Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby, the Wealth editor at the Australian. Welcome aboard everybody.
Speaker 1: I imagine you're galloping towards the end of the year.
Speaker 1: Certainly I am, and so is the show. We have
Speaker 1: a few episodes left. And also, of course, folks remember
Speaker 1: that over the summer break we will be running the
Speaker 1: series on the Outlook for twenty twenty five and we
Speaker 1: will cover all aspects of what you need to know
Speaker 1: next year with shares and ETF and property and super
Speaker 1: It's a very good series. I'm able to tell you
Speaker 1: that because we're halfway through recording it and look out
Speaker 1: for that. Now today, I want to just talk about
Speaker 1: I imagine looking back over this year, you've had a
Speaker 1: couple of issues. I'm sure in your efforts to build
Speaker 1: wealth and create a portfolio, create an investment portfolio for
Speaker 1: you and for anyone else that is linked with you,
Speaker 1: and it's the same for advisors. And I wanted to
Speaker 1: talk to a regular guest on the show, Tim McKay
Speaker 1: of Quantum Financial, about the key issues that's come up
Speaker 1: for him and for advisors this year. And I imagine
Speaker 1: that will give you some insights and useful pointers for
Speaker 1: your own endeavors. How are you, Tim H.
Speaker 2: Jones? Thank you very much for having me.
Speaker 1: Lovely to have you on the show. So I don't
Speaker 1: want to guess, right, I mean, I sent you some
Speaker 1: notes where I guessed what derusions might be. But I'm
Speaker 1: thinking for an advisor like yourself, just tell me about
Speaker 1: how what are people A are people feeling about everything
Speaker 1: as they come in the door. It's almost like it
Speaker 1: is the touch of it, it's all too good to
Speaker 1: be true. Is there an element of that in terms
Speaker 1: of returns this year?
Speaker 2: Potentially? I mean Trump two point zero is obviously loomed
Speaker 2: large over markets throughout the year, even though he wasn't president,
Speaker 2: in some ways it felt like he was. And his
Speaker 2: action in November certainly put a rocket under US markets
Speaker 2: and other markets followed suits. So that has been obviously
Speaker 2: a key issue through the y plus falling interest rates
Speaker 2: in the US and Europe, which again has helped support markets.
Speaker 1: So you have these two enormous sort of thematic issues.
Speaker 1: Which is a republican president coming in the US, A
Speaker 1: republican president like quit knobs On, who's going to do.
Speaker 1: Who's going to do all the things you would expect
Speaker 1: a Republican president to do, deregulate car taxes, stimulate the market.
Speaker 1: You wouldn't expect a Republican president necessarily to be procrypto
Speaker 1: what they are. And also, as you say, just in
Speaker 1: time for that, you have a sense that US rates
Speaker 1: will fall, So these things, of course will really push
Speaker 1: They have pushed markets higher. Is there a risk, as
Speaker 1: there always is, that everyone's getting too excited too quickly?
Speaker 2: Undoubtedly. I mean for the last two we've had what
Speaker 2: the US has had the dollar returns. Is that Can
Speaker 2: that keep going on forever? No? No, certainly, but there's
Speaker 2: probably enough drivers for to keep going for you know,
Speaker 2: probably another six twelve months at least, the optimism around
Speaker 2: Trump coming in and he, as you said, deregulating lower taxes,
Speaker 2: Those sorts of significant actions stimulate economic activity.
Speaker 1: So if I did come into you and said, look,
Speaker 1: it's great, and I'm delighted, and hey, gosh, I never
Speaker 1: expected to get, you know, ten percent plus on my
Speaker 1: Australian shar's total return, and I sure said I didn't
Speaker 1: expect to get twenty on my US ones. Again, and
Speaker 1: property has been direct property, that is, residential property has
Speaker 1: been ticking along solidly. Everything else is going up. Crypto's
Speaker 1: going through, the roof gold has been going up. My
Speaker 1: alternative assets perhaps are going up, though I can't see
Speaker 1: how because it's entirely opaque. I don't mean to be
Speaker 1: cynical there, But tell me if I said all that
Speaker 1: to you, what would you say? Would you say to
Speaker 1: your would you say to clients? Look, this year market,
Speaker 1: You just said that there. You can't expect it to
Speaker 1: keep going. So what does somebody do in that? What
Speaker 1: does someone do about that?
Speaker 2: We encourage our clients to focus on ass allocation. So
Speaker 2: if your target ass allocation is, say seventy thirty seventy
Speaker 2: percent growth and thirty percent offensive assets. If because the
Speaker 2: markets have gone up, which they have, it's changed your
Speaker 2: portfolios changed to seventy five twenty five, then take some
Speaker 2: of that money off the table, so rebalance back to
Speaker 2: your target. Take some of that cream, and that way
Speaker 2: sort of de risk your portfolio On an ongoing basis, do.
Speaker 1: People find it hard to sell a share that's been
Speaker 1: going great Psychologically?
Speaker 2: Yes, for the same reason that they when markets fall,
Speaker 2: they psychologically find it difficult to buy right. So by
Speaker 2: having a very stringent approach and sticking to it, then
Speaker 2: you take those emotions out of it. So yes, it
Speaker 2: feels counterintuitive to be selling when it's high, but that
Speaker 2: forces you to sell high, and then again when markets fall,
Speaker 2: it forces you to buy low. So if you can
Speaker 2: adopt that strategy and adhere to it, come hell or
Speaker 2: high water, then you'll be better for it in the longer,
Speaker 2: medium to longer term.
Speaker 1: So in some ways it's easy to The easy part
Speaker 1: is to sell. It's what you do with the It's
Speaker 1: what you do with the money that you've raised. What
Speaker 1: I know, we can't talk individual terms and everyone's different,
Speaker 1: but very broadly speaking to our audience, which are active
Speaker 1: investors in Australia of all ages. If someone was to
Speaker 1: do that, where would you be looking to reallocate that money?
Speaker 2: Well, in the defense, if it's going from growth to
Speaker 2: the defensive, there's only a couple of places it can
Speaker 2: go to. I mean, some people define hybrid's's defense. I
Speaker 2: personally don't.
Speaker 1: Do you mean, but hybrids aren't hope it's gone.
Speaker 2: Well, exactly right. That was my point that they're being
Speaker 2: phased out. They're not gone yet, but over the next
Speaker 2: couple of years they will be phased out. So that's
Speaker 2: an asset class, an Australian asset class that's disappearing cash. Yes,
Speaker 2: it's quite attractive rates, but we know for a fact
Speaker 2: that they're going to go down in the coming years.
Speaker 2: So it might feel good now, but if you keep
Speaker 2: it in cash for the next two or three years,
Speaker 2: you'll probably go backwards. Potentially bonds, if we are in
Speaker 2: a falling interest rate environment, then potentially bonds could give
Speaker 2: a higher return than cash on that defensive portion of
Speaker 2: the portfolio.
Speaker 1: They're disappointed regularly, haven't they They have.
Speaker 2: But interest rates have been going up, right, so in
Speaker 2: recent years until recently when the FED dropped rates. In
Speaker 2: a rising interest rate environment, bonds are not going to
Speaker 2: do particularly well. But again, on the flip side, in
Speaker 2: a falling interestrade environment, they can do better.
Speaker 1: Right. Do you include bond ETFs in that yes? Okay, yeah?
Speaker 1: Do you see them as a realistic proxy for actual
Speaker 1: individual bonds?
Speaker 2: Bond ETFs aren't necessarily as good as equity ETFs in
Speaker 2: the sense that an equity ETF will reflect say it,
Speaker 2: for instance, the S and P five hundred or the
Speaker 2: ASX two hundred quite well, whereas a bond ETF will
Speaker 2: only represent a portion of a bond index. So in
Speaker 2: many ways it's much easier for an active bond manager
Speaker 2: to outperform the bond index than it is an equity I.
Speaker 1: Hear what you say. Would you explain to our listeners
Speaker 1: why that is? Because most of them, I imagine, you know,
Speaker 1: their first step into ETFs exchange traded funds or index
Speaker 1: funds as we used to call them, would have been
Speaker 1: in shares, and now they're probably thinking, oh, you know,
Speaker 1: these are really good, broaden my diversify. I'm a portfolio.
Speaker 1: I'll get some bonditfs. Could you explain to listeners why
Speaker 1: they're not quite so but not as good basically a
Speaker 1: proposal as a share ETF.
Speaker 2: But they're good, They're just not as good a proxy
Speaker 2: in the sense that the IX two hundred is made
Speaker 2: up of two hundred stocks. So to mimic that with
Speaker 2: an exchange threaded fund is quite easy. You know, basically
Speaker 2: you need a spreadsheet. It's not done in a spreadshee.
Speaker 1: But yeah, it's an incredibly elaborate spreadsheet with hundreds of
Speaker 1: people employed to run.
Speaker 2: It exactly right. Christmas Elves Wavering way. But a bond
Speaker 2: ATF if you think of the bond universe either more
Speaker 2: far more issuers. The US bond market, for instance, there's
Speaker 2: thousands of issuers, but then even one issue will issue
Speaker 2: bonds a different times for different maturities, right, so there's
Speaker 2: not one. The universe is so much greater. So for
Speaker 2: a bond ETF they will take a portion of those bonds.
Speaker 2: They can't replicate the entire universe, and so there will
Speaker 2: be good bonds in there that they miss out on
Speaker 2: by definition because they just cannot capture the entire universe.
Speaker 2: So hence my point that active bond managers have more
Speaker 2: scope to outperform their index.
Speaker 1: Because there's more price discrepancies in our attractation, there's more opportunity,
Speaker 1: more opportunity exactly to pick.
Speaker 2: But as an individual investor, potentially a bond ETF is
Speaker 2: better than just buying one or two bonds yourself. At
Speaker 2: least you get a far degree more diversification at a
Speaker 2: low cost.
Speaker 1: And being honest about most Australian investors', retail investors, including
Speaker 1: listeners to this show, would never have bought bonds anyway.
Speaker 2: No, it's a cultural thing. In the US, they do
Speaker 2: buy bonds in the US and smaller in smaller lots,
Speaker 2: we don't have that cultural sort of approach to having
Speaker 2: direct bonds in your portfolio.
Speaker 1: Apart from cash and bonds or bondiefs. What else might
Speaker 1: someone look at?
Speaker 2: Is there well, term deposits, but I mean that's a
Speaker 2: cash proxy. I mean, yeah, you might want to look
Speaker 2: if your view is that injurest rights are going to
Speaker 2: fall in the next six to twelve months in Australia
Speaker 2: as the ABBI feels like it's getting inflation under control,
Speaker 2: then perhaps locking in money for six to twelve to
Speaker 2: eighteen months maybe a win if rights are going to.
Speaker 1: Fall, yes, okay, right, and of course the bank's move.
Speaker 1: The thing about this, listeners, is the banks move faster
Speaker 1: than you'll move. Just as you think, just as you think, gosh,
Speaker 1: I might lock in that term deposit, someone in the
Speaker 1: bank has already dropped the race in my experience anyway, Yeah, okay,
Speaker 1: very good. Now on as an advisor again, and I
Speaker 1: imagine you had a lot of people, not a lot
Speaker 1: of people, but I imagine you had a significant number
Speaker 1: of people in all sorts of angst about the potential
Speaker 1: what seemed at one stage, like the for sure arrival
Speaker 1: of a new super tax, which was to kick in
Speaker 1: at the three million level, which was meant to be
Speaker 1: another fifteen percent on top of the fifteen percent youupee
Speaker 1: if you're over one point nine million in assets, that
Speaker 1: is the earnings on assets over that number. One of
Speaker 1: the things that that also had was a plan to
Speaker 1: tax on realized games, which was daft, and everyone knew
Speaker 1: it was daft to mention ghastly and how they might
Speaker 1: actually practically do it. But here's a million. The other
Speaker 1: question is that gone or will they try again?
Speaker 2: In some ways, I liken it to waiting for Gotto,
Speaker 2: the play where everyone's sitting around waiting for gotto, and
Speaker 2: Gotto doesn't seem to ever turn up. This tax might
Speaker 2: turn up ten yes and no. It didn't get passed.
Speaker 2: It got passed by the lower House, it didn't get
Speaker 2: passed by the Senate, and that has that has closed
Speaker 2: for the year now, so their ability to get that
Speaker 2: past has gone for twenty twenty four. They do have
Speaker 2: the potential ability in February to pass it, but their
Speaker 2: focus will more than likely shift to the election, not
Speaker 2: horse trading with the cross benches over a policy which
Speaker 2: is probably not one of their high priorities, so it's
Speaker 2: probably buried but not dead. It remains on the statutes
Speaker 2: in the sense that it's still in their budget, so
Speaker 2: they're still projecting the revenues from it, so they're sort
Speaker 2: of being optimistic. It's still Labor Party policy, and if
Speaker 2: they win the election, it will probably come back onto
Speaker 2: the agenda. So there's a lot of ifs in there.
Speaker 2: But again, if they do win the election, that also
Speaker 2: presupposes that they control the Senate again, so they could
Speaker 2: be forced back into the same situation they are now.
Speaker 1: Yes, that's a very practical observation, Yes, of course, but
Speaker 1: they could go to the election with it. It could
Speaker 1: be a number of six hundred and sixty unders.
Speaker 2: And they could claim a mandate. But then the crossbenches
Speaker 2: could say the exact same thing we opposed. It went
Speaker 2: to the election with an opposition to this, and so
Speaker 2: we have the exact opposite mandate to negotiate in good
Speaker 2: faith about the things we objected to, being the lack
Speaker 2: of indexation, being the taxation on unrealized capital gains.
Speaker 1: Yeah, okay, so I think folks, you can put it
Speaker 1: in the bottom drawer for the moment because what the
Speaker 1: government is doing. But don't assume it's gone. I certainly
Speaker 1: don't assume that new taxes and super are gone because
Speaker 1: the system is so fabulously rich now that it is
Speaker 1: a revenue potential revenue earner for any government and will
Speaker 1: always continue to be so for governments of either stripe.
Speaker 1: By the way, either stripe and it was the Coalition
Speaker 1: that brought in the original taxing of super at one
Speaker 1: point six yes APRO, which was at Morrison government. Okay,
Speaker 1: take a short break, we'll be back in a moment.
Speaker 1: Hello and welcome back to The Australian's Money Puzzle podcast.
Speaker 1: I'm James Kirby, the Wealth editor at The Australian. I'm
Speaker 1: talking to Tim McKay of Quantum Financial Advisor. I'm sure
Speaker 1: many of you know Tim. He is quite a high
Speaker 1: profile financial advisor, very experienced financial advisor. As I've mentioned
Speaker 1: on the show before. His sister is a financial advisor
Speaker 1: and his dad was a financial advisor or second generation
Speaker 1: financial advisor. We haven't had any of them on the show, Tim,
Speaker 1: I wanted to ask you about one of the things
Speaker 1: I imagine people have been bringing up with you, or
Speaker 1: if they haven't you've been bringing up with them. Is
Speaker 1: the part that, hey, you're probably paying less tax than
Speaker 1: you were. What are your plans for it? Did you
Speaker 1: do anything about it? Because everybody is and some that
Speaker 1: means you're eight it means you're paying less tax, and
Speaker 1: b it means tax effective strategies mightn't be as effective
Speaker 1: because you weren't paying as much tax as you were.
Speaker 1: Is there anything that we're worth telling listeners about that?
Speaker 1: Even still because it was still only six months into.
Speaker 2: It, ye hundred seid I mean, so reminded to listeners.
Speaker 2: On the first of July the new tax rates came in,
Speaker 2: the tax cuts across the board. For someone on one
Speaker 2: hundred thousand dollars, they effectively had a tax saving of
Speaker 2: just over two thousand dollars a year, which if you
Speaker 2: equate that to a weekly basis, it's just forty two dollars.
Speaker 2: So for me, a man, if I had haircuts, it'd
Speaker 2: be basically a haircut sort of thing. So it's not
Speaker 2: the largest sum in the world, but my anecdotally and
Speaker 2: speaking to clients and with regards to their children, most
Speaker 2: of that money has gone to in a cost of
Speaker 2: living crisis, has gone to supporting their lifestyle. Most people
Speaker 2: haven't saved it or invested it. They literally have just
Speaker 2: used it to prop up their ongoing expenses and inflection.
Speaker 1: In a way, it says something of a cushion against
Speaker 1: three three percent infleation from most.
Speaker 2: People exactly, so supporting so basically treading water.
Speaker 1: So yeah, to keep the exact same spending power as
Speaker 1: you had a year ago, it helped.
Speaker 2: Yeah, and to be honest, it probably stimulated economic growth
Speaker 2: a little bit as well. So if people are spending it,
Speaker 2: then it helps the economy.
Speaker 1: Is there's something that you found yourself continually seeing to
Speaker 1: tanus this year that is worth telling our audience in
Speaker 1: terms of opportunities that they may have missed or dangers
Speaker 1: that they are facing.
Speaker 2: Two things. A for the last two years, we've had
Speaker 2: higher US exposure than Australian exposure on our equities portfolios,
Speaker 2: and that has put our clients in a very good position.
Speaker 2: Trump is coming in, we know that in January he's
Speaker 2: being inaugurated. If you believe in the American exceptionalism sort
Speaker 2: of that sense that America first, then he will implement
Speaker 2: policies potentially that will protect those companies even more to
Speaker 2: the detriment of Europe to the detriment of China detriment
Speaker 2: of Australia. So one thing is to just focus on
Speaker 2: how much Australian exposure have versus the US. The other
Speaker 2: key thing to note is try not to panic when
Speaker 2: geopolitical events happen. If you look at this year, we
Speaker 2: had some remarkable things happened. We had martial law declared
Speaker 2: overnight in South Korea.
Speaker 1: For six hours.
Speaker 2: Yeah, we had Syria overthrow its government. We had Israel
Speaker 2: firing missiles at Iran and Iran firing missiles at Israel.
Speaker 2: In each of those three absolutely bizarre cases, the markets
Speaker 2: did nothing, if any, and they went up.
Speaker 1: There was no response, There was no negative response on
Speaker 1: the market.
Speaker 2: So next time next year there will be out of
Speaker 2: the blue events that happen. Don't immediately panic about your investments.
Speaker 1: It sounds like you're also saying it's not too late
Speaker 1: to lift your exposure to US series.
Speaker 2: Well, todate the US. A lot of that growth has
Speaker 2: come from those magnificent seven tech stocks, right, So the
Speaker 2: hope of the belief is that growth will then spread
Speaker 2: across the other stocks. So perhaps don't overindulge in the
Speaker 2: tech exposure given how well it's done. But certainly the
Speaker 2: rest of the US economy can probably keep growing quite
Speaker 2: well under this new deregulated Trump environment.
Speaker 1: I saw even the most not even the conservatives. The
Speaker 1: consensus estimates on the six are basically zero plus dividend yield.
Speaker 1: But the consensus estimate in the US is eight percent.
Speaker 1: Would only be about a third of what they're going
Speaker 1: to rump home with this year. But eight percent they
Speaker 1: have a lotter than nothing.
Speaker 2: Yeah, exactly. And if you believe that Trump is going
Speaker 2: to come down hard on China, then that will have
Speaker 2: an indirect flow through to Australia as well.
Speaker 1: Right, yeah, right, And in your clients what they normally
Speaker 1: would it be through passive ETFs are active funds that
Speaker 1: they go through there?
Speaker 2: Yeah, both. Well, I've been on a journey. I used
Speaker 2: to be a seal side analyst for Deutsch and Ubs
Speaker 2: in London, New York, and so I've come from a
Speaker 2: completely active background and gone one ady to focusing on
Speaker 2: passive and asset allocation. So that's been a journey for me.
Speaker 2: And so most of our clients are invested in you know,
Speaker 2: broad based ATF's US Australian European unlike.
Speaker 1: It's funny. I won't say who, but I was reading
Speaker 1: this morning about a well known important fund manager fund
Speaker 1: that had fond of funds that had announced that they're
Speaker 1: going with a certain small to mid cap fund manager.
Speaker 1: And this particular fund manager was delighted obviously with this,
Speaker 1: and was announcing this and telling everybody and putting out
Speaker 1: press statements and had mentioned, you know, also in passing
Speaker 1: how much what their percentage return was on in their
Speaker 1: area of activity. And I looked and I said, that's
Speaker 1: really good. And then I said, yeah, it's more. That's
Speaker 1: the same as the ETF in the same space. I mean,
Speaker 1: it's cruel. But you've got to be not just good.
Speaker 1: You've got to be like dynamite, I think inactive now
Speaker 1: to be passive.
Speaker 2: It's even more than that. As an investor, you have
Speaker 2: to be a brilliant fund manager picker to pick which
Speaker 2: of those fund managers going to be that a performer.
Speaker 2: So it almost doubles or reduces your odds by half.
Speaker 1: How do you think they how do you think you
Speaker 1: can do that? Is it old people?
Speaker 2: I think it used to be. Increasingly we're saying with
Speaker 2: the fall of you know, some of these previously great houses.
Speaker 2: Perhaps we're starting to see that, you know, they didn't
Speaker 2: wear the Emperor, didn't wear the clothes that we thought
Speaker 2: they did.
Speaker 1: Well, maybe they were. I mean, I think we can
Speaker 1: name them. I mean, obviously Magellan had Haimish Douglas, who
Speaker 1: was a marvelous front person for that group, and in
Speaker 1: its day Platinum At Karen Nelsen, who was a marvelous
Speaker 1: front person. But I'm not really talking about that where
Speaker 1: you have a charismatic sort of leader of a fond.
Speaker 1: I mean, I mean, I think it's teams of spot
Speaker 1: stop pickers. And there are people who can do it,
Speaker 1: and there are people who can do it year after year.
Speaker 1: But how do you find out about them?
Speaker 2: Well, I suppose you focus on the areas where you
Speaker 2: think that they can outperform. So, for instance, small caps.
Speaker 2: You know, again it's hard to mimic an ATF for
Speaker 2: small caps, so there is a.
Speaker 1: So you're saying small caps has more chance of a
Speaker 1: better active manager, an active Andrew has more chance in
Speaker 1: small caps, just like we were saying about the bonds.
Speaker 2: And emerging markets is another area where he excentraated funds
Speaker 2: can't mimic the entire universe, and so there is the
Speaker 2: ability of active managers to outperform and do so quite well.
Speaker 1: Yes, that's a very good point. Okay, keep that in mind, folks,
Speaker 1: and I would tend to completely agree with that. And
Speaker 1: from the figures I see that we're always saying ETFs
Speaker 1: are good, and they are, of course they are. But
Speaker 1: there's always individual shares that are going to beat the
Speaker 1: daylights out of your ETF and funds, and the likelihood
Speaker 1: is that those funds will be in areas like Australian
Speaker 1: small caps, global small caps, emerging markets, and to an extent,
Speaker 1: bond markets for the very reason that Tim outlined at
Speaker 1: there a few moments ago. Okay, I think, just while
Speaker 1: we have you before we go to questions, is there
Speaker 1: an area of investing that you find that your clients
Speaker 1: are resistant to and should consider crypto being the obvious
Speaker 1: one because it is now well it is now the
Speaker 1: us SEC chief investment is. I mean they're talking about
Speaker 1: not just kind of ticking the boxes and saying cryptos okay,
Speaker 1: they're talking about putting it into your strategic reserves and everything.
Speaker 1: Is it time to is it time to look again
Speaker 1: with new eyes at this what we have to call
Speaker 1: an acid class.
Speaker 2: Well, for younger tech savvy investors, you know a fair
Speaker 2: few of them already have direct exposure to that. I
Speaker 2: wouldn't recommend most older, more traditional investors sort of go
Speaker 2: out and set up a tether account or a bitcoin account.
Speaker 1: No, but what we have all we have all ages listening,
Speaker 1: and I will say that the correspondence, I guess, aren't
Speaker 1: crypto goes it escalates with the price. Yes, when it
Speaker 1: goes down. Guess what, we don't talk about it as much.
Speaker 1: But so I go into you, right, and I said,
Speaker 1: and you've said to me, James, you know crypto, you
Speaker 1: don't understand it, blah blah blah, you're skeptical about it.
Speaker 1: So you know. But now I go back into you
Speaker 1: and I say, okay, yeah, that the Titans of Wars
Speaker 1: tuots are interested in this. The US SEC Commissioner is
Speaker 1: pro crypto, so is the President. Should I have it?
Speaker 2: Well, I suppose in some ways it's like gold, right,
Speaker 2: So my.
Speaker 1: Problem I don't think it's like gold. Actually, to be honest,
Speaker 1: I don't think that because gold, I think is non correlated,
Speaker 1: and I think bitcoin is correlated.
Speaker 2: Discuss well, the way I like in it to gold
Speaker 2: is the sense that neither of them throw off yield. Right,
Speaker 2: there is no India. Yeah, So traditionally, as a cell
Speaker 2: side analyst, we'd build valuation models and it would be
Speaker 2: based on the yield these things would throw off. So
Speaker 2: if there's no yield, how the hell do you value it?
Speaker 2: So that's my starting point that that's why I liken
Speaker 2: it to gold. Having said that, there is obviously an
Speaker 2: flight to safety for both of those investments, and I
Speaker 2: think a lot of the people who invest in cryptocurrency
Speaker 2: today if it didn't exist, would be invested in gold
Speaker 2: the similar sort of mind frame.
Speaker 1: And you're thinking that that is generational demographic.
Speaker 2: And so if if crypto didn't exist, those people would
Speaker 2: probably be investing in gold. So you can get exposure
Speaker 2: to it via ETFs. I hate to say it, but
Speaker 2: again exchange traded funds here now launched in Australia actively
Speaker 2: on the market. They will hold the bitcoin, you know,
Speaker 2: they'll have a custodium that looks after it. And so
Speaker 2: if you are going to go down that route, that
Speaker 2: would probably be the safest and less tech exposed to
Speaker 2: hacking and the like routes. So for many of our
Speaker 2: clients who operate through a financial plan. You have one
Speaker 2: of those large organizations, that firm will not allow it.
Speaker 2: Their mandate will not allow those people to be put
Speaker 2: into those investments. Yes, but they might not have that
Speaker 2: ETF on their allowed list of approved products, right, so
Speaker 2: it won't be an open gam But of all ETFs allowed,
Speaker 2: so you'll probably find that retail investors are bigger users
Speaker 2: who directly investors than through the large institutions.
Speaker 1: You can put them in your et in your SMSF.
Speaker 2: Depending on your investment strategy if it allows it or not,
Speaker 2: So check that first.
Speaker 1: If it allows an ETF, then it surely allows an
Speaker 1: ETF on crypto.
Speaker 2: No, it depends on the asset class, right, so your
Speaker 2: investment strategy may be written around asset classes rather than
Speaker 2: investment types. For instance, you can get an ETF that
Speaker 2: has one stock in it. You could have in VideA
Speaker 2: in three times leveraged in it. So not all ETFs
Speaker 2: are vanilla.
Speaker 1: Sure I'm talking about.
Speaker 2: Yes, but again I wouldn't describe a cryptocurrency ETF as
Speaker 2: a vanilla ETF. Maybe in ten fifteen years time it
Speaker 2: may be, but at the moment there's still new cabs
Speaker 2: off the rank increasingly accepted from our perspective. Some of
Speaker 2: our younger clients we do it on execution, so they
Speaker 2: want to get that exposure, so we'll facilitate that, but
Speaker 2: we're not actively recommending.
Speaker 1: That you're in the camph You see, if you want
Speaker 1: to do it, we won't stop you. But you're enough
Speaker 1: it will help you.
Speaker 2: On instruction, yes, yeah, under.
Speaker 1: Instruction Yeah, okay, very interesting. Under instruction you see, they're
Speaker 1: the important words there, folks. Okay, we'll take a break
Speaker 1: and we'd have some questions from Lisa and Imran and
Speaker 1: and Lofty Big Chopper whoever Lofty Big Chopper is. Okay,
Speaker 1: back in a moment. Hello, Welcome back to The Australian's
Speaker 1: Money Puzzle podcast. I'm James Kirby Wells edit show at
Speaker 1: The Australian. I'm talking to Tim McKay of Quantum Financial.
Speaker 1: Tim Acourse is financial advisor, well known financial advisor's been
Speaker 1: on the show several times and delighted to have him
Speaker 1: on the show today. Okay, what we might do? Why
Speaker 1: don't we just read them out alternately if you like,
Speaker 1: And I'll read the first one, which is from Lisa. Hello, Lisa,
Speaker 1: I will be looking to invest outside of Super until
Speaker 1: twenty twenty seven. This is a very precise reason for this,
Speaker 1: which Lisa explained. As I mentioned on the last show,
Speaker 1: we have some very long questions which I have to edit,
Speaker 1: so this is just a distillation of Lisa's issue. There
Speaker 1: we go again. I will be looking to invest outside
Speaker 1: of Super until twenty twenty seven, when I can again
Speaker 1: contribute to my SUPER account. I am not in need
Speaker 1: of an income from this amount, as I am still
Speaker 1: able to draw down on an adequate income stream. After
Speaker 1: a recent podcast outlining the history of share market corrections
Speaker 1: and crashes, my gout feeling is to put the cash
Speaker 1: into a savings account, and she mentions one from a
Speaker 1: regional bank where she says she can earn four point
Speaker 1: eight five percent monthly with no terms or conditions. Lisa,
Speaker 1: I would love to know if that has no terms
Speaker 1: or conditions, because that would there would be would be
Speaker 1: a new one for me. But in any event, Lisa's question,
Speaker 1: obviously is having heard the history of crashes and corrections,
Speaker 1: she thinks maybe she should put more into cash. This
Speaker 1: has never advised its information only maybe if you didn't
Speaker 1: know the history of the point of that show was
Speaker 1: to tell people who hadn't recalled experience to crash that
Speaker 1: they happen, and not only can they happen like COVID
Speaker 1: where it's short and sharp, but they can happen over
Speaker 1: an agonizingly long period of time. GFC two or seven
Speaker 1: to two or nine, where our market fell fifty percent,
Speaker 1: but it didn't do it fast. It did it in
Speaker 1: a painfully glacial fashion over two years, and when we
Speaker 1: hit the bottom, we didn't know it hit the bottom either.
Speaker 1: So that was the reason with with Alex Muffett that
Speaker 1: we did that show on the anniversary of the Great
Speaker 1: Crash of eighty seven. But what do you think of
Speaker 1: Lisa's disposition to say, well, I've only got a two
Speaker 1: year timeframe, I have a certain amount of money. I mean,
Speaker 1: you shouldn't do anything. I should put it in cash.
Speaker 2: It's a valid position. But to counter it, I would say,
Speaker 2: over the next two year depends on you whent in
Speaker 2: twenty twenty seven. If it's midyear, when the first of
Speaker 2: July twenty twenty seven, that's two and a half years away.
Speaker 2: Markets will more than likely be up over the next
Speaker 2: two and a half years, whereas we know interest rates
Speaker 2: will likely be down over the next two and a
Speaker 2: half years, right, so four point eight five percent day
Speaker 2: potentially dropping by twenty five BIPs, you know, next quarter after,
Speaker 2: So that four point eight five certainly is not locked
Speaker 2: in over that period. We know if inflation is sort
Speaker 2: of coming under control and interest rates will come down
Speaker 2: and potentially significantly, so potentially that could start going backwards
Speaker 2: at some stage over that and a half year period. Also,
Speaker 2: it's not binary, it's not like that money either needs
Speaker 2: to be in cash or to market. You could put
Speaker 2: a portion of it into the market over the next
Speaker 2: two years and keep some in that cash earning interest.
Speaker 2: So that's not the worst idea in the world. And
Speaker 2: the other point to reiterate is your point about buying
Speaker 2: into the dip. It sounds rational and sounds so sensible,
Speaker 2: But when the market falls, that is the hardest time
Speaker 2: to actually make that emotional decision to invest it, because
Speaker 2: the fear at that time.
Speaker 1: Is that it keep falling.
Speaker 2: It's palpable, yeah, utually, and to make that to remove
Speaker 2: yourself from that fear and just to step around it
Speaker 2: or step over it and make that decision is so hard.
Speaker 2: So it sounds like a wonderful plan, but it's so
Speaker 2: hard to execute when emotions come into the story.
Speaker 1: Okay, very interesting and to Lisa and all the Lisa's
Speaker 1: out there, diversify. It's always a useful way to approach
Speaker 1: any investment amount, be it bigger, small, long term or
Speaker 1: short term. I don't think that's that's individual advice. I
Speaker 1: think that's very instructive general observation and information for everybody. Okay, Imran,
Speaker 1: a financial planner on one of your episodes mentioned that
Speaker 1: some super funds behind the scenes link spouse accounts to
Speaker 1: reduce fees if the combined balance was substantial enough. In
Speaker 1: other words, as a couple, whatever they've got, you know,
Speaker 1: two hundred grand each, suddenly it becomes four hundred grand.
Speaker 1: Their fees drop. But IMA's experience with his industry fund
Speaker 1: and he names UNI super and they had no idea
Speaker 1: about this, and he's wondering what funds do it. Okay, Imran,
Speaker 1: I'll have to come back. You really have to do this.
Speaker 1: But I couldn't immediately record who said it? Tim, do
Speaker 1: you know anything about that?
Speaker 2: Industry funds typically don't offer this service. They have low fees.
Speaker 1: It's not typical.
Speaker 2: No, they don't. Having said that, retail fund Some retail
Speaker 2: funds do so. For instance, Colonial certainly offers it. So
Speaker 2: if you've got you know, a couple with various accounts
Speaker 2: or with their kids, you can link that family group
Speaker 2: and reduce your fees. So that optionality is there, But
Speaker 2: not across the board.
Speaker 1: Why don't they all do it? Is it too hard?
Speaker 2: Well? Industry funds evolved out of employment arrangements. You got
Speaker 2: into Australians because you worked in a particular industry sort
Speaker 2: of thing, so they were never family focused in that sense,
Speaker 2: whereas retail funds made more of an effort to sort
Speaker 2: of serve client groups.
Speaker 1: Do you think there's minimums on that?
Speaker 2: Yes, there is that one hundred percent, so that it's
Speaker 2: an encouragement to put more towards that platform. So it's
Speaker 2: linked to fun is there?
Speaker 1: Amum, Yeah, you don't know what it might be the tope. Okay,
Speaker 1: very good answer to thank you for that, and I
Speaker 1: imagine is you've got to answer their m round from
Speaker 1: Tim from me, which was very good. O.
Speaker 2: Key listener Carl has a wonderful question as well, So
Speaker 2: I'll read that one out. Whenever I buy or sell shares,
Speaker 2: I still receive by post a new holding statement in
Speaker 2: hard copy format. These are dispatched in the month following
Speaker 2: the relevant share transactions. I cannot see the purpose of
Speaker 2: these pieces of paper. They are not proof of current
Speaker 2: share ownership, as there may have been further share trades
Speaker 2: between the last end of month's statement cutoff and the
Speaker 2: current day. Have not computerized share registries accessible online, made
Speaker 2: shareholding statements redundant, just like hard copy bank statements.
Speaker 1: Good on your car. You really want to help those
Speaker 1: broker save money. It's really funny though, it's so true.
Speaker 1: I mean I get them too. They come in on
Speaker 1: the post I look at them, Oh this post Oh yeah,
Speaker 1: well I know that, you know I put them in
Speaker 1: the bin.
Speaker 2: Yeah, it does my head into I mean, if you
Speaker 2: think of the cost of the postage in the printing.
Speaker 2: But I'd put one caveat on that. There are some
Speaker 2: older investors who perhaps not as tech savy, who, if
Speaker 2: you think about it, you place your instructions or your
Speaker 2: orders through your broker. This is coming from a third party.
Speaker 2: This isn't coming from your broker, This is coming from
Speaker 2: the the the registries, right, so in some ways it's
Speaker 2: a third party confirmation of what you've done. Orbit coming
Speaker 2: not via pigeon, but carry pigeon fire the male the
Speaker 2: snail mail. So I think for some of the older
Speaker 2: clients they probably appreciate the validity of what. And to
Speaker 2: be honest, it's really hard to hack.
Speaker 1: Put them on a put them on a nail. What
Speaker 1: they used to call those fires that had the spike
Speaker 1: file exactly spike f parl.
Speaker 2: But it's pretty hard to hack a lesson.
Speaker 1: Yes, it's hard to hack a letter. And you made
Speaker 1: me think of something they're reading about the early days
Speaker 1: of wiki leaks and all that and how they operated
Speaker 1: and often how international clandestine groups do operate. But wikedis
Speaker 1: everyone thinking thinking of it in its day? I've been
Speaker 1: this sort of really interesting high tech. You know, they
Speaker 1: use the post, They use the post to correspond to
Speaker 1: each other. Good nothing beat of the computer, nohing beat
Speaker 1: the posts because because it wasn't intercepted, ah compared to
Speaker 1: over the internet. So there you are. So there is
Speaker 1: a sense to it, Carl. I'm sure the register's enough
Speaker 1: to stop it. I'm sure Australia Post would think it's
Speaker 1: a really good idea that we keep getting those vetters.
Speaker 1: But you can see that, you can see the sense
Speaker 1: of it, but a really good question. Thank you okay
Speaker 1: the last one from Lofty, big chopper, he asks.
Speaker 2: He thanks us for our great show. I have a
Speaker 2: question about tax in super I'm invested primarily in low
Speaker 2: cost index funds Australian and International through an industry superfund.
Speaker 2: I've heard recently that tax is worth held from returns
Speaker 2: to provide for future capital gains. Is this true? And
Speaker 2: would this not cause a measurable tax drag on the
Speaker 2: portfolio over the longer term, enough to make a mockery
Speaker 2: of all the squabbling about saving X basis points investing
Speaker 2: in this fund over this one. I've recently hit one
Speaker 2: hundred five hundred thousand dollars. Well done, and I'm wondering
Speaker 2: if I should start an SMSF to gain more control
Speaker 2: over what is sold and win. It is my understanding
Speaker 2: that if I don't sell anything until pension phase, there
Speaker 2: will be no capital gains tax to pay.
Speaker 1: Yes, okay, well, Lofty, couple of things there. Oh, First
Speaker 1: of all, you've got it all I think you've you've
Speaker 1: got it all right, and he has it squared up
Speaker 1: pretty accurately. Let me tell you something about all this.
Speaker 1: So this is how it goes. In the big industry funds,
Speaker 1: they do snip the ticket, not to step the ticket,
Speaker 1: but they collect what capital gains tax that you may
Speaker 1: be exposed for, and they collect it as you go,
Speaker 1: as the years go by, on the basis that they
Speaker 1: may somehow have to pay it someday. Now, someone awfully
Speaker 1: clever one time came up with this idea, and it
Speaker 1: is common in the big funds. When you go to retire.
Speaker 1: If you say, by the way, look thanks for everything,
Speaker 1: and I'm leaving the fund, they say, oh, that's a pity.
Speaker 1: Oh and also, by the way, we think collecting your
Speaker 1: potential tax capital gath gains tax liability and it's worth whatever.
Speaker 1: Let's pick a number. It's worth six thousand dollars. So
Speaker 1: if you leave us, unfortunately you won't be getting that.
Speaker 1: But if you stay, you'll get it. All perfectly legal,
Speaker 1: all perfectly sensible, and a ruse I reckon which works
Speaker 1: very well for keeping people in funds. It's controversial. I've
Speaker 1: tried to do something about it. I've tried to explain
Speaker 1: to people, I've written stories about it. But that's how
Speaker 1: it works.
Speaker 2: Yeah, it's a switching cost. Effectively, they're trying to make
Speaker 2: it's sticky to stay in their fund.
Speaker 1: Well, who's going to say, I'll tell you what, I
Speaker 1: don't want that six grand I'm going to leave. Who's
Speaker 1: going to say that.
Speaker 2: I mean just to put a caveat on that, in
Speaker 2: the sense that Australian super taxes at the fun level,
Speaker 2: not at the individual level. Right, So that's the key difference.
Speaker 2: Having said that industry funds right there is not I
Speaker 2: raised Australian supers because they and others have a memo
Speaker 2: direct option right where you can invest directly in your
Speaker 2: own shares, your own atfs and like, and in that
Speaker 2: option you do get the direct taxation implications of your
Speaker 2: own transactions. So even within industry funds, they have a
Speaker 2: service that mimics the same.
Speaker 1: Sort of well, but that would be a minority on
Speaker 1: tiny minority, but they're trying to mimic the benefits of
Speaker 1: a self managed super fund.
Speaker 2: So if you think taxation is going to be a
Speaker 2: key driver of your returns for whatever reason you might
Speaker 2: want to invest in a property that's going to have
Speaker 2: a substantial gain, then yes, the self managed super fund
Speaker 2: could be the option to derive some tax savings rather
Speaker 2: than an industry fund. Where you have no control over
Speaker 2: it whatsoever.
Speaker 1: The taxation of your super is hardly a reason to
Speaker 1: switch to SMSF.
Speaker 2: It's the toile wagon the dog if you think tax.
Speaker 1: Yeah, it's you know, if you want to do SMSF
Speaker 1: after you, you want to do it because you reckon
Speaker 1: you can do better than the funds and that you're
Speaker 1: pay less fees, that you'll be more nimble and reactive
Speaker 1: and have more control. And that might be the case,
Speaker 1: or it may not be the case. You're caught, Okay, terrific. Well,
Speaker 1: thank you very much, Tim McKay of Contum Financial for today.
Speaker 1: Lovely to see you, love you to have you in
Speaker 1: the studio.
Speaker 2: Thank you, James,