy Friedman. He was
23:58
Speaker 1: the first billionaire. in the duty-free business in the US,
24:01
Speaker 1: Chuck Feeney, who died recently, and he always travelled economy.
24:07
Speaker 1: And when he was asked why, he said, we all
24:10
Speaker 1: arrive at the same time. Okay, now I've got some
24:15
Speaker 1: very good questions coming up from Dr. Joseph and from Augustine,
24:20
Speaker 1: and we'll be back in a moment. Hello, welcome back
24:34
Speaker 1: to the Australian's Money Puzzle. Hugh Robertson of the Centaur
24:38
Speaker 1: Financial Advice Group speaking on the show today. First question
24:43
Speaker 1: is from Dr. Joseph. I have exposure to the artificial
24:47
Speaker 1: intelligence AI opportunities by being invested in the US mega
24:51
Speaker 1: cap tech giants as well as copper. Now you've thought
24:55
Speaker 1: it through, Dr. Joseph. Would having exposure to international data
24:59
Speaker 1: centres be overkill Or is this necessary to capture the
25:03
Speaker 1: full opportunity? Okay, number one, we don't advise. Number two,
25:06
Speaker 1: we certainly don't talk individual advice. It is information only.
25:10
Speaker 1: But I will say that I would include data centers, certainly,
25:15
Speaker 1: in the AI opportunity, for sure. And the big super funds,
25:19
Speaker 1: for sure, are including it. If you think of what
25:21
Speaker 1: they paid for AirTrunk recently, you see this CDC auction
25:25
Speaker 1: coming up now as well. And obviously the share price,
25:30
Speaker 1: hot share price, of NextDC and also Macquarie, that is
25:36
Speaker 1: the Macquarie Technology Group as opposed to Macquarie Bank. What
25:39
Speaker 1: do you think, Hugh?
25:40
Speaker 3: The idea, yes, there's overexposure, but you're investing in that
25:45
Speaker 3: thematic and there is a diversification benefit there. I do
25:49
Speaker 3: like the concept of when everyone's digging for gold, sell
25:52
Speaker 3: the shovels. And I think our data centres are that,
25:56
Speaker 3: so it's a nice little infrastructure hub play, you're not
25:59
Speaker 3: going to get the same returns that you're going to
26:01
Speaker 3: get in a AI leading kind of invention like a
26:07
Speaker 3: chat GPT of the world, but it's appropriate.
26:10
Speaker 2: Whether you be in all three of those.
26:12
Speaker 3: Again, I do think that AI is going to be
26:15
Speaker 3: that once in a generation opportunity that we get from
26:18
Speaker 3: an investment perspective and you just don't know which area
26:21
Speaker 3: is going to hit. I just spent time at MIT
26:24
Speaker 3: and Harvard a couple of months ago and hearing them
26:27
Speaker 3: talk about what they're doing with AI just absolutely blew
26:32
Speaker 3: my mind. And some people have spent over a billion
26:35
Speaker 3: dollars and they've never made a dollar of revenue. So
26:37
Speaker 3: it depends where you're at and what you want from
26:41
Speaker 3: your investment.
26:43
Speaker 1: Though I'm sure it was all wonderful, did you come
26:46
Speaker 1: away with any specific investment lessons?
26:50
Speaker 2: No.
26:52
Speaker 3: Out of AI, there's going to be a lot of failures.
26:56
Speaker 3: There's going to be a lot that aren't commercialized and
26:58
Speaker 3: you're going to hear a lot of really good stories
27:00
Speaker 3: and good narratives that just won't come through. So for me,
27:04
Speaker 3: it's still allocate money to it, but know the risks
27:08
Speaker 3: that you're taking in that area. I think a lot
27:10
Speaker 3: of the really great ones are going to be via
27:12
Speaker 3: private equity. They won't be public for some time. So
27:16
Speaker 3: I'd rather take something that's a little bit more established,
27:19
Speaker 3: like the data.
27:20
Speaker 2: Centers, for example. I think that's appropriate. Yeah. Okay.
27:23
Speaker 1: Okay. It's interesting. I covered a course once upon a time,
27:26
Speaker 1: the dot-com boom. And I was actually a technology editor
27:30
Speaker 1: of a business, of what was then Business Review Weekly magazine.
27:35
Speaker 1: And I must have met, I don't know, 50, 100
27:40
Speaker 1: dot-com companies. They were just queuing up, basically. And as
27:47
Speaker 1: you say, they all, great stories, marvelous stories, great ideas.
27:52
Speaker 1: And three, three came through in the end. There are
27:56
Speaker 1: only three that I know of that are still there today.
28:00
Speaker 1: One completely went under the radar and I missed it completely,
28:03
Speaker 1: and most people did, which was car sales, which is
28:06
Speaker 1: later to the realestate.com.au, now REA, part of News Corp, disclosure,
28:12
Speaker 1: and SEEK, the Bassett brothers. I can remember them coming
28:15
Speaker 1: in and talking and they were just another They were
28:18
Speaker 1: just another couple of young guys jumping around the office
28:20
Speaker 1: excited about what they were planning. And I had seen
28:23
Speaker 1: so many, but they were one. But for every one
28:28
Speaker 1: that worked, there was 30, 40 that didn't work. So
28:32
Speaker 1: keep that in mind with AI.
28:34
Speaker 3: This is how I always talk about Mark Zuckerberg. And
28:37
Speaker 3: you think, okay, he made Facebook, but there was a
28:40
Speaker 3: million people trying to do exactly what he did. So
28:43
Speaker 3: you go, so it's not, I want to be the
28:44
Speaker 3: next Mark Zuckerberg.
28:45
Speaker 2: There was.
28:46
Speaker 3: Hundreds and thousands of people trying to do that exact
28:48
Speaker 3: same thing. So there's always the element of luck and
28:51
Speaker 3: that's why you don't go into just one.
28:54
Speaker 2: You diversify.
28:54
Speaker 3: And if you think, okay, that venture capital world, that
28:58
Speaker 3: AI world, that's really risky.
29:00
Speaker 2: And I think if you can just come back a.
29:02
Speaker 3: Few degrees of risk, you just need to let the
29:05
Speaker 3: risk takers go for it. But you can still pick
29:08
Speaker 3: it up. And even if you had a got seek
29:10
Speaker 3: 10 years ago, realestate.com 10 years ago, you're going to
29:13
Speaker 3: be pretty happy with the return that you've got.
29:16
Speaker 2: Yes.
29:16
Speaker 1: Yes, absolutely. Yes. Very true. Very true. So you're saying
29:21
Speaker 1: to me, let other people make the mistakes first, aren't you?
29:26
Speaker 2: Yeah, of course. That's right.
29:28
Speaker 1: The innovators aren't always the ones that make all the money,
29:31
Speaker 1: as we know. Okay. Final question, Augustine. Amazing podcast. I
29:36
Speaker 1: never miss it. Thank you, Augustine. I read your article
29:40
Speaker 1: in The Australian about the, this was actually an article
29:44
Speaker 1: I commissioned on 401k plans and whether they, Angus Taylor,
29:47
Speaker 1: the opposition finance person had floated in a single sentence,
29:54
Speaker 1: may I say, in an address a few weeks ago,
29:59
Speaker 1: the single words US style 401k plans. And he rattled
30:05
Speaker 1: a few cages and some of the industry funds were
30:08
Speaker 1: instantly saying, no, we can't have 401ks. But Augustine asks,
30:14
Speaker 1: how do they work and why are they being considered
30:16
Speaker 1: for Australia's superannuation system? Now, To the extent that they're
30:20
Speaker 1: being considered, all Angus Taylor said was that our superannuation
30:24
Speaker 1: system should be more aligned to global systems such as 401k.
30:28
Speaker 1: There's all sorts of aspects of 401k, one of which
30:31
Speaker 1: is that it's voluntary. And that's very different than our system,
30:35
Speaker 1: which is mandatory. However, it does have some really interesting things.
30:39
Speaker 1: And one of them is that you don't pay taxes,
30:40
Speaker 1: you accumulate. You pay taxes, you start to tap it.
30:45
Speaker 1: And I like that. because it gives everyone a fair chance.
30:49
Speaker 1: If I inherit a whole bag of money and I
30:51
Speaker 1: just drop it into super every year, it just kind
30:55
Speaker 1: of stagnates, I think, in terms of wealth building and entrepreneurialism.
31:00
Speaker 1: But if, as I accumulate, in my working life, if
31:04
Speaker 1: I am able to put more into super, that's when
31:06
Speaker 1: I want the tax breaks more. And I think our
31:10
Speaker 1: system is tilted towards older Australians and most older Australians are.
31:14
Speaker 1: If we put them in a room and interrogated them
31:16
Speaker 1: hard with a big bright lamp over their head, we'd
31:17
Speaker 1: probably eventually say, yeah, it's true. Have you ever looked
31:21
Speaker 1: at 401ks? What do you think of them?
31:27
Speaker 2: Yeah, the nuances, there's different.
31:29
Speaker 3: Usually you've got employers match the contributions as well.
31:33
Speaker 2: So I like the idea.
31:34
Speaker 3: If you're going to pay welfare to someone at the
31:38
Speaker 3: end of the day because they don't accumulate enough capital,
31:41
Speaker 3: then it's worth giving up the 15% tax on earnings
31:44
Speaker 3: now so they can have that self-determination.
31:47
Speaker 2: So I feel we've always.
31:49
Speaker 3: Said that super's a concessionally taxed vehicle versus starting to
31:54
Speaker 3: see it as the wealth creation vehicle. And then you
31:57
Speaker 3: could tax it at the end when there is a
32:00
Speaker 3: big bulk of money. I think the 401k is probably
32:02
Speaker 3: a bit better from the tax advantage there because if
32:06
Speaker 3: we've got clients that are generating $ 100, 000 a year income
32:09
Speaker 3: out of their pensions, Would they mind paying tax?
32:11
Speaker 2: Not really.
32:13
Speaker 3: They want Australia's future better for their kids and grandkids,
32:17
Speaker 3: and they're happy to pay the tax. I just listened
32:20
Speaker 3: to your point there around, do we feel the system's
32:23
Speaker 3: more built for those nearing retirement?
32:25
Speaker 2: That's 100% true, and I think it would be great.
32:29
Speaker 1: Well, in retirement, I think you... In it, yeah. The
32:34
Speaker 1: issue that the amount you can put into super now...
32:39
Speaker 1: on a tax-efficient basis, is more or less only back
32:42
Speaker 1: to where it was about 10 years ago. Certainly, I
32:45
Speaker 1: think that should be reviewed. I hope that was in
32:48
Speaker 1: some way useful to you, Augustine, and I hope it
32:50
Speaker 1: puts it into context as well. I think that there
32:53
Speaker 1: could be a lot more review of how it all works,
32:58
Speaker 1: and there could be a review of how Big Super
33:01
Speaker 1: works as well, because if the RBA and ASIC and
33:06
Speaker 1: the IMF are all lining up with the things they
33:10
Speaker 1: want to check and examine, investigate. I think it's time
33:12
Speaker 1: for a broader view of how big super works, particularly
33:15
Speaker 1: in the context of some big funds. Okay, terrific. Thanks
33:20
Speaker 1: very much, Hugh. Great to have you on.
33:22
Speaker 2: I knew it would be good.
33:23
Speaker 1: It always is.
33:24
Speaker 2: Thank you very much.
33:25
Speaker 1: You picked a good day to come on.
33:27
Speaker 3: Yes, that was exciting. And, you know, we could have
33:29
Speaker 3: gone before the Melbourne Cups. We could have got some tips.
33:32
Speaker 3: We've kind of covered off on everything this week.
33:34
Speaker 1: Yeah, it's been a curious week. But thanks very much
33:39
Speaker 1: for coming on the show. And thank you, everybody, for listening.
33:42
Speaker 1: Let's have some more emails. themoneypuzzleattheaustralian.com.au. Talk to you soon.