Latest / The Money Puzzle / Setting up for the new financial year

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Setting up for the new financial year · The Money Puzzle

0:14
Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm
0:18
Speaker 1: James Kirby, the world's editor at The Australian. Welcome aboard, everybody.
0:22
Speaker 1: You've probably seen our market being in exceptionally good shape
0:27
Speaker 1: in recent weeks. We're going to talk about the market.
0:29
Speaker 1: We're going to talk about the outlook for the year ahead.
0:33
Speaker 1: When I say the year ahead, the financial year ahead.
0:35
Speaker 1: If you're an active investor, you've probably had a good
0:37
Speaker 1: idea already how you did last year, the year to June.
0:41
Speaker 1: You're probably starting in terms of planning what? You might
0:45
Speaker 1: do this year. And I've got the ideal guest to
0:48
Speaker 1: give us a steer, basically, as an investor, how to
0:51
Speaker 1: approach that. A couple of other things I want to
0:53
Speaker 1: talk about as well. It's very interesting, I thought, this
0:57
Speaker 1: week to see Joe Biden step down. What I mean
1:00
Speaker 1: by that is it was very interesting to see someone
1:03
Speaker 1: at that age where time had basically caught up with them.
1:07
Speaker 1: They resisted that in an unfortunate way. And then, of course,
1:12
Speaker 1: they were humiliated, really, and forced to stand down. And
1:16
Speaker 1: I wonder, as an investor, many people will ultimately face
1:21
Speaker 1: the same problem or their parents will face the same problem.
1:25
Speaker 1: And at what point do you let go and how
1:27
Speaker 1: would you know when to let go? I want to
1:29
Speaker 1: talk about that, too, because it's a really interesting topic.
1:33
Speaker 1: My guest today is Hugh Robertson of Centaur Financial Services.
1:36
Speaker 1: He's a regular on the show. He's always good to
1:39
Speaker 1: talk to. He is sitting this morning in some splendor,
1:42
Speaker 1: I might say. I can see him. He's in Brisbane,
1:46
Speaker 1: and I can see out his office window, and I
1:48
Speaker 1: got to tell you, it just looks fantastic. What are
1:51
Speaker 1: the name of those hills that I can see out
1:53
Speaker 1: your window, Hugh?
1:54
Speaker 2: That's the Great Dividing Range, James, but we're down on
1:58
Speaker 2: the Gold Coast today, and that's just the hinterland. Right.
2:02
Speaker 1: That's one of the most beautiful places in the world,
2:04
Speaker 1: isn't it, really?
2:05
Speaker 2: We are very blessed, very lucky.
2:07
Speaker 1: Yeah. And I see the other thing I see is
2:09
Speaker 1: blue sky, which I must say looks so good this
2:12
Speaker 1: morning as well, because I'm not seeing any, I can
2:15
Speaker 1: tell you, out of my window. Now, we'll talk about
2:17
Speaker 1: Biden in a minute, but our original idea we had
2:21
Speaker 1: thrashed out in having you on the show, I want
2:23
Speaker 1: to do firstly, which is about setting up for the
2:27
Speaker 1: year ahead as an investor and Really, unless you did
2:30
Speaker 1: something really wrong or you were awfully unlucky, you've probably
2:34
Speaker 1: had a damn good year in the year to June.
2:37
Speaker 1: You can see that all the big super funds have
2:38
Speaker 1: had a very good year. And they're talking 8%. And 8%,
2:42
Speaker 1: you bet, I think most investors would have got that
2:45
Speaker 1: at least. And on the share market, I'm betting that
2:48
Speaker 1: anyone who had a decent share portfolio, their return was
2:51
Speaker 1: in the teens. If you happen to own an investment property,
2:55
Speaker 1: it probably did 8 or 9%. If you owned one
2:58
Speaker 1: in Perth, it probably did 20% plus. A lot of
3:01
Speaker 1: numbers going the right way. You can still get 5%
3:03
Speaker 1: government guaranteed in cash. It's like what they call a
3:07
Speaker 1: Goldilocks environment in many ways for investors. But what I
3:10
Speaker 1: want to ask you, Hugh, is if I was sitting
3:13
Speaker 1: in your office and I was saying to you, what
3:17
Speaker 1: should I do this year? What should I be aware of?
3:20
Speaker 1: How are you guiding people at the moment?
3:23
Speaker 2: It's a great question and very topical as we're doing
3:26
Speaker 2: our reviews with our clients. These are the conversations. And
3:30
Speaker 2: if you go back sort of 12 months, we were
3:33
Speaker 2: going to have a hard landing. Remember, that was the narrative.
3:36
Speaker 2: We've gone from a hard landing to a soft landing
3:39
Speaker 2: to no landing. Everyone was confusing us with pilots at
3:43
Speaker 2: the moment. And it's a difficult terrain to navigate because
3:48
Speaker 2: the information is changing very quickly. So You've really got
3:52
Speaker 2: to be proactive in your decision making and not take
3:58
Speaker 2: big bets. I feel stuff that we've seen where people
4:01
Speaker 2: have gone wrong is they've taken a big bet. It
4:03
Speaker 2: might be that we think interest rates are going to
4:06
Speaker 2: go down substantially. So we're going to put all of
4:09
Speaker 2: our fixed interest portion of our portfolio into long duration bonds,
4:13
Speaker 2: as an example. And if you did that, you would
4:15
Speaker 2: have definitely been impacted. negatively over the past 12 months.
4:19
Speaker 2: So when the facts change, our views need to change.
4:22
Speaker 2: And if we're going on under the current assumption that
4:24
Speaker 2: it's a no landing scenario and everything's good, there is
4:30
Speaker 2: some geopolitical risk out there in the world. There is,
4:33
Speaker 2: who would have thought we'd be doing a podcast saying
4:35
Speaker 2: that someone tried to assassinate Donald Trump. So there's some
4:40
Speaker 2: uncertainty out there. And in times of uncertainty, you diversify
4:45
Speaker 2: so that's you want to stay in your your large
4:47
Speaker 2: caps internationally and domestically maybe entertain some small caps because
4:53
Speaker 2: of the valuation divergence evaluation gap is at a historically
4:57
Speaker 2: high level and i feel not chasing last year's winners
5:01
Speaker 2: that magnificent seven a lot of people now want to
5:04
Speaker 2: get into that maybe the time's too late or if
5:07
Speaker 2: you did want to get in very small exposure i
5:10
Speaker 2: feel even post-covid it's just been a very different investing
5:13
Speaker 2: regime So you've got to not get too confident that
5:17
Speaker 2: you're a stock picking guru. And I can tell you
5:20
Speaker 2: that the majority of fund managers we spoke to over
5:23
Speaker 2: the past 12 months have been bearish on financials. And
5:27
Speaker 2: for the financial year 23-24, financials delivered 30%. Yet a
5:33
Speaker 2: lot of managed funds and professional fund managers.
5:34
Speaker 1: So they've been bearish on financials and they've been completely wrong, right? Yeah.
5:39
Speaker 2: And they were bullish on resources, which, you know.
5:42
Speaker 1: Which kind of tells us no one actually knows what's
5:44
Speaker 1: going to happen next. But because they have the extraordinary
5:47
Speaker 1: thing locally, at least, so we have the Commonwealth Bank
5:50
Speaker 1: just basically carrying the locomotive, basically, in the market, $ 130,
5:56
Speaker 1: extraordinary price, number one biggest stock in the market now,
6:00
Speaker 1: comfortably bigger than BHP. And all the top 10 full
6:04
Speaker 1: of banks, all four of them in there, plus Macquarie. Okay.
6:07
Speaker 1: So just to develop that a little bit about big bets,
6:10
Speaker 1: would you say that every year anyway, Hugh? Yeah.
6:13
Speaker 2: Yes, I would. And I feel asset allocation is becoming
6:19
Speaker 2: more important to the everyday investor. If you imagine your portfolios,
6:23
Speaker 2: you've probably never been wealthier for the listeners out there
6:25
Speaker 2: in terms of house price, their superannuation or a non-super
6:29
Speaker 2: investment portfolio. With that, it really starts to come with
6:35
Speaker 2: some much needed discipline and some strategy around how you
6:38
Speaker 2: allocate your capital. What we mean by that is if
6:41
Speaker 2: you want to make a move to going back to that,
6:45
Speaker 2: rebalancing your portfolio into some bonds, maybe taking some equity
6:49
Speaker 2: exposure or maybe selling some of your banks. Let's go
6:51
Speaker 2: with selling some of the banks. Don't sell the whole exposure.
6:55
Speaker 2: Maybe you sell it off over four installments or five installments.
6:58
Speaker 2: You know, your dollar cost average on your way into
7:00
Speaker 2: investments and your dollar cost average your way out. That way,
7:03
Speaker 2: if the facts change, When financials have a run, you're
7:06
Speaker 2: not left naked and alone. So I think that's probably
7:12
Speaker 2: the one difference in conversation to what we used to
7:15
Speaker 2: have where we might make a 10% out of one
7:18
Speaker 2: investment into another. Now it's usually a bit smaller and
7:21
Speaker 2: we do it over a few more periods.
7:22
Speaker 1: Okay, so caution there all the way. Tell me just
7:26
Speaker 1: a little bit more about what you were trying to
7:28
Speaker 1: say about big bets and rates. There was an assumption...
7:34
Speaker 1: that rates would drop. There was an assumption in the
7:38
Speaker 1: US that rates would drop particularly. And here, you're not
7:43
Speaker 1: convinced by that assumption any longer?
7:46
Speaker 2: Yes, I feel that we were led by the Federal
7:51
Speaker 2: Reserve and the Reserve Bank and the quote unquote experts
7:56
Speaker 2: giving us direction and consensus views. And I think we
7:59
Speaker 2: had US rates were going to go down six times
8:03
Speaker 2: in calendar year 24, and Aussie rates might have been
8:06
Speaker 2: going to go down three times, if memory serves right,
8:08
Speaker 2: at the start of the year. And to date, we
8:10
Speaker 2: haven't had rates go down in either. And in fact,
8:13
Speaker 2: it looks like within Australia, rates actually may go up.
8:18
Speaker 2: So you shouldn't, as an investor, you shouldn't make your
8:24
Speaker 2: investment decision based off that economic forecast or that consensus view.
8:29
Speaker 2: You've got to make it based off what you need
8:31
Speaker 2: personally in your portfolio and how much downside risk can
8:36
Speaker 2: you take. And I feel people have tried to use
8:40
Speaker 2: macroeconomic indicators maybe a little bit too much to predict
8:43
Speaker 2: what's going to happen with markets. We saw that over
8:46
Speaker 2: the last couple of years with the magnificent or even
8:48
Speaker 2: just tech stocks in general. You know, they got hammered in,
8:52
Speaker 2: what was that, 22. And so then a lot of
8:55
Speaker 2: people weren't in them at all when they recovered in 23.
8:59
Speaker 2: And when they did get into them eventually, you know,
9:02
Speaker 2: they'd already gone up 40%.
9:03
Speaker 1: They had done this amazing run, yes. Yeah, I suppose
9:07
Speaker 1: people forget that the entire lift on the markets is
9:10
Speaker 1: driven by the U.S., the entire lift on the U.S.
9:13
Speaker 1: is driven by the big tech stocks. The entire lift
9:17
Speaker 1: in the big stocks is substantially driven by a company
9:19
Speaker 1: called NVIDIA, which no one had heard of. A couple
9:22
Speaker 1: of years ago, being an AI stock, I read where
9:24
Speaker 1: it was responsible for one-third of the lift, one-third of
9:27
Speaker 1: the lift of the U.S. market.
9:28
Speaker 2: The U.S.
9:28
Speaker 1: Market is 70% of the world. So you can extrapolate there,
9:32
Speaker 1: and it's really quite stunning. Looking at another point you
9:35
Speaker 1: made there, I just wanted to tease out that a
9:37
Speaker 1: little about small caps. What were you leading to there
9:39
Speaker 1: about small caps? And if the theory is that small
9:42
Speaker 1: caps are due their day and that they lag to
9:45
Speaker 1: some extent, that they'll run now behind the large caps,
9:48
Speaker 1: this is their phase... If that's the case, first of all,
9:51
Speaker 1: is that what you're thinking? And secondly, how would an
9:54
Speaker 1: investor listening to the show get in on the action?
9:58
Speaker 2: Great question. If you look at traditionally, small caps would
10:02
Speaker 2: have a greater upside than large caps, and it's a
10:05
Speaker 2: greater reward, and therefore we have greater risk. If you
10:08
Speaker 2: look over the past few years, the divergence in terms
10:12
Speaker 2: of valuation between the large caps versus the small caps
10:16
Speaker 2: has never been greater. And What that means from our
10:20
Speaker 2: perspective is that it's worth looking there. And I think
10:26
Speaker 2: within the past week, we saw our small caps, global
10:29
Speaker 2: small caps, go up about 10%. I know for the
10:31
Speaker 2: month of July, they were up about 10%.
10:32
Speaker 1: Yeah, they've suddenly had this hutter on, haven't they, just
10:36
Speaker 1: this last few weeks?
10:37
Speaker 2: Yeah. Yeah, and this was off the back of, again,
10:40
Speaker 2: the forecast around, okay, it's not going to be a recession.
10:43
Speaker 2: So it's almost like risk is... risk is back on
10:47
Speaker 2: the table. People are willing to take risk again. And
10:50
Speaker 2: the Navidias, every large cap company started as a small
10:53
Speaker 2: cap company. And you've got now, when there was a
10:58
Speaker 2: chart released by JP Morgan recently as talking about the
11:02
Speaker 2: relative PE gap, and it's never been larger. So what
11:06
Speaker 2: that's telling you is that small caps are cheap and
11:10
Speaker 2: you don't need a lot right for that to go
11:13
Speaker 2: well because it's selling at the, some of them are
11:15
Speaker 2: at a price to earnings ratio of eight to 10 times.
11:18
Speaker 2: And their earnings, like their earnings yield is 10% right now.
11:22
Speaker 2: So they don't need to necessarily even make a lot
11:25
Speaker 2: more money for the share price to go up. It
11:27
Speaker 2: could just be that the price to earnings ratio reverts
11:30
Speaker 2: to normal. And there's, you know, there could be a
11:33
Speaker 2: substantial return on investment there.
11:36
Speaker 1: Okay. So I, yeah, I didn't quite realize that. It's
11:38
Speaker 1: not just that they are due their day. but that
11:42
Speaker 1: the pricing of the small cap stocks is actually behind
11:47
Speaker 1: the eight ball in terms of the rest of the market.
11:51
Speaker 2: Yes, and on all historic sort of tangibles, I know
11:55
Speaker 2: the data that I was looking at was from just
11:57
Speaker 2: going back 15 plus years, and on the chart you
12:03
Speaker 2: had that the small caps had never been cheaper. And
12:07
Speaker 2: that also makes sense in a way too. During a recession...
12:11
Speaker 2: And if people are scared, small caps will go down
12:15
Speaker 2: further because people will leave that space and go into
12:19
Speaker 2: large caps, which by theory are safer. So it makes
12:23
Speaker 2: sense why it has been that way over the past
12:26
Speaker 2: few years. People have been a bit scared and they've
12:28
Speaker 2: been able to put their money into, from a global perspective, Microsoft, Google,
12:34
Speaker 2: and those big businesses that aren't going to go broke.
12:37
Speaker 2: But now there's the opportunity there to maybe exploit some
12:40
Speaker 2: of those up and coming businesses that are the future
12:42
Speaker 2: leaders that are outside those sort of top 100, 200
12:45
Speaker 2: companies on the Australian Stock Exchange or globally.
12:49
Speaker 1: Well, so if I was with you and folks, it's
12:51
Speaker 1: worth telling you that Hugh is a regular invariably in
12:55
Speaker 1: the upper reaches of our top financial advisors list that
12:58
Speaker 1: we release every year with Barron's. He's also one of
13:01
Speaker 1: the younger advisors at the upper reaches of that list.
13:04
Speaker 1: So if I was lucky enough to be sitting in
13:05
Speaker 1: your splendid office and we were both gazing out over
13:08
Speaker 1: the Gold Coast hinterland on a lovely morning and I
13:10
Speaker 1: said to you, that's all fine, Hugh. How do I
13:13
Speaker 1: go near small caps? Even in the Australian market, it's
13:16
Speaker 1: probably roughly 2,000 small caps of which perhaps a few
13:23
Speaker 1: dozen are going to be great. But how do I
13:26
Speaker 1: find them or how do I approach that area as
13:28
Speaker 1: an investor?
13:30
Speaker 2: We've got The rise and rise of exchange-traded funds is
13:35
Speaker 2: the answer to that. So you've got a lot of options,
13:37
Speaker 2: and even there's active exchange-traded funds now that are sort
13:42
Speaker 2: of online. So I feel you do want to diversify
13:47
Speaker 2: because you only need– if you recall Tesla back a
13:51
Speaker 2: few years ago as it was having its meteoric rise,
13:55
Speaker 2: it was exceeding 10% of– it went up 100% or
13:59
Speaker 2: something or even more over the year. So you needed
14:01
Speaker 2: some discipline there. So a portfolio manager that was sort
14:04
Speaker 2: of taking profits routinely off the table just to manage risk.
14:09
Speaker 2: But you could go in exchange traded funds. There's small
14:13
Speaker 2: cap index funds. There's small cap active managers. If you're
14:16
Speaker 2: a client coming in to our office, we think that
14:21
Speaker 2: small caps usually aren't as well researched as the large caps.
14:25
Speaker 2: So there is an advantage for a skilled manager to
14:29
Speaker 2: add value there, to find some.
14:31
Speaker 1: A stock picker can really add value, unlike picking.
14:35
Speaker 2: Definitely in small companies, which aren't as well covered as
14:39
Speaker 2: large ones in emerging markets. I think that the evidence
14:42
Speaker 2: and the academic research has always shown that.
14:47
Speaker 1: Even in our own market here, I would imagine that's
14:49
Speaker 1: the case, isn't it? There's some really good small caps
14:51
Speaker 1: that basically no one, the brokers don't look at them.
14:54
Speaker 1: No one ever visits them. They don't get covered in
14:56
Speaker 1: the papers in the Australian. You don't read about them, right?
14:58
Speaker 1: Because you just can't get out there to them all.
15:01
Speaker 1: But there are managers that specialize in literally going out
15:04
Speaker 1: and sitting in front of these people and studying them. Yeah.
15:07
Speaker 2: And I think those managers have got some great track
15:10
Speaker 2: records that with a little bit of research, you could
15:14
Speaker 2: feel quite confident there. And then what are we talking
15:17
Speaker 2: about allocation wise of your portfolio? It's probably only a
15:21
Speaker 2: maximum of 5% of your portfolio would then go into
15:23
Speaker 2: that manager. We're still trying to manage risk, but we're
15:27
Speaker 2: trying to get that manager really to or that investment
15:31
Speaker 2: strategy of small caps really to add a benefit, that 5%
15:34
Speaker 2: exposure could still add a good benefit if it goes
15:38
Speaker 2: well to the whole portfolio. Whereas if it doesn't go well,
15:43
Speaker 2: then it hasn't hurt too much. And I think when
15:45
Speaker 2: I was looking at the June 30 numbers, just at
15:48
Speaker 2: the ASX, the 200 accumulation index did 12.1 and the
15:53
Speaker 2: small odds, so the small caps did 9.3. So it
15:57
Speaker 2: was catching up, but over three years, The ASX 200
16:01
Speaker 2: delivered 6.4 and small caps was negative 1.5. So you
16:06
Speaker 2: can see that there's opportunity there.
16:08
Speaker 1: Okay. So if we get a reversion to the mean,
16:11
Speaker 1: then they should have their day. Very interesting. Okay. Hey,
16:15
Speaker 1: we will take a break and we will come back
16:17
Speaker 1: and talk about something quite different that we alluded to
16:20
Speaker 1: at the start of the show. Hello and welcome. Back
16:30
Speaker 1: to the Money Puzzle Podcast. I'm James Kirby. I'm talking
16:33
Speaker 1: to Hugh Robertson. And it's been an amazing couple of weeks.
16:38
Speaker 1: That's for sure. It matters. It always matters. If you're
16:41
Speaker 1: an investor, especially in share markets, folks, we just lemming-like
16:45
Speaker 1: really follow the momentum, at least, of the US markets.
16:50
Speaker 1: And if they're going well, we're going well. And if
16:52
Speaker 1: they're not going well, we are not going well. And
16:54
Speaker 1: that is unavoidable and has been the case for as
16:57
Speaker 1: long as anyone can remember. Hence the importance of U.S.
17:01
Speaker 1: national economy news. Hence the importance of the assassination attempt
17:06
Speaker 1: on Trump, the big sympathy vote he's going to get
17:09
Speaker 1: on the back of that, the increased chances and assumption
17:12
Speaker 1: actually that he will win. Now, adding to that, then
17:16
Speaker 1: we had this week, we had finally and probably too
17:19
Speaker 1: late Joe Biden resigning as a sitting president as such
17:25
Speaker 1: because everyone Finally, the pressure came to him that he
17:31
Speaker 1: was not so much too old. I don't think that's
17:34
Speaker 1: the accurate word at all. But his condition, if you like,
17:40
Speaker 1: and his ability to operate at the level expected of
17:44
Speaker 1: a president is simply not there and became terribly obvious
17:49
Speaker 1: at the worst possible time in the US presidential debates
17:53
Speaker 1: and in press conferences, etc., What impressed me was I
17:57
Speaker 1: was just thinking about investors and the same thing will
18:01
Speaker 1: happen to a lot of investors. And if it doesn't
18:05
Speaker 1: happen to them who are listening now, it could be
18:08
Speaker 1: happening to their parents at the very same time. And
18:11
Speaker 1: there's a point at which many people will have to
18:16
Speaker 1: think about throwing in the towel, just like Biden did. Hugh,
18:20
Speaker 1: tell me about this area, first of all, and tell
18:22
Speaker 1: me about the issue as it comes across your desk
18:27
Speaker 1: and what do you do?
18:29
Speaker 2: This is extremely common conversations nowadays and it's a great
18:35
Speaker 2: way of framing the question. Watching Biden and how he's
18:39
Speaker 2: gone over the past few weeks and conducted himself, you
18:41
Speaker 2: don't think he could really be the leader of a
18:45
Speaker 2: world powerhouse. And it's the same sort of analogy of
18:49
Speaker 2: people that have made a lot of money during their
18:51
Speaker 2: working career and they've got a pretty good financial powerhouse
18:55
Speaker 2: right now and how do we make decisions going forward?
18:57
Speaker 2: There's more noise than ever. It's more confusing than ever.
19:01
Speaker 2: The volatility seems greater than ever. And I remember a
19:05
Speaker 2: stat once years ago that I read that it was
19:09
Speaker 2: to the extent of every year after the age of 60,
19:12
Speaker 2: you lose about 2% of your financial literacy capability. And
19:18
Speaker 2: when you play that out, you go, okay, there's a
19:20
Speaker 2: lot of people who are 60 right now who are
19:23
Speaker 2: they're fine. They've only lost 2%. But after 10 years,
19:26
Speaker 2: they've lost 20% and you start to go, okay, now
19:29
Speaker 2: that starts to become a little bit problematic. By 85,
19:34
Speaker 2: they've lost 50%. And the challenge is, from an investment perspective,
19:40
Speaker 2: is that everyone's going to live longer than they expect.
19:43
Speaker 2: We sort of benchmark how long our parents lived as
19:46
Speaker 2: to our life expectancy, but we're all, we live in
19:50
Speaker 2: The people now, the retirees now are going to live
19:53
Speaker 2: longer than their parents. I think we've now got actually
19:55
Speaker 2: a negative life expectancy for people being born today. So
20:00
Speaker 2: from that perspective, you really want to make sure you've
20:02
Speaker 2: got good discipline around what you do and I don't
20:06
Speaker 2: think it's necessarily a just a buy and hold approach.
20:10
Speaker 2: If you look at Commonwealth Bank shares, which we just
20:12
Speaker 2: talked about previously, everyone just holds them because they'll never
20:18
Speaker 2: go down, they'll never do anything poor. But that doesn't
20:21
Speaker 2: mean there's not an opportunity cost of holding that and
20:25
Speaker 2: other assets doing better or protecting your estate. And I
20:29
Speaker 2: think when I think about if someone like Biden was
20:32
Speaker 2: managing their money, they just wouldn't know where it all
20:35
Speaker 2: is either. So I think there's a really important aspect of,
20:40
Speaker 2: and not saying that people necessarily have to deal with,
20:43
Speaker 2: utilize professional advisors, but I think they definitely get the
20:47
Speaker 2: peace of mind benefit of that.
20:49
Speaker 1: Can I ask you, just even separate to the sort
20:51
Speaker 1: of pure scientific research that says that sort of drop
20:56
Speaker 1: in literacy, which might be relevant, but then you're talking
20:59
Speaker 1: about some people who are highly literate financially, really smart
21:03
Speaker 1: and capable. So they've got a long way to drop.
21:06
Speaker 1: But what I want to ask you is, More than that,
21:09
Speaker 1: it's about attitude, like attitude to risk, for instance. Do
21:13
Speaker 1: you think that changes as people become advanced old age?
21:17
Speaker 2: Yes. I think there's risk capacity and there's risk tolerance.
21:24
Speaker 2: What's someone's capacity for risk? Obviously, people with high net
21:28
Speaker 2: wealth can take more risk, but then what's their tolerance
21:31
Speaker 2: to risk? So that's where you really come back to
21:33
Speaker 2: that goals-based advice and what people are trying to achieve.
21:37
Speaker 2: And you work it towards the goals. I think more
21:40
Speaker 2: than ever now, as we're allocating capital for clients, we're
21:46
Speaker 2: doing short, medium and long-term buckets. And that's got very
21:49
Speaker 2: different risk return profiles, income profiles. And that's something that's
21:53
Speaker 2: proven really appropriate with the clients. And it's meant that
21:57
Speaker 2: just even that, if the listeners imagine having those three
22:01
Speaker 2: different profiles, buckets of wealth you know that what you're
22:04
Speaker 2: allocating in your long-term bucket that's meant to be volatile
22:07
Speaker 2: but that's going to keep pace with inflation it's going
22:10
Speaker 2: to mitigate longevity risk by continuing to go up in
22:13
Speaker 2: value even though it's going to be more volatile your
22:16
Speaker 2: medium and for that we've been using index options we
22:20
Speaker 2: feel that's quite appropriate in maybe if we break it
22:23
Speaker 2: off 20% of the portfolio into that longevity where we
22:26
Speaker 2: don't necessarily mind the volatility of an index and and
22:29
Speaker 2: we're happy to, and it's low cost. So that works well.
22:31
Speaker 2: Then you've got 60% in that middle-term bucket, and that's
22:36
Speaker 2: managed more actively because we're really trying to manage that
22:39
Speaker 2: downside risk and take advantage of opportunities as they emerge.
22:43
Speaker 2: And that's a very diversified portfolio. And then you've got
22:47
Speaker 2: your short-term bucket, which is really your fixed interest, your hybrids,
22:51
Speaker 2: your credit, some bonds. And I think if listeners build
22:55
Speaker 2: their portfolios that way, It gives you three different, you're
22:59
Speaker 2: very clear on which bucket is doing what job for you.
23:04
Speaker 1: Can I ask you one thing for a practical thing?
23:06
Speaker 1: For people who are managing their own money, or I
23:08
Speaker 1: suppose the ultimate example of that being self-managed super funds,
23:12
Speaker 1: what happens if someone had a super fund, they started
23:17
Speaker 1: in their 30s or 40s, it did well, they were
23:20
Speaker 1: always proud of how they did it, doing fine. They
23:24
Speaker 1: get older, they get to 80 or 75 or 85
23:28
Speaker 1: or whatever, and something happens, right? Something pragmatic happens. There
23:35
Speaker 1: are some health issues or whatever. Or even they just
23:39
Speaker 1: find it all too hard. They're just fed up of
23:42
Speaker 1: the documentation. They're fed up of the cybersecurity, et cetera,
23:47
Speaker 1: because one of the things with running a self-managed super fund,
23:49
Speaker 1: and I have noticed even over the 20 years I've
23:51
Speaker 1: had mine, is level of documentation that I am asked
23:56
Speaker 1: to do the slightest damn thing, especially once you move
23:59
Speaker 1: outside conventional funds, it's just utterly tiresome. And I could
24:02
Speaker 1: see a day where perhaps, depends on the rewards, I suppose,
24:06
Speaker 1: if I'm knocking it out of the park every year,
24:08
Speaker 1: then I say, all right, that's the price you pay.
24:10
Speaker 1: But what I'm leading to is where someone just says,
24:13
Speaker 1: that's it, I'm really, I've had enough, I've got plenty,
24:17
Speaker 1: and I'm tired of the stress and strain and work
24:20
Speaker 1: of running my own money. Problem is the person is older, right?
24:24
Speaker 1: What can they do? Can they turn around and say,
24:27
Speaker 1: can they call a big super fund and say, can
24:29
Speaker 1: I join you?
24:31
Speaker 2: Absolutely. And I feel that's appropriate for a lot of
24:35
Speaker 2: people as they get older, whether they want to get
24:39
Speaker 2: their kids into self-managed super funds. So the intergenerational wealth
24:43
Speaker 2: is playing a more active role. And as they slowly
24:47
Speaker 2: sort of exit through, they might, if there's lumpy assets
24:50
Speaker 2: in the self-managed super fund, for example, you might bring
24:53
Speaker 2: the kids in and then the kids kind of contributions
24:56
Speaker 2: going in is what's funding the parents exit out with
25:01
Speaker 2: pension payments. And, or if you, if it was all liquid,
25:05
Speaker 2: when you were, you could sell it all capital, it's
25:07
Speaker 2: all in pension phase, you sell, you can roll it
25:10
Speaker 2: all over and there's no tax on there. because you're
25:14
Speaker 2: in pension phase, it's all capital gains tax-free, and you
25:16
Speaker 2: could roll over into a super fund, then you don't
25:18
Speaker 2: have any of the trustee responsibilities and you just get
25:22
Speaker 2: your regular pension payments. You can do a reversionary pension
25:25
Speaker 2: nomination to your spouse if you want, or you can
25:28
Speaker 2: leave it to the estate. I feel a lot of
25:31
Speaker 2: people that were in self-managed super funds, we see that
25:34
Speaker 2: in their 80s they don't really want the hassle of things.
25:36
Speaker 2: They just want simplicity in their life, in every area,
25:39
Speaker 2: and they don't want to leave a big mess behind.
25:42
Speaker 2: for their family as well. So you really work hard
25:46
Speaker 2: over the years. Usually the first step will be that
25:49
Speaker 2: they will relinquish control over the investment strategy and they'll
25:52
Speaker 2: engage someone like us to say, hey, can you run
25:55
Speaker 2: the money for us and allocate it because we just,
25:58
Speaker 2: we don't have the time nor the care to read
26:00
Speaker 2: about it. And they might say, you know, we want
26:02
Speaker 2: to keep the Westpac shares though because we've had them forever.
26:05
Speaker 2: But they don't want to, and when I'm 80, I'm
26:07
Speaker 2: not sure that I'm going to be wanting to manage
26:09
Speaker 2: my own money. I'm going to want to look at
26:11
Speaker 2: like the day we've gone outside here. I want to
26:13
Speaker 2: be out walking the beach and having a coffee with
26:15
Speaker 2: my wife and seeing grandkids. So I feel from that
26:19
Speaker 2: perspective that listeners and people being aware that you can
26:24
Speaker 2: actually roll up, wind up the self-managed super fund and
26:27
Speaker 2: roll into an industry super fund or a retail super fund.
26:31
Speaker 2: Or in some instances, James, we will just put it
26:34
Speaker 2: into their bank accounts. That way, if there's a taxable
26:37
Speaker 2: component within the super fund, We've wiped out the death
26:41
Speaker 2: tax that we don't talk about in Australia.
26:43
Speaker 1: The de facto inheritance tax that's applied on self-managed super
26:46
Speaker 1: funds if the person, when the person dies, if it
26:49
Speaker 1: goes to the adult children. Yeah, that's basically it, isn't it? Yeah, 17%. We,
26:54
Speaker 1: I'm sure you know about this, folks. If you don't,
26:57
Speaker 1: we can come back to it another time. Let me
26:59
Speaker 1: know in the emails. Okay, we have to go for
27:01
Speaker 1: a break and we will do some questions back in
27:03
Speaker 1: a moment. Hello and welcome back to The Australian's Money Puzzle.
27:14
Speaker 1: I'm James Kirby talking to Hugh Robertson, regular guest on
27:18
Speaker 1: the show. We're having a really good discussion about some
27:21
Speaker 1: very interesting issues. We just covered the issue there, provoked,
27:26
Speaker 1: if you like, prompted by the Joe Biden resignation, which
27:29
Speaker 1: is at what stage do you throw in the towel
27:32
Speaker 1: as an investor? And you might say, I'm never going
27:35
Speaker 1: to throw in the towel, but you might change your
27:37
Speaker 1: mind when you're 80. Or you might change your mind
27:40
Speaker 1: when you're 55 are a reason that I can't tell you,
27:44
Speaker 1: but it's worth knowing that you can move across. And
27:47
Speaker 1: if you had a self-managed super fund, you can actually
27:49
Speaker 1: pick it up and you can put, you can switch
27:51
Speaker 1: back into institutional investment. And it's nice to know that.
27:55
Speaker 1: I have a couple of questions. Hugh, could I put
27:58
Speaker 1: a question, if you don't mind, could I give you,
28:00
Speaker 1: could I ask you a question without notice? The only
28:03
Speaker 1: reason I want to, I've just remembered that I promised
28:06
Speaker 1: on Monday, we had a question we couldn't answer about CGT,
28:09
Speaker 1: couldn't answer fully. And I'd just like to know what
28:13
Speaker 1: your broad observation is on it. Would you mind if
28:15
Speaker 1: I read it out, even though I didn't send it
28:17
Speaker 1: to you in advance? It's from a listener called Beryl, B-E-R-Y-L.
28:22
Speaker 1: She says, I purchased an apartment, which I lived in
28:25
Speaker 1: for five years, and then I moved out and I've
28:27
Speaker 1: been renting it for 20 years, okay? And I'm looking
28:31
Speaker 1: at moving back into it. And I've heard that if
28:34
Speaker 1: I move back into it and live there for the
28:36
Speaker 1: rest of my life, that those who inherit this property
28:40
Speaker 1: will not pay CGT if they sell it. Is it
28:43
Speaker 1: true that after all the years I rented out that
28:45
Speaker 1: property and the CGT liability is wiped out? Beryl, I said,
28:51
Speaker 1: and I wanted a second opinion on this, but I said,
28:55
Speaker 1: whatever else is going on, and this is never advice,
28:57
Speaker 1: and this is information only to all the Beryls in
28:59
Speaker 1: the world, that if a property is rented out for
29:03
Speaker 1: a couple of years... then it was an investment property.
29:06
Speaker 1: And for those years that it was rented out, it's
29:08
Speaker 1: an investment property and the CGT would be applicable to that.
29:11
Speaker 1: Is that, am I right or wrong? Do you know?
29:15
Speaker 2: That's my understanding. We had a client this week in
29:19
Speaker 2: the office that I 100% agree with you. We had
29:22
Speaker 2: a client this week in the office that said, no,
29:25
Speaker 2: there's something about pro-ratering and there's something about this. My
29:29
Speaker 2: understanding is that for the time you live in it,
29:32
Speaker 2: it's PPR. You do always get There is that window
29:36
Speaker 2: of time where you're allowed to not live in it
29:39
Speaker 2: and still claim it that six-year window but if you've
29:42
Speaker 2: rented it out for 20 years my understanding is that
29:45
Speaker 2: when you moved out of it it ceased to be
29:47
Speaker 2: your PPR and you would your principal place of residence
29:51
Speaker 2: and then you would have assigned effectively a value of
29:54
Speaker 2: that so from that first five years you lived there
29:57
Speaker 2: that was capital gains tax-free Then there's almost like a
30:00
Speaker 2: reset of the cost base over that 20 years from
30:03
Speaker 2: what it was at the start when you ran it
30:05
Speaker 2: out valuation-wise to what it was when you moved out.
30:08
Speaker 2: Then you would get your CGT discount on that as well.
30:11
Speaker 2: And then the period that you moved in at the end,
30:15
Speaker 2: whatever that went up by, that would be your principal
30:20
Speaker 2: place of residence exemption again. Assuming that, yeah, that's my understanding.
30:27
Speaker 1: So, yeah, it would seem the years that it was
30:29
Speaker 1: rented are CGT applicable years. It would seem because it
30:32
Speaker 1: was rented for 20 years.
30:34
Speaker 2: Yeah. And if the accountant had got back to me,
30:35
Speaker 2: I could have given you the exact answer right now.
30:38
Speaker 2: But they haven't got back to me. So I think 70% confident.
30:43
Speaker 1: All right. Well, Barry, we've tried twice. And I think
30:48
Speaker 1: you will find the chances that you're CGT-free after renting
30:52
Speaker 1: it for 20 years are slim indeed. I think that
30:54
Speaker 1: would be fair to say as a very broad observation
30:57
Speaker 1: about that type of situation for everybody, not just one person. Okay,
31:02
Speaker 1: now some quick questions and we'll roll through this. There's
31:05
Speaker 1: quite a couple of interesting questions here. Gerard says, Roger
31:08
Speaker 1: Montgomery has promoted it and a recent article by Tim
31:12
Speaker 1: Borum has encouraged it private credit and private credit funds.
31:16
Speaker 1: So there's probably some bad private credit groups out there.
31:19
Speaker 1: How does a newcomer get a chance to look at
31:21
Speaker 1: the providers and undertake analysis? Whoa, Jared, I don't know,
31:25
Speaker 1: because ASIC this morning, Joe Longo, the chairman of ASIC
31:28
Speaker 1: this morning, is saying, hey, hang on a second, this
31:29
Speaker 1: private credit, we're not totally on top of it. We
31:31
Speaker 1: want to see more, though it's all the fashion at
31:34
Speaker 1: the moment. Have you any, if I came into you, Hugh,
31:36
Speaker 1: and I said, hey, I don't have private credit. I'm
31:38
Speaker 1: reading about it everywhere. All these people seem to be
31:41
Speaker 1: making lots of money and there's piles of new funds.
31:44
Speaker 1: Would you say, hold on, James, I don't like this
31:47
Speaker 1: at all? Or would you say, I have a suggestion?
31:49
Speaker 1: What would you do?
31:50
Speaker 2: We don't use private credit. And that's not to say
31:53
Speaker 2: we never would. The challenge is that there's a lot
31:57
Speaker 2: of different conflicting conversations. So private credit will come out
32:01
Speaker 2: and say, look, banks aren't lending anymore. So that's what's
32:04
Speaker 2: given prominence to us, which is great. And you need lending.
32:08
Speaker 2: And we're very selective. We underwrite all of our deals.
32:11
Speaker 2: And we're very good with it. you definitely need to
32:16
Speaker 2: be very active in that space and choosing a very
32:19
Speaker 2: capable manager. So you are looking at track record. One
32:22
Speaker 2: of the challenges I see with it, and this takes
32:27
Speaker 2: me back to GFC days, global financial crisis days. And
32:32
Speaker 2: the challenge that I have with it is if all
32:34
Speaker 2: this money flows in, because you're saying we're going to
32:37
Speaker 2: pay you 8% to 10%, 10% to 12%, All the
32:41
Speaker 2: money's flowing in. Those guys have to keep finding deals
32:44
Speaker 2: to make then. So my concern becomes, do those deals
32:51
Speaker 2: start to get a little bit looser and looser just
32:55
Speaker 2: to make sure that they're employing the client, the investor's
32:58
Speaker 2: money to generate that income that they've promised?
33:02
Speaker 1: Yes, I really like the way you're thinking. And that's
33:05
Speaker 1: exactly instinctively how I would think the same thing. If
33:08
Speaker 1: it's a boom area, okay, and it is, And there's
33:11
Speaker 1: piles of funds being unleashed. Then, by definition, the mathematics
33:17
Speaker 1: are simple. There are only so many private credit deals
33:20
Speaker 1: out there. And 10 years ago, I bet it was great.
33:22
Speaker 1: Even five years ago, it must have been terrific. But now,
33:25
Speaker 1: there are so many fund managers running around. And if
33:27
Speaker 1: they all collect lots of money to go and enter
33:30
Speaker 1: this business, then guess what? They can't sit there and
33:33
Speaker 1: do nothing. They have to do deals. They have to
33:36
Speaker 1: invest for you. The problem is there's 10 other funds
33:38
Speaker 1: that want to invest. Hey, guess what happens? It gets
33:41
Speaker 1: bid up just like the house around the corner at
33:43
Speaker 1: the auction on a Saturday morning. And so the valuations,
33:46
Speaker 1: which are not as transparent as share market valuations, could
33:52
Speaker 1: become a problem. Is that some of what you're alluding to?
33:56
Speaker 2: Yeah, very, very much so. It's a tread carefully area.
34:01
Speaker 2: I don't disregard it. And we're looking at it often
34:06
Speaker 2: and meeting with managers and talking to it. But it
34:10
Speaker 2: reminds me of the mortgage funds back in global financial.
34:13
Speaker 2: And I'm not saying it is like that, but it
34:17
Speaker 2: rhymes with the things like that and some of the stories.
34:20
Speaker 2: And I'm just cautious. If we went into a recession,
34:23
Speaker 2: there could be really difficult times. If interest rates continue
34:27
Speaker 2: to rise, there could be... So it's not... I think
34:30
Speaker 2: the point for me is it's not an alternative to
34:33
Speaker 2: a term deposit. It is very much a... sits in
34:39
Speaker 2: the risky side of your portfolio. Doesn't mean it's not good,
34:42
Speaker 2: but just you want someone that's very well diversified in
34:46
Speaker 2: that space. They're big, they're diversified. It does mean that
34:50
Speaker 2: you're going to get slightly less income some of these
34:53
Speaker 2: things that some are saying 12 some are saying 10
34:56
Speaker 2: some are saying 8 for me just understanding risk and
34:59
Speaker 2: reward i'd more align myself to the 8 one because
35:03
Speaker 2: you know for them to make their money if they're
35:05
Speaker 2: paying you 12 what they've got to be earning 15
35:09
Speaker 2: so if i'm a borrower if i'm borrowing i've and
35:13
Speaker 2: i've got to pay 15 i'm high risk by.
35:15
Speaker 1: Nature that's right if they're paying you 10 and they
35:18
Speaker 1: have to get a few percent themselves and what on
35:21
Speaker 1: earth Are they lending? To whom are they lending? Who
35:27
Speaker 1: is in a position that they're so bad, basically, that
35:30
Speaker 1: they must pay those rates? That's what you have to
35:32
Speaker 1: think about. Okay, terrific answer. Thank you very much. And
35:35
Speaker 1: the other issue is, of course, if things go south,
35:38
Speaker 1: as Hugh mentions, how do you get your money out? Okay,
35:42
Speaker 1: some of them are listed on the share market, but hey,
35:45
Speaker 1: there's a basic oxymoron there. Private credit listed on the
35:49
Speaker 1: share market. It's not private credit. It's not private anymore.
35:52
Speaker 1: It's public market. Come on. Okay. Now, a technical question
35:55
Speaker 1: from Stephen, though it's interesting because it's frank dividends. I
35:58
Speaker 1: listed investment companies that aren't doing great are paying partially
36:02
Speaker 1: frank dividends instead of fully frank dividends. I assume it's
36:06
Speaker 1: because their profit reserve has dwindled. I do not understand
36:09
Speaker 1: where the unfranked part of the dividend comes from. Okay.
36:15
Speaker 1: What did you think of that question, Hugh, from Stephen?
36:19
Speaker 2: So Stephen's Right in sort of the profit reserves are dwindling.
36:23
Speaker 2: If you went like a few years ago, they were
36:25
Speaker 2: paying like ridiculous amounts of dividends. The listed investment companies
36:32
Speaker 2: are different from listed investment trusts that have to pay
36:34
Speaker 2: out distributions. Listed investment companies get to choose what they
36:38
Speaker 2: pay out. So what I was thinking of with the
36:42
Speaker 2: unfranked part of the dividend is probably international shares that
36:46
Speaker 2: have come through. Some of those things won't have the
36:50
Speaker 2: franking attached to them. Whereas if it was an Australian
36:54
Speaker 2: share fund or listed investment company that's investing all in
36:59
Speaker 2: bank shares, that would typically be fully franked. So that's
37:03
Speaker 2: the only thing that I thought of there. Stephen was
37:06
Speaker 2: right in his, the profit reserves is what they're using
37:08
Speaker 2: to pay. And they get to set this. So they
37:11
Speaker 2: don't need to, because it's a company, they don't need
37:13
Speaker 2: to pay out all the income they receive. So usually
37:17
Speaker 2: they will They like it to be fully franked, but
37:21
Speaker 2: it's not a condition. And you just have to go
37:23
Speaker 2: in and read the company's annual reports to find out.
37:26
Speaker 2: It's hard to find information on franking credits, but it is, obviously,
37:29
Speaker 2: it's very valuable to investors. But you'd have to look
37:33
Speaker 2: in the annual report.
37:34
Speaker 1: So, Stephen, if it had two stocks and one was 100%
37:38
Speaker 1: Australian focused, Commonwealth Bank, did nothing else for Australia, then
37:41
Speaker 1: it's 100% franked. But if the other one was a miner, say,
37:44
Speaker 1: and they had 90% of their operations around the world
37:46
Speaker 1: outside Australia, then they'd never be able to get 100%
37:49
Speaker 1: franking in here, in the domestic market. That's generally the explanation.
37:53
Speaker 1: Not always, but that would invariably be the explanation. Okay,
37:55
Speaker 1: final question from Lil. Could you provide listeners with information
38:00
Speaker 1: on investment bonds, also known as insurance bonds, for what
38:04
Speaker 1: might be an alternative option if you're looking for tax-efficient structures?
38:09
Speaker 1: It comes up all the time. I've had advisers... who
38:13
Speaker 1: will not touch these bonds, hate them. I've had advisors
38:16
Speaker 1: who say, look, they're okay. Again, it's often put forward
38:20
Speaker 1: as an alternative to super. So what I would say,
38:24
Speaker 1: what everyone has said so far for What's Worth listeners
38:26
Speaker 1: is get your super sorted out first because that's the
38:30
Speaker 1: best tax break for most people most of the time.
38:33
Speaker 1: But the investment bonds, could you explain, Hugh, what they
38:38
Speaker 1: are and why someone might want one in our market
38:41
Speaker 1: and their pros and cons, if you could. You're right.
38:43
Speaker 2: A lot of advisors do discredit the investment bonds or
38:46
Speaker 2: insurance bonds. And I know a lot of the advisors
38:49
Speaker 2: that appear on this podcast that do. So from the
38:52
Speaker 2: point of view of in its simplicity, the insurance bond,
38:56
Speaker 2: it's a friendly society bond. It comes under sort of
39:00
Speaker 2: insurance law as opposed to investment law. So it's internally
39:03
Speaker 2: taxed at 30%, but then it's CGT free. after 10
39:08
Speaker 2: years or in the event of death. Then the investment component,
39:11
Speaker 2: you get to choose a host of different investments. So
39:14
Speaker 2: this is where, with all the superannuation changes the last
39:17
Speaker 2: few years, insurance bonds have tried to have a bit
39:21
Speaker 2: of a resurgence as the super 2.0. Once you can't
39:25
Speaker 2: put any more into super, so you're exactly right, James,
39:28
Speaker 2: you utilize super first. then whatever's not there goes into
39:33
Speaker 2: an insurance bond. Challenges have been that they can be
39:36
Speaker 2: a little bit expensive and the investment options haven't traditionally
39:39
Speaker 2: been that great. So most people would say, look, we'd
39:42
Speaker 2: prefer to put it into a trust because remembering that
39:46
Speaker 2: death doesn't constitute a capital gains tax event. So if
39:50
Speaker 2: you had it in a trust with your children as beneficiaries,
39:53
Speaker 2: you wouldn't have to sell everything and you could easily
39:57
Speaker 2: do that intergenerational wealth. But in terms of where's the
40:03
Speaker 2: tax efficiency, it's debatable because you could have around $ 180, 000
40:10
Speaker 2: a year before you're at that average tax rate of 30%.
40:12
Speaker 2: It certainly kicks in higher with the marginal tax rates,
40:17
Speaker 2: but your average tax rate, is pretty high level of
40:21
Speaker 2: income earned. A lot of investors might be better off
40:24
Speaker 2: investing in their own names and then passing the money on.
40:28
Speaker 2: But the good thing, one thing that's probably little known
40:30
Speaker 2: about insurance bonds that is pretty unique outside of the
40:35
Speaker 2: super is that you can switch the investment options without
40:38
Speaker 2: capital gains tax. So if you think, if you had
40:41
Speaker 2: have been in a tech, a fund that had tech exposure,
40:46
Speaker 2: over the past 12 months, it's done really great. And
40:48
Speaker 2: you say, I want to rebalance my portfolio. You're not
40:51
Speaker 2: going to have to pay capital gains tax on that.
40:53
Speaker 2: Whereas if it was in your personal portfolio, you probably
40:56
Speaker 2: wouldn't sell because of the capital gains tax. So I
41:00
Speaker 2: think it's definitely worth looking at.
41:02
Speaker 1: Yeah, that's useful. Can I ask you one last thing?
41:05
Speaker 1: It's a big difference. You must hold for 10 years.
41:07
Speaker 1: Is that right? Have I got that right? To optimize it.
41:11
Speaker 2: If you die, it's okay. If you die, it goes
41:13
Speaker 2: through capital gains tax-free.
41:16
Speaker 1: Well, assuming you say a lot.
41:17
Speaker 2: Yes. So the investment component, it starts to kick in
41:21
Speaker 2: pro rata discounts in year eight and nine.
41:24
Speaker 1: Okay. So you really have to, this is a long-term thing, right?
41:26
Speaker 1: You really want to be thinking eight, nine, or ideally
41:29
Speaker 1: 10 years plus.
41:31
Speaker 2: Yeah. And I know, yes, absolutely. And I know a
41:34
Speaker 2: few of the product providers are really going out there
41:36
Speaker 2: trying to produce information now as an estate planning vehicle.
41:41
Speaker 2: We certainly haven't seen a lot of traction yet. for
41:44
Speaker 2: it at this point in time. Because the other aspect
41:46
Speaker 2: that we're seeing right now is if you're going to
41:48
Speaker 2: get an inheritance from your parents and say you're 40
41:52
Speaker 2: or 50 years old, right now, the first thing you
41:55
Speaker 2: should be doing is putting that money off your mortgage.
41:58
Speaker 2: And then if you have more money, then maybe it's
42:01
Speaker 2: topping up super. So they haven't really needed the benefit
42:04
Speaker 2: of a bond or a trust. And I think with
42:08
Speaker 2: that intergenerational wealth report, I think we might've touched on
42:10
Speaker 2: this last time. I think the government's really going to
42:13
Speaker 2: crack down on more ways to get tax revenue out
42:16
Speaker 2: of deceased estates. There's thought there on rather than doing
42:20
Speaker 2: something for estate planning, wealth transfer purposes, giving the money
42:24
Speaker 2: now to your kids and helping pay off the debt,
42:27
Speaker 2: mortgages and things like that.
42:28
Speaker 1: Yeah, that's a really good answer. Yes, that's really worth
42:32
Speaker 1: thinking through, Lil. So they look, they have their advantages.
42:35
Speaker 1: Be careful with the sales talk on that stuff. Think
42:38
Speaker 1: about what you need first. Think about the fact that
42:41
Speaker 1: what else is out there? As Hugh says, is there
42:44
Speaker 1: mortgage debt that's not tax deductible? Just home mortgage debt.
42:47
Speaker 1: Got to get that first. Superannuation contributions because that's neat.
42:53
Speaker 1: And then you can get into the blue sky if
42:55
Speaker 1: you're lucky enough to even consider products of that nature. This, again,
43:02
Speaker 1: is information only. But this is, as you can see,
43:04
Speaker 1: a repeated view on the show from top advisors and
43:09
Speaker 1: always worth listening to. OK, hey, we're running out of time.
43:12
Speaker 1: Thank you very much, Hugh. That was great. We really
43:15
Speaker 1: rolled around there. Lots of different subjects. Thanks a lot, Hugh.
43:19
Speaker 2: Thank you very much for having me. It's been great.
43:20
Speaker 1: We'll have you on the show again.
43:22
Speaker 2: All right.
43:23
Speaker 1: That was Hugh Robertson, folks, of Centaur Financial Services. And
43:28
Speaker 1: he is one of the top advisors in the land. Regularly,
43:31
Speaker 1: as I say, ranks high on the top advisors list.
43:35
Speaker 1: Love to have some more questions or comments. Send them in.
43:40
Speaker 1: The email is themoneypuzzleattheaustralian.com.au. Talk to you soon.