1 00:00:06,920 --> 00:00:10,040 Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm 2 00:00:10,119 --> 00:00:21,640 Speaker 1: James Kirby, the editor at the Australian. Welcome aboard everybody. Well, 3 00:00:21,800 --> 00:00:26,040 Speaker 1: you may not have yet I got your full results 4 00:00:26,079 --> 00:00:28,240 Speaker 1: for the financial year, but you may start to be 5 00:00:28,280 --> 00:00:33,320 Speaker 1: getting your super returns. They were probably at the nine 6 00:00:33,360 --> 00:00:37,800 Speaker 1: percent mark, maybe higher. If you've any decent fund at all, 7 00:00:38,280 --> 00:00:40,720 Speaker 1: and if you were looking at how your shares went, my, 8 00:00:40,880 --> 00:00:44,600 Speaker 1: oh my very very good year, you would expect on 9 00:00:44,760 --> 00:00:47,519 Speaker 1: the Australian market that you did at least twelve percent. 10 00:00:47,760 --> 00:00:51,640 Speaker 1: I'm talking your shares doing about eight percent and your 11 00:00:51,840 --> 00:00:55,880 Speaker 1: dividends doing maybe four and a half thereabouts, So you 12 00:00:55,880 --> 00:00:59,480 Speaker 1: get a total return on twelve ish good year by 13 00:00:59,560 --> 00:01:03,440 Speaker 1: Annie's Andrew's historically comfortably ahead of inflation. And then the 14 00:01:03,600 --> 00:01:06,760 Speaker 1: US markets absolutely wonderful. I mean they are wonderful. Returns 15 00:01:06,760 --> 00:01:09,759 Speaker 1: from the US markets. Are you looking at in the 16 00:01:09,920 --> 00:01:14,360 Speaker 1: order of twenty percent plus on world indusies. You're looking 17 00:01:14,400 --> 00:01:19,000 Speaker 1: at more like mid twenties on US induses. The US 18 00:01:19,080 --> 00:01:23,360 Speaker 1: indicies are now so powerful, are so successful that they 19 00:01:23,400 --> 00:01:27,679 Speaker 1: are representing seventy percent of the world stock market as 20 00:01:27,720 --> 00:01:32,000 Speaker 1: represented the Morgan Standy Capital International Index, the MYSKI as 21 00:01:32,000 --> 00:01:38,760 Speaker 1: they call it. So the question we ask is is 22 00:01:38,800 --> 00:01:41,520 Speaker 1: this as good as it gets both on your super 23 00:01:41,920 --> 00:01:44,920 Speaker 1: and on your share market return. We had actually own 24 00:01:45,040 --> 00:01:47,760 Speaker 1: on the show last week, of course, needless to say, 25 00:01:47,800 --> 00:01:50,040 Speaker 1: as I expected, as I predicted, we had a big 26 00:01:50,080 --> 00:01:53,440 Speaker 1: response to that. And as I said, we could almost 27 00:01:53,480 --> 00:01:57,040 Speaker 1: do that show every single month of the year and 28 00:01:57,160 --> 00:02:00,120 Speaker 1: we'd have avid listeners every month of the year. How 29 00:02:00,160 --> 00:02:01,960 Speaker 1: much should you have in super? And I thought actually 30 00:02:02,040 --> 00:02:04,080 Speaker 1: was quite good in how he it really got into 31 00:02:04,160 --> 00:02:06,440 Speaker 1: the tickets there on the basis that you know it 32 00:02:06,520 --> 00:02:08,400 Speaker 1: is different for everyone. A lot of it is your 33 00:02:08,400 --> 00:02:11,160 Speaker 1: own expectations. There are forming as you can follow you 34 00:02:11,200 --> 00:02:13,880 Speaker 1: mister show, make sure you listen back to it. My 35 00:02:14,080 --> 00:02:18,440 Speaker 1: guest today is, of course James Girard of Financial Advisor 36 00:02:18,480 --> 00:02:21,760 Speaker 1: dot com dot you friend of the show, best friend 37 00:02:21,800 --> 00:02:23,600 Speaker 1: of the show. How are you, James Gerard? 38 00:02:24,360 --> 00:02:27,959 Speaker 2: I'm doing great. Thank you, James, lovely beyond as always. 39 00:02:27,480 --> 00:02:30,840 Speaker 1: Great to have you on. Tell me, I imagine you've got 40 00:02:30,840 --> 00:02:33,440 Speaker 1: all these smiling clients. They probably think you're marvelous to 41 00:02:33,560 --> 00:02:36,079 Speaker 1: they Oh, James, that's so good this year. You're so 42 00:02:36,240 --> 00:02:39,880 Speaker 1: good as an advisor, and you sit there going, yeah, well, 43 00:02:40,000 --> 00:02:42,799 Speaker 1: you know the markets were domn good this year. Is 44 00:02:43,080 --> 00:02:43,880 Speaker 1: it a year like that? 45 00:02:44,240 --> 00:02:47,280 Speaker 2: Pray tell most of my clients have been with me 46 00:02:47,400 --> 00:02:50,320 Speaker 2: for ten years or more when we've been through good years, 47 00:02:50,320 --> 00:02:53,680 Speaker 2: but they've been through bad years as well. So they're 48 00:02:53,720 --> 00:02:56,560 Speaker 2: happy having double digit returns, most of them. But they 49 00:02:56,639 --> 00:02:59,160 Speaker 2: understand that there will be a bad dye that comes 50 00:02:59,200 --> 00:03:00,760 Speaker 2: and we have to sort of look things over long 51 00:03:00,840 --> 00:03:04,040 Speaker 2: period of time. But yeah, you'd always take a positive 52 00:03:04,040 --> 00:03:06,600 Speaker 2: return over a negative return. But I guess from here 53 00:03:06,680 --> 00:03:08,680 Speaker 2: is just about will it continue, which I think will 54 00:03:08,639 --> 00:03:09,960 Speaker 2: public explore a little bit today. 55 00:03:10,480 --> 00:03:12,520 Speaker 1: Yes, I mean I have a self managed fund and 56 00:03:12,560 --> 00:03:16,640 Speaker 1: I fortunately finally took my own advice about a year 57 00:03:16,639 --> 00:03:19,720 Speaker 1: and a half ago, and I did shift substantially into 58 00:03:19,760 --> 00:03:23,600 Speaker 1: offshore markets. And I say substantially, maybe a quarter of 59 00:03:23,639 --> 00:03:26,680 Speaker 1: all the shares are now in one way or another, 60 00:03:28,080 --> 00:03:32,920 Speaker 1: not on the X, mostly on the US, and mostly 61 00:03:33,080 --> 00:03:37,240 Speaker 1: I am using funds or ETFs to access that rother 62 00:03:37,280 --> 00:03:40,000 Speaker 1: than picking them individually. But you know, it really did 63 00:03:40,080 --> 00:03:43,800 Speaker 1: lift it. And you're talking twenty percent plus rather than 64 00:03:44,320 --> 00:03:46,640 Speaker 1: rather than twelve on the local market. And I was 65 00:03:46,680 --> 00:03:49,280 Speaker 1: talking to someone last night and they were saying that 66 00:03:51,000 --> 00:03:53,160 Speaker 1: when is the Australian market ever going to come around? 67 00:03:53,200 --> 00:03:55,440 Speaker 1: When is it ever going to be better than the US, 68 00:03:55,800 --> 00:03:59,040 Speaker 1: because it isn't year after year, year after year after year. 69 00:03:59,080 --> 00:04:01,080 Speaker 1: Half far back. You want to go. When they go 70 00:04:01,240 --> 00:04:04,400 Speaker 1: really well, we go okay. When they fall, we fall 71 00:04:04,400 --> 00:04:07,920 Speaker 1: with them. It's a difficult one. So in terms of 72 00:04:08,040 --> 00:04:12,440 Speaker 1: just super returns and super returns being let's see there 73 00:04:12,480 --> 00:04:15,400 Speaker 1: nine percent for everybody, and then let's see that they 74 00:04:15,400 --> 00:04:20,560 Speaker 1: are heavily underpinned. No matter who you're with, buy share markets, 75 00:04:20,560 --> 00:04:25,040 Speaker 1: and the share markets were exceptionally good. I imagine the 76 00:04:25,120 --> 00:04:28,600 Speaker 1: danger with an advisor is that people start to expect 77 00:04:28,600 --> 00:04:31,760 Speaker 1: that this is normal, that this is what they should 78 00:04:31,760 --> 00:04:33,120 Speaker 1: get each year. 79 00:04:34,120 --> 00:04:37,000 Speaker 2: Correct, people have short memories. That wasn't that long ago 80 00:04:37,200 --> 00:04:40,440 Speaker 2: that the technology stocks in America were out of favor 81 00:04:40,640 --> 00:04:43,720 Speaker 2: and a lot of big companies were dropping twenty forty 82 00:04:43,800 --> 00:04:46,560 Speaker 2: fifty percent in value over a twelve minleth period. Now, 83 00:04:46,880 --> 00:04:49,240 Speaker 2: of course, the fortunes for those companies have changed, and 84 00:04:49,600 --> 00:04:52,719 Speaker 2: conditions are great for share markets. And also cash rates 85 00:04:52,720 --> 00:04:54,919 Speaker 2: are high as well, so bond and turned the posits 86 00:04:55,360 --> 00:04:57,920 Speaker 2: are yielding grade. So we're in a slightly unique situation. 87 00:04:58,000 --> 00:05:01,960 Speaker 2: Where all asset allocations are forming well, because usually where 88 00:05:01,960 --> 00:05:04,240 Speaker 2: the share market's doing well, you're not getting that match 89 00:05:04,320 --> 00:05:07,800 Speaker 2: on cash and property markets are doing greater. Share markets 90 00:05:07,880 --> 00:05:10,320 Speaker 2: doing well, but everything across the board has been going 91 00:05:10,360 --> 00:05:13,200 Speaker 2: great over the past fourfronds. So you are absolutely right. 92 00:05:13,720 --> 00:05:16,440 Speaker 2: Investors shouldn't get complacent because it's not always going to 93 00:05:16,480 --> 00:05:16,880 Speaker 2: be like this. 94 00:05:17,440 --> 00:05:19,800 Speaker 1: Yes, I mean, I don't want to be harbinger of 95 00:05:19,880 --> 00:05:24,280 Speaker 1: doom or anything like that, but what's a period two eight? 96 00:05:24,680 --> 00:05:29,520 Speaker 1: Oh my god, to wait. Everything was falling, everything, I remember. 97 00:05:29,560 --> 00:05:33,960 Speaker 1: The only thing because at the time we're running an 98 00:05:33,960 --> 00:05:39,039 Speaker 1: investment like a newsletter and it was just so grim. 99 00:05:39,080 --> 00:05:40,960 Speaker 1: The only thing that was that there was any action 100 00:05:41,080 --> 00:05:45,440 Speaker 1: at all was these gas exploration stocks in Queensland. That's 101 00:05:45,440 --> 00:05:48,360 Speaker 1: about the only thing. And everything was going the wrong way, 102 00:05:48,400 --> 00:05:51,599 Speaker 1: absolutely everything. And what people forget is not just that 103 00:05:51,720 --> 00:05:54,680 Speaker 1: it felt, but it was so grindingly difficult because it 104 00:05:54,680 --> 00:05:57,760 Speaker 1: fell by nearly fifty percent between the top of two 105 00:05:57,839 --> 00:05:59,960 Speaker 1: oh seven and the very bottom of two oh nine. 106 00:06:00,400 --> 00:06:03,159 Speaker 1: And I think, just as a word of warning for 107 00:06:03,360 --> 00:06:07,000 Speaker 1: anyone who gets a little bit too excited about the 108 00:06:07,120 --> 00:06:11,600 Speaker 1: returns they've just had, there are periods where it is 109 00:06:11,680 --> 00:06:16,880 Speaker 1: gruelingly difficult to be exposed to shares, and there is 110 00:06:16,920 --> 00:06:19,480 Speaker 1: a sense of it will never turn. It always does, 111 00:06:19,520 --> 00:06:22,600 Speaker 1: but it can take But the COVID crash didn't take 112 00:06:22,600 --> 00:06:24,880 Speaker 1: that long in it James and be six months, but 113 00:06:25,040 --> 00:06:29,159 Speaker 1: the GFC crash took two years to happen, that was 114 00:06:29,160 --> 00:06:32,200 Speaker 1: the hard part, and maybe two years to recover there thereabouts. 115 00:06:32,400 --> 00:06:35,680 Speaker 1: So you really have to have a strong constitution to 116 00:06:35,800 --> 00:06:39,960 Speaker 1: go with it, especially as an independent investor. But structurally, 117 00:06:40,120 --> 00:06:46,320 Speaker 1: I wonder if it's the case that the conditions last 118 00:06:46,400 --> 00:06:50,320 Speaker 1: year that drove such a good share market return would 119 00:06:50,400 --> 00:06:53,760 Speaker 1: seem to be perfect again this year and we don't 120 00:06:53,760 --> 00:06:58,640 Speaker 1: see anything yet that would change that. So is it 121 00:06:58,720 --> 00:07:03,640 Speaker 1: the case that people probably could be confident on shares 122 00:07:03,680 --> 00:07:07,400 Speaker 1: and if they are, should they have more overseas because 123 00:07:07,440 --> 00:07:11,840 Speaker 1: we know independent Australian investors still have not much overseas 124 00:07:11,880 --> 00:07:15,280 Speaker 1: compared to successful institutional investors such as the Future Fund. 125 00:07:16,400 --> 00:07:20,040 Speaker 2: It's an interesting situation because you have on one hand, 126 00:07:20,160 --> 00:07:22,760 Speaker 2: as you say, the market conditions which are conducive for 127 00:07:23,040 --> 00:07:26,400 Speaker 2: more share market gains. So you're going through the sort 128 00:07:26,440 --> 00:07:29,560 Speaker 2: of normal economic indicators and things that we as professional 129 00:07:29,560 --> 00:07:32,800 Speaker 2: investors have a lookout for our clients economic indicators. So 130 00:07:32,840 --> 00:07:37,480 Speaker 2: you know GDP in America's great unemployment, slow monetary policy, 131 00:07:37,640 --> 00:07:40,200 Speaker 2: or inflations falling. It's come down from nine percent it's 132 00:07:40,240 --> 00:07:42,160 Speaker 2: now three percent, So that means that the Fed Reserve 133 00:07:42,200 --> 00:07:44,720 Speaker 2: should decrease interest rate or cash rates, which would be 134 00:07:44,760 --> 00:07:47,280 Speaker 2: good for share markets in America. If you look at 135 00:07:47,320 --> 00:07:50,920 Speaker 2: the political situation, it's looking more likely with a Trump win, 136 00:07:51,320 --> 00:07:53,480 Speaker 2: and that seem to be good for share markets because 137 00:07:53,520 --> 00:07:56,440 Speaker 2: Trump is a pro business so that should be a 138 00:07:56,480 --> 00:07:59,120 Speaker 2: shot in the arm for share markets and corporate earnings. 139 00:07:59,280 --> 00:08:01,200 Speaker 2: They've been strong and it looks like they will continue 140 00:08:01,240 --> 00:08:04,040 Speaker 2: to be strong. So on one side, everything looks good, 141 00:08:04,400 --> 00:08:06,960 Speaker 2: ticking the boxes for share markets to keep going up. 142 00:08:07,200 --> 00:08:09,480 Speaker 2: But on the other hand, we always have to have 143 00:08:09,560 --> 00:08:13,840 Speaker 2: regard to valuations of share markets. How expensive or cheap 144 00:08:14,080 --> 00:08:17,360 Speaker 2: is the share market compared to historical averages. And one 145 00:08:17,400 --> 00:08:19,600 Speaker 2: of the very crude metrics we have a look at 146 00:08:19,760 --> 00:08:22,400 Speaker 2: is what's called the price to earning ratio. And at 147 00:08:22,400 --> 00:08:25,000 Speaker 2: the moment, the US share market is traded on a 148 00:08:25,040 --> 00:08:28,240 Speaker 2: price to earnings ratio of about twenty nine times earnings, 149 00:08:28,400 --> 00:08:31,239 Speaker 2: which is higher than the historic rate of eighteen times, 150 00:08:31,280 --> 00:08:36,240 Speaker 2: which means that share markets historically more expensive now compared 151 00:08:36,240 --> 00:08:39,320 Speaker 2: to historical averages. And what I've observed is that share 152 00:08:39,360 --> 00:08:42,520 Speaker 2: markets always go back to the long term average. So 153 00:08:43,280 --> 00:08:45,960 Speaker 2: on one hand, there's room for more games to be had, 154 00:08:46,000 --> 00:08:48,360 Speaker 2: but on the other hand, at some stage in the future, 155 00:08:48,520 --> 00:08:50,560 Speaker 2: there will be a drop to go back to the 156 00:08:50,559 --> 00:08:51,599 Speaker 2: long term average. 157 00:08:51,800 --> 00:08:54,480 Speaker 1: So twenty nine times is the peer on the US 158 00:08:54,600 --> 00:08:55,400 Speaker 1: market right now? 159 00:08:55,559 --> 00:08:57,280 Speaker 2: Yeah at the moment, Yeah. 160 00:08:57,120 --> 00:08:58,480 Speaker 1: That's getting high. 161 00:08:58,520 --> 00:08:58,920 Speaker 2: It is. 162 00:08:59,480 --> 00:09:01,720 Speaker 1: What would you see as a comfortable number. 163 00:09:02,320 --> 00:09:04,560 Speaker 2: I'd tell you back around that twenty five, which is 164 00:09:04,559 --> 00:09:08,800 Speaker 2: still above the average, but still not too overvalued. So, 165 00:09:09,280 --> 00:09:11,640 Speaker 2: pulling out my crystal ball as I do occasionally, I 166 00:09:11,679 --> 00:09:14,200 Speaker 2: think that in the lead up to the US presidential election, 167 00:09:14,360 --> 00:09:17,839 Speaker 2: share markets will continue to bubble along and see maybe 168 00:09:17,840 --> 00:09:20,440 Speaker 2: five or ten percent gains. But then after that, and 169 00:09:20,559 --> 00:09:23,200 Speaker 2: if Trump gets into power, that's when we'll start to 170 00:09:23,200 --> 00:09:25,720 Speaker 2: see some shocks to market. He may reignite a trade 171 00:09:25,760 --> 00:09:28,160 Speaker 2: war with China, for example, or it could be something 172 00:09:28,240 --> 00:09:31,480 Speaker 2: outside of Trump's controller, might be a geopolitical event with 173 00:09:31,800 --> 00:09:35,360 Speaker 2: Russia or Ukraine flaring up. So something will happen. Because 174 00:09:35,600 --> 00:09:38,640 Speaker 2: the more expensive share markets are, the more sensitive share 175 00:09:38,640 --> 00:09:41,719 Speaker 2: markets are to negative news. Because the investors are just 176 00:09:41,760 --> 00:09:44,199 Speaker 2: looking for a small piece of information to go Aha. 177 00:09:44,320 --> 00:09:46,360 Speaker 2: This is a signal we need to take our profits 178 00:09:46,360 --> 00:09:47,160 Speaker 2: and start selling. 179 00:09:47,400 --> 00:09:50,720 Speaker 1: And as you see, the last time Trump one share 180 00:09:50,760 --> 00:09:54,320 Speaker 1: market had quite a lift straight away after his election. 181 00:09:54,760 --> 00:09:58,000 Speaker 1: You might say that would happen with any Republican candidate, 182 00:09:58,360 --> 00:10:02,120 Speaker 1: but it just so happens that he's the world this time, 183 00:10:02,920 --> 00:10:05,760 Speaker 1: whether you like him or not. Herely comes again. Okay, 184 00:10:06,240 --> 00:10:08,960 Speaker 1: just one final thing on that. The bit I always 185 00:10:08,960 --> 00:10:14,000 Speaker 1: worry about every year is the US Autumn jituus, the 186 00:10:14,600 --> 00:10:18,640 Speaker 1: September October, the crash season, all the great crashes, all 187 00:10:18,679 --> 00:10:21,920 Speaker 1: the great drops. They always happen in September October. It's 188 00:10:22,480 --> 00:10:25,360 Speaker 1: late July. We're only about six or eight weeks off 189 00:10:25,360 --> 00:10:29,480 Speaker 1: from that patch. Personally, I'm always very very careful of 190 00:10:29,520 --> 00:10:32,480 Speaker 1: bank shares before that patch because there's often a drop. 191 00:10:33,080 --> 00:10:36,320 Speaker 2: What do you think I agree with that it is 192 00:10:36,360 --> 00:10:39,760 Speaker 2: a historical warning period where shar marketers are conducive to 193 00:10:39,880 --> 00:10:42,280 Speaker 2: drop in. But on the other hand, we do have 194 00:10:42,320 --> 00:10:45,120 Speaker 2: those strong economic factors they're saying that we should plow 195 00:10:45,200 --> 00:10:48,400 Speaker 2: through this time around and keep getting stronger. So it 196 00:10:48,440 --> 00:10:50,720 Speaker 2: really depends on using that that's saying you can't see 197 00:10:50,760 --> 00:10:52,840 Speaker 2: around corners. It's going to be something that pops up 198 00:10:52,880 --> 00:10:54,280 Speaker 2: in just smack us in the face that caused the 199 00:10:54,280 --> 00:10:56,640 Speaker 2: share markets to drop that we don't know what it 200 00:10:56,720 --> 00:10:57,200 Speaker 2: is today. 201 00:10:57,480 --> 00:11:00,600 Speaker 1: Yeah, the black Swan event as they call it. Okay, 202 00:11:00,760 --> 00:11:02,760 Speaker 1: now that's the share market. We're going to bounce around 203 00:11:02,760 --> 00:11:04,760 Speaker 1: on a few subjects today, folks, for the simple reason 204 00:11:04,840 --> 00:11:07,280 Speaker 1: that there are a couple of pressing subjects. I know 205 00:11:07,440 --> 00:11:11,880 Speaker 1: that you would all be very interested in, James one 206 00:11:11,880 --> 00:11:14,840 Speaker 1: of the things I wanted to also talk about. And 207 00:11:14,880 --> 00:11:18,480 Speaker 1: they're unrelated, folks, but they're all related to investors and 208 00:11:18,520 --> 00:11:20,960 Speaker 1: the activities that you or I might be doing in 209 00:11:21,000 --> 00:11:25,680 Speaker 1: the market. Just quickly, in the stockbroking world and in 210 00:11:25,720 --> 00:11:31,960 Speaker 1: the advisory world, there's a format for investors that has 211 00:11:32,080 --> 00:11:34,600 Speaker 1: become very popular and it's growing very very quickly called 212 00:11:34,640 --> 00:11:40,679 Speaker 1: self managed accounts SMAs. And everything I've read about sma's 213 00:11:40,720 --> 00:11:43,199 Speaker 1: talks about how great they are and how they're growing 214 00:11:43,240 --> 00:11:45,840 Speaker 1: so quickly. And you said to me, I don't like 215 00:11:45,880 --> 00:11:47,839 Speaker 1: them at all. I wouldn't go near them, and I 216 00:11:47,840 --> 00:11:51,080 Speaker 1: wouldn't put anybody into them. And then I said to you, well, 217 00:11:51,120 --> 00:11:54,040 Speaker 1: why don't you say that loud and clear and to 218 00:11:54,240 --> 00:11:58,520 Speaker 1: a pie supplouded in the Australian, which you did, which 219 00:11:58,640 --> 00:12:01,440 Speaker 1: was great. What do you think now about those SMAs? 220 00:12:01,480 --> 00:12:03,960 Speaker 1: Do you think people are starting to become a little 221 00:12:04,000 --> 00:12:06,960 Speaker 1: skeptical about them? And just if you would for the listeners, 222 00:12:07,120 --> 00:12:10,480 Speaker 1: should they be approached by anyone with the self managed accounts, 223 00:12:10,480 --> 00:12:12,400 Speaker 1: which are, as I said, the hottest thing you've seen 224 00:12:12,440 --> 00:12:14,720 Speaker 1: for a long time in the local market in terms 225 00:12:14,760 --> 00:12:19,280 Speaker 1: of a structure for in the independent investors, just encapsulating 226 00:12:19,320 --> 00:12:21,880 Speaker 1: you would what you thought was wrong with them. 227 00:12:22,800 --> 00:12:27,800 Speaker 2: Absolutely, So these separately managed accounts, they're there to provide 228 00:12:27,960 --> 00:12:31,800 Speaker 2: convenience to the client but also to the financial advisor 229 00:12:31,880 --> 00:12:36,400 Speaker 2: because basically the financial advisor is selecting a fund to 230 00:12:36,520 --> 00:12:41,640 Speaker 2: invest into and that's run by a separately managed account manager. 231 00:12:41,720 --> 00:12:44,240 Speaker 2: So it could be an asset manager, it could be 232 00:12:44,280 --> 00:12:47,240 Speaker 2: a company like Lonzec or morning Stuff. So basically the 233 00:12:47,240 --> 00:12:50,760 Speaker 2: financial advisor is placing you as the client, into a fund. 234 00:12:51,200 --> 00:12:53,840 Speaker 2: That fund is then investing into other managed funds in 235 00:12:53,920 --> 00:12:56,840 Speaker 2: ets and shares, and that's all you usually wrapped up 236 00:12:56,840 --> 00:12:59,640 Speaker 2: inside of a platform. So if you count the laser fees, 237 00:12:59,679 --> 00:13:02,880 Speaker 2: you have financial advisor feed, you have separately managed account 238 00:13:02,880 --> 00:13:06,400 Speaker 2: manager fee, you have fund manager fee, you have ETF 239 00:13:06,440 --> 00:13:08,640 Speaker 2: manager fee, and then you have platform feed. So there's 240 00:13:08,679 --> 00:13:11,120 Speaker 2: like four or five different types of fees in there, 241 00:13:11,360 --> 00:13:13,440 Speaker 2: and the financial advisor, at the end of the day 242 00:13:13,480 --> 00:13:16,679 Speaker 2: has no control over whether BHP is being sold or 243 00:13:16,720 --> 00:13:20,360 Speaker 2: Rea Tinto's being sold because he's outsourced that responsibility. So 244 00:13:20,679 --> 00:13:23,800 Speaker 2: I have no issues with separately managed accounts if it's 245 00:13:23,880 --> 00:13:27,000 Speaker 2: made very clear that the investment management part of the 246 00:13:27,080 --> 00:13:30,520 Speaker 2: service that the financial advisor is providing has been outsourced, 247 00:13:30,840 --> 00:13:34,800 Speaker 2: and if the advisor is truly providing other services. So 248 00:13:34,840 --> 00:13:37,320 Speaker 2: I've got some friends who have financial advisors and they 249 00:13:37,400 --> 00:13:41,160 Speaker 2: operate SMAs very legitimately because they're focused on clients with 250 00:13:41,559 --> 00:13:44,240 Speaker 2: say disabilities, and they're helping the family set up trusts, 251 00:13:44,240 --> 00:13:47,280 Speaker 2: and they're giving advice around how to deal with indis 252 00:13:47,720 --> 00:13:50,080 Speaker 2: and other things like that. But if it's a run 253 00:13:50,080 --> 00:13:52,720 Speaker 2: of the mill financial advisor who's hanging their hat with 254 00:13:52,760 --> 00:13:55,240 Speaker 2: regards to what they do for you on investment management, 255 00:13:55,280 --> 00:13:57,760 Speaker 2: and they're putting you into an SMA, you're paying them 256 00:13:57,760 --> 00:14:00,760 Speaker 2: a fee basically for nothing, and there being among themselves 257 00:14:00,800 --> 00:14:04,240 Speaker 2: in industry conferences about how easy it is to manage 258 00:14:04,240 --> 00:14:05,199 Speaker 2: clients money. 259 00:14:05,080 --> 00:14:07,560 Speaker 1: How easy because you pay the m a fee, So 260 00:14:07,640 --> 00:14:09,720 Speaker 1: they pay someone as a fee, and they in turn 261 00:14:09,840 --> 00:14:14,240 Speaker 1: pay layers of fees across the system. And they've outsourced 262 00:14:14,920 --> 00:14:17,400 Speaker 1: the whole issue of investment management. So what's left for 263 00:14:17,440 --> 00:14:21,320 Speaker 1: them to do red tape box ticking exactly. 264 00:14:21,440 --> 00:14:24,720 Speaker 2: And what really irks me is that in their reviews 265 00:14:24,720 --> 00:14:27,880 Speaker 2: with clients is they're pretending like, oh, yes, we made 266 00:14:27,920 --> 00:14:31,120 Speaker 2: this change to our portfolio when we've shifted x percent 267 00:14:31,160 --> 00:14:33,600 Speaker 2: to US shares, but really they had no control of 268 00:14:33,600 --> 00:14:36,080 Speaker 2: it at all. Is that manager who paid another manager 269 00:14:36,120 --> 00:14:38,440 Speaker 2: to do that made a change. They're just reporting back 270 00:14:38,480 --> 00:14:40,000 Speaker 2: to you but pretending like they are the one that 271 00:14:40,080 --> 00:14:41,920 Speaker 2: instigated that change, which is all bollocks. 272 00:14:43,200 --> 00:14:46,560 Speaker 1: It reminds me of It reminds me of the occasional 273 00:14:46,720 --> 00:14:51,280 Speaker 1: fleeting commentation that occasionally made their way through my own section, 274 00:14:51,440 --> 00:14:54,920 Speaker 1: where someone would write these global macro pieces and then 275 00:14:54,960 --> 00:14:57,680 Speaker 1: I would look and I'd say, I think I somewhere before, 276 00:14:58,040 --> 00:14:59,480 Speaker 1: and I would see there it was on the Wall 277 00:14:59,480 --> 00:15:02,840 Speaker 1: Street journe the economists, and I'd say, okay, yeah, that's 278 00:15:02,880 --> 00:15:06,600 Speaker 1: not gonna work anymore for our audience. Okay, look, just 279 00:15:06,680 --> 00:15:08,720 Speaker 1: before we go to the break, one last thing, really 280 00:15:08,720 --> 00:15:12,880 Speaker 1: interesting about that concept about if Trump wins, because it 281 00:15:13,040 --> 00:15:16,720 Speaker 1: is elections are so important now, and they are so 282 00:15:17,520 --> 00:15:19,960 Speaker 1: we're getting very extremes right to the middle of the 283 00:15:20,040 --> 00:15:23,040 Speaker 1: road is gone. As we know just now. In elections 284 00:15:23,120 --> 00:15:25,400 Speaker 1: we find there's a labor government in Australia, there's a 285 00:15:25,520 --> 00:15:28,600 Speaker 1: labor government, quite a left wing labor government replacing quite 286 00:15:28,600 --> 00:15:31,800 Speaker 1: a right wing Tory government. In the UK, there's a 287 00:15:31,840 --> 00:15:37,600 Speaker 1: surprise rebound of the left against the right in France. 288 00:15:37,920 --> 00:15:40,280 Speaker 1: And then of course in the US the ultimate market 289 00:15:41,080 --> 00:15:42,960 Speaker 1: and this is why we're interested in it because it's 290 00:15:42,960 --> 00:15:45,480 Speaker 1: not a show about politics, it's about show about markets. 291 00:15:45,960 --> 00:15:49,200 Speaker 1: But if Republicans win, and if Trump wins, the last 292 00:15:49,200 --> 00:15:52,200 Speaker 1: time he won, the market government big lift. Paradoxically, the 293 00:15:52,240 --> 00:15:55,000 Speaker 1: economy is very good under Biden, but he's not getting 294 00:15:55,000 --> 00:15:58,040 Speaker 1: any of and he kudos on that front. And Trump. 295 00:15:58,600 --> 00:16:02,320 Speaker 1: You see even the big players on Wall Street who 296 00:16:02,480 --> 00:16:05,000 Speaker 1: would say they don't like him and don't like aspects 297 00:16:05,040 --> 00:16:07,960 Speaker 1: about him, in recent times our curring favor. And there's 298 00:16:08,000 --> 00:16:10,120 Speaker 1: lots of stories about the big War Street leaders going 299 00:16:10,200 --> 00:16:13,640 Speaker 1: back to Trump and forgiving Trump. And basically they're pragmatic. 300 00:16:13,640 --> 00:16:15,800 Speaker 1: They're saying, discuss going to win we better be on 301 00:16:15,880 --> 00:16:17,760 Speaker 1: site with him. But I wanted to ask you, was 302 00:16:17,920 --> 00:16:21,800 Speaker 1: if Trump wins, then do you see that as something 303 00:16:21,840 --> 00:16:25,320 Speaker 1: that would extend the bullmarket basically that we've been seeing 304 00:16:25,320 --> 00:16:25,960 Speaker 1: on the US. 305 00:16:26,560 --> 00:16:28,960 Speaker 2: I do, but I think it'll be short term in nature. 306 00:16:29,000 --> 00:16:30,880 Speaker 2: We may see a bit of what we can call 307 00:16:30,920 --> 00:16:34,200 Speaker 2: buyers remorse after maybe three or six months. So if 308 00:16:34,200 --> 00:16:37,200 Speaker 2: Trump gets elected, they'll be hooray, this is great for business, 309 00:16:37,240 --> 00:16:41,000 Speaker 2: this is great for reducing tax prompting the US economy 310 00:16:41,000 --> 00:16:44,240 Speaker 2: to drive forward, increase their GDP. But after three or 311 00:16:44,240 --> 00:16:46,720 Speaker 2: six months, people might go, oh, what have we done here? 312 00:16:46,840 --> 00:16:49,000 Speaker 2: And that'll start to happen once Trump comes out with 313 00:16:49,080 --> 00:16:53,040 Speaker 2: his quite extravagant policy decisions, off the cuff comments, and 314 00:16:53,080 --> 00:16:56,240 Speaker 2: so markets will start to then pull back because although 315 00:16:56,560 --> 00:17:00,400 Speaker 2: share markets like Republicans because they're more pro business, share 316 00:17:00,400 --> 00:17:03,320 Speaker 2: markets like stability as well, they don't like it when 317 00:17:03,360 --> 00:17:07,280 Speaker 2: the politician comes out with an unexpected policy announcement, which 318 00:17:07,320 --> 00:17:10,359 Speaker 2: Trump has done historically. So I think that short term boosts, 319 00:17:10,359 --> 00:17:13,280 Speaker 2: but then sometime between three months and maybe nine months, 320 00:17:13,320 --> 00:17:16,199 Speaker 2: we might see a pullback as reality sets in of 321 00:17:16,240 --> 00:17:17,400 Speaker 2: who they've actually elected. 322 00:17:17,640 --> 00:17:19,640 Speaker 1: Yeah, and I suppose you'd have to say, it would 323 00:17:19,720 --> 00:17:24,439 Speaker 1: also be a win for old business and fasten fueled 324 00:17:24,480 --> 00:17:30,000 Speaker 1: business up against ESG business by definition. Yep, Okay, that's 325 00:17:30,040 --> 00:17:36,800 Speaker 1: also something I suppose that we have to consider as investors. Right, 326 00:17:36,840 --> 00:17:51,840 Speaker 1: we'll take short break and we'll be back in the moment. Hello, 327 00:17:51,960 --> 00:17:55,240 Speaker 1: Welcome back to The Australian's Money Puzzled podcast. I'm James Kirby, 328 00:17:55,280 --> 00:17:57,959 Speaker 1: the World editor at The Australian, talking to James Gerard 329 00:17:58,760 --> 00:18:01,920 Speaker 1: right on the show Heat of Financial Advice dot com 330 00:18:01,960 --> 00:18:08,040 Speaker 1: dot au. One of the more interesting things I saw 331 00:18:08,119 --> 00:18:11,800 Speaker 1: this week a couple of things happened. The ETF industry 332 00:18:11,960 --> 00:18:14,639 Speaker 1: hit two hundred billion in the local market and on 333 00:18:14,800 --> 00:18:17,879 Speaker 1: they go, and they are steaming along with the big players, 334 00:18:17,920 --> 00:18:22,119 Speaker 1: particularly you would know Vanguard and the domestic sort of 335 00:18:22,200 --> 00:18:27,000 Speaker 1: champions Beta shares both becoming stronger and stronger in recent times. 336 00:18:27,640 --> 00:18:31,200 Speaker 1: As all the ETF players doing fairly well, Global X etc. 337 00:18:31,480 --> 00:18:35,040 Speaker 1: People going in there as the market comes to understand 338 00:18:35,359 --> 00:18:41,359 Speaker 1: that ETFs that amazing proposal they offer an investor, which 339 00:18:41,440 --> 00:18:43,960 Speaker 1: is that you will do as well as the market. 340 00:18:44,200 --> 00:18:46,160 Speaker 1: You won't do any worse, and you won't do any better. 341 00:18:46,240 --> 00:18:48,359 Speaker 1: You will not shoot out the lights, neither will you 342 00:18:48,440 --> 00:18:51,360 Speaker 1: do terribly because you will just do whatever the market does. 343 00:18:51,440 --> 00:18:54,919 Speaker 1: So if the ASX did twelve percent last year and 344 00:18:54,960 --> 00:18:57,359 Speaker 1: you had an ASX ETF, you did twelve percent, and 345 00:18:57,560 --> 00:19:00,480 Speaker 1: a lot of people are perfectly happy with that, certainly 346 00:19:00,480 --> 00:19:03,520 Speaker 1: as a core of their portfolio. Now one of the 347 00:19:03,520 --> 00:19:06,000 Speaker 1: things we've got to be careful about is, just as 348 00:19:06,000 --> 00:19:10,679 Speaker 1: we're starting to understand ETFs, the goal post move and 349 00:19:10,960 --> 00:19:13,400 Speaker 1: financial people being what they are, they can never leave 350 00:19:13,440 --> 00:19:16,760 Speaker 1: things alone, and they are starting to create things called 351 00:19:16,800 --> 00:19:21,919 Speaker 1: active ETFs where they change, but they don't offer what 352 00:19:21,960 --> 00:19:24,680 Speaker 1: they used to right, So what they do is they say, yes, 353 00:19:24,760 --> 00:19:27,520 Speaker 1: we have two ETFs. We have the traditional mirror ETF 354 00:19:27,560 --> 00:19:30,640 Speaker 1: where we just whatever the ASX does, we will get 355 00:19:30,680 --> 00:19:33,320 Speaker 1: exactly that. But then they have active ETFs and they 356 00:19:33,320 --> 00:19:36,399 Speaker 1: say something like it's the exact same it used to be. 357 00:19:36,440 --> 00:19:39,160 Speaker 1: Accept we're doing something slightly different whatever that might be 358 00:19:39,200 --> 00:19:42,520 Speaker 1: equally weighted. We're trying to balance the share portfolio so 359 00:19:42,520 --> 00:19:46,840 Speaker 1: certain things don't happen, and that's called active ETFs, and 360 00:19:46,880 --> 00:19:50,320 Speaker 1: they are very, very different, and I wish the industry 361 00:19:50,359 --> 00:19:52,680 Speaker 1: would make it more clear to the everyday investor that 362 00:19:52,720 --> 00:19:55,919 Speaker 1: they are not what we regard as ETFs. And this 363 00:19:55,960 --> 00:19:58,199 Speaker 1: is leading me into the first question, which is from Daniel, 364 00:19:59,400 --> 00:20:02,800 Speaker 1: just wondering if you are able to provide an overview 365 00:20:02,880 --> 00:20:07,280 Speaker 1: of the best performing active ETFs listed on the Australian 366 00:20:07,280 --> 00:20:10,240 Speaker 1: Stock Exchange over the last five years. I am thinking 367 00:20:10,280 --> 00:20:13,800 Speaker 1: it might be a good time to move from non active. Right, 368 00:20:13,920 --> 00:20:17,600 Speaker 1: that's passive, that's the traditional mirror etf. I was talking 369 00:20:17,600 --> 00:20:21,760 Speaker 1: about our index fund, which just matches a market too active. Daniel, 370 00:20:21,800 --> 00:20:25,000 Speaker 1: it's a great question. I bet we'll get a damn 371 00:20:25,000 --> 00:20:28,520 Speaker 1: good answer from James because he's actually gone and taking 372 00:20:28,560 --> 00:20:31,399 Speaker 1: the trouble to look at this. And James, I wonder, 373 00:20:31,760 --> 00:20:33,720 Speaker 1: I'm only going to guess now, but I'm the best 374 00:20:33,720 --> 00:20:38,600 Speaker 1: performing active ETF on THEESX will be something utterly obscure 375 00:20:39,080 --> 00:20:44,360 Speaker 1: like a NASDAK options driven something or other. I don't 376 00:20:44,359 --> 00:20:46,880 Speaker 1: know the answer. Tell me what, Tell me what it is. 377 00:20:47,240 --> 00:20:49,560 Speaker 1: I'm not completely wrong, tell me that's right. 378 00:20:49,680 --> 00:20:52,919 Speaker 2: It's something that's not a traditional asset. It's one of 379 00:20:52,920 --> 00:20:55,360 Speaker 2: those crypto ETFs that's atly beaten around for a bat 380 00:20:55,359 --> 00:20:57,359 Speaker 2: twelve months or sorry, but it's up close to two 381 00:20:57,400 --> 00:20:59,159 Speaker 2: hundred percent as sort of timed it. 382 00:20:59,240 --> 00:21:02,600 Speaker 1: Well, Okay, so actually even more off the table than 383 00:21:02,640 --> 00:21:06,520 Speaker 1: I thought. It's not even it's crypto. So you see 384 00:21:06,560 --> 00:21:09,160 Speaker 1: how far is crypto from what people think ETFs are. 385 00:21:09,320 --> 00:21:12,879 Speaker 1: I think this captures exactly what I'm driving after, Daniel. 386 00:21:13,200 --> 00:21:16,080 Speaker 1: But all right, so that's the answer, Daniel. So I 387 00:21:16,080 --> 00:21:19,040 Speaker 1: don't even want to know its name. Some crypto ETF 388 00:21:19,359 --> 00:21:23,119 Speaker 1: which is just like as far away from conventional, traditional 389 00:21:23,200 --> 00:21:27,640 Speaker 1: and conservative investing as you can get, was the winner, Daniel. 390 00:21:27,680 --> 00:21:31,160 Speaker 1: Now the bigger question is Daniel, and this is never advised. 391 00:21:31,200 --> 00:21:33,760 Speaker 1: This is to all the Daniels in the world. If 392 00:21:33,760 --> 00:21:37,840 Speaker 1: you're thinking it's a good time to move from traditional 393 00:21:37,880 --> 00:21:42,520 Speaker 1: ETF to active ones. I wonder what James Girard has 394 00:21:42,560 --> 00:21:43,359 Speaker 1: to say. 395 00:21:44,560 --> 00:21:47,720 Speaker 2: And I do have something to say. Yeah, cuting that 396 00:21:47,840 --> 00:21:52,960 Speaker 2: mind back ten years ago, everybody who invested into share 397 00:21:53,000 --> 00:21:56,840 Speaker 2: markets via a financial advisor alread investment manager typically done 398 00:21:56,840 --> 00:21:59,840 Speaker 2: so bio and managed funds. They were very popular. But 399 00:22:00,720 --> 00:22:04,000 Speaker 2: fast forward ten years ETF so all the rage and 400 00:22:04,080 --> 00:22:06,800 Speaker 2: so the ETF managers they're in a very crowded market. 401 00:22:06,840 --> 00:22:10,240 Speaker 2: Now there's lots of ETF managers, there's hundreds of ETFs. 402 00:22:10,440 --> 00:22:14,400 Speaker 2: They're trying to still get momentum, get more money into ETF. 403 00:22:14,480 --> 00:22:17,119 Speaker 2: So what they're doing is saying, okay, we've sort of 404 00:22:17,320 --> 00:22:19,520 Speaker 2: done all of the passive ets we can. We've got 405 00:22:19,520 --> 00:22:23,880 Speaker 2: baskets for share markets, property markets. We've even narrowed down 406 00:22:24,080 --> 00:22:27,959 Speaker 2: ETF baskets to countries. You can invest in Japan versus India. 407 00:22:28,000 --> 00:22:30,280 Speaker 2: You can invest in bank stocks as a ETF. So 408 00:22:30,320 --> 00:22:33,280 Speaker 2: now they're saying, okay, we're going to offer active ETFs, 409 00:22:33,480 --> 00:22:35,720 Speaker 2: which sounds great, but really it's a bit of spoken 410 00:22:35,760 --> 00:22:38,680 Speaker 2: mirrors because they're really just going back to managed funds. 411 00:22:38,920 --> 00:22:42,000 Speaker 2: And the problem with managed funds active managed funds, which 412 00:22:42,359 --> 00:22:45,719 Speaker 2: are now being called active ETFs, is that seventy percent 413 00:22:45,760 --> 00:22:49,680 Speaker 2: of them will underperform the index on a twelve month period. 414 00:22:49,960 --> 00:22:52,159 Speaker 2: So just let that seit with few. If you invest 415 00:22:52,240 --> 00:22:55,560 Speaker 2: in a share market ETF and Australian share market ETF 416 00:22:55,840 --> 00:22:58,440 Speaker 2: a passive one fine, your average return over a tenu 417 00:22:58,520 --> 00:23:01,040 Speaker 2: period is going to be around nine percent return. If 418 00:23:01,080 --> 00:23:05,200 Speaker 2: you invest into an active ETF that targets Australian share market, 419 00:23:05,520 --> 00:23:07,879 Speaker 2: seven out of ten of those managers are going to 420 00:23:08,000 --> 00:23:11,879 Speaker 2: underperform the index ETF on a twelve month period, and 421 00:23:12,000 --> 00:23:14,920 Speaker 2: over a ten year period, nine out of the ten 422 00:23:15,040 --> 00:23:18,879 Speaker 2: active ETF managers are going to underperform the index. There. 423 00:23:19,200 --> 00:23:23,480 Speaker 1: I think it's unbelievable. So the managed funds, the stock pickers, 424 00:23:23,760 --> 00:23:26,600 Speaker 1: they faded and let's name some names they've faded, right, 425 00:23:27,320 --> 00:23:31,000 Speaker 1: Platinum which is to rule the roost, or Magellan are perpetual. 426 00:23:31,800 --> 00:23:35,639 Speaker 1: They were stock pickers. They got it wrong. They didn't 427 00:23:35,640 --> 00:23:39,320 Speaker 1: beat the index. Here after you, an industry created ETFs 428 00:23:39,359 --> 00:23:41,240 Speaker 1: or index funds, and they said, look, we just matched 429 00:23:41,240 --> 00:23:43,320 Speaker 1: the index. That's all we promised, no more, no less, 430 00:23:44,000 --> 00:23:48,080 Speaker 1: And they have collected two hundred billion dollars from Australian 431 00:23:48,119 --> 00:23:51,840 Speaker 1: investors because everyone loves the idea, and believe it or not, 432 00:23:51,880 --> 00:23:53,720 Speaker 1: the same people who invented them have gone off and 433 00:23:53,840 --> 00:23:57,560 Speaker 1: created active ETFs, which are stocked pickers basically. And it 434 00:23:57,600 --> 00:24:01,560 Speaker 1: turns out that those active btfs they're is as bad 435 00:24:01,680 --> 00:24:04,800 Speaker 1: as the old managed funds, that they don't match the index. 436 00:24:05,400 --> 00:24:08,480 Speaker 1: I actually didn't know that, you know, I have only 437 00:24:08,520 --> 00:24:11,720 Speaker 1: heard this this morning. I actually didn't think that they 438 00:24:11,720 --> 00:24:15,440 Speaker 1: would be so bad, yep, But they are. Is that amazing? 439 00:24:15,520 --> 00:24:17,880 Speaker 2: Yeah, Because the only real difference is that the old 440 00:24:17,880 --> 00:24:19,920 Speaker 2: managed funds were unlisted. You had to put in a 441 00:24:19,960 --> 00:24:22,960 Speaker 2: paper application to buy the active managed fund, whereas the 442 00:24:23,040 --> 00:24:26,399 Speaker 2: new breed of manage fund. These active ETFs same philosophy 443 00:24:26,400 --> 00:24:28,159 Speaker 2: in that they stop pickers. The only difference is that 444 00:24:28,160 --> 00:24:30,359 Speaker 2: you buy them through the share market rather than buying 445 00:24:30,359 --> 00:24:33,560 Speaker 2: them off market. I'm using paper based applications. 446 00:24:33,960 --> 00:24:37,720 Speaker 1: Yeah good, It's so difficult, isn't it. And by the way, folks, 447 00:24:37,800 --> 00:24:42,320 Speaker 1: there are always active managers who beat the index always well, 448 00:24:42,320 --> 00:24:45,879 Speaker 1: they are so few and far between. And the number 449 00:24:45,920 --> 00:24:48,480 Speaker 1: that beat the index here every year you could put 450 00:24:48,520 --> 00:24:50,960 Speaker 1: on the head of a pin. Okay, before we get 451 00:24:51,000 --> 00:24:53,880 Speaker 1: over critical on the active ETFs, so we have put 452 00:24:53,880 --> 00:24:56,760 Speaker 1: out a big fat warning on them so that everyone 453 00:24:56,840 --> 00:24:59,920 Speaker 1: knows the difference between buying an ACTIVETF and managed fund. 454 00:25:00,160 --> 00:25:01,800 Speaker 1: Nothing in it? Is that fair to say, James, am 455 00:25:01,840 --> 00:25:04,040 Speaker 1: I overdoing it? Is that more or less that? Yeah? 456 00:25:04,160 --> 00:25:07,120 Speaker 2: Yeah, that's pretty much. The only difference is the way 457 00:25:07,200 --> 00:25:09,040 Speaker 2: that you buy. You either buy it directly with the 458 00:25:09,240 --> 00:25:11,320 Speaker 2: fund manager if it's an old school manage fund, or 459 00:25:11,359 --> 00:25:12,840 Speaker 2: you buy it through the share market if it's an 460 00:25:12,840 --> 00:25:15,680 Speaker 2: active ETF. But other than that, they underneath what they 461 00:25:15,680 --> 00:25:17,959 Speaker 2: do exactly the same. The pick stocks charge of fee. 462 00:25:18,080 --> 00:25:20,880 Speaker 1: We will leave that on the table for you to consider. 463 00:25:20,920 --> 00:25:22,360 Speaker 1: We will take a break and we will be back 464 00:25:22,359 --> 00:25:26,120 Speaker 1: with a terrific batchup questions that largely run off last 465 00:25:26,119 --> 00:25:28,320 Speaker 1: week's show about how much you should have in Super 466 00:25:28,359 --> 00:25:35,919 Speaker 1: back in a moment. Hello, Welcome back to The Australian's 467 00:25:35,960 --> 00:25:40,560 Speaker 1: Money Puzzle podcast. James Kirby and James Gerard here with 468 00:25:40,640 --> 00:25:46,919 Speaker 1: you this morning. We're all sitting pretty as I mentioned 469 00:25:46,920 --> 00:25:49,359 Speaker 1: at the start, all feeling terribly good about our Super 470 00:25:49,440 --> 00:25:51,960 Speaker 1: this year. Isn't it nice when it comes right? Isn't 471 00:25:52,000 --> 00:25:54,360 Speaker 1: it really nice when your shares come right? I'll tell 472 00:25:54,359 --> 00:25:56,679 Speaker 1: you what, folks, anyone who's a long term investor, if 473 00:25:56,680 --> 00:26:00,720 Speaker 1: you through those dog years where the market goes backwards, 474 00:26:00,800 --> 00:26:01,720 Speaker 1: it breaks your heart. 475 00:26:02,040 --> 00:26:02,440 Speaker 2: James. 476 00:26:02,520 --> 00:26:04,119 Speaker 1: I don't know if your investors tell you this, or 477 00:26:04,160 --> 00:26:08,360 Speaker 1: your clients, but to be putting money into Super pre 478 00:26:08,520 --> 00:26:10,919 Speaker 1: tax at the max thirty thousand a year and to 479 00:26:11,080 --> 00:26:15,920 Speaker 1: watch your Super go down is hard. You don't forget, 480 00:26:16,240 --> 00:26:19,199 Speaker 1: so you do appreciate it. Well, it's good. Now on 481 00:26:19,280 --> 00:26:22,280 Speaker 1: the issue of how much you should happen Super, we 482 00:26:22,320 --> 00:26:24,359 Speaker 1: have a string of questions. Why don't we read them 483 00:26:24,400 --> 00:26:27,280 Speaker 1: on all alternative to James? If you want to read 484 00:26:27,280 --> 00:26:28,240 Speaker 1: the first one from. 485 00:26:28,200 --> 00:26:32,959 Speaker 2: Dan Perfect, Dan says, Hi, my partner and I are 486 00:26:33,000 --> 00:26:35,840 Speaker 2: roughly twenty to twenty five years away from retiring. However, 487 00:26:36,080 --> 00:26:38,720 Speaker 2: if the current trend continues, which it most likely will, 488 00:26:38,720 --> 00:26:41,920 Speaker 2: there will be significant difference in super balance at retirement, 489 00:26:42,240 --> 00:26:46,360 Speaker 2: potentially one million dollars versus one hundred thousand dollars. Will 490 00:26:46,359 --> 00:26:49,320 Speaker 2: this matter from a tax perspective? At retirement? Is it 491 00:26:49,440 --> 00:26:53,399 Speaker 2: worth and what's the best strategy to even out our superbalances? 492 00:26:53,760 --> 00:26:56,320 Speaker 2: Is it best to do it now or closer to retirement? 493 00:26:56,880 --> 00:27:00,040 Speaker 1: Great question, and that holds for anyone if you're in 494 00:27:00,080 --> 00:27:04,920 Speaker 1: your thirties, especially you know one partner is getting whatever. 495 00:27:05,119 --> 00:27:07,879 Speaker 1: In that case, you're looking at a situation one part is, 496 00:27:08,119 --> 00:27:10,800 Speaker 1: partner is super it's going to be multiples of the other. Okay, 497 00:27:10,880 --> 00:27:15,000 Speaker 1: that's in every second household in Australia. So what's the risk, James? 498 00:27:15,000 --> 00:27:16,520 Speaker 1: And what could they possibly do? 499 00:27:17,760 --> 00:27:21,160 Speaker 2: So it is important to try and equalize supernovation balances 500 00:27:21,400 --> 00:27:24,400 Speaker 2: for retirement and the reason is that that the news 501 00:27:24,440 --> 00:27:26,600 Speaker 2: has been placed around the neck of tax free super 502 00:27:26,640 --> 00:27:29,480 Speaker 2: and have slowly been tightened. Already we've seen the one 503 00:27:29,520 --> 00:27:31,800 Speaker 2: point nine million dollar cap come in on the maximum 504 00:27:31,800 --> 00:27:33,960 Speaker 2: amount that you can have in the pension phase tax 505 00:27:34,000 --> 00:27:36,160 Speaker 2: free and then from next year if it gets legislative, 506 00:27:36,200 --> 00:27:39,640 Speaker 2: there'll be that all for thirty percent tax on unrealized 507 00:27:39,720 --> 00:27:42,760 Speaker 2: gains and income above three million dollars inside a super 508 00:27:43,240 --> 00:27:47,120 Speaker 2: So as a plan in strategy to mitigate the risk 509 00:27:47,200 --> 00:27:50,320 Speaker 2: of a higher super account getting tax because who knows, 510 00:27:50,359 --> 00:27:52,080 Speaker 2: twenty twenty five years down the track, they may have 511 00:27:52,080 --> 00:27:54,720 Speaker 2: brought that threshold down to a million dollars and start 512 00:27:54,760 --> 00:27:56,800 Speaker 2: to tax that higher account balance. More won't be tax 513 00:27:56,880 --> 00:27:59,800 Speaker 2: free in retirement, so you should start to do that now. 514 00:28:00,119 --> 00:28:02,359 Speaker 2: A few things that you can consider, and again not advice, 515 00:28:02,520 --> 00:28:06,240 Speaker 2: just general information. There's contribution split in, so that's where 516 00:28:06,520 --> 00:28:10,440 Speaker 2: eighty five percent of a spouse's super contribution can be 517 00:28:10,720 --> 00:28:14,320 Speaker 2: sent to the other spouse's account. So let's say partner 518 00:28:14,359 --> 00:28:17,160 Speaker 2: number one has ten thousand dollars as a super contribution 519 00:28:17,320 --> 00:28:20,760 Speaker 2: into their account, they can actually pick up eighty five 520 00:28:20,840 --> 00:28:24,119 Speaker 2: hundred dollars of that contribution and send that across to 521 00:28:24,200 --> 00:28:26,560 Speaker 2: partner number two's super account, and they can do that 522 00:28:26,600 --> 00:28:29,720 Speaker 2: on a yearly basis. So that's great to boost the 523 00:28:29,760 --> 00:28:33,119 Speaker 2: balance of the lower balance spouse. The other thing that 524 00:28:33,200 --> 00:28:35,439 Speaker 2: they could have a look at, depending on income levels, 525 00:28:35,480 --> 00:28:38,600 Speaker 2: is what's called the spouse contribution. So that's where lower 526 00:28:38,640 --> 00:28:42,840 Speaker 2: income spouses and generally lower income correlates to lower superbalances 527 00:28:42,880 --> 00:28:45,200 Speaker 2: because of lower super contribution. So I've just made an 528 00:28:45,240 --> 00:28:47,920 Speaker 2: assumption here that the spouse with the lower super balance 529 00:28:47,920 --> 00:28:50,800 Speaker 2: has a lower income. So the higher income spouse puts 530 00:28:50,840 --> 00:28:55,120 Speaker 2: three thousand dollars into their lower income spouse's super account, 531 00:28:55,360 --> 00:28:57,680 Speaker 2: and that means that the higher income spouse gets a 532 00:28:57,680 --> 00:29:00,120 Speaker 2: five hundred and forty dollars tax offset as well. So 533 00:29:00,200 --> 00:29:03,200 Speaker 2: not only are we boosting the lower super balance by 534 00:29:03,200 --> 00:29:06,200 Speaker 2: three thousand dollars, the higher income spouse gets a five 535 00:29:06,280 --> 00:29:08,280 Speaker 2: hundred and forty dollars tax offset. So that's great. And 536 00:29:08,360 --> 00:29:10,320 Speaker 2: then this is this is a few other little things 537 00:29:10,320 --> 00:29:14,320 Speaker 2: like government code contributions, salary sacrifice, cash up, concessional contributions 538 00:29:14,320 --> 00:29:16,360 Speaker 2: for the spouse with the lower super balance. But because 539 00:29:16,400 --> 00:29:18,520 Speaker 2: we have taps with how much money you can put 540 00:29:18,520 --> 00:29:20,880 Speaker 2: into super, it's not something that you can just approach 541 00:29:20,920 --> 00:29:23,479 Speaker 2: age fifty nine and go, okay, great, we're gonna equally 542 00:29:23,640 --> 00:29:26,280 Speaker 2: this million dollars one hundred thousand dollars too late. You 543 00:29:26,320 --> 00:29:28,080 Speaker 2: have to do it well in advance. 544 00:29:28,040 --> 00:29:30,080 Speaker 1: Well in advance, so you're thinking the right way Dan. 545 00:29:30,640 --> 00:29:34,080 Speaker 1: I mean, the basic thing is that what you don't 546 00:29:34,080 --> 00:29:37,920 Speaker 1: want is a ludicrous situation where you're both together and 547 00:29:38,000 --> 00:29:42,520 Speaker 1: you have more than one point nine million and super 548 00:29:42,560 --> 00:29:45,680 Speaker 1: and your partner has very little and super and you're 549 00:29:45,800 --> 00:29:49,600 Speaker 1: paying tax on your super when the other person has 550 00:29:49,720 --> 00:29:51,960 Speaker 1: who knows, like a million dollars they could have had 551 00:29:52,280 --> 00:29:55,200 Speaker 1: in there before they hit attacks, before they were to 552 00:29:55,240 --> 00:29:57,920 Speaker 1: pay tax at all. That's the essential thing. So planning, 553 00:29:58,160 --> 00:30:01,040 Speaker 1: planning way, I had great idea. Okay, that was Dan. 554 00:30:01,680 --> 00:30:03,680 Speaker 1: There's a few of them, so we'll try and get 555 00:30:03,680 --> 00:30:06,240 Speaker 1: through them before the end of the show. Hi, James, 556 00:30:06,280 --> 00:30:09,479 Speaker 1: regular listener. I've learned a lot from it, so thank you, 557 00:30:09,600 --> 00:30:13,080 Speaker 1: Thank you, Neil. I'm semi retired. Just move my super 558 00:30:13,120 --> 00:30:16,400 Speaker 1: into a pension account. Investments earnings are now tax free. 559 00:30:16,560 --> 00:30:20,440 Speaker 1: Yeah whoo. But wondering if this should modify my investment strategy. 560 00:30:20,880 --> 00:30:23,640 Speaker 1: Capital gains are not a concern now, so our growth 561 00:30:23,640 --> 00:30:27,800 Speaker 1: stocks more attractive. Okay, it's very quickly, James. We're always 562 00:30:27,840 --> 00:30:31,440 Speaker 1: told about growth, lots of growth when you're younger, move 563 00:30:31,480 --> 00:30:35,160 Speaker 1: it towards income when you're older. Neil is challenging that 564 00:30:35,360 --> 00:30:37,600 Speaker 1: to a degree. He's saying, hey, you know I could 565 00:30:38,120 --> 00:30:40,840 Speaker 1: I don't have to worry about tax now, maybe I 566 00:30:40,880 --> 00:30:46,560 Speaker 1: should have more growth. He's kind of upending the textbook principles. 567 00:30:46,640 --> 00:30:49,080 Speaker 2: What do you think he may be buoyed from the 568 00:30:49,080 --> 00:30:51,360 Speaker 2: optimism gained by double digit. 569 00:30:52,720 --> 00:30:55,520 Speaker 1: Maybe the exact sort of person we've been concerned about 570 00:30:55,520 --> 00:30:59,280 Speaker 1: who thinks it's perhaps easier than it is. Yeah, yeah, 571 00:30:59,320 --> 00:30:59,760 Speaker 1: that's right. 572 00:30:59,800 --> 00:31:02,880 Speaker 2: So we will real kneel back down to earth. And 573 00:31:02,920 --> 00:31:05,760 Speaker 2: what I'd say to Tamil is that you need to 574 00:31:05,760 --> 00:31:09,360 Speaker 2: think about what's important for you in retirement when you're 575 00:31:09,400 --> 00:31:12,160 Speaker 2: not earning an income and you're relying on your super 576 00:31:12,200 --> 00:31:15,840 Speaker 2: account to generate your income stream to support your spending 577 00:31:15,880 --> 00:31:17,640 Speaker 2: for the rest of your life. And so to answer 578 00:31:17,680 --> 00:31:20,600 Speaker 2: my own question, it's income. That's what we want from 579 00:31:20,640 --> 00:31:23,920 Speaker 2: your investment. It's not capital growth anymore. We want reliable, 580 00:31:24,200 --> 00:31:28,680 Speaker 2: high income. So depending on your current mix, so I'd 581 00:31:28,720 --> 00:31:33,160 Speaker 2: be probably looking at staying that type of arrangement. And 582 00:31:33,320 --> 00:31:35,680 Speaker 2: for all the nails in the world, as we get 583 00:31:35,680 --> 00:31:39,200 Speaker 2: close to retirement, generally we want to be more defensive. 584 00:31:39,240 --> 00:31:41,280 Speaker 2: We want to put in more blue tip stocks, more 585 00:31:41,320 --> 00:31:46,120 Speaker 2: bonds in there, focus on capital preservation and income. So yeah, 586 00:31:46,320 --> 00:31:48,880 Speaker 2: I probably wouldn't be going for all out, let's go 587 00:31:49,000 --> 00:31:52,400 Speaker 2: growth strategy, because if we have a snap event and 588 00:31:52,440 --> 00:31:55,760 Speaker 2: something that block blacks one event, as you coined earlier, James, 589 00:31:55,880 --> 00:31:59,040 Speaker 2: we could see Super accounts dropped by thirty percent and 590 00:31:59,080 --> 00:32:00,760 Speaker 2: that would just send peace people who were in that 591 00:32:00,920 --> 00:32:03,440 Speaker 2: transition to retirement phase back five or ten years with 592 00:32:03,480 --> 00:32:05,400 Speaker 2: their super balance. So we definitely don't want that to happen. 593 00:32:05,440 --> 00:32:08,160 Speaker 1: That's right, that it is the risk, all right, Christine, 594 00:32:08,400 --> 00:32:10,560 Speaker 1: I'm a long time listener, first time caller. My question 595 00:32:10,640 --> 00:32:14,720 Speaker 1: is if I wanted a total investment portfolio inside and 596 00:32:14,720 --> 00:32:17,920 Speaker 1: outside of super A fifty percent of Australian shairs and 597 00:32:18,000 --> 00:32:22,400 Speaker 1: fifty percent international shares, what should I consider? In other words, 598 00:32:22,440 --> 00:32:24,640 Speaker 1: is it better to hold the Australian shares outside of 599 00:32:24,680 --> 00:32:29,200 Speaker 1: Super and the international shares in Super? Does it not 600 00:32:29,280 --> 00:32:34,360 Speaker 1: make any difference? It makes a difference, Christine, probably because 601 00:32:34,400 --> 00:32:36,680 Speaker 1: your Australian chairs have a four and a half percent 602 00:32:36,720 --> 00:32:39,440 Speaker 1: evidential than your American ones have not have the bugger 603 00:32:39,520 --> 00:32:41,880 Speaker 1: rold basically, isn't it what is it? Is it even 604 00:32:41,880 --> 00:32:44,920 Speaker 1: two percent? James? I'm not sure? Very low? So what's 605 00:32:44,960 --> 00:32:48,120 Speaker 1: the you might give give Christina some guidance there. 606 00:32:48,880 --> 00:32:51,120 Speaker 2: Yeah, it's a slightly difficult one because it depends on 607 00:32:51,160 --> 00:32:54,440 Speaker 2: a lot of individual circumstances with regards to how old 608 00:32:54,480 --> 00:32:56,680 Speaker 2: you are. So how soon can you access your super? 609 00:32:56,720 --> 00:32:59,239 Speaker 2: What type of strategy are you going to employ? Will 610 00:32:59,240 --> 00:33:00,960 Speaker 2: it be a buy and whole will it be a 611 00:33:01,000 --> 00:33:05,240 Speaker 2: take profits every year? What's your tax rate personally as well? 612 00:33:05,360 --> 00:33:06,840 Speaker 2: So you almost need to draw out like a little 613 00:33:06,880 --> 00:33:10,600 Speaker 2: matrix and go all right, Well, Christine's basically asking between 614 00:33:10,720 --> 00:33:13,840 Speaker 2: super and non super, and she's also asking between Australian 615 00:33:13,840 --> 00:33:17,160 Speaker 2: shares and international shares, So just looking at the characteristics 616 00:33:17,160 --> 00:33:19,240 Speaker 2: of each of those and as you said, James, Australian 617 00:33:19,280 --> 00:33:22,840 Speaker 2: shares higher dividends, lower growth compared to international shares, and 618 00:33:22,920 --> 00:33:26,920 Speaker 2: international shares higher growth historically but lower dividends. And then 619 00:33:26,960 --> 00:33:30,160 Speaker 2: with superinnuation. When you're working, the maximum tax that you 620 00:33:30,200 --> 00:33:32,360 Speaker 2: can pay in your super account is fifteen percent, but 621 00:33:32,440 --> 00:33:35,240 Speaker 2: if you're retired it's zero percent tax, and with your 622 00:33:35,320 --> 00:33:38,120 Speaker 2: employment income where personally you can pay up to forty 623 00:33:38,120 --> 00:33:39,520 Speaker 2: seven percent tax. So you have to sort of like 624 00:33:39,640 --> 00:33:41,960 Speaker 2: consider all those things and then work out what's the 625 00:33:42,000 --> 00:33:45,720 Speaker 2: best approach is. There's no one single answer for that one, unfortunately. 626 00:33:45,440 --> 00:33:49,080 Speaker 1: Yeah, there isn't Obviously, super is a tax protected vehicle 627 00:33:49,720 --> 00:33:53,640 Speaker 1: and is excellent as a tax vehicle once you'll retire, Christine, 628 00:33:53,640 --> 00:33:56,160 Speaker 1: And that's fairly obvious. And as James says, in terms 629 00:33:56,200 --> 00:34:00,800 Speaker 1: of guidance in those particular allocations, the big difference is 630 00:34:00,840 --> 00:34:04,720 Speaker 1: the Australian shares for a long time have trailed the 631 00:34:04,840 --> 00:34:08,839 Speaker 1: US shares in terms of their growth and very much 632 00:34:08,920 --> 00:34:11,920 Speaker 1: the case in recent times. They do, however, have a 633 00:34:11,960 --> 00:34:13,719 Speaker 1: four and a half per cent of evident deal and 634 00:34:13,800 --> 00:34:16,200 Speaker 1: that is nice because when things go down, you still 635 00:34:16,280 --> 00:34:19,319 Speaker 1: get that need and that is what a lot of 636 00:34:19,320 --> 00:34:22,920 Speaker 1: people depend on for income. Okay, James, read the last 637 00:34:22,960 --> 00:34:25,759 Speaker 1: two questions. I'll just introduced into questions. There are two 638 00:34:25,840 --> 00:34:29,200 Speaker 1: questions on the same thing, folks, and everyone's always asking 639 00:34:29,280 --> 00:34:32,760 Speaker 1: about this. If you're moving money around in your super 640 00:34:32,800 --> 00:34:37,120 Speaker 1: fund in any fashion, do they sell the shares and 641 00:34:37,160 --> 00:34:39,960 Speaker 1: then do they buy them back? And does that cost you? 642 00:34:40,040 --> 00:34:42,279 Speaker 1: That's basically what these two questions are about. But James, 643 00:34:42,320 --> 00:34:43,560 Speaker 1: if you'd like to read the two of them, one 644 00:34:43,560 --> 00:34:45,359 Speaker 1: from Luke and one from Chris, and we'll deal with. 645 00:34:45,320 --> 00:34:47,719 Speaker 2: Them of course. So well, let's start with Luke. So 646 00:34:47,800 --> 00:34:51,440 Speaker 2: Luke says, regarding the recontribution strategy with Super to minimize 647 00:34:51,480 --> 00:34:55,919 Speaker 2: your family's tax on inheritance and just as a side 648 00:34:55,960 --> 00:34:59,000 Speaker 2: to that, that's seventeen percent on the taxable component of 649 00:34:59,040 --> 00:35:01,640 Speaker 2: your soup up if it goes to a non financial dependent. So, 650 00:35:01,719 --> 00:35:03,840 Speaker 2: coming back to Luke, if you had some shares in Super, 651 00:35:04,239 --> 00:35:06,319 Speaker 2: do you have to sell the shares to take them 652 00:35:06,400 --> 00:35:09,800 Speaker 2: out of Super and then recontribute back cash back into Super. 653 00:35:10,239 --> 00:35:12,880 Speaker 2: So the answer to that depends on the type of 654 00:35:12,960 --> 00:35:15,880 Speaker 2: Super account you have. If you have a self managed 655 00:35:15,920 --> 00:35:18,439 Speaker 2: Super account, you will maybe able to do what's called 656 00:35:18,640 --> 00:35:21,960 Speaker 2: an in specie transfer, so you sign a piece of paper, 657 00:35:22,080 --> 00:35:24,439 Speaker 2: you do what's called an off market transfer, the share 658 00:35:24,480 --> 00:35:27,080 Speaker 2: of transferred from Super to your personal name, and then 659 00:35:27,080 --> 00:35:29,160 Speaker 2: you can do another transfer and put them back again. 660 00:35:29,360 --> 00:35:32,000 Speaker 2: Whereas if you're with a retail or industry super fund, 661 00:35:32,040 --> 00:35:34,719 Speaker 2: they're more likely to say no, sorry, we can't help 662 00:35:34,760 --> 00:35:36,040 Speaker 2: you with that. That's not one of the features of 663 00:35:36,080 --> 00:35:38,520 Speaker 2: our fund, and you have no option other than to sell, 664 00:35:38,920 --> 00:35:41,200 Speaker 2: send the cash out to your personal bank account, send 665 00:35:41,200 --> 00:35:44,040 Speaker 2: the money back into the super fund, repurchase the shares. 666 00:35:44,400 --> 00:35:46,080 Speaker 2: Last thing I'd say with that is just be careful 667 00:35:46,120 --> 00:35:49,400 Speaker 2: of what the tax office coin as wash sale rules. 668 00:35:49,680 --> 00:35:52,520 Speaker 2: So if you sell the one hundred percent of say 669 00:35:52,560 --> 00:35:54,920 Speaker 2: BHP from your super, you cash that out, and you 670 00:35:54,960 --> 00:35:57,360 Speaker 2: put that cash back in again, you buy BHP again. 671 00:35:57,560 --> 00:36:00,960 Speaker 2: Although this is not the same purpose. For tax purposes, 672 00:36:01,239 --> 00:36:03,240 Speaker 2: the tax office may have a look at you, particularly 673 00:36:03,200 --> 00:36:04,800 Speaker 2: if you have a self managed to per fund, and say, 674 00:36:04,920 --> 00:36:07,359 Speaker 2: why exactly did you do that transaction where you're trying 675 00:36:07,400 --> 00:36:10,200 Speaker 2: to dodge tax them. So you need to be careful 676 00:36:10,600 --> 00:36:13,600 Speaker 2: about maybe not buying exactly the same shares back that 677 00:36:13,680 --> 00:36:16,400 Speaker 2: you sold as part of that recontribution strategy. 678 00:36:16,440 --> 00:36:18,439 Speaker 1: And you would say to the tax office, good gosh, 679 00:36:18,520 --> 00:36:20,239 Speaker 1: though I never tried to do anything. I tried to 680 00:36:20,280 --> 00:36:22,920 Speaker 1: pay as much tax as possible every time. That's my 681 00:36:23,080 --> 00:36:29,239 Speaker 1: whole approach. Yeah, sure, okay. Look in terms of that one, 682 00:36:29,920 --> 00:36:34,160 Speaker 1: that's interesting, James, So an SMSF, that's an advantage of 683 00:36:34,200 --> 00:36:37,920 Speaker 1: an SMSF. Then that recontribution strategy is actually a pragmatic 684 00:36:38,000 --> 00:36:40,480 Speaker 1: and practical thing. While learnd the big funds it's a 685 00:36:40,480 --> 00:36:43,000 Speaker 1: bit of trouble. It sounds like a lot of trouble. Actually, 686 00:36:43,080 --> 00:36:45,880 Speaker 1: I never knew that, all right, And I suppose also, 687 00:36:46,680 --> 00:36:49,160 Speaker 1: you know, you don't have to be so if a 688 00:36:49,160 --> 00:36:51,400 Speaker 1: person was doing something like that, you don't have to. 689 00:36:51,680 --> 00:36:54,480 Speaker 1: You could buy, for instance, an ETF from one company 690 00:36:54,480 --> 00:36:57,399 Speaker 1: on the Australian share market, and then you could sell 691 00:36:57,440 --> 00:37:00,000 Speaker 1: one and then and buy another ETF from another company, 692 00:37:00,080 --> 00:37:02,279 Speaker 1: which is a completely different investment for tractors doing the 693 00:37:02,280 --> 00:37:04,759 Speaker 1: same thing in the unlikely event that the ATO would 694 00:37:04,800 --> 00:37:07,840 Speaker 1: be so ab third as to try and challenge you 695 00:37:08,120 --> 00:37:11,080 Speaker 1: on what is a legitimate strategy. Okay, what about the 696 00:37:11,120 --> 00:37:12,000 Speaker 1: question from Chris. 697 00:37:12,440 --> 00:37:15,200 Speaker 2: Chris says, thanks for the podcast. If I change settings 698 00:37:15,200 --> 00:37:18,520 Speaker 2: within my super fund from conservative to high growth, for example, 699 00:37:18,840 --> 00:37:20,920 Speaker 2: does that mean my balance is cashed out to an 700 00:37:20,920 --> 00:37:24,759 Speaker 2: existing shareholding, attracting capital gains tax? In other words, do 701 00:37:24,880 --> 00:37:27,440 Speaker 2: I take the short term hit for switching my super settings? 702 00:37:27,560 --> 00:37:32,399 Speaker 2: She is, Chris. So, with most what we call unitized 703 00:37:32,520 --> 00:37:36,320 Speaker 2: super funds, which are actually most retail and industry super funds. 704 00:37:36,640 --> 00:37:39,239 Speaker 2: Every day, in the unit price of your balance option, 705 00:37:39,400 --> 00:37:43,239 Speaker 2: your growth option, you Australians, your option, they continuously factor in 706 00:37:43,280 --> 00:37:45,600 Speaker 2: capital gains tax into that unit price at the end 707 00:37:45,640 --> 00:37:48,560 Speaker 2: of the day. So if you're to sell down to cash, 708 00:37:48,600 --> 00:37:51,359 Speaker 2: there's no capital gains tax hit. So it's more if 709 00:37:51,360 --> 00:37:53,720 Speaker 2: you run your own self managed super fund, that's when 710 00:37:54,040 --> 00:37:56,640 Speaker 2: you crystallize the gain or loss on the individual stock 711 00:37:56,640 --> 00:37:59,160 Speaker 2: et for managed funding your self managed super fun So 712 00:37:59,200 --> 00:38:01,879 Speaker 2: in most cases know that's not an issue at all, 713 00:38:01,920 --> 00:38:04,000 Speaker 2: but it's best just to check if your super fund 714 00:38:04,400 --> 00:38:08,320 Speaker 2: because some retail funds in particular, they do calculates capital 715 00:38:08,320 --> 00:38:11,359 Speaker 2: gainst tax separately, but from ninety percent of them, they're 716 00:38:11,400 --> 00:38:13,279 Speaker 2: all built into the unit price of the day. So 717 00:38:13,320 --> 00:38:15,120 Speaker 2: what if you see on your balance, that's what you're 718 00:38:15,120 --> 00:38:16,160 Speaker 2: going to get if you cash it in. 719 00:38:16,320 --> 00:38:18,359 Speaker 1: Yeah, really interesting, isn't it. So there you are. There's 720 00:38:18,600 --> 00:38:21,120 Speaker 1: the two questions. First of all, we're on a similar 721 00:38:21,200 --> 00:38:23,799 Speaker 1: theme about moving money around, and it's interesting there were 722 00:38:23,880 --> 00:38:27,440 Speaker 1: very different answers for self managed super funds and retail funds, 723 00:38:27,800 --> 00:38:30,239 Speaker 1: and that's a really interesting dimension to it, and I 724 00:38:30,280 --> 00:38:34,720 Speaker 1: thought that's an interesting the recontribution strategy, by the way, folks, 725 00:38:34,760 --> 00:38:37,719 Speaker 1: just one last thing if you don't understand those and 726 00:38:37,800 --> 00:38:41,640 Speaker 1: it's loopy, but it works, and it's entirely legitimate if 727 00:38:41,680 --> 00:38:45,239 Speaker 1: you have super and you leave it in an inheritance, 728 00:38:45,360 --> 00:38:48,360 Speaker 1: the taxable component being the part where you had some 729 00:38:48,480 --> 00:38:51,960 Speaker 1: tax concession. For most people is the vast majority of 730 00:38:52,000 --> 00:38:55,360 Speaker 1: their super right because it was composed three, you actually 731 00:38:55,400 --> 00:38:59,600 Speaker 1: pay seventeen percent tax. Your inherent tours would pay seventeen 732 00:38:59,640 --> 00:39:02,000 Speaker 1: percent tax on that super if they were adult children. 733 00:39:02,080 --> 00:39:03,560 Speaker 1: Is that it James who are who are the ones 734 00:39:03,560 --> 00:39:05,279 Speaker 1: who have to pay seventeen percent tax? 735 00:39:06,239 --> 00:39:09,400 Speaker 2: Absolutely so from husband and wife or spouse to spouse, 736 00:39:09,480 --> 00:39:12,320 Speaker 2: no tax, but to adult children who are not financially dependent, 737 00:39:12,600 --> 00:39:14,760 Speaker 2: seventeen percent tax on the taxable component. 738 00:39:14,840 --> 00:39:18,040 Speaker 1: So people say there's no death taxes in Australia, but 739 00:39:18,160 --> 00:39:21,760 Speaker 1: actually SUPER, which is more more important and more common 740 00:39:22,120 --> 00:39:24,759 Speaker 1: and becomes, after the family home, the main investment for 741 00:39:24,840 --> 00:39:28,200 Speaker 1: many people, there is inheritance tax and it's seventeen percent. 742 00:39:28,440 --> 00:39:32,840 Speaker 1: To avoid that, legitimately, you can continually take a certain 743 00:39:32,840 --> 00:39:35,880 Speaker 1: amount out of SUPER and re contribute that amount back in. 744 00:39:35,960 --> 00:39:38,200 Speaker 1: Can you believe this? And when each time you put 745 00:39:38,200 --> 00:39:40,040 Speaker 1: that for every dollar you take out, when you put 746 00:39:40,040 --> 00:39:44,080 Speaker 1: the dollar back in, that dollar is reduced from the 747 00:39:44,160 --> 00:39:46,640 Speaker 1: taxable component of the inheritance. 748 00:39:46,719 --> 00:39:48,240 Speaker 2: Is that it one hundred percent? 749 00:39:48,680 --> 00:39:54,160 Speaker 1: Yeah? Okay, so absurd, but entirely legitimate. And I must say, 750 00:39:54,560 --> 00:39:58,719 Speaker 1: if you wanted to ensure that your adult children, in 751 00:39:58,760 --> 00:40:01,640 Speaker 1: the fullness of time, got the most inheritance they could 752 00:40:01,640 --> 00:40:03,799 Speaker 1: possibly get from your super, then you would do it. 753 00:40:03,840 --> 00:40:05,960 Speaker 1: Is there limits on how well you can't just basically 754 00:40:06,000 --> 00:40:08,520 Speaker 1: take out a millionaire put it back in. You've got 755 00:40:08,520 --> 00:40:13,239 Speaker 1: to do with the systematically, don't you what's the procedure? 756 00:40:14,080 --> 00:40:16,480 Speaker 2: That's right and probably timely that this is mentioned. Because 757 00:40:16,560 --> 00:40:20,600 Speaker 2: the non concessional contribution cap has increased from one hundred 758 00:40:20,640 --> 00:40:23,279 Speaker 2: and ten thousand to one hundred and twenty thousand, then 759 00:40:23,480 --> 00:40:25,319 Speaker 2: for people who are below the age of seventy five, 760 00:40:25,320 --> 00:40:27,920 Speaker 2: they could actually pull forward two future years of that 761 00:40:28,040 --> 00:40:30,520 Speaker 2: annual contribution as well. So at the moment, it's a 762 00:40:30,520 --> 00:40:33,120 Speaker 2: maximum of three hundred and sixty thousand dollars that people 763 00:40:33,160 --> 00:40:35,319 Speaker 2: can pull out of SUPER, which will have a mix 764 00:40:35,320 --> 00:40:37,640 Speaker 2: of taxable and tax free component, and then they could 765 00:40:37,719 --> 00:40:39,759 Speaker 2: go to their personal bank account and then they put 766 00:40:39,760 --> 00:40:42,320 Speaker 2: that back into SUPER. And when it goes back into SUPER, 767 00:40:42,440 --> 00:40:44,759 Speaker 2: it goes in as that non concessional contribution up to 768 00:40:44,760 --> 00:40:47,560 Speaker 2: three hundred and sixty thousand, and that increases the tax 769 00:40:47,640 --> 00:40:50,960 Speaker 2: free component, so less tax to non dependence later on. 770 00:40:51,040 --> 00:40:54,000 Speaker 1: By doing that strategy, it's a strategy that could only 771 00:40:54,040 --> 00:40:58,040 Speaker 1: have been devised in a completely hatchwork quill system that 772 00:40:58,320 --> 00:41:00,920 Speaker 1: has emerged over the years. But I tell you what folks, 773 00:41:01,280 --> 00:41:06,239 Speaker 1: wealthy people in Australia, they systematically do it. As I say, 774 00:41:06,560 --> 00:41:09,760 Speaker 1: we don't realize that there is actually an inheritance tax. 775 00:41:10,000 --> 00:41:12,640 Speaker 1: And not only that, but that inheritance tax is based 776 00:41:12,800 --> 00:41:18,040 Speaker 1: on that taxable component in Super and for many families, 777 00:41:18,040 --> 00:41:21,120 Speaker 1: Super will be that will be the inheritance apart from 778 00:41:21,120 --> 00:41:24,280 Speaker 1: the family home. Okay, terrific. Hey, there's really good James, 779 00:41:24,320 --> 00:41:27,680 Speaker 1: quite technical of times nature of it. I hope it 780 00:41:27,719 --> 00:41:30,080 Speaker 1: was useful to you all. I'm sure it was. You 781 00:41:30,160 --> 00:41:31,879 Speaker 1: were interested in how much you should have in Super. 782 00:41:31,920 --> 00:41:34,680 Speaker 1: Maybe you might also be interested in how much Super 783 00:41:34,760 --> 00:41:38,720 Speaker 1: you might leave someday to somebody if you don't spend 784 00:41:38,719 --> 00:41:43,800 Speaker 1: it all. Okay, Hey, thank you James. 785 00:41:44,440 --> 00:41:46,880 Speaker 2: That's my pleasure. Thanks having me is always in you 786 00:41:46,920 --> 00:41:49,560 Speaker 2: know what. Great questions from the listeners. Very intelligent, very 787 00:41:49,560 --> 00:41:50,279 Speaker 2: insightful question. 788 00:41:50,440 --> 00:41:52,239 Speaker 1: So they are indeed well done. 789 00:41:52,320 --> 00:41:53,120 Speaker 2: Well done listeners. 790 00:41:53,239 --> 00:41:56,480 Speaker 1: Yes, thank you listeners and keep them rolling please, I'd 791 00:41:56,520 --> 00:42:00,400 Speaker 1: love to have some more the money Puzzle at Thesustralian 792 00:42:00,480 --> 00:42:03,080 Speaker 1: dot com dot au. Okay soon