1 00:00:10,080 --> 00:00:13,080 Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm 2 00:00:13,160 --> 00:00:16,759 Speaker 1: James Kirby. Welcome aboard everybody. Now, look, it's indisputable. I 3 00:00:16,760 --> 00:00:19,680 Speaker 1: think we can say at this stage that investment markets 4 00:00:19,680 --> 00:00:22,960 Speaker 1: share market in particular are at an inflection point. And 5 00:00:23,040 --> 00:00:31,080 Speaker 1: this obviously is based on credible, logical, rational concern over 6 00:00:31,320 --> 00:00:36,000 Speaker 1: the unleashing of the tariff policy in the US and 7 00:00:36,080 --> 00:00:38,960 Speaker 1: the consequences of that for markets. Some of the biggest 8 00:00:39,040 --> 00:00:44,560 Speaker 1: names and best minds, if you like, in investment are 9 00:00:45,000 --> 00:00:49,559 Speaker 1: openly expressing concerns. Ray Dally, Oh, I'm sure a lot 10 00:00:49,600 --> 00:00:52,559 Speaker 1: of you have read or heard of talking great concern 11 00:00:52,960 --> 00:00:55,360 Speaker 1: over ever recent days. On our own show, Chris Coff 12 00:00:55,960 --> 00:00:57,840 Speaker 1: in the which you shouldn't miss if you did miss it, 13 00:00:58,080 --> 00:01:01,360 Speaker 1: which was the last before Easter, and he talked about 14 00:01:01,400 --> 00:01:03,480 Speaker 1: his concerns for the market, and you know, I thought 15 00:01:03,480 --> 00:01:06,320 Speaker 1: it was great that he came out and expressed clearly 16 00:01:06,720 --> 00:01:09,440 Speaker 1: what he was thinking. Now we don't no one knows 17 00:01:09,640 --> 00:01:11,399 Speaker 1: who's right and who's wrong just now. No one knows 18 00:01:11,400 --> 00:01:13,880 Speaker 1: the future. But he was extremely skeptical about buying the 19 00:01:13,920 --> 00:01:17,040 Speaker 1: dip for instance, and this is someone who's outstanding fund 20 00:01:17,040 --> 00:01:20,679 Speaker 1: manager legendary fund manager in Australia on the board of 21 00:01:20,800 --> 00:01:23,160 Speaker 1: UNI Super, the fourth biggest super fund, on the board 22 00:01:23,200 --> 00:01:27,440 Speaker 1: of RGO, the listed investment companies. Someone really plugged into 23 00:01:27,680 --> 00:01:31,720 Speaker 1: investment committees and where they're coming from. So you have 24 00:01:31,840 --> 00:01:34,679 Speaker 1: this issue that it is a time that you should 25 00:01:34,680 --> 00:01:37,760 Speaker 1: have cash. This is the common denominator of you, like 26 00:01:37,840 --> 00:01:40,360 Speaker 1: among what these people are saying. Now that's not to 27 00:01:40,400 --> 00:01:43,559 Speaker 1: say that you shouldn't bargain hunter or whatever, but today 28 00:01:43,600 --> 00:01:47,639 Speaker 1: I am going to concentrate on that single issue, okay, 29 00:01:47,680 --> 00:01:51,000 Speaker 1: which is building cash buffers at a time of great 30 00:01:51,040 --> 00:01:53,880 Speaker 1: unease in the markets, which is exactly where we're at. 31 00:01:54,120 --> 00:01:56,960 Speaker 1: To help me with this, I have financial planner Liam 32 00:01:57,040 --> 00:01:59,120 Speaker 1: short of the son of S Group, who has been 33 00:01:59,160 --> 00:02:03,720 Speaker 1: on the show before and is particularly expert on this issue, 34 00:02:03,800 --> 00:02:06,880 Speaker 1: and I talked to him regularly about this. How are you, Liam, 35 00:02:07,800 --> 00:02:08,360 Speaker 1: Good morning. 36 00:02:08,440 --> 00:02:09,560 Speaker 2: Let's just talk to you, James. 37 00:02:09,600 --> 00:02:11,639 Speaker 1: I knew nothing at all about cash, but I knew 38 00:02:11,639 --> 00:02:14,280 Speaker 1: I should have cash. I would be aware of a 39 00:02:14,320 --> 00:02:17,320 Speaker 1: couple of things that the rate cycle, as far as 40 00:02:17,360 --> 00:02:20,799 Speaker 1: I know, has topped out. So the RBA did its 41 00:02:20,840 --> 00:02:23,800 Speaker 1: first cut in years, only one cut so far, everyone's 42 00:02:23,840 --> 00:02:28,279 Speaker 1: talking about more cuts but in terms of cash, having cash, 43 00:02:28,880 --> 00:02:30,919 Speaker 1: where to put it on, how much you could get 44 00:02:31,040 --> 00:02:33,360 Speaker 1: for your cash at the moment. Can you give us 45 00:02:33,360 --> 00:02:37,480 Speaker 1: an idea what the settings are and what the momentum is. 46 00:02:38,440 --> 00:02:40,880 Speaker 2: Yeah, So you always need to be aware the banks 47 00:02:40,880 --> 00:02:43,520 Speaker 2: are moving a lot faster than the Reserve Bank. So 48 00:02:43,600 --> 00:02:46,399 Speaker 2: for example, four months ago, we were getting five point 49 00:02:46,480 --> 00:02:49,160 Speaker 2: three percent for a one year term deposit. Now the 50 00:02:49,200 --> 00:02:52,000 Speaker 2: best right we're seeing is about four point six. Okay, 51 00:02:52,000 --> 00:02:54,240 Speaker 2: so even though there's only been one rate cut, we're 52 00:02:54,240 --> 00:02:57,520 Speaker 2: almost priced in three rd cuts into the term deposit rights. 53 00:02:57,880 --> 00:03:00,399 Speaker 2: So then we have to talk about this two types 54 00:03:00,440 --> 00:03:02,640 Speaker 2: of cash. There's lazy money that you just leave sitting 55 00:03:03,120 --> 00:03:06,720 Speaker 2: in a check account or a low interest savings account, 56 00:03:07,000 --> 00:03:09,240 Speaker 2: and this cash that you get working for yourself, that 57 00:03:09,320 --> 00:03:11,960 Speaker 2: you can afford to either not touch it for a 58 00:03:12,000 --> 00:03:14,959 Speaker 2: month or longer, and that you can make sure it's working. 59 00:03:15,480 --> 00:03:17,760 Speaker 2: What we're seeing is some of those some of the 60 00:03:17,800 --> 00:03:20,600 Speaker 2: banks have still got their high interest cash accounts. So 61 00:03:20,639 --> 00:03:23,440 Speaker 2: those cash accounts where they're adding the bonus interest if 62 00:03:23,440 --> 00:03:25,560 Speaker 2: you put in an extra two hundred dollars or fifty 63 00:03:25,560 --> 00:03:29,800 Speaker 2: dollars a month, they're really worth while taking care of, Okay, 64 00:03:29,840 --> 00:03:32,680 Speaker 2: and using them. But you've got to use them smartly. 65 00:03:32,840 --> 00:03:34,520 Speaker 2: If it says that you've got to put in an 66 00:03:34,560 --> 00:03:36,920 Speaker 2: extra fifty dollars a month and you have to do 67 00:03:36,960 --> 00:03:40,880 Speaker 2: four transactions, set those up as automatic. Set fifty dollars 68 00:03:41,040 --> 00:03:46,119 Speaker 2: in there, automatically. Pay some small bills that you pay 69 00:03:46,120 --> 00:03:48,800 Speaker 2: on a monthly basis, Set them up as automatic so 70 00:03:48,880 --> 00:03:52,200 Speaker 2: you don't miss that key bonus interest because it's often 71 00:03:52,480 --> 00:03:54,520 Speaker 2: the base interest rate is one point five or one 72 00:03:54,560 --> 00:03:57,360 Speaker 2: point seventy five and the bonus is three or three 73 00:03:57,360 --> 00:03:57,880 Speaker 2: and a half. 74 00:03:58,360 --> 00:04:00,520 Speaker 1: And this is this is standard fair, now, isn't it like? 75 00:04:00,560 --> 00:04:04,960 Speaker 1: This is really yeah, this is unfortunately you can't just 76 00:04:05,640 --> 00:04:07,760 Speaker 1: it's almost rare that you get a clean cut. Here's 77 00:04:07,800 --> 00:04:10,160 Speaker 1: the rate. It has to be sort of strings attached. 78 00:04:10,360 --> 00:04:12,560 Speaker 2: Yeah, and don't be loyal to any one bank. Shop 79 00:04:12,640 --> 00:04:17,120 Speaker 2: around and see what you can get. And then we're saying, 80 00:04:17,160 --> 00:04:19,280 Speaker 2: if you've got money that's available for more than one month, 81 00:04:19,720 --> 00:04:22,880 Speaker 2: look at term deposits, look at laddering term deposits. Six nine, 82 00:04:22,960 --> 00:04:27,000 Speaker 2: twelve months before rights started dropping, we were lucky in two, three, 83 00:04:27,080 --> 00:04:30,080 Speaker 2: four and five year term deposits and also some annuity, 84 00:04:30,200 --> 00:04:31,080 Speaker 2: so we were. 85 00:04:31,000 --> 00:04:33,320 Speaker 1: Able to elain if you were to the listeners about 86 00:04:33,320 --> 00:04:37,000 Speaker 1: what laddering means exactly, and they have this in bonds 87 00:04:37,000 --> 00:04:39,200 Speaker 1: in the US, I know, but if you might just 88 00:04:39,240 --> 00:04:42,039 Speaker 1: explain to listeners the concept behind laddering. 89 00:04:41,880 --> 00:04:44,039 Speaker 2: Yeah, and I'd probably talk about it in terms of 90 00:04:44,120 --> 00:04:48,159 Speaker 2: funding your retirement. We always want to have two to 91 00:04:48,240 --> 00:04:52,080 Speaker 2: five years pension money or income that you require in 92 00:04:52,120 --> 00:04:54,760 Speaker 2: cash and fixed interest. But if you don't need some 93 00:04:54,839 --> 00:04:57,000 Speaker 2: money till the third year to finance the third year, 94 00:04:57,400 --> 00:05:01,120 Speaker 2: instead of just constantly rolling it over one year, turn deposits, 95 00:05:01,560 --> 00:05:03,640 Speaker 2: lock it into a three year, turn deposit, lock it 96 00:05:03,640 --> 00:05:05,480 Speaker 2: into a two year, lock it into a four year, 97 00:05:05,520 --> 00:05:09,160 Speaker 2: so that you're timing the maturities at the same time 98 00:05:09,200 --> 00:05:11,720 Speaker 2: as when you'll actually need the funds, and not leaving 99 00:05:11,760 --> 00:05:14,480 Speaker 2: yourself open to a variable interest rate on a savings 100 00:05:14,480 --> 00:05:16,600 Speaker 2: account that's a more life you're going to drop fairly 101 00:05:16,640 --> 00:05:19,800 Speaker 2: fast over that period. So it's all about making sure 102 00:05:19,839 --> 00:05:23,480 Speaker 2: that the money is invested for the times you need it, 103 00:05:23,560 --> 00:05:26,160 Speaker 2: for the timescale you need it on the timeline. 104 00:05:26,400 --> 00:05:30,239 Speaker 1: Yeah, that's the laddering approach. So it's and it's working 105 00:05:30,240 --> 00:05:32,800 Speaker 1: on the assumption, obviously, the fairly fundamental assumption that the 106 00:05:32,839 --> 00:05:34,760 Speaker 1: longer you lock it up for the more you'll get, 107 00:05:35,560 --> 00:05:37,239 Speaker 1: and then what would be the range at the moment 108 00:05:37,279 --> 00:05:40,080 Speaker 1: between say a month and a year and four years. 109 00:05:40,440 --> 00:05:42,960 Speaker 2: So on one month you can some of the banks 110 00:05:43,000 --> 00:05:45,920 Speaker 2: are paying as little as three percent. For one year, 111 00:05:45,960 --> 00:05:48,640 Speaker 2: as I said, we can get four point six. With 112 00:05:48,680 --> 00:05:52,000 Speaker 2: the average bank nails down to four point three, you 113 00:05:52,000 --> 00:05:54,200 Speaker 2: can still get around four point six for two years 114 00:05:54,200 --> 00:05:57,040 Speaker 2: and three years. So we've all some people have already 115 00:05:57,040 --> 00:05:59,600 Speaker 2: missed about. Okay, you should always be thinking about these 116 00:05:59,600 --> 00:06:03,559 Speaker 2: things before they actually happen. You need to be thinking 117 00:06:03,600 --> 00:06:06,800 Speaker 2: where we're seeing. If the markets are going well, if 118 00:06:06,839 --> 00:06:09,280 Speaker 2: they're economies doing well, then it's time to start putting 119 00:06:09,320 --> 00:06:12,680 Speaker 2: money away for the bad times. And it was being 120 00:06:12,720 --> 00:06:15,440 Speaker 2: met very clear that the Reserve Bank was holding or 121 00:06:15,480 --> 00:06:17,480 Speaker 2: not reducing interest rights, but that there was a bias 122 00:06:17,520 --> 00:06:20,320 Speaker 2: towards reducing them as soon as they got the unemployment 123 00:06:20,360 --> 00:06:22,920 Speaker 2: figures where they wanted and inflation where they wanted it. 124 00:06:23,200 --> 00:06:25,039 Speaker 2: So six months ago we knew this was going to 125 00:06:25,040 --> 00:06:27,760 Speaker 2: be happening, and so the people who managing their own 126 00:06:27,800 --> 00:06:30,719 Speaker 2: money should have been moving money into these longer term 127 00:06:30,760 --> 00:06:32,120 Speaker 2: exposures at that stage. 128 00:06:32,200 --> 00:06:35,920 Speaker 1: And if somebody was of an opinion now a regular investor, 129 00:06:36,000 --> 00:06:38,239 Speaker 1: but was saying, oh, hang on a second, I don't 130 00:06:38,320 --> 00:06:40,880 Speaker 1: like the markets at the moment. They are highly volatile. 131 00:06:41,200 --> 00:06:43,120 Speaker 1: We're seeing them moving up two and three percent. We 132 00:06:43,200 --> 00:06:46,599 Speaker 1: had the worst day and the best day in since 133 00:06:46,680 --> 00:06:50,160 Speaker 1: COVID inside a week recently. That's the signal if ever 134 00:06:50,240 --> 00:06:52,800 Speaker 1: you saw wanted, it's highly volatized. So if somebody was saying, look, 135 00:06:52,880 --> 00:06:55,800 Speaker 1: I never really had much cash. I like to be 136 00:06:55,839 --> 00:06:59,560 Speaker 1: fully invested, but on this occasion, I am thinking about 137 00:06:59,600 --> 00:07:03,080 Speaker 1: putting cash and investing it as an seeing it as 138 00:07:03,080 --> 00:07:06,560 Speaker 1: an asset class for this period. And if someone was 139 00:07:06,640 --> 00:07:10,480 Speaker 1: doing that, tell us that there's some guidelines. For instance, 140 00:07:10,480 --> 00:07:12,600 Speaker 1: I go out and I see that I'm going to 141 00:07:12,640 --> 00:07:14,280 Speaker 1: I'm going to use Combank. I don't know what the rates, however, 142 00:07:14,320 --> 00:07:16,880 Speaker 1: I'm going to see that Combank has a rate for cash, 143 00:07:17,160 --> 00:07:19,360 Speaker 1: and I'm going to see bank Zip Zip, that I've 144 00:07:19,400 --> 00:07:21,520 Speaker 1: never heard of in my life, has a rate that's 145 00:07:21,520 --> 00:07:25,560 Speaker 1: a percentage higher. They're both banks, they're both strictly and 146 00:07:25,640 --> 00:07:29,680 Speaker 1: legally and technically approved depositive taking institutions, which means they're 147 00:07:29,720 --> 00:07:33,320 Speaker 1: both covered by the guarantee. And this is the great 148 00:07:33,320 --> 00:07:36,040 Speaker 1: thing about cash, which we must explain to listeners and 149 00:07:36,080 --> 00:07:38,440 Speaker 1: the unlikely event, guys, that you don't already know it. 150 00:07:38,880 --> 00:07:43,000 Speaker 1: All cash in banks or approved to posit taking institutions 151 00:07:43,160 --> 00:07:45,600 Speaker 1: is guaranteed by the government in Australia to the tune 152 00:07:45,600 --> 00:07:49,080 Speaker 1: of two hundred and fifty thousand per bank. So part 153 00:07:49,080 --> 00:07:52,800 Speaker 1: I'm making Liam is if they're all guaranteed, need we 154 00:07:52,880 --> 00:07:55,600 Speaker 1: worry about brand names or the fact that one bank 155 00:07:55,640 --> 00:07:57,040 Speaker 1: is much smaller than another. 156 00:07:57,000 --> 00:08:01,840 Speaker 2: Not really for the government guarantee. Remember also its per institution. 157 00:08:02,680 --> 00:08:04,840 Speaker 2: So you can put two hundred and fifty thousand with 158 00:08:05,160 --> 00:08:08,040 Speaker 2: Saint George and put another two fifty with Westpac, can 159 00:08:08,120 --> 00:08:12,120 Speaker 2: expect the guarantee. It's both so and that goes back 160 00:08:12,160 --> 00:08:15,280 Speaker 2: to thinking about what banks merged during the after the 161 00:08:15,400 --> 00:08:19,800 Speaker 2: GFC and so come Bank Bank, West nab On, New 162 00:08:19,840 --> 00:08:22,880 Speaker 2: Bank and West pack in c George. So you've got 163 00:08:22,920 --> 00:08:24,400 Speaker 2: to think in terms of institutions. 164 00:08:24,840 --> 00:08:27,880 Speaker 1: Okay, So a great point, Liam, and folks. The problem 165 00:08:27,920 --> 00:08:30,880 Speaker 1: is the bank's virtually conceal this. If you're with Bank 166 00:08:30,920 --> 00:08:33,640 Speaker 1: of Melbourne, you would not necessarily know that you're with 167 00:08:33,840 --> 00:08:36,520 Speaker 1: the same group that also owns Saint George, which is 168 00:08:36,559 --> 00:08:39,560 Speaker 1: West Bank, because they tried to keep the brands distinct. 169 00:08:39,600 --> 00:08:42,839 Speaker 1: As Lean pointed out, if you're with Bank West, don't 170 00:08:42,840 --> 00:08:45,160 Speaker 1: think that if you had half your money with Bank 171 00:08:45,200 --> 00:08:47,160 Speaker 1: West and half with Combank, in fact you only have 172 00:08:47,240 --> 00:08:50,120 Speaker 1: it with the one banking institution, which is the parent 173 00:08:50,160 --> 00:08:52,760 Speaker 1: company Comebank, which owns Bank West. Really good point, Liam, 174 00:08:52,800 --> 00:08:55,840 Speaker 1: really good, especially for perhaps that's maybe older listeners that 175 00:08:56,040 --> 00:08:58,959 Speaker 1: had money in banks or had some faith in their 176 00:08:59,040 --> 00:09:01,719 Speaker 1: local bank, so Bank of Melbourne which is actually owned 177 00:09:01,720 --> 00:09:03,440 Speaker 1: by a Sydney bank, Westpac, for instance. 178 00:09:03,520 --> 00:09:03,760 Speaker 2: Yeah. 179 00:09:04,000 --> 00:09:04,280 Speaker 1: Yeah. 180 00:09:04,440 --> 00:09:07,839 Speaker 2: The other thing is, yes, they're all covered by the 181 00:09:07,880 --> 00:09:12,120 Speaker 2: government guarantee. But if you've got your one year money 182 00:09:12,240 --> 00:09:14,600 Speaker 2: and you need to make sure that is liquid, yes 183 00:09:14,600 --> 00:09:16,560 Speaker 2: the government guarantee is there, but you don't know how 184 00:09:16,559 --> 00:09:19,000 Speaker 2: long it's going to be till it's paid. If a 185 00:09:19,000 --> 00:09:23,400 Speaker 2: bank did collapse, okay, so possibly with six to twelve 186 00:09:23,440 --> 00:09:25,840 Speaker 2: month money, we'd probably still say stick with the bank 187 00:09:25,880 --> 00:09:28,240 Speaker 2: that's at least BBB triple B rated, so it's got 188 00:09:28,240 --> 00:09:31,920 Speaker 2: a good credit rating. But overall, and I tend to 189 00:09:31,960 --> 00:09:33,840 Speaker 2: not put the fill two fifteen. I'll put in two 190 00:09:33,840 --> 00:09:38,400 Speaker 2: thirty five to make sure that any interest is covered. 191 00:09:38,640 --> 00:09:42,280 Speaker 1: You are conservatively sure I'm dealing. 192 00:09:42,080 --> 00:09:44,439 Speaker 2: With other people's money. So I've got a true I've 193 00:09:44,440 --> 00:09:48,480 Speaker 2: got to take care of it and just making sure 194 00:09:48,520 --> 00:09:50,640 Speaker 2: that don't have the loyalty to the banks. They have 195 00:09:50,679 --> 00:09:53,120 Speaker 2: no loyalty to you anymore. So look for those best 196 00:09:53,160 --> 00:09:55,520 Speaker 2: interest rates if possible, look for an abrary. Look for 197 00:09:55,559 --> 00:09:58,760 Speaker 2: a facility that gives you access to more than one 198 00:09:58,840 --> 00:10:01,800 Speaker 2: or two banks than going direct to each bank, because 199 00:10:01,840 --> 00:10:04,360 Speaker 2: that can get complicated nowadays, having to prove your identity 200 00:10:04,400 --> 00:10:06,439 Speaker 2: with all of them, having to have your logins and 201 00:10:06,520 --> 00:10:09,040 Speaker 2: everything like that. So look at that. There are services 202 00:10:09,040 --> 00:10:12,000 Speaker 2: out there like Australian Money Market and cashworks and stuff 203 00:10:12,000 --> 00:10:14,559 Speaker 2: like that that that are offering access to twenty or 204 00:10:14,640 --> 00:10:17,240 Speaker 2: thirty different banks, and you can have it all there 205 00:10:17,760 --> 00:10:19,400 Speaker 2: spread across all the banks. At the end of the year, 206 00:10:19,400 --> 00:10:22,080 Speaker 2: you get nice tax report for your SMSF for your 207 00:10:22,120 --> 00:10:22,480 Speaker 2: all times. 208 00:10:22,520 --> 00:10:24,560 Speaker 1: Yeah, they're your channel through to the different banks and 209 00:10:24,600 --> 00:10:26,839 Speaker 1: they clip the ticket. I assume somehow. 210 00:10:26,880 --> 00:10:29,920 Speaker 2: They get paid by the banks, so roughly you get 211 00:10:29,920 --> 00:10:31,800 Speaker 2: the same as you're paid in the actual bank branch. 212 00:10:32,120 --> 00:10:34,640 Speaker 2: So the banks have allowed for what the branches custom 213 00:10:35,000 --> 00:10:37,480 Speaker 2: similarly allowed for what these wholesalers customers. 214 00:10:37,480 --> 00:10:39,120 Speaker 1: Gee, yeah, a bit like I suppose a bit like 215 00:10:39,160 --> 00:10:42,080 Speaker 1: mortgage brokers for the same sort of thing. They don't 216 00:10:42,080 --> 00:10:44,319 Speaker 1: advertise much. They're not very well know what would the 217 00:10:44,320 --> 00:10:46,320 Speaker 1: two you mentioned Again, we are not in any way 218 00:10:46,440 --> 00:10:48,360 Speaker 1: picking these out as the best or anything, but two 219 00:10:48,400 --> 00:10:49,520 Speaker 1: more popular ones. Liam. 220 00:10:49,880 --> 00:10:52,480 Speaker 2: Yeah, So Australian money market is my one, and then 221 00:10:52,520 --> 00:10:55,960 Speaker 2: there's I'm not sure if cashworks called cashworks, it might 222 00:10:56,000 --> 00:10:58,440 Speaker 2: be called term deposit, dot com, dot au. There's a 223 00:10:58,440 --> 00:11:01,360 Speaker 2: few out there, but Australian honey markets tended to be 224 00:11:01,400 --> 00:11:02,360 Speaker 2: the leader in the space. 225 00:11:02,920 --> 00:11:04,360 Speaker 1: Very good. One last thing before we go to the 226 00:11:04,360 --> 00:11:08,280 Speaker 1: break about all that. It sounds very laborious because the 227 00:11:08,320 --> 00:11:10,360 Speaker 1: banks do these honeymoon deals. So I go in, the 228 00:11:10,400 --> 00:11:12,960 Speaker 1: bank says, listen, we're offering four point five percent right 229 00:11:13,040 --> 00:11:15,520 Speaker 1: now on your cash. But three and a half of 230 00:11:15,559 --> 00:11:16,920 Speaker 1: that is if you do this and this and you 231 00:11:16,920 --> 00:11:19,520 Speaker 1: get a one percent basic rate. I forget to do 232 00:11:19,600 --> 00:11:22,120 Speaker 1: it one week and it's all gone. And that is 233 00:11:22,120 --> 00:11:24,760 Speaker 1: I don't get the rate. You're saying. Set up direct 234 00:11:24,800 --> 00:11:28,320 Speaker 1: debits or automatic arrangements, which is very smart, but these 235 00:11:28,320 --> 00:11:30,080 Speaker 1: honeymoon deeds they only last a year or so. 236 00:11:30,160 --> 00:11:32,319 Speaker 2: Uh yeah, And that's why I use it for similar 237 00:11:32,559 --> 00:11:34,960 Speaker 2: money market because at the end of the six months 238 00:11:35,000 --> 00:11:37,000 Speaker 2: or nine months or twelve months, I just go in, 239 00:11:37,040 --> 00:11:39,480 Speaker 2: I see the rates from twenty different banks from one 240 00:11:39,520 --> 00:11:42,320 Speaker 2: month out of five years. Flicky button, and it moves 241 00:11:42,360 --> 00:11:43,640 Speaker 2: to the other bank automatically. 242 00:11:43,760 --> 00:11:45,439 Speaker 1: Can I ask a technical question, if you had a 243 00:11:45,480 --> 00:11:47,559 Speaker 1: self managed super fund and you linked up with one 244 00:11:47,559 --> 00:11:52,080 Speaker 1: of those intermediaries cashworks, money market, whatever they are, is 245 00:11:52,080 --> 00:11:53,640 Speaker 1: that it will that do you for all the banks 246 00:11:53,679 --> 00:11:56,600 Speaker 1: because traditionally, as I record, if you had an SMSF 247 00:11:56,600 --> 00:11:59,600 Speaker 1: and you wanted to put cash in a term deposit, 248 00:11:59,640 --> 00:12:01,880 Speaker 1: you've got to show your superannuation deeds and everything. 249 00:12:02,120 --> 00:12:04,680 Speaker 2: So you do all that upfront one time with the 250 00:12:04,720 --> 00:12:08,960 Speaker 2: actual provider, and then they researtified as advisors. It's on file. 251 00:12:09,480 --> 00:12:12,520 Speaker 2: The money marketer whoever will use that then to open 252 00:12:12,559 --> 00:12:14,880 Speaker 2: the account. So once a year we will update the 253 00:12:14,920 --> 00:12:17,880 Speaker 2: IDs for example, but the trust needs is the trust aed. 254 00:12:18,040 --> 00:12:21,880 Speaker 1: So it will serve for all banks exactly. Lovely. Okay, 255 00:12:21,960 --> 00:12:24,040 Speaker 1: that's interesting, okay, folks. So we'll be back in a moment. 256 00:12:24,080 --> 00:12:27,040 Speaker 1: We're going to develop this way of thinking about building 257 00:12:27,080 --> 00:12:30,800 Speaker 1: buffers fast if you need to in what is a 258 00:12:30,840 --> 00:12:47,320 Speaker 1: fairly wild investment market. Just now, hello and welcome back. 259 00:12:47,360 --> 00:12:52,800 Speaker 1: To The Australian's Money Positive podcast, a fairly sober episode 260 00:12:52,840 --> 00:12:56,319 Speaker 1: this folks, and could could you blame us for having 261 00:12:56,320 --> 00:12:58,920 Speaker 1: this approach? Everyone that's been on the show is concerned 262 00:12:58,920 --> 00:13:04,559 Speaker 1: about the markets levels. As I speak. This is Easter Tuesday. 263 00:13:04,920 --> 00:13:07,120 Speaker 1: We just had another three percent drop last night on 264 00:13:07,160 --> 00:13:09,280 Speaker 1: Wall Street because of what Trump is trying to do 265 00:13:09,320 --> 00:13:16,400 Speaker 1: around the Federal reserve. These are absolutely fundamental concerns about 266 00:13:16,440 --> 00:13:19,640 Speaker 1: how the market that we have known all our lives works. 267 00:13:20,400 --> 00:13:23,000 Speaker 1: How does the federal reserves work inside of the US, 268 00:13:23,040 --> 00:13:25,360 Speaker 1: how does the global trade order work? These are open 269 00:13:25,480 --> 00:13:29,920 Speaker 1: and under questioned just now. And it's no surprise that 270 00:13:30,000 --> 00:13:34,079 Speaker 1: the share markets are showing that fairly severely. Our ASX 271 00:13:34,320 --> 00:13:38,400 Speaker 1: is down for the year to date by about five percent. 272 00:13:38,960 --> 00:13:42,360 Speaker 1: The global market represented by Wall Street S and P 273 00:13:42,440 --> 00:13:44,560 Speaker 1: five hundred is down for the year to date this 274 00:13:44,640 --> 00:13:49,000 Speaker 1: morning twelve percent. That's a fairly rough market to try 275 00:13:49,000 --> 00:13:50,760 Speaker 1: and make money in. And that is why we're talking 276 00:13:50,800 --> 00:13:54,560 Speaker 1: about cash and liquidity today. Liquidity obviously being the ability 277 00:13:54,640 --> 00:13:58,400 Speaker 1: to catch out something fast. Right, So a notoriously i 278 00:13:58,480 --> 00:14:02,600 Speaker 1: liquid investment would your property right? You can't you own 279 00:14:02,600 --> 00:14:04,520 Speaker 1: an apartment? It's worth the three hundred thousands, but you 280 00:14:04,559 --> 00:14:07,280 Speaker 1: can't take twenty grand out of it. You just can't deliquid. 281 00:14:07,760 --> 00:14:11,400 Speaker 1: But if you have listed investments of any description, as 282 00:14:11,440 --> 00:14:14,280 Speaker 1: opposed to unlisted investments, you should be able to get 283 00:14:14,320 --> 00:14:17,000 Speaker 1: your cash out as much as you want really, at 284 00:14:17,040 --> 00:14:19,880 Speaker 1: any time fast, with the exception perhaps of some small 285 00:14:19,920 --> 00:14:22,640 Speaker 1: cap stocks. So Liam, just to develop it a little bit, 286 00:14:24,040 --> 00:14:25,920 Speaker 1: could you repeat Also, at the start of the show, 287 00:14:25,960 --> 00:14:30,560 Speaker 1: you mentioned this was obviously for investors. Well it wasn't all. 288 00:14:32,000 --> 00:14:35,240 Speaker 1: This was investors who need their investments to pay their income. 289 00:14:35,280 --> 00:14:37,920 Speaker 1: I suppose you were talking about emergency funds. But let's 290 00:14:37,960 --> 00:14:41,200 Speaker 1: just talk about liquidity tools for any investor of any 291 00:14:41,240 --> 00:14:45,120 Speaker 1: age at this time. If you were I, you've explained 292 00:14:45,120 --> 00:14:46,960 Speaker 1: to us about what to do with cash? What about 293 00:14:47,080 --> 00:14:49,200 Speaker 1: raising cash? If I came in to you when I 294 00:14:49,240 --> 00:14:52,360 Speaker 1: was a fully diversified investor and I said to you, 295 00:14:52,440 --> 00:14:54,960 Speaker 1: I've always been fully invested, but I and I never 296 00:14:54,960 --> 00:14:58,880 Speaker 1: paid much attention to cash. I need to now, where 297 00:14:58,920 --> 00:15:00,720 Speaker 1: would you start the compass? 298 00:15:01,040 --> 00:15:03,760 Speaker 2: Well, the first thing I'd say is stop any dividinary 299 00:15:03,800 --> 00:15:07,440 Speaker 2: investment plans. You've got their fools game nowadays because of 300 00:15:07,480 --> 00:15:10,240 Speaker 2: the fact that we've got dividends stripping funds out there 301 00:15:10,680 --> 00:15:14,000 Speaker 2: that basically jump into shares before the dimendends are paid, 302 00:15:14,040 --> 00:15:17,080 Speaker 2: stay the forty five days, and then exit. It means 303 00:15:17,120 --> 00:15:19,600 Speaker 2: that usually when the d RP price is set, it's 304 00:15:19,600 --> 00:15:22,840 Speaker 2: at the very peak of the share price. So the 305 00:15:22,920 --> 00:15:26,360 Speaker 2: idea that you're getting a good deal by dividend reinvesting 306 00:15:26,720 --> 00:15:27,760 Speaker 2: it's no longer true. 307 00:15:27,760 --> 00:15:30,640 Speaker 1: That's very interesting, Yeah, very interesting. They have faded a bit. 308 00:15:30,720 --> 00:15:32,240 Speaker 1: Have they Have you any sense of how many give 309 00:15:32,280 --> 00:15:35,400 Speaker 1: them anymore? Maybe it seems to me, is it like, 310 00:15:35,960 --> 00:15:37,840 Speaker 1: have you any idea how many of the top fifty 311 00:15:37,880 --> 00:15:41,320 Speaker 1: give have DRPs that's dividend reinvestment plans folks, if you. 312 00:15:41,240 --> 00:15:43,680 Speaker 2: Have honestly, I would say it's only third of it now. 313 00:15:43,760 --> 00:15:47,040 Speaker 2: But as they are struggling to raise casher, they're trying 314 00:15:47,080 --> 00:15:50,000 Speaker 2: to hold on to investors that some of them, especially 315 00:15:50,120 --> 00:15:53,640 Speaker 2: unlisted funds for example, they're starting to offer discounts again 316 00:15:53,800 --> 00:15:57,040 Speaker 2: under DRPs, so you can tell when they're stress for liquidity. 317 00:15:57,440 --> 00:15:59,640 Speaker 1: Interesting, but you're telling me that in any event, the 318 00:15:59,720 --> 00:16:03,760 Speaker 1: do is you're getting a raw deal because you're the 319 00:16:03,880 --> 00:16:07,280 Speaker 1: listed company XYZ Limited that you have the d RP 320 00:16:07,480 --> 00:16:09,840 Speaker 1: with they apply it on the day where the thing 321 00:16:09,960 --> 00:16:12,720 Speaker 1: was at absolute peak because the dividends strippers are about 322 00:16:12,720 --> 00:16:16,680 Speaker 1: to come in and play around that. See that's very interesting. 323 00:16:16,920 --> 00:16:19,360 Speaker 1: So what your I don't want to go too far 324 00:16:19,400 --> 00:16:23,280 Speaker 1: off track here, but are you are you generally do 325 00:16:23,320 --> 00:16:25,680 Speaker 1: you generately tell people not to bother with dividend reinvestment 326 00:16:25,720 --> 00:16:27,960 Speaker 1: plans because they do have a discipline leem I suppose, 327 00:16:28,000 --> 00:16:30,480 Speaker 1: which is useful, just like investment property has a discipline 328 00:16:30,480 --> 00:16:31,560 Speaker 1: makes you pay the mortgage. 329 00:16:31,840 --> 00:16:33,800 Speaker 2: But if you're disciplined, you can have the same discipline 330 00:16:33,800 --> 00:16:37,640 Speaker 2: by taking the DRPs and every three months looking and saying, 331 00:16:37,680 --> 00:16:40,720 Speaker 2: where's the best place to pace that toward lay uly 332 00:16:40,720 --> 00:16:43,520 Speaker 2: putting it into your existing portfolio. It may be the 333 00:16:43,560 --> 00:16:46,200 Speaker 2: time to diversify it. In a time like this, you 334 00:16:46,280 --> 00:16:49,440 Speaker 2: might say, well, look, instead of just divilinearlyinvesting, I'm actually 335 00:16:49,760 --> 00:16:51,440 Speaker 2: all the dividends that come out. I'm actually going to 336 00:16:51,480 --> 00:16:54,920 Speaker 2: specifically target it at a high yield fund or targeted 337 00:16:54,960 --> 00:16:58,480 Speaker 2: at something that has dropped pretty significantly. So it's far 338 00:16:58,600 --> 00:17:00,920 Speaker 2: better to be an investor who's actually thinking about the 339 00:17:00,960 --> 00:17:05,040 Speaker 2: investments rather than just sit and forget. Because as we've seen, 340 00:17:05,080 --> 00:17:07,800 Speaker 2: if somebody was just pumping money into the Magnificent seven, 341 00:17:07,840 --> 00:17:09,960 Speaker 2: that have done great for the last couple of years, 342 00:17:10,080 --> 00:17:12,680 Speaker 2: they would have been smashed this year. I've got clients 343 00:17:12,720 --> 00:17:15,199 Speaker 2: who they take their dividary investments and they pump that 344 00:17:15,240 --> 00:17:17,880 Speaker 2: into gold and they've done really well to that over 345 00:17:17,880 --> 00:17:20,960 Speaker 2: the last few years. And it's just for them. It's 346 00:17:21,000 --> 00:17:23,639 Speaker 2: just basically it's a regular routine of what they do 347 00:17:23,720 --> 00:17:27,440 Speaker 2: with it. But also then for younger people with a mortgage, 348 00:17:27,960 --> 00:17:30,239 Speaker 2: take those any dividends you've got and shove them into 349 00:17:30,280 --> 00:17:32,800 Speaker 2: your offset account and build up a cash reserve. It's 350 00:17:32,840 --> 00:17:37,000 Speaker 2: not affecting your income, so the offset account doesn't earn 351 00:17:37,040 --> 00:17:39,439 Speaker 2: interest and just saves your interest on your loan, so 352 00:17:39,480 --> 00:17:42,280 Speaker 2: it's not adding any tax of linking to your account, 353 00:17:42,560 --> 00:17:44,720 Speaker 2: and it's basically making sure you're paying down your mortgage 354 00:17:44,760 --> 00:17:47,560 Speaker 2: quicker that the money is available. Money in an offset 355 00:17:47,560 --> 00:17:50,600 Speaker 2: account is your money. Money in a redraw is the 356 00:17:50,640 --> 00:17:52,840 Speaker 2: bank's money, so they can always take away the redraw. 357 00:17:53,440 --> 00:17:55,520 Speaker 2: The offset account is your money. So just be smart 358 00:17:55,560 --> 00:17:58,280 Speaker 2: on things like that and just something off the cuff. 359 00:17:58,320 --> 00:18:00,399 Speaker 2: I've seen a lot of people now bilding up a 360 00:18:00,440 --> 00:18:03,280 Speaker 2: cash reserve by just going around their house and seeing 361 00:18:03,280 --> 00:18:06,159 Speaker 2: what they don't use anymore, selling it on Facebook Marketplace 362 00:18:06,240 --> 00:18:08,800 Speaker 2: or gum Tree and just building up that cash reserve. 363 00:18:09,160 --> 00:18:11,320 Speaker 2: And I think when we go two times like this, 364 00:18:11,400 --> 00:18:13,679 Speaker 2: when the cost of living has gone up, people are 365 00:18:13,720 --> 00:18:16,000 Speaker 2: more willing to look around and go, look, I haven't 366 00:18:16,119 --> 00:18:18,359 Speaker 2: use that thing for a year. We bought that on 367 00:18:18,400 --> 00:18:20,080 Speaker 2: a win that we're going to go off camping, and 368 00:18:20,119 --> 00:18:23,639 Speaker 2: we bought the full setup. I'm gonna three hundred and 369 00:18:23,680 --> 00:18:27,080 Speaker 2: fifty dollars King's Age refrigerator. It has just been sitting 370 00:18:27,119 --> 00:18:27,879 Speaker 2: in the garage. 371 00:18:28,119 --> 00:18:30,960 Speaker 1: Every house has some version of that. Sure, I'm sure 372 00:18:31,000 --> 00:18:33,080 Speaker 1: there's one in my house. Starting to think what it is, 373 00:18:33,080 --> 00:18:35,680 Speaker 1: but I'm sure it's there more for our investors. More typically, 374 00:18:35,680 --> 00:18:41,199 Speaker 1: I suppose it would mean in if you were an 375 00:18:41,240 --> 00:18:46,679 Speaker 1: accumulation phase, the younger investor, and you had your self, 376 00:18:46,880 --> 00:18:50,520 Speaker 1: you had your contributions going into SUPER every month through 377 00:18:50,560 --> 00:18:53,359 Speaker 1: your salary the concession that is the thirty thousand you 378 00:18:53,400 --> 00:18:56,880 Speaker 1: can put into SUPER each year pre tax. I expect 379 00:18:56,960 --> 00:18:59,840 Speaker 1: that it would mean that you don't that you use 380 00:18:59,880 --> 00:19:00,840 Speaker 1: for cash accumulation. 381 00:19:01,400 --> 00:19:03,119 Speaker 2: Yeah, but what you do with that is during the 382 00:19:03,200 --> 00:19:05,600 Speaker 2: year you save that in your offset account, so saving 383 00:19:05,640 --> 00:19:07,639 Speaker 2: you interest, and then you just put it in the 384 00:19:07,720 --> 00:19:10,639 Speaker 2: last month of the year. Okay, so you're still getting 385 00:19:10,640 --> 00:19:13,480 Speaker 2: your tax deduction, but rather than sounding sacrificing or doing 386 00:19:13,520 --> 00:19:16,199 Speaker 2: it early in the year, you put it into your 387 00:19:16,240 --> 00:19:18,080 Speaker 2: offset account and then when it comes to June you 388 00:19:18,080 --> 00:19:20,200 Speaker 2: do a lump sum and claim it as a tax 389 00:19:20,240 --> 00:19:21,480 Speaker 2: deduction straight away. 390 00:19:21,480 --> 00:19:23,399 Speaker 1: After that you put the thirty thousand one go. 391 00:19:24,000 --> 00:19:27,120 Speaker 2: Well, you're already getting your employer contributions going in regularly, 392 00:19:27,119 --> 00:19:28,480 Speaker 2: so you might only have ten. 393 00:19:28,400 --> 00:19:33,920 Speaker 1: Or fifteen your voluntary contributions. Yeah, you've given one go yeah, yeah. 394 00:19:33,720 --> 00:19:35,840 Speaker 2: And that's it. Yeah, So you're getting the best of 395 00:19:35,880 --> 00:19:38,399 Speaker 2: boath worlds there. You're saving a bit of money. And 396 00:19:38,400 --> 00:19:40,200 Speaker 2: then if you know the money that you have outside, 397 00:19:40,640 --> 00:19:43,639 Speaker 2: what we try and do with young accumulators is fifty 398 00:19:43,680 --> 00:19:47,479 Speaker 2: percent goes well, thirty three percent goes to short term savings, 399 00:19:47,520 --> 00:19:50,560 Speaker 2: medium term savings that's a cash high interest account or 400 00:19:50,600 --> 00:19:54,359 Speaker 2: the offset. Thirty three percent goes for lifestyle okay, paying 401 00:19:54,359 --> 00:19:55,920 Speaker 2: for a wholiday, paying for not grade of the car, 402 00:19:56,040 --> 00:19:58,360 Speaker 2: whatever they feel like, and then thirty three percent goes 403 00:19:58,359 --> 00:20:02,080 Speaker 2: into ETFs. Okay. The good thing about those ETFs is 404 00:20:02,080 --> 00:20:04,560 Speaker 2: that you can sell them down and they'll settle to 405 00:20:04,600 --> 00:20:08,479 Speaker 2: your back cabin in three days. So it's thinking long term, 406 00:20:08,920 --> 00:20:11,399 Speaker 2: but having that short term plan b that if things 407 00:20:11,480 --> 00:20:13,560 Speaker 2: go wrong, you can dip in and sell them if 408 00:20:13,600 --> 00:20:14,000 Speaker 2: you need to. 409 00:20:14,240 --> 00:20:18,040 Speaker 1: Does your skepticism about the dividend reinvestment plans apply to 410 00:20:18,040 --> 00:20:19,360 Speaker 1: ETFs as well. 411 00:20:19,440 --> 00:20:23,959 Speaker 2: Yeah, for a dividend stripper, it's very attractive for them 412 00:20:24,000 --> 00:20:25,800 Speaker 2: to go in there. But again it comes back to 413 00:20:26,320 --> 00:20:30,600 Speaker 2: don't do lazy investing, Try and be smart. Take the 414 00:20:30,600 --> 00:20:34,159 Speaker 2: dividends from the ETFs and every three to six months 415 00:20:34,840 --> 00:20:36,879 Speaker 2: look and see where the opportunities are, or look and 416 00:20:36,920 --> 00:20:39,320 Speaker 2: see where's the best place for my dollar. And it 417 00:20:39,400 --> 00:20:41,120 Speaker 2: may be in a time with this for the best place, 418 00:20:41,160 --> 00:20:43,160 Speaker 2: it's in the opposite the cat and you just leave 419 00:20:43,200 --> 00:20:46,080 Speaker 2: it there. And as Chris Cuff said, it's probably not 420 00:20:46,119 --> 00:20:47,919 Speaker 2: the time to buy the dip in the moment because 421 00:20:48,560 --> 00:20:51,520 Speaker 2: we're not sure this is the dick. There's a ninety 422 00:20:51,600 --> 00:20:55,480 Speaker 2: day tariff free zone that could come back in. Well, 423 00:20:55,640 --> 00:20:57,720 Speaker 2: Trump could turn change his mind at any state and 424 00:20:57,840 --> 00:21:00,560 Speaker 2: just bring it back in. So now the time to 425 00:21:00,600 --> 00:21:02,879 Speaker 2: build up that buffer, and the buffers not just for 426 00:21:02,920 --> 00:21:05,440 Speaker 2: your emergency funds, it's an opportunity fund as well. 427 00:21:05,680 --> 00:21:08,159 Speaker 1: Yes, well, thinking like that, of course, yes, yeah, that 428 00:21:08,240 --> 00:21:10,479 Speaker 1: it's a think of it. When I say build up 429 00:21:10,480 --> 00:21:13,320 Speaker 1: cash buffers, I'm not suggesting that you go to cash, folks. 430 00:21:13,320 --> 00:21:19,440 Speaker 1: I'm suggesting that you accumulate cash for either defending yourself 431 00:21:19,480 --> 00:21:24,120 Speaker 1: your portfolio, or taking opportunities of what could be lower 432 00:21:24,560 --> 00:21:27,600 Speaker 1: levels than we are have at the moment. One other thing, Liam, 433 00:21:27,640 --> 00:21:30,800 Speaker 1: I supposed to go back to the thing about dividend 434 00:21:30,880 --> 00:21:33,719 Speaker 1: reinvestment plans is there was always the notion that if 435 00:21:33,760 --> 00:21:35,760 Speaker 1: your investor was good enough, it was good enough to 436 00:21:35,760 --> 00:21:38,960 Speaker 1: do a d ORP plan with at the start. So 437 00:21:39,040 --> 00:21:42,119 Speaker 1: let's say I select my investment, and there was always 438 00:21:42,119 --> 00:21:44,080 Speaker 1: that theory that if if it's good enough, it's good 439 00:21:44,160 --> 00:21:46,919 Speaker 1: enough to d orp. Is do you see a weakness 440 00:21:46,960 --> 00:21:47,560 Speaker 1: in that theory. 441 00:21:48,160 --> 00:21:51,000 Speaker 2: The weakness is that ninety five percent of trading now 442 00:21:51,080 --> 00:21:55,359 Speaker 2: is computer training. So those different stripping algorithms are looking 443 00:21:55,400 --> 00:21:58,800 Speaker 2: and saying if a stock is good value, well, they'll 444 00:21:58,800 --> 00:22:01,920 Speaker 2: buy into it just before the evident I stripped the dividend, 445 00:22:01,920 --> 00:22:04,119 Speaker 2: and then it will actually fall back down as that 446 00:22:04,240 --> 00:22:08,680 Speaker 2: money leaves. So yes, long term, if you still believe 447 00:22:08,680 --> 00:22:10,520 Speaker 2: in a company, you can still put money into it. 448 00:22:10,880 --> 00:22:12,600 Speaker 2: But I don't believe that I believe that the d 449 00:22:12,720 --> 00:22:15,280 Speaker 2: ORP you could be leaving three to five percent on 450 00:22:15,359 --> 00:22:18,800 Speaker 2: the table, which in a lot of cases is you diffident. 451 00:22:19,040 --> 00:22:23,440 Speaker 1: The exactly So the algorithms have have won on that one. Interesting, 452 00:22:23,440 --> 00:22:25,320 Speaker 1: and I suppose that that ruling, or that that rule 453 00:22:25,320 --> 00:22:28,080 Speaker 1: of thumb came from a different time. Okay, take a 454 00:22:28,080 --> 00:22:43,879 Speaker 1: short break, got some very interesting questions. Hello and welcome 455 00:22:43,920 --> 00:22:47,359 Speaker 1: back to The Australian's Money Positive podcast. James Kirby here 456 00:22:47,440 --> 00:22:52,080 Speaker 1: with Liam short s h o Orte of the Sonnets Group. 457 00:22:53,240 --> 00:22:55,760 Speaker 1: Is now Liam a couple of questions. Would you like 458 00:22:55,800 --> 00:22:56,919 Speaker 1: to read the first one from Andrew. 459 00:22:57,520 --> 00:23:00,879 Speaker 2: Yeah, there's been a lot of discussion about the capital 460 00:23:00,880 --> 00:23:04,680 Speaker 2: Gains tax discount being unfair. Correct me if I'm wrong. However, 461 00:23:04,720 --> 00:23:06,840 Speaker 2: it's in the purpose of the discount to address the 462 00:23:06,880 --> 00:23:10,080 Speaker 2: inflationy component of the capital gain. In other words, when 463 00:23:10,119 --> 00:23:13,119 Speaker 2: an acid appreciate and value due to inflation, why should 464 00:23:13,119 --> 00:23:16,360 Speaker 2: the investor pay tax on it? Does something CGT discount 465 00:23:16,440 --> 00:23:20,760 Speaker 2: offset the inflation component, And that's exactly why inflate why 466 00:23:20,880 --> 00:23:24,280 Speaker 2: the CGT discount was brought in nearly forty years ago. 467 00:23:24,760 --> 00:23:28,800 Speaker 2: But basically originally it was tied to inflation. So every 468 00:23:28,880 --> 00:23:32,520 Speaker 2: year you've got you indexed the discount was indexed to 469 00:23:32,600 --> 00:23:36,560 Speaker 2: the CPI, but the government or somebody decided that this 470 00:23:36,680 --> 00:23:40,200 Speaker 2: was way too complex to do longer term, so they 471 00:23:40,240 --> 00:23:43,480 Speaker 2: decided that they would put a flat fifty percent discount discount. 472 00:23:43,520 --> 00:23:46,240 Speaker 2: I think it was held for more than twelve months. 473 00:23:46,119 --> 00:23:48,920 Speaker 1: That's right. I think it was Peter Costello. I think 474 00:23:49,480 --> 00:23:54,639 Speaker 1: maybe Andrew and obviously never advise or information only, but Andrew, 475 00:23:54,880 --> 00:23:59,960 Speaker 1: maybe the discussion is more often that the capital gains 476 00:24:00,160 --> 00:24:03,800 Speaker 1: discount is not so much unfair as unfairly large. 477 00:24:04,440 --> 00:24:10,000 Speaker 2: At the issue, James, is the CGT discount can seem 478 00:24:10,119 --> 00:24:13,840 Speaker 2: very unfair in a period where we've had low inflation 479 00:24:13,920 --> 00:24:17,160 Speaker 2: for a long time, okay, but if we've had high 480 00:24:17,200 --> 00:24:20,040 Speaker 2: inflation for a good number of years. So think in 481 00:24:20,119 --> 00:24:22,439 Speaker 2: terms of an investment you did for one hundred thousand 482 00:24:23,280 --> 00:24:26,399 Speaker 2: if when CPI was index link, if inflation went on 483 00:24:26,400 --> 00:24:28,399 Speaker 2: only two or three percent a year, and you what 484 00:24:28,560 --> 00:24:31,480 Speaker 2: you're the value of your funders worth two hundred thousand 485 00:24:31,520 --> 00:24:33,520 Speaker 2: at the end of a ten or fifteen year period. 486 00:24:34,080 --> 00:24:36,240 Speaker 2: You've got a very good deal because you're getting the 487 00:24:36,280 --> 00:24:39,159 Speaker 2: fifty percent capital gain tax discount on it. But in 488 00:24:39,200 --> 00:24:43,080 Speaker 2: a period where you've got very high inflation, that one 489 00:24:43,160 --> 00:24:45,560 Speaker 2: hundred thousands. It would have to probably grow to two 490 00:24:45,640 --> 00:24:48,000 Speaker 2: hundred thousand just to keep its own value over a 491 00:24:48,040 --> 00:24:50,280 Speaker 2: ten or fifteen year period. Yet you're going to have 492 00:24:50,280 --> 00:24:53,040 Speaker 2: to pay fifty percent capital gains tax on that rise 493 00:24:53,080 --> 00:24:56,040 Speaker 2: of one hundred thousand. So in periods of high inflation, 494 00:24:56,480 --> 00:24:59,160 Speaker 2: the capital gains tax discount is not actually a great deal. 495 00:24:59,320 --> 00:25:00,840 Speaker 2: It's a poorly yes. 496 00:25:00,960 --> 00:25:06,119 Speaker 1: Right, And what would you classify as high inflation plus 497 00:25:06,240 --> 00:25:06,720 Speaker 1: five percent? 498 00:25:06,720 --> 00:25:07,200 Speaker 2: Plus? Yeah? 499 00:25:07,240 --> 00:25:09,680 Speaker 1: Right, which we nearly touched. We came close to, didn't 500 00:25:09,720 --> 00:25:13,240 Speaker 1: wait in recent times? Okay, very good? All right, Peter asks, 501 00:25:13,359 --> 00:25:16,400 Speaker 1: reading between the lines of a recent episode, your bias 502 00:25:16,800 --> 00:25:21,679 Speaker 1: towards managed funds versus index is apparent. Nothing wrong with that. 503 00:25:21,800 --> 00:25:24,119 Speaker 1: I'm sure you have declared your interest elsewhere, But for 504 00:25:24,160 --> 00:25:26,040 Speaker 1: the sake of transparency, don't you think it would have 505 00:25:26,080 --> 00:25:30,200 Speaker 1: been prudent to declare this bias during the podcast? Okay, 506 00:25:30,200 --> 00:25:33,520 Speaker 1: thank you, Peter. Your claim that I'm biased in favor 507 00:25:34,040 --> 00:25:35,879 Speaker 1: of I have to remember who I'm supposed to be 508 00:25:35,880 --> 00:25:40,080 Speaker 1: in favor of managed funds versus index. No, that not 509 00:25:40,160 --> 00:25:42,520 Speaker 1: the case. I would respectfully suggest it's not the case 510 00:25:43,000 --> 00:25:45,560 Speaker 1: I recently had. We had another piece correspondence was it 511 00:25:45,560 --> 00:25:49,320 Speaker 1: two weeks ago saying I was a bias against industry funds. 512 00:25:49,840 --> 00:25:52,439 Speaker 1: There's no bias, please, I would hope that there is 513 00:25:52,480 --> 00:25:54,720 Speaker 1: no bias of we're really looking for the best for all. 514 00:25:54,760 --> 00:25:58,600 Speaker 1: Investors sometimes get over enthusiastic about something or other. But 515 00:25:58,920 --> 00:26:01,239 Speaker 1: there's different strokes for differ from folks, let me tell you, 516 00:26:01,760 --> 00:26:05,240 Speaker 1: and there is no there is. I think we could 517 00:26:05,280 --> 00:26:07,160 Speaker 1: do a show one investor bias if I could get 518 00:26:07,160 --> 00:26:10,720 Speaker 1: the right person to talk about it. Karen Neilson. Years ago, 519 00:26:10,880 --> 00:26:13,679 Speaker 1: I saw him give an investment lecture which was one 520 00:26:13,680 --> 00:26:16,040 Speaker 1: of the best lectures I ever saw, and it was 521 00:26:16,080 --> 00:26:19,480 Speaker 1: all about sort of unconscious bias in our subconscious bias 522 00:26:19,520 --> 00:26:23,119 Speaker 1: by investors. But that's a different thing that the notion 523 00:26:23,200 --> 00:26:25,159 Speaker 1: that we are the show is pro x or y 524 00:26:25,480 --> 00:26:27,879 Speaker 1: not really we're looking for the best deal. I would 525 00:26:27,880 --> 00:26:30,200 Speaker 1: respectfully suggest to you, Peter, but thank you very much 526 00:26:30,320 --> 00:26:34,520 Speaker 1: for the correspondent. Okay, Paul, there, Liam, if you want 527 00:26:34,520 --> 00:26:35,240 Speaker 1: to have a go on that one. 528 00:26:35,760 --> 00:26:38,520 Speaker 2: Okay, Suppaul says, I have a question regarding binding death 529 00:26:38,600 --> 00:26:42,040 Speaker 2: nominations within super I've seen it written that a BDN 530 00:26:42,119 --> 00:26:44,800 Speaker 2: is normally a more efficient and an effective way to 531 00:26:44,800 --> 00:26:47,920 Speaker 2: get cash to adult children rather than through the traditional 532 00:26:47,920 --> 00:26:50,919 Speaker 2: will process. Can you clarify there if there is a 533 00:26:51,000 --> 00:26:54,080 Speaker 2: downside to using the BDN approach to leaving money to 534 00:26:54,119 --> 00:26:54,600 Speaker 2: your children. 535 00:26:55,119 --> 00:26:57,399 Speaker 1: Very good question, Paul. Can we just liam before we 536 00:26:57,440 --> 00:26:59,240 Speaker 1: answer it? Can we just make it really clear what's 537 00:26:59,280 --> 00:27:02,480 Speaker 1: going on here? The will traditionally was the key instrument 538 00:27:03,359 --> 00:27:06,880 Speaker 1: for all inheritance. Many people now most of their money 539 00:27:06,920 --> 00:27:09,560 Speaker 1: is in super apart from their family home, and so 540 00:27:09,640 --> 00:27:12,840 Speaker 1: this binding death nomination is the will dimension of super 541 00:27:12,920 --> 00:27:15,040 Speaker 1: isn't it right? So putting that on the table, then 542 00:27:15,320 --> 00:27:17,720 Speaker 1: to go back to Pau's question, you might cover off 543 00:27:17,720 --> 00:27:18,480 Speaker 1: on what he asked. 544 00:27:18,880 --> 00:27:21,359 Speaker 2: So the first thing to understand is with our little children, 545 00:27:22,119 --> 00:27:25,000 Speaker 2: you're super is a separate entity to your will, So 546 00:27:25,240 --> 00:27:28,320 Speaker 2: your super will not automatically go to your will. So, 547 00:27:28,800 --> 00:27:32,080 Speaker 2: especially with adult children, you have to use a binding 548 00:27:32,119 --> 00:27:35,080 Speaker 2: death nomination either way and either send it to your 549 00:27:35,080 --> 00:27:38,560 Speaker 2: will or send it directly to your children. Okay, The 550 00:27:38,600 --> 00:27:40,720 Speaker 2: plus side of sending it to your children directly is 551 00:27:40,720 --> 00:27:44,240 Speaker 2: that it will often go there quicker, and nowadays there's 552 00:27:44,280 --> 00:27:47,320 Speaker 2: also a lot more chance of a will being challenged. 553 00:27:47,680 --> 00:27:49,360 Speaker 2: So if if all the money goes into a will, 554 00:27:49,400 --> 00:27:53,200 Speaker 2: then it becomes a bigger part and people look naturally, 555 00:27:53,200 --> 00:27:54,960 Speaker 2: when there's money on the table, people are looking to 556 00:27:54,960 --> 00:27:57,399 Speaker 2: get more of it. So one of the benefits of 557 00:27:57,480 --> 00:28:01,000 Speaker 2: doing a binding nomination is basically it goes directly out 558 00:28:01,000 --> 00:28:03,800 Speaker 2: of the children. One of the downsides is if it 559 00:28:03,840 --> 00:28:06,960 Speaker 2: goes out to them directly, you're looking at the seventeen 560 00:28:07,000 --> 00:28:10,560 Speaker 2: percent tax on the taxable component of your super So 561 00:28:10,640 --> 00:28:13,680 Speaker 2: that's any money that you put into your employment or 562 00:28:13,720 --> 00:28:17,399 Speaker 2: true salary sacrifice, that's called your taxable component. If that 563 00:28:17,480 --> 00:28:20,240 Speaker 2: passes to your adult children or anybody else out of 564 00:28:20,280 --> 00:28:23,520 Speaker 2: super you're going to pay seventeen percent. If you send 565 00:28:23,600 --> 00:28:27,560 Speaker 2: us through the will, he saved two percent, okay, so 566 00:28:28,040 --> 00:28:29,960 Speaker 2: you don't pay the Medicare levey on that part of 567 00:28:30,000 --> 00:28:30,720 Speaker 2: it that goes should have. 568 00:28:30,720 --> 00:28:33,879 Speaker 1: A very good information just to wind back a little bit, Liam, 569 00:28:33,960 --> 00:28:38,240 Speaker 1: just to finish off for Paul. So the binding denominations 570 00:28:38,280 --> 00:28:40,600 Speaker 1: in super should everyone do them if they have a 571 00:28:40,680 --> 00:28:43,800 Speaker 1: super fund? And how often should they update them? 572 00:28:44,160 --> 00:28:46,800 Speaker 2: Yeah? Well, look, thankfully nowadays there used to be almost 573 00:28:46,800 --> 00:28:50,200 Speaker 2: three years maximum. Okay, So one I believe everybody should 574 00:28:50,200 --> 00:28:54,000 Speaker 2: do them. And with a software superman, it's often a 575 00:28:54,040 --> 00:28:56,040 Speaker 2: lot of lawyers will argue that it's better not to 576 00:28:56,080 --> 00:28:57,880 Speaker 2: do it, to leave it up to the trustee because 577 00:28:57,920 --> 00:29:01,160 Speaker 2: it's a husband and wife and it's the partner. I 578 00:29:01,280 --> 00:29:03,680 Speaker 2: just believe the demand of blended families nowadays you need 579 00:29:03,720 --> 00:29:06,920 Speaker 2: more certainty, So I believe a bonding nomination is essential. 580 00:29:07,360 --> 00:29:09,640 Speaker 2: Now most funds will offer you the ability to have 581 00:29:09,680 --> 00:29:13,120 Speaker 2: a non lapsing body nomination. That means that it doesn't 582 00:29:13,160 --> 00:29:16,000 Speaker 2: expire every three years, it actually keeps on going beyond. 583 00:29:16,520 --> 00:29:19,240 Speaker 2: That doesn't mean you don't review it. It just means 584 00:29:19,240 --> 00:29:24,120 Speaker 2: that just in case your circumstances change, your mental capacity declinent, 585 00:29:24,280 --> 00:29:27,320 Speaker 2: or something goes wrong, that it's still locked in what 586 00:29:27,440 --> 00:29:30,640 Speaker 2: your wishes are locked in. And we back that up 587 00:29:30,760 --> 00:29:33,480 Speaker 2: by saying, if you're doing an empower enduring power of attorney, 588 00:29:34,320 --> 00:29:36,960 Speaker 2: mention in that enduring power of attorney the power to 589 00:29:37,000 --> 00:29:40,520 Speaker 2: make a boding nomination on your behalf or make sure 590 00:29:40,520 --> 00:29:42,760 Speaker 2: that no, I want it fixed as to where my 591 00:29:42,800 --> 00:29:45,360 Speaker 2: super goes. I don't want the power of attorney to 592 00:29:45,400 --> 00:29:48,360 Speaker 2: have the ability to change it. So think you're the 593 00:29:48,360 --> 00:29:49,320 Speaker 2: big picture. 594 00:29:49,320 --> 00:29:52,080 Speaker 1: Cutting through here. It's talking about fixing for sure where 595 00:29:52,120 --> 00:29:55,479 Speaker 1: your super goes, and if you want to fix it 596 00:29:55,520 --> 00:30:00,680 Speaker 1: for sure, permanently. That is permanently until you in your mind, 597 00:30:01,080 --> 00:30:04,760 Speaker 1: a non lapsing binding death nomination should be made so 598 00:30:04,800 --> 00:30:07,760 Speaker 1: that you say, my super goes to jack and jail 599 00:30:08,120 --> 00:30:11,200 Speaker 1: whatever in the future. And that's how you wanted it 600 00:30:11,240 --> 00:30:16,400 Speaker 1: divided separate to your will, because your will doesn't cover effect. 601 00:30:16,560 --> 00:30:18,520 Speaker 1: Does your will not cover your super? How does it work? 602 00:30:18,640 --> 00:30:21,280 Speaker 2: No? So, because the super is a separate trust, it's 603 00:30:21,320 --> 00:30:23,840 Speaker 2: a totally separate entity. So to have it go to 604 00:30:23,880 --> 00:30:26,360 Speaker 2: your will, you must specifically send it there. So you'll 605 00:30:26,400 --> 00:30:28,480 Speaker 2: see on that binding nomination there's an option to put 606 00:30:28,480 --> 00:30:31,040 Speaker 2: in your children or your spouse. At the bottom does 607 00:30:31,080 --> 00:30:34,680 Speaker 2: the option legal personal representative and that's your state. That's 608 00:30:34,680 --> 00:30:37,120 Speaker 2: the executor of your state. But that you have to 609 00:30:37,240 --> 00:30:40,640 Speaker 2: use those specific world where it's legal person representative. So 610 00:30:40,680 --> 00:30:42,840 Speaker 2: you'll find a lot we'll do hunder present to the 611 00:30:42,880 --> 00:30:46,080 Speaker 2: legal personal representative and then deal with a trigger will. 612 00:30:46,840 --> 00:30:50,160 Speaker 2: With the amount of will's being challenged nowadays, the amount 613 00:30:50,200 --> 00:30:52,640 Speaker 2: of money we're talking about, you really need to get 614 00:30:52,640 --> 00:30:56,360 Speaker 2: expert advice or from a lawyer and from your financial 615 00:30:56,400 --> 00:30:58,320 Speaker 2: panel to ook, look, what are you actually trying to achieve? 616 00:30:58,360 --> 00:31:00,600 Speaker 2: Where do you want this money to go to? And 617 00:31:00,680 --> 00:31:02,959 Speaker 2: also through the way you got your will set up. 618 00:31:03,520 --> 00:31:05,480 Speaker 2: Is it set up a testamentary trust so that there's 619 00:31:05,520 --> 00:31:09,520 Speaker 2: flexibility for your beneficiary. So it's a big picture thing. 620 00:31:09,920 --> 00:31:13,000 Speaker 1: Yes, but don't assume your will covers your super rock 621 00:31:13,040 --> 00:31:17,960 Speaker 1: bottom piece of information from Liam shot this morning. Okay, terrific. Hey, 622 00:31:17,960 --> 00:31:20,000 Speaker 1: thank you Liam. Great to have you on the show again. 623 00:31:20,640 --> 00:31:22,080 Speaker 2: Loved it. Thank you very much, James. 624 00:31:22,320 --> 00:31:26,880 Speaker 1: That was Liam Short of Sonna's Wealth Group and I 625 00:31:26,920 --> 00:31:29,920 Speaker 1: thought that was something we should do folks. As I say, 626 00:31:29,960 --> 00:31:32,760 Speaker 1: I think it's a time that you can have your 627 00:31:32,800 --> 00:31:34,760 Speaker 1: own view as to where the markets are going, whether 628 00:31:34,800 --> 00:31:37,720 Speaker 1: this is a risk or whether it's an opportunity. But 629 00:31:37,960 --> 00:31:44,160 Speaker 1: certainly to be cash less in this environment is risky 630 00:31:44,640 --> 00:31:46,920 Speaker 1: and obviously the older you are, the more that is 631 00:31:46,960 --> 00:31:50,480 Speaker 1: a pertinent and Liam basically covered that at the start 632 00:31:50,520 --> 00:31:52,680 Speaker 1: of the show. Terrific. Okay, we've got lots of questions 633 00:31:52,680 --> 00:31:55,560 Speaker 1: coming in, keep them rolling, please, love to have some more. 634 00:31:55,960 --> 00:31:58,840 Speaker 1: The Money Puzzle at the Australian dot Com dot Au 635 00:31:59,040 --> 00:32:02,280 Speaker 1: and Today's Who was produced by Leah Sammerglue. Talk to 636 00:32:02,280 --> 00:32:02,600 Speaker 1: you soon.