Latest / The Money Puzzle / Are you prepared for a sharemarket crash?

Transcript

Are you prepared for a sharemarket crash? · The Money Puzzle

• 0:10
  Speaker 1: Hello and welcome to the Australians Money Puzzle podcast. I'm
• 0:13
  Speaker 1: James Kirby. Welcome aboard everybody. Well, you might be happy
• 0:16
  Speaker 1: with your super returns and possibly happy with your share
• 0:20
  Speaker 1: market portfolio over the last financial year. That would depend,
• 0:23
  Speaker 1: I imagine, very heavily on whether you had US shares
• 0:28
  Speaker 1: after our shares that did so much better than our
• 0:31
  Speaker 1: own shares. They did about twenty percent in the US,
• 0:34
  Speaker 1: they did about fifty percent on emerging markets, and we
• 0:37
  Speaker 1: did about three percent. So what I want to talk
• 0:41
  Speaker 1: about today is not whether the share market can keep going,
• 0:44
  Speaker 1: but are you ready for a share market crash? That
• 0:49
  Speaker 1: sounds like it's provocative. I don't mean it to be provocative,
• 0:52
  Speaker 1: per se. We're going to have a share market crash.
• 0:54
  Speaker 1: There's one coming down the line. There's always one coming
• 0:57
  Speaker 1: down the line. I just can't tell you when it is, unfortunately,
• 1:00
  Speaker 1: and I don't have to justify this in any way,
• 1:03
  Speaker 1: because the marks, if you like, of irrational exuberance are
• 1:07
  Speaker 1: there for all to see, particularly in the US market.
• 1:10
  Speaker 1: The US market rules the world, and it rules our
• 1:13
  Speaker 1: world more than it ever did before, and that was
• 1:15
  Speaker 1: pretty obvious from the super returns this year. Which were
• 1:17
  Speaker 1: largely based on directly based on the fact that big
• 1:21
  Speaker 1: super funds head up to fifty percent on Wall Street.
• 1:25
  Speaker 1: So what I want to talk about today is how
• 1:29
  Speaker 1: to prepare and defend yourself and be able to sleep
• 1:33
  Speaker 1: at night with the markets where they are, and what
• 1:36
  Speaker 1: you can do to feel better about this, basically to
• 1:40
  Speaker 1: have a bulwark on against this inevitable reversal which will
• 1:44
  Speaker 1: come sooner or later. My guest today is financial advisor
• 1:47
  Speaker 1: Liam Short of the Soness Wealth Group. How are you, Liam, I've.
• 1:52
  Speaker 2: Found thanks James, glad to be here.
• 1:54
  Speaker 1: Was I a bit over the top?
• 1:55
  Speaker 2: There no look at sixteen years since the GFC for
• 2:00
  Speaker 2: three memories, you give up forget about it and they
• 2:04
  Speaker 2: do get over exield written and start chasing returns. And
• 2:08
  Speaker 2: the most people I had looking to get into SpaceX
• 2:11
  Speaker 2: just because they heard so much about it, but they
• 2:13
  Speaker 2: didn't understand the risk they're taking on it. So you've
• 2:16
  Speaker 2: got to be careful. You've got to understand that there
• 2:18
  Speaker 2: are market cycles, and we are looking especially top heavy
• 2:23
  Speaker 2: at on the US in the cities that are very
• 2:27
  Speaker 2: much now concentrated in about forty.
• 2:30
  Speaker 1: Stocks, yes, and concentrated again within that on a bunch
• 2:34
  Speaker 1: of AI stocks and you mentioned SpaceX.
• 2:36
  Speaker 2: Yeah.
• 2:36
  Speaker 1: I mean people are rushing to put in put their
• 2:38
  Speaker 1: money into a company that's trading on multiples of revenue,
• 2:42
  Speaker 1: it isn't making a profit, and that is there are
• 2:45
  Speaker 1: so many signs as I say that the market's overheated.
• 2:48
  Speaker 1: So what we want to talk about is what you
• 2:50
  Speaker 1: can do. So I want to cut straight through it.
• 2:52
  Speaker 1: To me, Liam, the big one is the bucket strategy.
• 2:57
  Speaker 1: And this is quite a strong theory. This is there's
• 3:00
  Speaker 1: academic work on this for many years in the US,
• 3:04
  Speaker 1: So I think folks, the question is not whether you
• 3:08
  Speaker 1: should put some money on the sidelines, but how much
• 3:12
  Speaker 1: and for how long is it a year? Is it
• 3:14
  Speaker 1: two years? Can you talk to us about that, Liam, Yeah.
• 3:18
  Speaker 2: So it depends the stage and if you're in. But
• 3:20
  Speaker 2: from our retireing clients, I want to have three to
• 3:23
  Speaker 2: four years pension money in cash and fixed interest. And
• 3:26
  Speaker 2: the whole idea behind that is if they know exactly
• 3:29
  Speaker 2: where the money's going to come from for their minimum
• 3:31
  Speaker 2: pensions or whatever their lifestyle is for the next two
• 3:33
  Speaker 2: or three years, they're then more willing to let the
• 3:37
  Speaker 2: rest of their portfolio go through the ups and downs
• 3:40
  Speaker 2: and the cycles. The worst thing people can do is
• 3:43
  Speaker 2: sort of be worried about where the money's going to
• 3:45
  Speaker 2: come from. Then the market crashes and they feel have
• 3:47
  Speaker 2: got to sell at the very worst time. So by
• 3:50
  Speaker 2: using the bucket strategy, you're avoiding that knee jerk reaction.
• 3:55
  Speaker 1: Which is very good, you know, in principle. I mean,
• 3:57
  Speaker 1: who would actually argue the idea, but three or four
• 4:03
  Speaker 1: years it's not for lot I mean a lot of
• 4:06
  Speaker 1: people wouldn't have much money left in their super or
• 4:08
  Speaker 1: their share portfolio if they put three or four years aside.
• 4:12
  Speaker 2: Look, if you I'm basically talking about twenty percent of
• 4:15
  Speaker 2: your portfolio and cash and fixed interest, So it's basically
• 4:18
  Speaker 2: just making sure that you can meet those minimum requirements.
• 4:21
  Speaker 2: So up to sixty five four percent of your balance
• 4:24
  Speaker 2: sixty five to seventy four it's five percent, So you're
• 4:28
  Speaker 2: not talking a huge amount, but depending on your situation,
• 4:33
  Speaker 2: working on a percentage of your portfolio, making sure that
• 4:36
  Speaker 2: you've got those minimums for the side. And then for
• 4:38
  Speaker 2: younger people, it's more about having some money aside as
• 4:41
  Speaker 2: an opportunity. So if there is a crash, if there
• 4:44
  Speaker 2: is an opportunity that comes up, that you've got some
• 4:46
  Speaker 2: money available to do it. Yeah, the beauty with ETFs
• 4:50
  Speaker 2: nowadays is that you can sell them it in three
• 4:52
  Speaker 2: days if you want to. But normally the opportunity that
• 4:56
  Speaker 2: comes up, it's because the markets have dropped, and that's
• 4:59
  Speaker 2: not when you want to be selling your aggressive assets
• 5:01
  Speaker 2: or your growth asset. So to have that little bit
• 5:03
  Speaker 2: of a cash aside is very handy, and at the
• 5:06
  Speaker 2: moment you can be looking in your four point eight
• 5:09
  Speaker 2: for cash at hand, you know, twenty four on coal
• 5:14
  Speaker 2: or five point three four point four percent for six,
• 5:16
  Speaker 2: nine and twelve month term deposits.
• 5:19
  Speaker 1: I think I'm just remembering it's the cold the Eventski method.
• 5:23
  Speaker 1: Harold Evenski, us financial adviser once upon time nineteen seventies,
• 5:27
  Speaker 1: I think, came up with this and academically kind of
• 5:29
  Speaker 1: put a robust case for it, and it's been there
• 5:31
  Speaker 1: ever since. Let's just take a little bit deeper. Let's
• 5:33
  Speaker 1: split it into two, the person who isn't retired and
• 5:35
  Speaker 1: the person who is retired. So the person who isn't retired,
• 5:39
  Speaker 1: you're saying that you put this aside not so much
• 5:45
  Speaker 1: that you can avoid the crash, but when the crash comes,
• 5:47
  Speaker 1: you can take advantage of the fact that everything's going
• 5:50
  Speaker 1: to be twenty percent thirty percent cheaper than it was.
• 5:52
  Speaker 2: Yeah, you talk to anybody, James, who went through the
• 5:55
  Speaker 2: you know, it was over seventy they've been three or
• 5:58
  Speaker 2: four crashes. If you talk to the ones and did
• 6:02
  Speaker 2: some investments during those times, they'll never regret it. They
• 6:05
  Speaker 2: just they'll never regret holding some cash because they got
• 6:08
  Speaker 2: the opportunity to buy it to come old bank shares
• 6:10
  Speaker 2: without twenty dollars in the Yeah, they got the buying CSL.
• 6:15
  Speaker 2: They both CSL at ninety five dollars last week and
• 6:19
  Speaker 2: now it's up at one hundred and eight hundred and
• 6:20
  Speaker 2: ten dollars.
• 6:21
  Speaker 1: Takes a bit of guts though at the time, I'm
• 6:23
  Speaker 1: just thinking of those worst periods that I've experienced. I
• 6:26
  Speaker 1: mean the GFC fifty fifty percent folks.
• 6:29
  Speaker 2: But James, it's about having a conversation with yourself and
• 6:32
  Speaker 2: doing with research then and going will the CommonWell Bank
• 6:35
  Speaker 2: disappear tomorrow? And if you go Yeah, and this was
• 6:38
  Speaker 2: an older one of my clients said to me, like
• 6:40
  Speaker 2: she was sitting in a group of ladies during THEFC
• 6:43
  Speaker 2: and they were sitting there going, oh, the whole world's
• 6:46
  Speaker 2: falling apart, and she just asked them, are you going
• 6:49
  Speaker 2: to change bank because of it? Absolutely? No, no chance whatever.
• 6:54
  Speaker 2: She finally said, my husband did this in seventy four,
• 6:57
  Speaker 2: we did it in eighty six, and we did it
• 6:59
  Speaker 2: in two thousand. Bymy coming all bank shares with as
• 7:02
  Speaker 2: much spare money as I've got, because it be there
• 7:04
  Speaker 2: in five years time. I don't know if anything else
• 7:06
  Speaker 2: will be right.
• 7:08
  Speaker 1: It's a good example. Or even COVID it was thirty
• 7:11
  Speaker 1: five percent. It was short, short lived, but it was
• 7:14
  Speaker 1: a thirty five percent drop. Okay. So for the person
• 7:17
  Speaker 1: who isn't retired, you have that concept of having money
• 7:21
  Speaker 1: on the sidelines.
• 7:22
  Speaker 2: For that.
• 7:23
  Speaker 1: We will talk about trying to cushion the effect of
• 7:25
  Speaker 1: crash slightly later in the show. Now further retired person
• 7:29
  Speaker 1: or the pre retiree, and what's the pre retiree these days,
• 7:33
  Speaker 1: fifty to fifty five. There is that issue of sequential risk,
• 7:37
  Speaker 1: that issue that if you're very unlucky, the crash comes
• 7:41
  Speaker 1: at the worst possible time when you thought, you know,
• 7:43
  Speaker 1: you thought you had a million in super and guess what,
• 7:45
  Speaker 1: you don't you have seven hundred and fifty per or
• 7:47
  Speaker 1: whatever what about I presume when you talk about literally
• 7:50
  Speaker 1: time periods for you saying someone should have a year's
• 7:53
  Speaker 1: worth of spending on one side, you're talking about people
• 7:57
  Speaker 1: in that position. Can you elaborate on that?
• 8:00
  Speaker 2: So again, if you know, if you're two or three
• 8:01
  Speaker 2: years out from retirement that if the markets do take
• 8:05
  Speaker 2: a big hit at that stage, you lose your confidence
• 8:07
  Speaker 2: complete you. I've seen people decide not to retire because
• 8:10
  Speaker 2: of it. We'll stop travel for five years because of
• 8:13
  Speaker 2: the over Even though the market's back up within six
• 8:16
  Speaker 2: six months, it took such a hit to their confidence.
• 8:19
  Speaker 2: So they've got two to three years pension money. I
• 8:22
  Speaker 2: sit down with them and go, no, we put in
• 8:24
  Speaker 2: place your retirement. Your retirement will be fine. The next
• 8:27
  Speaker 2: three years. Pension money is I've got one two to
• 8:30
  Speaker 2: three year URNA deposits and annuities, so I know exactly
• 8:32
  Speaker 2: where that money is coming from. We're not going to
• 8:34
  Speaker 2: touch the rest of your portfolio. We've gone through it.
• 8:37
  Speaker 2: We know that the its solid investments. You don't have
• 8:39
  Speaker 2: to worry about your retirement. Whereas if somebody's you know,
• 8:42
  Speaker 2: still in their high growth or in the balance option
• 8:45
  Speaker 2: as they hit retirement and it takes a hit of
• 8:48
  Speaker 2: twenty or thirty percent. Look, it's something natural that it
• 8:50
  Speaker 2: destroys the confidence. So it's about preparing the plan, be
• 8:56
  Speaker 2: and have understanding and look, we re educate so knowing
• 9:01
  Speaker 2: there will be times when there will be bad times.
• 9:03
  Speaker 2: I was preparing counts last year saying, look, with Trump
• 9:06
  Speaker 2: coming in, I think twenty twenty six is going to
• 9:08
  Speaker 2: be a terrible year. But we didn't overreact and take
• 9:11
  Speaker 2: everything out of the market. We just said, I've got
• 9:13
  Speaker 2: two to three years penchion money in cashing. Just for
• 9:16
  Speaker 2: the younger people. What we did if they were putting
• 9:19
  Speaker 2: lump sums in We just decided to drip feed. Okay,
• 9:23
  Speaker 2: we're drip feeding money in every one or three months.
• 9:26
  Speaker 2: And the beauty of that is when the markets did
• 9:28
  Speaker 2: take a hit when he started the Iron War, we
• 9:31
  Speaker 2: just brought forward all the future drip feeds and got
• 9:35
  Speaker 2: in when the market was low. So it's really just
• 9:38
  Speaker 2: about it's that opportunity, having that opportunity fund and it works.
• 9:44
  Speaker 1: I like the idea opportunity fund for the pre retiree,
• 9:47
  Speaker 1: for the post retire or anyone close to that. I
• 9:49
  Speaker 1: suppose the issue is as you say, and we can't
• 9:52
  Speaker 1: measure this, and we can't do anything about it except
• 9:54
  Speaker 1: to say that if you make preparations, your confidence will
• 9:59
  Speaker 1: not be it badly by a major crash as it
• 10:04
  Speaker 1: might be. And them, you and I at least have
• 10:06
  Speaker 1: been at the very least been through the COVID crash
• 10:08
  Speaker 1: and the GFC. The one actually I think that's most
• 10:11
  Speaker 1: comparable courses the dot com crash, in that there was
• 10:15
  Speaker 1: a new technology that everyone got very excited about. Then
• 10:17
  Speaker 1: it became leverage to the hill, and then it became
• 10:20
  Speaker 1: downright crazy late nineteen ninety nine, and in March two
• 10:25
  Speaker 1: thousand and there was one hell of a reversal. I
• 10:28
  Speaker 1: think nothing's inevitable, but it is likely to happen with
• 10:32
  Speaker 1: the AI boom, which has strong similarities. I think. So
• 10:36
  Speaker 1: just on the issue that strikes me, that's hard for people.
• 10:42
  Speaker 1: How do they get around this? So they sit back
• 10:44
  Speaker 1: and they say, okay, that makes sense, Okay, I'll do it.
• 10:47
  Speaker 1: But there's an opportunity cost isn't there? So their returns
• 10:50
  Speaker 1: aren't going to be as good as they might have
• 10:52
  Speaker 1: been if they hadn't created this defense fund, if you like,
• 10:55
  Speaker 1: So how do you deal with that?
• 10:57
  Speaker 2: It's about anchoring their expectations. You know, for a pre retiree,
• 11:02
  Speaker 2: for somebody in their thirties or forties, they're looking to
• 11:04
  Speaker 2: make as much growth as possible. Okay, you're still going
• 11:07
  Speaker 2: to have a growth focus. We just have a little
• 11:09
  Speaker 2: bit of an opportunity fund and when they see the
• 11:12
  Speaker 2: opportunity they only have to see the opportunity once and
• 11:14
  Speaker 2: take advantage of it once that they'll stick to that
• 11:16
  Speaker 2: strategy for the rest of their lives true retirement onwards.
• 11:20
  Speaker 2: For the retirees, it's more about absolutely giving them that
• 11:24
  Speaker 2: confidence that if they're spending eighty thousand a year and
• 11:29
  Speaker 2: you know they've got let's say eight hundred thousand and
• 11:31
  Speaker 2: super that we have two hundred thousand of that in
• 11:36
  Speaker 2: German of positive fixed interests, so they never have to
• 11:38
  Speaker 2: worry where the next year's pensions are coming from. And
• 11:41
  Speaker 2: that still makes about six hundred thousand. Three quarters of
• 11:43
  Speaker 2: the money can be totally allocated towards you know, decent
• 11:48
  Speaker 2: blue chip stocks and growth stocks. You know, I use
• 11:51
  Speaker 2: high yel dtfs. I won't name any of them, but
• 11:53
  Speaker 2: there are a number out there. So instead of going
• 11:56
  Speaker 2: for the just the you know, the ones that cover
• 11:59
  Speaker 2: the top two hundred stocks in the top three hundred
• 12:02
  Speaker 2: stocks we for retirees, we focus on the ones that
• 12:05
  Speaker 2: pay larger dividends. We're giving up some of the growth
• 12:08
  Speaker 2: side of it. But you look over the last couple
• 12:10
  Speaker 2: of years, those high yieldit. Yes, so delivered twenty percent
• 12:14
  Speaker 2: in Australia this year, whereas the ones over the full
• 12:17
  Speaker 2: index have delivered seven to nine percent. So my clients,
• 12:21
  Speaker 2: they've actually done better because they were more aware of
• 12:25
  Speaker 2: what they needed to deliver in terms of income over
• 12:28
  Speaker 2: the long term.
• 12:29
  Speaker 1: This is because of their active management of dividend flows.
• 12:33
  Speaker 1: Is that really why they got their return as opposed
• 12:35
  Speaker 1: to anything else. So they're training a fair bit these funds,
• 12:39
  Speaker 1: I imagine.
• 12:39
  Speaker 2: Yeah, they were basically avoiding the spectative stocks, the newcomers.
• 12:43
  Speaker 2: So yes, they miss out on the unicorns, but they
• 12:46
  Speaker 2: sleep at night because they know they've got a minimum
• 12:49
  Speaker 2: four percent income fully franked coming in and then this
• 12:52
  Speaker 2: year they're getting sixteen percent growth on top of that.
• 12:55
  Speaker 1: Yeah, and you're comfortable that that type of fund is
• 13:00
  Speaker 1: sustainable in the long term.
• 13:03
  Speaker 2: Yes, because the ones we use we've got a long
• 13:05
  Speaker 2: term track record and tell you the ten year of
• 13:08
  Speaker 2: returnal the two euse are over night. It's nine percent
• 13:11
  Speaker 2: per year.
• 13:12
  Speaker 1: Yeah, and who can argue with that?
• 13:14
  Speaker 2: Yeah?
• 13:15
  Speaker 1: Okay, very good. Just briefly, while we're talking about the
• 13:20
  Speaker 1: best return you can get without exposing yourself to a
• 13:24
  Speaker 1: share market crash, beyond the share market, whereas do people
• 13:29
  Speaker 1: look we'll talk in the next segment about actively how
• 13:33
  Speaker 1: to do this, But in terms of how people just
• 13:36
  Speaker 1: manage the cash part, could you explain to us the
• 13:39
  Speaker 1: notion of laddered deposits. I know that people might be
• 13:43
  Speaker 1: familiar with laddered bonds, but that is in the US
• 13:47
  Speaker 1: they use them. But just tell us your core notion.
• 13:50
  Speaker 1: Tell the listener this idea of ladder deposits and how
• 13:54
  Speaker 1: it works.
• 13:55
  Speaker 2: Yeah. So when we talk about cash and fixed interest,
• 13:57
  Speaker 2: I know want people just leaving money sitting in a
• 13:59
  Speaker 2: chair acount. We have six months of their income in
• 14:03
  Speaker 2: a high interest account earning about four point six four
• 14:05
  Speaker 2: point eight percent. Then we've got a twelve one term deposit.
• 14:09
  Speaker 2: Most of the ones we've got at the moment, we're
• 14:10
  Speaker 2: locked in at about five point five. Now we're locking
• 14:13
  Speaker 2: in two year, three year, and up to five years
• 14:16
  Speaker 2: at five point three five percent. Now, the interest rates
• 14:19
  Speaker 2: the banks are all telling us now, and I'm seeing
• 14:20
  Speaker 2: it from the rates that next year the rates are
• 14:23
  Speaker 2: going it looks like the rate's going to drop. No
• 14:25
  Speaker 2: one can tell you for sure, but the majority of
• 14:27
  Speaker 2: people are very happy if they know that the money
• 14:30
  Speaker 2: that they need for the next two to three years
• 14:33
  Speaker 2: is definitely going to return five two percent or five
• 14:36
  Speaker 2: point three percent. That just gives them the confidence. That's
• 14:40
  Speaker 2: a decent rate, you know. And with the you know,
• 14:43
  Speaker 2: last month we were getting five point seven so and
• 14:46
  Speaker 2: now it's five point four is the maximum, So we
• 14:48
  Speaker 2: know that it's reducing. So we are now just locking
• 14:51
  Speaker 2: in those two, three and four year.
• 14:53
  Speaker 1: What about the investor who says, listen, that's all good,
• 14:55
  Speaker 1: but the inflation's four percent, I'm only getting one one
• 14:58
  Speaker 1: and a half. How do I live on that?
• 15:00
  Speaker 2: Yeah, but this is the reason. If they think interest
• 15:03
  Speaker 2: rates are coming down, that's because they think inflation is
• 15:05
  Speaker 2: going to be back under control next year. So but
• 15:09
  Speaker 2: if you've got a two or three year or four
• 15:10
  Speaker 2: year turnative, so you've still locked in that five point
• 15:13
  Speaker 2: four percent, and you'll get the benefit as inflation drops.
• 15:18
  Speaker 2: Nobody can tell for sure, but.
• 15:20
  Speaker 1: Yes, okay, fair point, you'll get the benefit as inflation drops,
• 15:23
  Speaker 1: and then the lattering is basically splitting the money a
• 15:26
  Speaker 1: portioning it if you like one year, two year, three
• 15:29
  Speaker 1: year out along the line.
• 15:30
  Speaker 2: Is that it? Yeah, And the other benefit of that
• 15:32
  Speaker 2: is most of your turn of puzzles will be below
• 15:34
  Speaker 2: the two hundred and fifty thousand limits, so you get
• 15:36
  Speaker 2: the full government guarantee on each one of them. Yeah.
• 15:38
  Speaker 1: And if you go over to fifty, just go to
• 15:40
  Speaker 1: another bank.
• 15:41
  Speaker 2: Is that?
• 15:41
  Speaker 1: Is that what you do?
• 15:42
  Speaker 2: And there's there's any facilities out there now where you
• 15:45
  Speaker 2: can get access to ten or twenty banks on the
• 15:47
  Speaker 2: one platform.
• 15:49
  Speaker 1: Right, Yeah, So remember that, folks, the government guarantee. I mean,
• 15:53
  Speaker 1: this is extremely important. It's when we're talking about these
• 15:56
  Speaker 1: fixed interests and cash. When we're talking about cash, turn
• 15:59
  Speaker 1: the part which is your plank basically for defending yourself
• 16:03
  Speaker 1: in terms of a share market crash. We're talking about
• 16:06
  Speaker 1: government guaranteed term deposits. The guarantee is two hundred and
• 16:10
  Speaker 1: fifty thousand per person per bank. If you're over two
• 16:12
  Speaker 1: hundred and fifty thousand, then you're worried about the banking
• 16:14
  Speaker 1: system or even worried about whether the government would come
• 16:18
  Speaker 1: through with guarantee. Then it's per person per bank, So
• 16:22
  Speaker 1: so if you're over two fifty thousand, then go to
• 16:25
  Speaker 1: another bank. Basically move it around so that you are
• 16:28
  Speaker 1: always getting that guarantee. Okay, I want to talk in
• 16:32
  Speaker 1: the next part of the show about other tactics if
• 16:35
  Speaker 1: you like, other strategies that aren't perhaps as conservative or
• 16:39
  Speaker 1: old school. That's what we've just talked about. Back in
• 16:41
  Speaker 1: a moment. Hello, Welcome back to The Australian's Money Puzzle
• 16:53
  Speaker 1: James Kirby with Liam Short of the Sonness Wealth Clup
• 16:56
  Speaker 1: Liam bounce around here. But a couple of things that
• 16:59
  Speaker 1: the other people have brought up with me. Some of
• 17:01
  Speaker 1: them are pretty smart. I thought one was many listeners
• 17:05
  Speaker 1: to the show, with their shares or their ETFs would
• 17:09
  Speaker 1: have d orps dividend reinvestment programs and you might have
• 17:13
  Speaker 1: one for years. I mean I have them ticking away
• 17:15
  Speaker 1: for years and years, you know, on mainstay stocks, Reo
• 17:18
  Speaker 1: or come Bank or whatever. And it's all very nice,
• 17:21
  Speaker 1: right because in the funness of time you look and
• 17:22
  Speaker 1: go and you go, oh that's good. It makes you
• 17:25
  Speaker 1: do dollar cost averaging. Basically, it makes you continually invest
• 17:29
  Speaker 1: good times and bad times. But a quick way to
• 17:33
  Speaker 1: create cash for yourself should you need it, should you
• 17:37
  Speaker 1: not perfectly employ the strategies that we mentioned at the
• 17:40
  Speaker 1: first part of the show, is to cancel your dr ps.
• 17:43
  Speaker 1: Just cut them out and it won't hurt a lot,
• 17:46
  Speaker 1: but you get cash. You create cash out of I
• 17:49
  Speaker 1: don't say out of thin air, but all of your
• 17:50
  Speaker 1: portfolio which didn't previously do it. What do you think
• 17:53
  Speaker 1: of that strategy?
• 17:55
  Speaker 2: Yeah, Look, I personally don't like DRPs because the amount
• 17:58
  Speaker 2: of the funds matter are dividends stripping. So they're buying
• 18:01
  Speaker 2: into stocks, you know, twenty or thirty days before they
• 18:06
  Speaker 2: asker dividends and they are coming out fifteen days later.
• 18:08
  Speaker 2: Whilce they get the Franklin credits. It means that you're
• 18:11
  Speaker 2: the shares you're getting in the DRP are at the peak.
• 18:15
  Speaker 2: They're basically god right up.
• 18:16
  Speaker 1: They're very funds you were sending us to buy in
• 18:18
  Speaker 1: the first segments.
• 18:20
  Speaker 2: But aren't they You don't do it, You buy when
• 18:23
  Speaker 2: you want to buy the meal.
• 18:24
  Speaker 1: Yes, but they are. It's the same people, right the
• 18:27
  Speaker 1: funds that are giving us those very good dividend returns
• 18:30
  Speaker 1: out they're the dividend strippers. Aren't they.
• 18:32
  Speaker 2: Yeah, But what you do is you take the dividend
• 18:34
  Speaker 2: and then you decide where's the best place to play that.
• 18:36
  Speaker 1: Well, but let's love for the fact that some listeners
• 18:39
  Speaker 1: would have DRPs that they might have. Let's just say
• 18:41
  Speaker 1: they have twenty stocks, ten of them have d rps,
• 18:45
  Speaker 1: and since you don't like them anyway, what do you
• 18:47
  Speaker 1: think of the idea of cashing them? That is, suspending
• 18:51
  Speaker 1: them and taking the cash instead of the money in kind,
• 18:53
  Speaker 1: if you know what I mean.
• 18:54
  Speaker 2: Perfectly good strategy. Yeah, especially in times where you need
• 18:58
  Speaker 2: to build up your cash you're worried about something. The
• 19:00
  Speaker 2: other strategies that can look at doing is you know,
• 19:03
  Speaker 2: we talked earlier about you put options or call options.
• 19:06
  Speaker 2: And basically, if you've got a especially you've got a
• 19:08
  Speaker 2: lot in one stock and you're willing to give up
• 19:11
  Speaker 2: some of the upside to get a bit of extra income, Okay,
• 19:14
  Speaker 2: so you might have you know, let's say you've got
• 19:17
  Speaker 2: a stock that's it's done really well, it's trainly at
• 19:19
  Speaker 2: one hundred dollars. You don't think it's got much upside
• 19:22
  Speaker 2: on it, but you love the stock and you want
• 19:24
  Speaker 2: to keep it for its dividend. Or whatever. You might
• 19:26
  Speaker 2: just sell an option to you know, to a put
• 19:29
  Speaker 2: option where someone could buy off you at one twenty
• 19:32
  Speaker 2: if it goes up to one twenty, and that just
• 19:34
  Speaker 2: means that the stock goes beyond that price, you've had
• 19:36
  Speaker 2: to sell it one twenty, Okay. But in in time
• 19:38
  Speaker 2: you're getting paid, like you're getting paid like an extra option.
• 19:42
  Speaker 2: Call it to basically fund you know, extra income basically.
• 19:47
  Speaker 1: Yeah, and it's it's a kind of it's a way
• 19:49
  Speaker 1: of ensuring yeah, and it.
• 19:50
  Speaker 2: Works really well for clients and pension phase because most
• 19:54
  Speaker 2: of them are not going to play any couple of
• 19:55
  Speaker 2: games stats if it is triggered. So for the younger people,
• 19:58
  Speaker 2: it's a concern when you're an accumulation or you've got
• 20:01
  Speaker 2: stocks outside your own name. But if it does trigger
• 20:04
  Speaker 2: the option, that suddenly you've got a cap of your
• 20:06
  Speaker 2: game to pay. But if your pension phases are super fun,
• 20:09
  Speaker 2: you don't care income and income. And it's also it's
• 20:12
  Speaker 2: tax free invention phase.
• 20:14
  Speaker 1: Yeah, yeah, there you go. Similarly, what do you think
• 20:16
  Speaker 1: of these new type ETFs which are called I think
• 20:19
  Speaker 1: they're called they call them bear ETFs, where the ETF
• 20:23
  Speaker 1: will go up if the market falls, but of course
• 20:26
  Speaker 1: if the market's going up, it won't go up. So
• 20:29
  Speaker 1: there this year, for instance, they're down, needless to say,
• 20:32
  Speaker 1: because the market went up. It's a kind of a
• 20:35
  Speaker 1: callateralized product down. The same notion as we were just
• 20:38
  Speaker 1: talking about, what do you think of them?
• 20:40
  Speaker 2: So they're internally geared basically, so they're giving you double
• 20:44
  Speaker 2: the exposure to a down and turn in the market.
• 20:48
  Speaker 2: Is every tone I've looked at them, They've just not
• 20:51
  Speaker 2: performed well.
• 20:53
  Speaker 1: Has there been a crash during the period you looked
• 20:55
  Speaker 1: at them.
• 20:56
  Speaker 2: It has happened a few times. And if you look
• 20:57
  Speaker 2: at if you look at them, they by the time
• 20:59
  Speaker 2: people go to them, they're too late. And you know that,
• 21:04
  Speaker 2: I think you know there's studies out there if you
• 21:05
  Speaker 2: miss the best ten days of the worst ten days
• 21:07
  Speaker 2: in the market and over a ten year period, that
• 21:10
  Speaker 2: you're missing most of the upside of downside. I personally
• 21:14
  Speaker 2: have tried them a couple of times, but I've been
• 21:15
  Speaker 2: in there and add very quickly. I tend to do
• 21:18
  Speaker 2: the other one instead of because I can never call
• 21:21
  Speaker 2: when something's going to happen, but ready with my opportunity
• 21:25
  Speaker 2: fund when it does, I buy into the geared ETFs.
• 21:28
  Speaker 2: There are a few out there now, there are still
• 21:31
  Speaker 2: managed funds. And if I see a market dropping twenty
• 21:33
  Speaker 2: percent and I know that it's an overreaction, I'm happy
• 21:37
  Speaker 2: to show I'll just immediately buy one of those ETFs
• 21:40
  Speaker 2: and managed funds that is geared towards any recovery.
• 21:43
  Speaker 1: So these are leverage dtfs. Yes, yeah, So you're buying
• 21:46
  Speaker 1: the geared version of the ETF because you're looking for
• 21:49
  Speaker 1: because you're more than usually convinced that that the market
• 21:54
  Speaker 1: in the broad is nice.
• 21:55
  Speaker 2: See the market when I see the media and the
• 21:57
  Speaker 2: markets the most pessimistic ever, that's when I go into
• 22:01
  Speaker 2: those ETFs.
• 22:02
  Speaker 1: My colleague Bob dot Liston used to call the day
• 22:05
  Speaker 1: of No Hope.
• 22:07
  Speaker 2: And look for younger people. It really makes sense if
• 22:10
  Speaker 2: you've got, you know, a super rapper somewhere where you
• 22:13
  Speaker 2: can choose ETFs within your fund if you're in your
• 22:15
  Speaker 2: twenties and a GFC event happens. And I did this
• 22:20
  Speaker 2: when I moved to Australia, first because I'd come from
• 22:23
  Speaker 2: England and Middle East and then to Australia and I'm
• 22:26
  Speaker 2: very little in nice what was called pitching from the UK.
• 22:29
  Speaker 2: I brought it across about thirty seven thou when the
• 22:32
  Speaker 2: GFC hit, I just shoved everything into fifty percent. I
• 22:36
  Speaker 2: won't mention the name of the fund, that it was
• 22:37
  Speaker 2: the Australian gear to your fund and fifty international one.
• 22:42
  Speaker 2: And I didn't touch it, didn't even look at it
• 22:43
  Speaker 2: for seven years. Tell even those seven years I caught
• 22:47
  Speaker 2: up with Australians my own age.
• 22:50
  Speaker 1: The only thing I would say, and I admire your
• 22:52
  Speaker 1: in your optimism, not to mention the gots it takes
• 22:55
  Speaker 1: to do that. But there is something I would say
• 22:58
  Speaker 1: as a precaution, not all crashes are as neat as
• 23:02
  Speaker 1: the COVID crash, right thirty five percent, but it was
• 23:06
  Speaker 1: over in the blink of an eye. The GFC. The
• 23:10
  Speaker 1: appalling example where I talk about the fact that the
• 23:13
  Speaker 1: Australians share market fell fifty percent, it took two years
• 23:16
  Speaker 1: to do it. It went from two oh seven to
• 23:19
  Speaker 1: two oh nine. It went from November two oh seven
• 23:21
  Speaker 1: to March two oh nine. That was two years solid
• 23:24
  Speaker 1: where it kind of slowly died on us. So some
• 23:29
  Speaker 1: of the strategies, like your cash strategy and who I mean,
• 23:33
  Speaker 1: who can argue with it? The boocket strategy rationally It's
• 23:38
  Speaker 1: a very attractive strategy, but it would be tested too.
• 23:40
  Speaker 1: It's max if you had two years. So let's say
• 23:43
  Speaker 1: it took two years to go from top to bottom.
• 23:44
  Speaker 1: Make that happened again, and it would probably be a
• 23:47
  Speaker 1: few months before people realized that it really had turned.
• 23:50
  Speaker 1: That would fully test it would it would fully test
• 23:53
  Speaker 1: that strategy.
• 23:54
  Speaker 2: Look, this is why I tell people you've got to
• 23:57
  Speaker 2: do your research. Van Guard came out with a Ford
• 23:59
  Speaker 2: lane last week and it looked at how would the
• 24:02
  Speaker 2: unluckiest investor have done over the last twenty years if
• 24:06
  Speaker 2: they put their money in at the day before.
• 24:09
  Speaker 1: The year, like November two oh seven and Christmas two thousand,
• 24:13
  Speaker 1: et cetera.
• 24:14
  Speaker 2: Yeah, and those people still made decent money, even having
• 24:19
  Speaker 2: been the unluckiest investors possible. By sticking to their strategies
• 24:24
  Speaker 2: and going through the market cycles, they still did well.
• 24:27
  Speaker 2: All I'm saying is, if you're young and you count
• 24:29
  Speaker 2: with your super for thirty or forty years, then it's
• 24:32
  Speaker 2: using a little bit of gearing on top is not
• 24:34
  Speaker 2: a bad idea.
• 24:35
  Speaker 1: Okay, the conversation meant in a very different direction. We started, Okay,
• 24:41
  Speaker 1: we've got some great questions. As you can imagine, folks,
• 24:43
  Speaker 1: questions are pouring in at the moment due to the
• 24:47
  Speaker 1: extensive budget changes that have come at a time where
• 24:52
  Speaker 1: property is falling. The share market, of course, is coming
• 24:56
  Speaker 1: along very nicely, certainly on a year to year basis.
• 24:59
  Speaker 1: We will be back in the moment with some of
• 25:00
  Speaker 1: those questions I've kept for Liam. Hello and welcome back
• 25:11
  Speaker 1: to the Australians Money Puzzle podcast. I'm James Kirby talking
• 25:15
  Speaker 1: to Liam Short of the Sonness Wealth Group, and we
• 25:18
  Speaker 1: are talking. We have been talking about how you defend yourself.
• 25:23
  Speaker 1: Should we not should be? But when we have the
• 25:26
  Speaker 1: next share market crash, it's indisputable, folks that the market
• 25:30
  Speaker 1: is red hot, like it's red heart. They just had
• 25:32
  Speaker 1: their best quarter in six years in the US and
• 25:34
  Speaker 1: enormous amounts of leverage now going into the market across
• 25:37
  Speaker 1: the US, which really is decided. It's getting very hot. Indeed,
• 25:41
  Speaker 1: And though we had Mark Jokum on the show and
• 25:44
  Speaker 1: he was very optimistic and he is a very good strategist.
• 25:48
  Speaker 1: Share market crashes, you know, everything's ignored and people say
• 25:53
  Speaker 1: why why was there a share market crash in nineteen
• 25:56
  Speaker 1: eighty seven? And people, it's like the origins of the
• 25:59
  Speaker 1: First World War. They a hundred different reasons, but basically
• 26:02
  Speaker 1: the reason is it got too much. And that's where
• 26:05
  Speaker 1: we are at the moment. And I think it's very
• 26:08
  Speaker 1: important that listeners to the show have a strategy, or
• 26:11
  Speaker 1: at least know what a strategy is available to you.
• 26:15
  Speaker 1: For a dramatic event such as a share market downturn
• 26:19
  Speaker 1: or reversal, or a crash. You should know. I suppose
• 26:22
  Speaker 1: you do know a correction is more than ten percent,
• 26:24
  Speaker 1: of crash is more than twenty Okay? Question from Adam,
• 26:29
  Speaker 1: how does property that fails to sell factor into the
• 26:33
  Speaker 1: calculation of average house values. It's a really good question,
• 26:37
  Speaker 1: and I've been reading that course as our property prices
• 26:41
  Speaker 1: start to fall, and they are now falling in all cities,
• 26:44
  Speaker 1: by the way, except Darwin. And you're only seeing the
• 26:48
  Speaker 1: numbers for the clearance rates of what was put for sale,
• 26:51
  Speaker 1: and they're below fifty percent. You're not saying all the
• 26:53
  Speaker 1: people who pull their properties. Is there anything you can
• 26:57
  Speaker 1: enlighten us on.
• 26:57
  Speaker 2: That one, Liam, Yeah, just understanding that even though it
• 27:01
  Speaker 2: properly doesn't sell, it doesn't mean it's not worth anything.
• 27:04
  Speaker 2: So it it. You know, when they talk about average
• 27:07
  Speaker 2: sale price. Unsold properties are not counted it okay, it's
• 27:11
  Speaker 2: because they do have a value, they still have a
• 27:14
  Speaker 2: future utility. The same with the median sale price. You
• 27:18
  Speaker 2: know it's not going to be counted in that figure either.
• 27:20
  Speaker 2: It's they're both based on actuals, not on the stuff
• 27:24
  Speaker 2: that has never has not gone to market. Where unsold
• 27:27
  Speaker 2: properties really does come into it is when you're doing
• 27:30
  Speaker 2: forecasting and when the market is forecasting. So if the
• 27:33
  Speaker 2: if the there's high listings and low sales, it really
• 27:37
  Speaker 2: is a strong signal of download price pressure asking the
• 27:40
  Speaker 2: empire's market. So unsold hases they're not ignored, it's you,
• 27:45
  Speaker 2: but they're usually used as a factor for determining what's going.
• 27:49
  Speaker 1: To happen in the future, right yes, okay.
• 27:51
  Speaker 2: Not they're not a point in time as to what's
• 27:53
  Speaker 2: happening at the moment.
• 27:54
  Speaker 1: Yeah, and that would probably explain why the forecast are
• 27:58
  Speaker 1: getting worse and worse. We had a seven percent drop
• 28:00
  Speaker 1: forecast from Comebank a few weeks ago. But I see
• 28:03
  Speaker 1: the newer ones for instance, get this right now, HSBC
• 28:07
  Speaker 1: are talking about ten percent more from here, and who's
• 28:11
  Speaker 1: to say that they're wrong? Okay, I hope that was
• 28:13
  Speaker 1: useful to you, Adam. Okay, last question from Tony regarding
• 28:17
  Speaker 1: the twenty fourth of July episode where you talked to
• 28:21
  Speaker 1: your guest who was buying property overseas and talking about
• 28:25
  Speaker 1: buying property overseas due to the new changes. We were
• 28:30
  Speaker 1: listening to someone who was in the commercial business of
• 28:32
  Speaker 1: property and they're leveraging tax concessions that were culturally designed
• 28:36
  Speaker 1: to help an individual, not a company, manage a single
• 28:39
  Speaker 1: investment property. Seeing these rules utilized to large scale portfolios
• 28:45
  Speaker 1: in in our environment of relatively low interest rates highlights
• 28:48
  Speaker 1: by first time buyers were locked out in the first place,
• 28:51
  Speaker 1: Thank you, Tony. There was never any way around that.
• 28:55
  Speaker 1: That is that if you had tax advantages in investing,
• 28:59
  Speaker 1: and if you could invest in property, then it was
• 29:01
  Speaker 1: entirely natural that people would build portfolios. Yes, on occasion,
• 29:06
  Speaker 1: some of the people on the show that I have
• 29:07
  Speaker 1: had on have had huge property portfolios. I've used them
• 29:11
  Speaker 1: really because they were experts and were able to articulate
• 29:14
  Speaker 1: some of the broader issues. But that was the price
• 29:17
  Speaker 1: we had to pay. There was a one of the
• 29:19
  Speaker 1: notions put up before this latest change was that they
• 29:24
  Speaker 1: might cap the number of negatively geared properties, but they
• 29:26
  Speaker 1: didn't go with that for one reason or another. They
• 29:29
  Speaker 1: went with what they went with. But thank you for that, Tony. Okay, Liam,
• 29:33
  Speaker 1: thank you very much for today. Terrific to have you
• 29:36
  Speaker 1: on the show. I hope that was useful to people.
• 29:40
  Speaker 1: I think that it's one of those shows where you
• 29:43
  Speaker 1: listen to it and hopefully you do something about it,
• 29:46
  Speaker 1: rather than being in tears on the day or the
• 29:50
  Speaker 1: week that it will surely come to pass sooner or later.
• 29:53
  Speaker 1: As I say when people ask me, is they're going
• 29:55
  Speaker 1: to be a share market crash? I hate to be
• 29:57
  Speaker 1: kind of flippant, but I always say yes, I just
• 29:59
  Speaker 1: can't tell.
• 29:59
  Speaker 2: You when exactly you do, and be prepared have your
• 30:02
  Speaker 2: opportunity fund.
• 30:04
  Speaker 1: Have your opportunity fund, says Liam, short of son as well.
• 30:07
  Speaker 1: All right, very good, Thanks Liam, we'll talk to you again.
• 30:09
  Speaker 1: Thank you, James, and thank you folks. Keep the emails coming.
• 30:13
  Speaker 1: The Money Puzzle at the Australian dot com dot Au.
• 30:17
  Speaker 1: Today's show was produced by Leah Sammaglu