1 00:00:10,200 --> 00:00:13,080 Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm 2 00:00:13,160 --> 00:00:16,400 Speaker 1: James Kirby. Welcome aboard everybody. Now as an investor, you 3 00:00:16,480 --> 00:00:19,400 Speaker 1: will know that inflation has come back with a vengeance 4 00:00:19,480 --> 00:00:23,320 Speaker 1: really and that's why our interest rates had to be 5 00:00:23,640 --> 00:00:26,840 Speaker 1: raised last week, which was a surprise too many people. 6 00:00:27,360 --> 00:00:30,080 Speaker 1: And you know on the show recently Anna Shelley from 7 00:00:30,120 --> 00:00:33,040 Speaker 1: AMP made the same point that you know they are 8 00:00:33,120 --> 00:00:36,239 Speaker 1: working on the assumption, these professional investors, that inflation is 9 00:00:36,280 --> 00:00:39,839 Speaker 1: going to be remain high, consistently persistently high. If you like, 10 00:00:40,400 --> 00:00:43,440 Speaker 1: as they say about inflation, you can't put the toothpaste 11 00:00:43,440 --> 00:00:46,720 Speaker 1: back in the tube. So what are investors doing and 12 00:00:46,760 --> 00:00:50,800 Speaker 1: what are you doing about it? And gold would seem 13 00:00:50,800 --> 00:00:52,600 Speaker 1: to be what many people are doing right They're rushing 14 00:00:52,680 --> 00:00:55,160 Speaker 1: into gold. It's the hedge against inflation, the damn good 15 00:00:55,200 --> 00:00:58,200 Speaker 1: hedge against inflation, it would seem in recent times. But 16 00:00:58,240 --> 00:00:59,680 Speaker 1: I want to talk to you today about a much 17 00:00:59,680 --> 00:01:04,200 Speaker 1: why approach and my guest is Chris Brickey of the 18 00:01:04,240 --> 00:01:07,040 Speaker 1: stock spot Grooky. He has been on the show before 19 00:01:07,080 --> 00:01:09,880 Speaker 1: and stock Spot, if you don't know, is that it's 20 00:01:09,920 --> 00:01:15,360 Speaker 1: a robo advisor, basically automatic investing advisor, and when people 21 00:01:15,400 --> 00:01:18,800 Speaker 1: deal with that group, they largely have a portfolio of ETFs, 22 00:01:18,800 --> 00:01:21,679 Speaker 1: which Chris is something of a guru on and very 23 00:01:21,760 --> 00:01:24,000 Speaker 1: useful on that because he's not actually from the ETF 24 00:01:24,080 --> 00:01:27,240 Speaker 1: industry per se, so he's able to mix and match 25 00:01:27,319 --> 00:01:29,600 Speaker 1: ETFs and it gives us a very good sort of 26 00:01:29,600 --> 00:01:31,679 Speaker 1: helicopter view of the world. 27 00:01:32,000 --> 00:01:32,840 Speaker 2: How are you, Chris? 28 00:01:34,200 --> 00:01:36,120 Speaker 3: All right? Well, James, thanks for having me back. 29 00:01:36,319 --> 00:01:38,959 Speaker 1: You're braced now for this, are you? Because we're we 30 00:01:39,080 --> 00:01:44,600 Speaker 1: have on our topic list here private schools, Japan, gold inflation. 31 00:01:44,959 --> 00:01:46,600 Speaker 2: Is this going to wander around a bit. 32 00:01:46,480 --> 00:01:49,200 Speaker 3: Isn't it? It's quite a broad range of topics, quite 33 00:01:49,200 --> 00:01:49,640 Speaker 3: a broader. 34 00:01:49,480 --> 00:01:51,880 Speaker 1: Range topics that might worry someone else, But I'm sure 35 00:01:51,920 --> 00:01:52,720 Speaker 1: you'll be well ve for it. 36 00:01:52,760 --> 00:01:55,000 Speaker 2: Look, let's done in very quickly to what. 37 00:01:54,880 --> 00:01:59,040 Speaker 1: I want to deal with here, which is inflation and 38 00:01:59,080 --> 00:02:01,080 Speaker 1: the investor and what to do. 39 00:02:01,800 --> 00:02:04,040 Speaker 2: And many investors have. 40 00:02:04,080 --> 00:02:09,040 Speaker 1: No experience really about dealing with inflation unless they are 41 00:02:09,120 --> 00:02:12,840 Speaker 1: much older and can remember high inflation periods. And during 42 00:02:12,880 --> 00:02:16,280 Speaker 1: those periods, gold did serve very well and it is 43 00:02:16,320 --> 00:02:20,040 Speaker 1: serving very well now. But you have a much broader approach, 44 00:02:20,040 --> 00:02:24,720 Speaker 1: and your concern is that investors A aren't thinking about 45 00:02:24,760 --> 00:02:25,519 Speaker 1: it enough. B. 46 00:02:25,680 --> 00:02:26,960 Speaker 2: When they do think about it. 47 00:02:26,919 --> 00:02:31,320 Speaker 1: They think for income that they should go for high 48 00:02:31,400 --> 00:02:33,440 Speaker 1: and com producing higher dividend payers. 49 00:02:33,560 --> 00:02:35,679 Speaker 2: What's your approach here. 50 00:02:36,919 --> 00:02:39,120 Speaker 4: There's a bit to umpact there, but maybe kind of 51 00:02:39,160 --> 00:02:42,600 Speaker 4: looking at the macro first, James, I think inflation hasn't 52 00:02:42,639 --> 00:02:45,760 Speaker 4: been something investors have really had to concern themselves with 53 00:02:45,840 --> 00:02:48,440 Speaker 4: too much over the last twenty or so years. You know, 54 00:02:48,520 --> 00:02:51,360 Speaker 4: inflation has occasionally popped its head above three percent in 55 00:02:51,400 --> 00:02:54,160 Speaker 4: Australia and they're able to knock it back down pretty quickly, 56 00:02:54,160 --> 00:02:56,720 Speaker 4: and it's the same around the rest of the world. Now, 57 00:02:56,720 --> 00:02:59,799 Speaker 4: we had that big inflation spike after COVID in twenty 58 00:02:59,840 --> 00:03:02,600 Speaker 4: two twenty one twenty two, and inflation really jumped up, 59 00:03:02,919 --> 00:03:05,160 Speaker 4: but then it came back down in twenty twenty four 60 00:03:05,280 --> 00:03:07,400 Speaker 4: or so, and I think a lot of people were 61 00:03:07,400 --> 00:03:10,440 Speaker 4: relieved and hopeful that it would stay down and get 62 00:03:10,480 --> 00:03:13,799 Speaker 4: back under that three percent level. What we've seen, as 63 00:03:13,840 --> 00:03:15,680 Speaker 4: you sort of pointed out in the intro, is that 64 00:03:15,760 --> 00:03:18,560 Speaker 4: you can't get that toothpaste back in the bottle, and 65 00:03:18,840 --> 00:03:22,280 Speaker 4: inflation expectations are now anchored a bit higher and it's 66 00:03:22,320 --> 00:03:25,480 Speaker 4: becoming more difficult for central banks and governments to get 67 00:03:25,480 --> 00:03:28,000 Speaker 4: inflation back down. We're seeing that here in Australia and 68 00:03:28,040 --> 00:03:30,600 Speaker 4: it was why they had to raise interest rates recently 69 00:03:31,040 --> 00:03:34,000 Speaker 4: in the US as well. Interest rates you haven't gone 70 00:03:34,040 --> 00:03:36,320 Speaker 4: down as much as they would have if inflation had 71 00:03:36,320 --> 00:03:39,320 Speaker 4: come down further. And so I think investors are now 72 00:03:39,400 --> 00:03:42,480 Speaker 4: starting to reassess inflation as a risk. It's a different 73 00:03:42,520 --> 00:03:45,640 Speaker 4: type of risk to market volatility risk or other risks 74 00:03:45,680 --> 00:03:48,520 Speaker 4: that we are a lot more used to. Inflation risk 75 00:03:48,680 --> 00:03:51,240 Speaker 4: is the risk that you're purchasing power will be eroded 76 00:03:51,240 --> 00:03:53,760 Speaker 4: more quickly, and you've got to then think about what 77 00:03:53,760 --> 00:03:56,920 Speaker 4: are the sorts of assets in a portfolio that can 78 00:03:57,000 --> 00:04:01,520 Speaker 4: protect you against that purchasing power loss. And so I've 79 00:04:01,520 --> 00:04:03,720 Speaker 4: done a bit of research looking back in history at 80 00:04:03,720 --> 00:04:08,160 Speaker 4: what assets have historically done better in those environments. And 81 00:04:08,240 --> 00:04:10,360 Speaker 4: it doesn't mean inflations, you know, it has to be 82 00:04:10,440 --> 00:04:14,360 Speaker 4: always high. I think it's in environments where inflation is 83 00:04:14,880 --> 00:04:18,200 Speaker 4: in a secular up trend or in a level more 84 00:04:18,240 --> 00:04:22,159 Speaker 4: consistently over three percent. And what history shows is in 85 00:04:22,200 --> 00:04:26,080 Speaker 4: those environments, bonds, which are typically the diversifier a lot 86 00:04:26,080 --> 00:04:29,280 Speaker 4: of investors have in their portfolios, don't do very well. 87 00:04:29,320 --> 00:04:33,320 Speaker 4: As a diversifier. So when markets become volatile, it's often 88 00:04:33,360 --> 00:04:36,400 Speaker 4: because inflation is pepped up, and that's when bonds are 89 00:04:36,400 --> 00:04:39,800 Speaker 4: selling off as well. And so a traditional sixty percent 90 00:04:39,839 --> 00:04:43,640 Speaker 4: shares and forty percent bond portfolio just doesn't provide that 91 00:04:43,760 --> 00:04:45,239 Speaker 4: level of downside protection. 92 00:04:45,360 --> 00:04:47,039 Speaker 3: And when markets. 93 00:04:46,600 --> 00:04:48,960 Speaker 4: Fall like we saw in twenty twenty two, bonds tend 94 00:04:49,040 --> 00:04:51,200 Speaker 4: to fall as well, and so you don't actually see 95 00:04:51,240 --> 00:04:54,400 Speaker 4: that cushion. And so in those sorts of environments, interestingly, 96 00:04:55,440 --> 00:04:58,160 Speaker 4: we haven't truly seen one since the nineteen seventy. 97 00:04:57,960 --> 00:05:00,280 Speaker 1: So CHRISTI also can I just say for the people 98 00:05:00,279 --> 00:05:03,040 Speaker 1: who may not have bonds, though obviously if you've got 99 00:05:03,040 --> 00:05:05,760 Speaker 1: big super folks don't worry about that they've got bonds, 100 00:05:05,760 --> 00:05:10,120 Speaker 1: but independent investor you may not have, it's just as 101 00:05:10,120 --> 00:05:13,040 Speaker 1: applicable to cash. I imagine that that argument is it. 102 00:05:14,360 --> 00:05:15,719 Speaker 3: A little bit less. So with cash. 103 00:05:15,720 --> 00:05:18,880 Speaker 4: The benefit of bonds is when share markets fall, it's 104 00:05:18,920 --> 00:05:22,159 Speaker 4: typically because the economy's you know, turning down or things 105 00:05:22,200 --> 00:05:25,360 Speaker 4: are getting tougher, and then central banks cut interest rates. 106 00:05:25,440 --> 00:05:28,120 Speaker 4: Now bonds tend to go up when interest rates are 107 00:05:28,160 --> 00:05:31,799 Speaker 4: going down, and so bonds not only you know, protect 108 00:05:31,839 --> 00:05:34,040 Speaker 4: you from the market volatility like cash would, but they 109 00:05:34,040 --> 00:05:37,080 Speaker 4: actually give you it extra return. So cash will obviously 110 00:05:37,120 --> 00:05:39,800 Speaker 4: stay stable when markets fall, but bonds give you a 111 00:05:39,800 --> 00:05:42,039 Speaker 4: bit of an extra kicker historically. 112 00:05:42,720 --> 00:05:47,159 Speaker 1: Just to simplify it for a moment, with this inflation, folks, 113 00:05:47,200 --> 00:05:49,839 Speaker 1: with it's three percent or creeping up towards four percent, 114 00:05:50,400 --> 00:05:52,800 Speaker 1: and you must. But when Chris is talking about historical periods, 115 00:05:52,839 --> 00:05:55,120 Speaker 1: he's talking about periods for it was seven, eight, nine, ten, 116 00:05:55,200 --> 00:05:58,440 Speaker 1: eleven percent, and that's entirely feasible at any given time 117 00:05:58,480 --> 00:06:00,640 Speaker 1: in history, and in the future, we don't know what 118 00:06:00,720 --> 00:06:03,680 Speaker 1: will happen, but it would not be unprecedented. But in 119 00:06:03,720 --> 00:06:08,120 Speaker 1: those environments, Chris, the issue is that cash is hopeless, 120 00:06:08,200 --> 00:06:10,600 Speaker 1: right if there's inflation, Like if you're getting three or 121 00:06:10,640 --> 00:06:12,839 Speaker 1: four percent on your cash and inflation is four percent, 122 00:06:12,960 --> 00:06:15,520 Speaker 1: guess what, You're actually not making any money. You're actually 123 00:06:15,520 --> 00:06:18,919 Speaker 1: going backwards. So we must seek better returns. Is that 124 00:06:18,920 --> 00:06:20,640 Speaker 1: what you're saying, you must get higher returns with this 125 00:06:20,760 --> 00:06:21,359 Speaker 1: higher inflation. 126 00:06:22,080 --> 00:06:24,000 Speaker 4: Well, that's right, and I think listeners also have to 127 00:06:24,000 --> 00:06:26,599 Speaker 4: be aware that inflation is a rate of change year 128 00:06:26,640 --> 00:06:29,320 Speaker 4: on year, and so it is typical in periods where 129 00:06:29,400 --> 00:06:32,640 Speaker 4: inflation is structurally higher that it spikes up and then 130 00:06:32,720 --> 00:06:35,240 Speaker 4: falls back like we saw in twenty twenty one to 131 00:06:35,279 --> 00:06:38,040 Speaker 4: twenty twenty four, because it's looking over a one year 132 00:06:38,160 --> 00:06:41,080 Speaker 4: rate of change. But if you think about your grocery 133 00:06:41,120 --> 00:06:43,920 Speaker 4: prices now or electricity prices now, they're much higher than 134 00:06:43,960 --> 00:06:47,080 Speaker 4: they wear in twenty nineteen, and that's because many years 135 00:06:47,120 --> 00:06:49,919 Speaker 4: of compounding inflation at higher rates leads to a higher 136 00:06:49,920 --> 00:06:53,119 Speaker 4: price level. I think people often get tricked into thinking, okay, 137 00:06:53,160 --> 00:06:56,479 Speaker 4: inflations come down, therefore prices have come down. It doesn't 138 00:06:56,480 --> 00:06:58,840 Speaker 4: actually mean prices have come down, It just means they've 139 00:06:58,920 --> 00:07:00,440 Speaker 4: leveled off on year. 140 00:07:01,320 --> 00:07:07,479 Speaker 1: And historically, then what did people do successful investors do 141 00:07:07,600 --> 00:07:08,640 Speaker 1: when there was high inflation? 142 00:07:08,720 --> 00:07:10,440 Speaker 2: And are those rules applicable now? 143 00:07:11,920 --> 00:07:14,840 Speaker 4: So historically in those periods, James, there's a few asset 144 00:07:14,960 --> 00:07:18,239 Speaker 4: classes that have tend to do much better than shares 145 00:07:18,320 --> 00:07:21,320 Speaker 4: or bonds or cash for that matter, and those have 146 00:07:21,480 --> 00:07:25,320 Speaker 4: been commodities, you know, particularly gold, but commodities in general, 147 00:07:25,400 --> 00:07:28,560 Speaker 4: including oil as well, tends to do better when inflation's higher. 148 00:07:29,080 --> 00:07:32,920 Speaker 4: Resources shares so companies like BHP and RIO and Woodside 149 00:07:33,360 --> 00:07:37,640 Speaker 4: inflation link bonds is the other one. And infrastructure because 150 00:07:37,680 --> 00:07:40,880 Speaker 4: typically within the infrastructure contracts, they have the ability to 151 00:07:40,920 --> 00:07:43,880 Speaker 4: increase prices by inflation, like you'd see with your toll 152 00:07:43,960 --> 00:07:48,160 Speaker 4: roads every year, and so a portfolio that contains those 153 00:07:48,200 --> 00:07:51,680 Speaker 4: sorts of assets historically would have done better in periods 154 00:07:51,720 --> 00:07:55,560 Speaker 4: when inflation's higher. And you mentioned our inflation portfolio. They're 155 00:07:55,680 --> 00:07:59,600 Speaker 4: the assets that portfolio is geared towards. They're typically known 156 00:07:59,640 --> 00:08:02,640 Speaker 4: as real assets or hard assets, and those are the 157 00:08:02,720 --> 00:08:05,000 Speaker 4: assets that tend to hold their value, and we're starting 158 00:08:05,000 --> 00:08:06,000 Speaker 4: to see that at the moment. 159 00:08:07,240 --> 00:08:10,960 Speaker 1: So I would have thought, I'm sure many investors think, okay, well, 160 00:08:11,000 --> 00:08:13,520 Speaker 1: I for income, am I going to need more income? 161 00:08:13,520 --> 00:08:16,400 Speaker 1: Am I going to need better dividends? And they're going 162 00:08:16,440 --> 00:08:19,080 Speaker 1: to have to be higher? And I need companies and 163 00:08:19,120 --> 00:08:22,160 Speaker 1: shares if they have a if their dividends are growing 164 00:08:22,200 --> 00:08:28,240 Speaker 1: faster than inflation, then I'm okay, But do you challenge 165 00:08:28,240 --> 00:08:29,600 Speaker 1: that theory to some degree? 166 00:08:30,640 --> 00:08:33,319 Speaker 4: Look, I think dividends can be useful, and definitely Australian 167 00:08:33,360 --> 00:08:36,160 Speaker 4: investors love their dividends. But I think the point that 168 00:08:36,240 --> 00:08:39,360 Speaker 4: investors need to remember is that income and capital growth 169 00:08:39,400 --> 00:08:41,640 Speaker 4: are really just two sides of the same coin, and 170 00:08:42,000 --> 00:08:44,880 Speaker 4: at any point, both you as an investor and companies 171 00:08:44,920 --> 00:08:48,840 Speaker 4: can turn one into another. They're interchangeable, so's magic. It's 172 00:08:48,880 --> 00:08:51,400 Speaker 4: just your own money coming back to you, and you 173 00:08:51,440 --> 00:08:54,439 Speaker 4: can essentially replicate that by selling part of your portfolio 174 00:08:54,520 --> 00:08:57,040 Speaker 4: each year. So if you imagine you had a portfolio 175 00:08:57,120 --> 00:08:59,960 Speaker 4: with no dividends that was growing ten percent a year, 176 00:09:00,240 --> 00:09:03,840 Speaker 4: you could easily sell five percent to generate those dividends. 177 00:09:04,160 --> 00:09:06,360 Speaker 4: I think in Australia there's a bit of an obsession 178 00:09:06,440 --> 00:09:09,440 Speaker 4: with dividends and it leads to sometimes people taking too 179 00:09:09,520 --> 00:09:13,200 Speaker 4: much risk because they concentrate their portfolio in companies that 180 00:09:13,240 --> 00:09:16,960 Speaker 4: have higher paybacks, and then they may be actually missing 181 00:09:17,000 --> 00:09:20,199 Speaker 4: out on assets like let's say gold that doesn't pay 182 00:09:20,200 --> 00:09:23,040 Speaker 4: a dividend, but even technology shares in the US is 183 00:09:23,080 --> 00:09:26,319 Speaker 4: a great example. These are businesses that have been reinvesting 184 00:09:26,360 --> 00:09:29,120 Speaker 4: into R and D rather than paying dividends, and they've done, 185 00:09:29,480 --> 00:09:30,760 Speaker 4: you know, fantastically as well. 186 00:09:30,800 --> 00:09:33,040 Speaker 1: Yes, so you apart like gold, for instance, I think 187 00:09:33,040 --> 00:09:35,040 Speaker 1: you can go way back decades and it's nine percent 188 00:09:35,080 --> 00:09:36,480 Speaker 1: a year, so you could say, all right, it doesn't 189 00:09:36,520 --> 00:09:39,640 Speaker 1: pay income, but actually it raises nine percent a year, 190 00:09:39,800 --> 00:09:41,719 Speaker 1: and if it rises nine percent a year, you can 191 00:09:41,760 --> 00:09:43,240 Speaker 1: sell off. Is that what you mean at the end 192 00:09:43,280 --> 00:09:44,800 Speaker 1: of every year you can take your you can make 193 00:09:44,800 --> 00:09:45,800 Speaker 1: your own dividend out of it. 194 00:09:45,880 --> 00:09:46,600 Speaker 2: Is that your point? 195 00:09:46,679 --> 00:09:47,240 Speaker 3: Yeah, that's right. 196 00:09:47,320 --> 00:09:50,080 Speaker 4: So even forgetting the fact that gold's tripled over the 197 00:09:50,160 --> 00:09:53,240 Speaker 4: last couple of years, and so it's returns are really increased. 198 00:09:53,240 --> 00:09:55,800 Speaker 4: If you look back thirty years up until twenty twenty three, 199 00:09:55,880 --> 00:09:58,640 Speaker 4: it had generated returns in US dollar terms of eight 200 00:09:58,679 --> 00:10:01,760 Speaker 4: percent perannum. And so yeah, you can take out your 201 00:10:01,760 --> 00:10:04,040 Speaker 4: four percent of gold, but take it out from a 202 00:10:04,040 --> 00:10:06,920 Speaker 4: capital perspective, I mean, one of the benefits of actually 203 00:10:06,960 --> 00:10:10,400 Speaker 4: generating less income is that you end up paying less tax. 204 00:10:10,440 --> 00:10:12,600 Speaker 4: You only pay tax when you sell the capital. 205 00:10:12,280 --> 00:10:13,599 Speaker 3: Component of your portfolio. 206 00:10:13,880 --> 00:10:16,840 Speaker 4: So I know a lot of retiree listeners wouldn't mind 207 00:10:16,840 --> 00:10:19,040 Speaker 4: as much if they're in a tax free environment, but 208 00:10:19,360 --> 00:10:23,160 Speaker 4: certainly for younger investors if they're in their working years. Actually, 209 00:10:23,240 --> 00:10:25,280 Speaker 4: you want less dividends because you don't want to be 210 00:10:25,320 --> 00:10:28,160 Speaker 4: paying tax every year. You want those returns to be compounding. 211 00:10:28,640 --> 00:10:32,360 Speaker 1: Okay, and just tell us briefly, Topaz t your pa 212 00:10:32,520 --> 00:10:35,000 Speaker 1: z you're what is that? It's a kind of a 213 00:10:35,080 --> 00:10:37,080 Speaker 1: tiery you have or an approach. 214 00:10:38,600 --> 00:10:41,240 Speaker 4: Also, Topaz is the name of our high risk, high 215 00:10:41,240 --> 00:10:43,960 Speaker 4: growth portfolios. And we have a few different tilts to 216 00:10:44,000 --> 00:10:46,320 Speaker 4: this portfolio. The one we've been talking about is the 217 00:10:46,320 --> 00:10:49,680 Speaker 4: inflation version of it, which is more geared towards hard assets. 218 00:10:49,720 --> 00:10:51,079 Speaker 2: So tell us what's in that, Chris. 219 00:10:52,440 --> 00:10:55,960 Speaker 4: So in that portfolio, it has a bunch of different ETFs, 220 00:10:56,200 --> 00:10:58,920 Speaker 4: so we only use ETFs in our portfolio, and it 221 00:10:59,000 --> 00:11:03,440 Speaker 4: has eight different e It has Australian resource shares, it 222 00:11:03,480 --> 00:11:07,800 Speaker 4: has global gold miners, it has emerging market shares, it 223 00:11:07,840 --> 00:11:12,120 Speaker 4: has physical silver, It has a commodity futures ETF, so 224 00:11:12,160 --> 00:11:15,120 Speaker 4: it invests in a whole bunch of different commodities, and 225 00:11:15,160 --> 00:11:18,840 Speaker 4: it has global infrastructure, so they're the growth assets. And 226 00:11:18,880 --> 00:11:22,280 Speaker 4: on the defensive side, it has inflation protected bonds, so 227 00:11:22,320 --> 00:11:26,080 Speaker 4: these are bonds that we also protect you against inflation, which. 228 00:11:25,880 --> 00:11:27,880 Speaker 1: Is exactly what you mentioned at the start of the show. 229 00:11:27,960 --> 00:11:30,400 Speaker 1: The only bit I can't well say I can't reconcile it, 230 00:11:30,440 --> 00:11:34,360 Speaker 1: but the listener might say, better's emerging markets fit in there. 231 00:11:35,440 --> 00:11:38,760 Speaker 4: So emerging markets is an interesting asset class. You know, 232 00:11:38,800 --> 00:11:41,920 Speaker 4: they've done actually quite poorly compared to US shares over 233 00:11:41,960 --> 00:11:45,640 Speaker 4: the last decade, and that's because inflation has been relatively low. 234 00:11:45,960 --> 00:11:49,960 Speaker 4: But in emerging markets tend to have more exposure to commodities, 235 00:11:50,360 --> 00:11:53,560 Speaker 4: and they tend historically to do better when inflation is 236 00:11:53,679 --> 00:11:57,160 Speaker 4: higher and also when the US dollar is weaker, which is. 237 00:11:57,800 --> 00:11:59,920 Speaker 1: I see, what do they do better? I can see 238 00:12:00,160 --> 00:12:02,079 Speaker 1: the dollar, but why do they do better when inflation 239 00:12:02,200 --> 00:12:02,680 Speaker 1: is higher? 240 00:12:03,120 --> 00:12:04,400 Speaker 3: I mean, there's a few different reasons. 241 00:12:04,440 --> 00:12:06,880 Speaker 4: Part of it is also that a lot of their 242 00:12:07,000 --> 00:12:10,480 Speaker 4: debt is denominated in US dollars, so when there's higher inflation, 243 00:12:10,679 --> 00:12:14,240 Speaker 4: they're inflating their way out of their debt burden. So yeah, 244 00:12:14,280 --> 00:12:16,960 Speaker 4: there's a few reasons why there's quite a positive correlation 245 00:12:17,120 --> 00:12:20,280 Speaker 4: between emerging markets and if you think of economies like 246 00:12:20,440 --> 00:12:22,840 Speaker 4: China and India, but also some of the big oil 247 00:12:22,880 --> 00:12:26,679 Speaker 4: countries and commodity countries like Brazil or Saudi Arabia, they 248 00:12:27,400 --> 00:12:30,559 Speaker 4: they tend to do well when inflation is higher. 249 00:12:30,320 --> 00:12:33,080 Speaker 3: Compared to developed markets like the US. 250 00:12:33,320 --> 00:12:34,560 Speaker 2: Okay, well, take a short break. 251 00:12:34,600 --> 00:12:37,640 Speaker 1: I want to talk to Chris about gold, and again 252 00:12:38,160 --> 00:12:41,800 Speaker 1: he has some very distinct views about gold and something 253 00:12:41,800 --> 00:12:45,080 Speaker 1: that you should be aware of if you don't have 254 00:12:45,160 --> 00:12:57,000 Speaker 1: any Hello, Welcome back to the Australian's Money Puzzle podcast. 255 00:12:57,080 --> 00:13:00,559 Speaker 1: James Kobe here with Chris Brickey of the Stocks Art Group. 256 00:13:01,520 --> 00:13:01,840 Speaker 2: Chris. 257 00:13:01,880 --> 00:13:04,920 Speaker 1: We were talking about inflation and I really like the 258 00:13:04,960 --> 00:13:07,560 Speaker 1: way you've broadened it out, folks. And he talked about 259 00:13:08,200 --> 00:13:12,960 Speaker 1: infrastructure for instance, and again that that's a well worn theory. Obviously, 260 00:13:13,000 --> 00:13:17,160 Speaker 1: the infrastructure. The attraction obviously is that they are their 261 00:13:17,200 --> 00:13:20,360 Speaker 1: prices are linked with inflation. We have less infrastructure stocks 262 00:13:20,400 --> 00:13:22,480 Speaker 1: than we used to, but there are other ways into it. 263 00:13:22,960 --> 00:13:26,120 Speaker 1: You also talked about emerging markets, You talked about gold, 264 00:13:26,720 --> 00:13:30,520 Speaker 1: You talked about commodities and commodity and miners, interestingly, the 265 00:13:30,559 --> 00:13:33,880 Speaker 1: actual miners, not just the commodities, which again takes us 266 00:13:33,880 --> 00:13:36,439 Speaker 1: back to REO and PHP and many other miners when 267 00:13:36,480 --> 00:13:39,960 Speaker 1: we've had some shows talking about miners of late and 268 00:13:40,040 --> 00:13:43,480 Speaker 1: gold mining in particular. And you talked about inflation link bonds, 269 00:13:43,480 --> 00:13:46,160 Speaker 1: so very interesting. I like that part of the portfolio. 270 00:13:46,280 --> 00:13:49,040 Speaker 1: Let's take a quick look at gold. You said to 271 00:13:49,080 --> 00:13:53,600 Speaker 1: me recently something very interesting. You said that you think 272 00:13:55,080 --> 00:13:57,240 Speaker 1: for most Australian investors, if they're in a big fund 273 00:13:58,200 --> 00:14:00,800 Speaker 1: as opposed to a self managed superfund, chances are that 274 00:14:00,840 --> 00:14:04,120 Speaker 1: fund manager has missed the whole gold rally and doesn't 275 00:14:04,120 --> 00:14:06,400 Speaker 1: have gold. And then I can't remember what your right, 276 00:14:06,440 --> 00:14:08,720 Speaker 1: So when I said to you, and you prove it, 277 00:14:09,360 --> 00:14:10,439 Speaker 1: what did you say. 278 00:14:11,240 --> 00:14:12,719 Speaker 4: Prove that they don't have gold? I mean, I think 279 00:14:12,720 --> 00:14:14,920 Speaker 4: some of them have openly said they don't own gold. 280 00:14:14,960 --> 00:14:16,640 Speaker 2: So, by the way, I'm not doubting you. I'm just 281 00:14:16,679 --> 00:14:17,400 Speaker 2: trying to recall. 282 00:14:17,520 --> 00:14:21,760 Speaker 1: I'm trying to recall for how you come to that conclusion. Okay, 283 00:14:21,800 --> 00:14:23,200 Speaker 1: so some of them have said we don't. I think 284 00:14:23,200 --> 00:14:25,600 Speaker 1: it was that John Pierce said he didn't even like 285 00:14:25,680 --> 00:14:26,960 Speaker 1: it as a we wouldn't have it. 286 00:14:27,040 --> 00:14:27,480 Speaker 2: Is that right? 287 00:14:27,600 --> 00:14:28,200 Speaker 3: Yeah, that's right. 288 00:14:28,240 --> 00:14:31,920 Speaker 4: In twenty twenty so gold was trading about a third 289 00:14:31,960 --> 00:14:33,960 Speaker 4: the price it is today. He came out and said 290 00:14:33,960 --> 00:14:36,040 Speaker 4: that he doesn't believe in it as an asset class 291 00:14:36,040 --> 00:14:38,480 Speaker 4: because it doesn't generate any income, which takes. 292 00:14:38,360 --> 00:14:39,680 Speaker 3: Us back to our last conversation. 293 00:14:40,080 --> 00:14:42,760 Speaker 2: That was unisuper, that was uni super so. 294 00:14:42,840 --> 00:14:44,840 Speaker 3: The CIO yes. 295 00:14:44,640 --> 00:14:47,360 Speaker 1: And that might be typical. Perhaps they didn't like it. 296 00:14:47,440 --> 00:14:49,960 Speaker 1: They told us the old thing, the barbarous relic. They 297 00:14:50,000 --> 00:14:53,320 Speaker 1: couldn't judge it. It didn't have income. Do you think that's 298 00:14:53,360 --> 00:14:54,800 Speaker 1: still the case that a lot of the big funds 299 00:14:54,840 --> 00:14:55,560 Speaker 1: don't have gold. 300 00:14:56,720 --> 00:14:59,040 Speaker 4: Well, I mean, more than anything, I think it's two things, James. 301 00:14:59,080 --> 00:15:01,240 Speaker 4: One is return chasing. You know, big funds and a 302 00:15:01,240 --> 00:15:04,320 Speaker 4: lot of asset allocators tend to chase returns, and gold 303 00:15:04,360 --> 00:15:07,440 Speaker 4: had a bad decade, and so they really saw no 304 00:15:07,560 --> 00:15:09,840 Speaker 4: need to be in the asset class and they didn't kind. 305 00:15:09,760 --> 00:15:10,480 Speaker 3: Of look forward. 306 00:15:10,840 --> 00:15:12,560 Speaker 4: I think as well, there's a bit of a conflict 307 00:15:12,560 --> 00:15:14,960 Speaker 4: within the big super funds in that a lot of 308 00:15:15,040 --> 00:15:17,880 Speaker 4: them that rely on the advice of asset consultants, and 309 00:15:18,000 --> 00:15:20,800 Speaker 4: asset consultants tend to hate gold. You know, all of 310 00:15:20,800 --> 00:15:23,320 Speaker 4: the ones I've been involved in or seen really have 311 00:15:23,440 --> 00:15:26,440 Speaker 4: recommended not having an allocation to gold. Part of that, 312 00:15:26,480 --> 00:15:31,000 Speaker 4: I believe is because they're really paid to analyze funds 313 00:15:31,000 --> 00:15:33,600 Speaker 4: within an asset class. That's that's one of the primary 314 00:15:33,720 --> 00:15:37,640 Speaker 4: roles of an asset allocator and an asset consultant, and 315 00:15:37,720 --> 00:15:40,080 Speaker 4: if there's no funds to allocate and they're simply saying 316 00:15:40,160 --> 00:15:43,400 Speaker 4: plank ten or fifteen percent into gold, then it really 317 00:15:43,680 --> 00:15:45,200 Speaker 4: negates their role as. 318 00:15:45,040 --> 00:15:46,040 Speaker 3: An asset consultant. 319 00:15:46,040 --> 00:15:48,480 Speaker 4: So I think there's a conflict in the industry that 320 00:15:48,640 --> 00:15:51,280 Speaker 4: leads to assets like gold that are ultimately very liquid 321 00:15:51,320 --> 00:15:53,440 Speaker 4: and low cost from getting ignored as well. 322 00:15:53,480 --> 00:15:56,320 Speaker 1: There's certainly liquid yes, yeah, and tell me I ask 323 00:15:56,400 --> 00:15:58,440 Speaker 1: everyone on the shore this this is very much the 324 00:15:58,560 --> 00:16:00,000 Speaker 1: issue de jure gold. 325 00:16:00,040 --> 00:16:01,240 Speaker 2: Did you have it? How much did you have? 326 00:16:02,480 --> 00:16:06,200 Speaker 1: What do you think for the independent investor listening to 327 00:16:06,240 --> 00:16:10,120 Speaker 1: this show? Is there a portfolio allocation of gold that 328 00:16:10,160 --> 00:16:12,960 Speaker 1: you think is required or sensible? 329 00:16:14,240 --> 00:16:14,480 Speaker 2: Yes? 330 00:16:14,520 --> 00:16:14,920 Speaker 3: There is. 331 00:16:14,960 --> 00:16:18,240 Speaker 4: So since we've existed the last twelve years, we've always 332 00:16:18,320 --> 00:16:21,200 Speaker 4: had between a ten and fifteen percent allocation. So at 333 00:16:21,240 --> 00:16:23,560 Speaker 4: it's lowest point at ten percent for. 334 00:16:23,600 --> 00:16:26,000 Speaker 2: Ten years ago, that was high, wasn't it? 335 00:16:26,040 --> 00:16:26,280 Speaker 3: Well? 336 00:16:26,520 --> 00:16:28,640 Speaker 4: It was, but I mean over ten years it's tripled 337 00:16:28,640 --> 00:16:30,880 Speaker 4: and it's done better than any other asset class. And 338 00:16:30,960 --> 00:16:34,160 Speaker 4: so the way we got to that range, James, is 339 00:16:34,680 --> 00:16:37,520 Speaker 4: in the analysis I did in terms of looking at 340 00:16:37,880 --> 00:16:41,640 Speaker 4: gold's ability to diversify and reduce risk in a portfolio. 341 00:16:41,920 --> 00:16:44,800 Speaker 4: It was clear that in some environments it doesn't add 342 00:16:44,800 --> 00:16:47,360 Speaker 4: a lot of value, particularly when inflation is low. Bonds 343 00:16:47,400 --> 00:16:50,200 Speaker 4: and chairs tend to do fine. But actually it's a 344 00:16:50,240 --> 00:16:53,880 Speaker 4: fantastic insurance policy for periods when those asset classes don't 345 00:16:53,880 --> 00:16:56,440 Speaker 4: do well. So it's part of your portfolio that there 346 00:16:56,480 --> 00:16:59,200 Speaker 4: will be long stretches maybe even decades, or it doesn't 347 00:16:59,200 --> 00:17:02,680 Speaker 4: do well. Nineteen seventies was a wonderful example. Over ten 348 00:17:02,800 --> 00:17:05,720 Speaker 4: years that went up by twentyfold, and over those ten 349 00:17:05,800 --> 00:17:10,800 Speaker 4: years shares and bonds added no returns from a real sense, and. 350 00:17:10,760 --> 00:17:12,159 Speaker 2: Then it fell nearly fifty percent. 351 00:17:12,200 --> 00:17:15,800 Speaker 4: Chris, Absolutely, then it fell more than fifty percent, like 352 00:17:15,840 --> 00:17:17,439 Speaker 4: eighty percent I think in real terms. 353 00:17:17,480 --> 00:17:21,640 Speaker 2: So people need to be alert to that outter it's and. 354 00:17:21,640 --> 00:17:24,200 Speaker 4: I think that goes to James White. Shouldn't be eighty 355 00:17:24,200 --> 00:17:26,800 Speaker 4: percent of your faulty or fifty percent because it is 356 00:17:26,840 --> 00:17:29,560 Speaker 4: going to go through long periods of you know, high 357 00:17:29,680 --> 00:17:32,879 Speaker 4: growth and then you know, really you know, as markets changed, 358 00:17:32,920 --> 00:17:35,879 Speaker 4: it's going to fall as well. But I think it 359 00:17:35,920 --> 00:17:39,480 Speaker 4: is quite risky not having an allocation at all, because 360 00:17:39,520 --> 00:17:42,240 Speaker 4: it means that if you're only exposed to assets like 361 00:17:42,359 --> 00:17:44,919 Speaker 4: shares and bonds and cash, you could go through a 362 00:17:44,960 --> 00:17:46,440 Speaker 4: decade of no returns. 363 00:17:46,600 --> 00:17:48,600 Speaker 1: Do you include gold miners within that. 364 00:17:50,040 --> 00:17:50,560 Speaker 2: Percentage? 365 00:17:50,600 --> 00:17:53,359 Speaker 4: Gold miners are interesting because they obviously the gold price 366 00:17:53,440 --> 00:17:55,840 Speaker 4: is a big driver of when you. 367 00:17:55,760 --> 00:17:57,720 Speaker 1: Were talking about the percent of ten to fifteen percent, 368 00:17:58,119 --> 00:18:00,520 Speaker 1: Would gold miners fit in the ten to fifteen or 369 00:18:00,600 --> 00:18:01,119 Speaker 1: is it bullion? 370 00:18:01,680 --> 00:18:02,280 Speaker 3: No, not at all. 371 00:18:02,320 --> 00:18:05,359 Speaker 4: So this is bullion held within an eighty billion that's 372 00:18:05,680 --> 00:18:08,600 Speaker 4: stored in a volt gold mine is are different. They 373 00:18:08,680 --> 00:18:10,960 Speaker 4: have some you know, they often move in the same 374 00:18:11,000 --> 00:18:13,439 Speaker 4: direction as gold, but margins and the oil price and 375 00:18:13,480 --> 00:18:15,879 Speaker 4: other factors drive them, so it's less clean. 376 00:18:16,200 --> 00:18:19,879 Speaker 1: Yeah, and one more thing on gold, again a recurrent question. 377 00:18:20,800 --> 00:18:23,720 Speaker 2: I've yet to get it answer. I'm happy with on gold. 378 00:18:25,000 --> 00:18:26,760 Speaker 1: If the theory is and it's not just the theory, 379 00:18:26,840 --> 00:18:29,200 Speaker 1: it's been the case for decades, for generations. 380 00:18:29,760 --> 00:18:32,200 Speaker 2: If gold is a non correlated assets which we. 381 00:18:32,160 --> 00:18:34,159 Speaker 1: Can depend on to go up when things when the 382 00:18:34,160 --> 00:18:37,199 Speaker 1: rest sort of goes down, and if it's been rising 383 00:18:38,119 --> 00:18:41,679 Speaker 1: and it's been accelerating, the rise has accelerated in recent years, 384 00:18:42,040 --> 00:18:45,320 Speaker 1: but there's nothing wrong with the markets. Is there a 385 00:18:45,400 --> 00:18:48,040 Speaker 1: danger that it has become correlated to the markets, And 386 00:18:48,080 --> 00:18:50,080 Speaker 1: then is there a danger that if the markets fall, 387 00:18:50,119 --> 00:18:53,159 Speaker 1: it would not do with traditional job of giving us 388 00:18:53,240 --> 00:18:55,120 Speaker 1: something that goes up when everything else goes down. 389 00:18:55,880 --> 00:18:57,080 Speaker 3: I think that's a great question. 390 00:18:57,320 --> 00:19:00,080 Speaker 4: And yeah, one that I'm always focused on is looking 391 00:19:00,119 --> 00:19:03,160 Speaker 4: at the correlations between the different assets in our portfolios. 392 00:19:03,480 --> 00:19:05,760 Speaker 4: And yeah, like you say, one of the benefits gold 393 00:19:05,840 --> 00:19:09,120 Speaker 4: had was not that it had zero correlation. It usually 394 00:19:09,119 --> 00:19:13,480 Speaker 4: has a negative correlation with Australian shares, However, what's important 395 00:19:13,480 --> 00:19:16,440 Speaker 4: to recognize is correlations are always changing because the market 396 00:19:16,480 --> 00:19:20,359 Speaker 4: dynamics always changing, and so something we noticed towards the 397 00:19:20,440 --> 00:19:23,359 Speaker 4: end of last year is exactly what you've mentioned, that 398 00:19:23,440 --> 00:19:28,200 Speaker 4: the correlation between gold and equities actually turned positive, and likewise, 399 00:19:28,280 --> 00:19:31,600 Speaker 4: bonds and shares correlation has been positive. And this is 400 00:19:31,640 --> 00:19:34,480 Speaker 4: a bit of a concern because if all risk assets 401 00:19:34,520 --> 00:19:36,560 Speaker 4: are moving in the same direction at the same time, 402 00:19:36,600 --> 00:19:39,760 Speaker 4: including gold, then absolutely they could be a period where 403 00:19:39,760 --> 00:19:42,119 Speaker 4: they all sell off together and maybe US dollars is 404 00:19:42,119 --> 00:19:45,040 Speaker 4: where you want to be for that reason. Actually, James, 405 00:19:45,040 --> 00:19:47,520 Speaker 4: at the end of last year, we reduced our allocation 406 00:19:47,640 --> 00:19:50,399 Speaker 4: in gold from fifteen percent to about twelve and a 407 00:19:50,440 --> 00:19:54,200 Speaker 4: half percent because we are seeing at the moment it's 408 00:19:54,240 --> 00:19:57,280 Speaker 4: having less of a diversification benefit. It doesn't mean it 409 00:19:57,320 --> 00:19:59,600 Speaker 4: won't go up, but it certainly means it could have 410 00:19:59,640 --> 00:20:02,320 Speaker 4: some show pullbacks like it had in the nineteen seventies. 411 00:20:02,400 --> 00:20:05,280 Speaker 2: Okay, well, thank you. That's the best answer so far, Chris. 412 00:20:05,359 --> 00:20:09,040 Speaker 2: Let's put that way, all right, Okay, we'll be back 413 00:20:09,040 --> 00:20:09,400 Speaker 2: in a moment. 414 00:20:09,520 --> 00:20:12,480 Speaker 1: We have some questions and one or two quick issues 415 00:20:12,560 --> 00:20:20,359 Speaker 1: I want to talk to Chris about. Talk to them. Hello, 416 00:20:20,440 --> 00:20:23,720 Speaker 1: Welcome back to the Australian's Money Puzzle podcast James Kirby 417 00:20:23,720 --> 00:20:27,760 Speaker 1: with Chris Bricky, CEO of the Stockspot Group, the digital 418 00:20:27,920 --> 00:20:32,159 Speaker 1: robo advisory group, which basically heavily deals in ETF set is. 419 00:20:32,200 --> 00:20:36,199 Speaker 1: It sets portfolios and creates them for people out of ETFs. Chris, 420 00:20:36,320 --> 00:20:39,360 Speaker 1: a couple of quick ones Japan. I mean, not everyone's 421 00:20:39,400 --> 00:20:41,640 Speaker 1: gone out to start buying Japan. But you can buy 422 00:20:41,680 --> 00:20:44,040 Speaker 1: Japan and just go into an ETF and buy Japan. 423 00:20:44,200 --> 00:20:45,760 Speaker 1: You can buy Japanese years if you want to get 424 00:20:45,800 --> 00:20:46,600 Speaker 1: more advanced about it. 425 00:20:46,640 --> 00:20:48,360 Speaker 2: But you're pretty you've put out a couple of. 426 00:20:48,320 --> 00:20:53,680 Speaker 1: Notes that suggest Japan as a single market ETF could 427 00:20:53,720 --> 00:20:54,640 Speaker 1: really pop this year. 428 00:20:54,960 --> 00:20:56,240 Speaker 2: Why is that, Well, that's right. 429 00:20:56,280 --> 00:20:59,040 Speaker 4: Every year I put out a few non consensus ideas, 430 00:20:59,080 --> 00:21:01,520 Speaker 4: just areas where I don't think everyone's focus that might 431 00:21:01,520 --> 00:21:03,520 Speaker 4: turn out to work out. Maybe not Japan. I think 432 00:21:03,520 --> 00:21:04,919 Speaker 4: this year is an interesting one. 433 00:21:05,200 --> 00:21:05,399 Speaker 3: You know. 434 00:21:05,440 --> 00:21:08,000 Speaker 4: It's share market obviously had a had its big run 435 00:21:08,040 --> 00:21:10,480 Speaker 4: in the nineteen eighties and which ended in the early nineties, 436 00:21:11,200 --> 00:21:14,360 Speaker 4: went nowhere for decades. You know, recently it's popped through 437 00:21:14,400 --> 00:21:18,119 Speaker 4: its high of nineteen eighty nine and is starting to 438 00:21:18,160 --> 00:21:20,920 Speaker 4: power up again. I think partly because of corporate reform 439 00:21:20,960 --> 00:21:24,480 Speaker 4: and governance changes in that country, as well as the 440 00:21:24,480 --> 00:21:27,240 Speaker 4: currency dynamics and debt dynamics. So they have a huge 441 00:21:27,280 --> 00:21:30,680 Speaker 4: amount of government debt and it's really depreciating the end, 442 00:21:30,720 --> 00:21:33,440 Speaker 4: which is making them more competitive. So I think there 443 00:21:33,440 --> 00:21:36,760 Speaker 4: are some real structural forces supporting Japan at the moment. 444 00:21:37,080 --> 00:21:39,600 Speaker 4: You know, Buffett, you might remember a few years ago, 445 00:21:39,640 --> 00:21:44,720 Speaker 4: started to invest heavily into Japan, so he he saw this, Yeah, 446 00:21:44,760 --> 00:21:46,919 Speaker 4: he saw this trend coming a long way out. But 447 00:21:47,000 --> 00:21:49,320 Speaker 4: I think it's an interesting country because of some of 448 00:21:49,359 --> 00:21:51,679 Speaker 4: these dynamics. You know, the balance sheets are strong of 449 00:21:51,680 --> 00:21:55,159 Speaker 4: these companies, they're increasing their buyer backs and it's an 450 00:21:55,240 --> 00:21:57,840 Speaker 4: under owned country still. So you know, we look at 451 00:21:58,080 --> 00:22:00,560 Speaker 4: we give our clients the ability to airbowl tom some 452 00:22:01,040 --> 00:22:05,120 Speaker 4: thematic ETFs onto their portfolios, including some single country ETFs. 453 00:22:05,480 --> 00:22:08,360 Speaker 4: Japan is the least popular of all of them, which 454 00:22:08,400 --> 00:22:10,679 Speaker 4: surprised me when I looked at the data recently. But 455 00:22:11,000 --> 00:22:12,439 Speaker 4: that's why I think it's still a bit of a 456 00:22:12,480 --> 00:22:17,560 Speaker 4: contrarian call, because most retail investors aren't investing into Japan now. 457 00:22:17,760 --> 00:22:20,040 Speaker 4: They just had an election about a week ago and 458 00:22:20,160 --> 00:22:23,399 Speaker 4: the incoming leader is seen as someone who will be 459 00:22:23,640 --> 00:22:27,000 Speaker 4: positive for markets and be you know, someone that continues 460 00:22:27,040 --> 00:22:29,399 Speaker 4: to spend. And so, you know, I think it's definitely 461 00:22:29,440 --> 00:22:31,560 Speaker 4: a market to look at. You know, it could be 462 00:22:31,600 --> 00:22:33,480 Speaker 4: one that has a bit of a blowoff top this year. 463 00:22:33,560 --> 00:22:36,520 Speaker 4: It could run up very quickly and fall just as quickly, 464 00:22:36,560 --> 00:22:37,879 Speaker 4: but certainly one to keep an eye on. 465 00:22:38,040 --> 00:22:41,960 Speaker 1: Okay, very briefly, you did a piece for The Australian 466 00:22:42,000 --> 00:22:46,760 Speaker 1: recently about private schools versus investing. It's hard to deal 467 00:22:46,800 --> 00:22:50,480 Speaker 1: with this quickly, but what was your core theory there? 468 00:22:50,520 --> 00:22:52,840 Speaker 1: What was your core what was your core contention there? 469 00:22:52,840 --> 00:22:57,479 Speaker 1: In relation to private schools and their endlessly inflation proof fees. 470 00:22:58,119 --> 00:23:01,080 Speaker 1: By that, I mean they seem to ignore inflation and 471 00:23:01,240 --> 00:23:03,360 Speaker 1: just basically pop the fees up much higher than infliction. 472 00:23:03,440 --> 00:23:06,359 Speaker 2: What was your care contention? I never did very well well. 473 00:23:06,400 --> 00:23:08,480 Speaker 4: I think if you could invest in an ETF that 474 00:23:08,560 --> 00:23:10,720 Speaker 4: gave you access to private school fees, that might be 475 00:23:10,800 --> 00:23:12,520 Speaker 4: a good inflation head. I don't know how we can 476 00:23:12,560 --> 00:23:15,399 Speaker 4: invest into private schools, but they definitely seem inflation proof. 477 00:23:15,520 --> 00:23:17,479 Speaker 4: I think this year we saw that fees went up 478 00:23:17,480 --> 00:23:20,280 Speaker 4: by six point seven percent and it inspired me just 479 00:23:20,320 --> 00:23:24,320 Speaker 4: to write an article, you know, not necessarily saying any choices, right, 480 00:23:24,320 --> 00:23:26,560 Speaker 4: I think every choice you know can make sense for 481 00:23:26,840 --> 00:23:28,960 Speaker 4: you know, a certain family, a certain kid. But really 482 00:23:29,040 --> 00:23:32,080 Speaker 4: just making parents a bit more conscious of the decision 483 00:23:32,080 --> 00:23:36,000 Speaker 4: they're making around private schools. I think a few things. 484 00:23:36,040 --> 00:23:39,600 Speaker 4: Parents often underestimate the impact of compounding. So if that 485 00:23:39,680 --> 00:23:42,280 Speaker 4: money was put somewhere else, how much would it be 486 00:23:42,320 --> 00:23:44,640 Speaker 4: in the end. And I worked out that for a typical, 487 00:23:45,240 --> 00:23:47,800 Speaker 4: you know, top tier private school, if you put those 488 00:23:47,840 --> 00:23:51,879 Speaker 4: save the same fees into a investing account from grade 489 00:23:51,920 --> 00:23:54,480 Speaker 4: six to grade twelve, you'd have about four hundred thousand dollars. 490 00:23:54,880 --> 00:23:57,160 Speaker 4: And so it's just a question I think parents should 491 00:23:57,200 --> 00:24:00,480 Speaker 4: be asking, is it more worthwhile the education? In a 492 00:24:00,520 --> 00:24:03,320 Speaker 4: lot of cases, I think parents say yes absolutely, or 493 00:24:03,320 --> 00:24:05,680 Speaker 4: could that four hundred thousand go towards a house deposit? 494 00:24:05,880 --> 00:24:08,879 Speaker 4: And potentially for some people that may make more sense, 495 00:24:09,960 --> 00:24:12,159 Speaker 4: you know, I think for some families there's social pressure 496 00:24:12,240 --> 00:24:14,840 Speaker 4: that drives this decision. So I really just wrote it 497 00:24:14,880 --> 00:24:17,560 Speaker 4: to make people a bit more conscious of the opportunity. 498 00:24:17,600 --> 00:24:18,640 Speaker 2: Cost very good. 499 00:24:18,720 --> 00:24:22,040 Speaker 1: I suppose the ultimate price there is if you spend 500 00:24:22,040 --> 00:24:25,080 Speaker 1: the money on the private schools, you probably may not 501 00:24:25,200 --> 00:24:28,040 Speaker 1: have the money to give them a deposit for their house. 502 00:24:28,240 --> 00:24:31,600 Speaker 1: So the pressure becomes towards the next generation to be 503 00:24:31,640 --> 00:24:34,760 Speaker 1: able to do it and maybe give you don't put 504 00:24:34,800 --> 00:24:37,919 Speaker 1: them on private schools and you are building well at 505 00:24:37,920 --> 00:24:42,200 Speaker 1: the same time, then they may get a house early 506 00:24:42,359 --> 00:24:47,320 Speaker 1: earlier because you'll help them. But did they optimize the 507 00:24:47,359 --> 00:24:50,320 Speaker 1: potential skills and education or networks that they may have 508 00:24:50,359 --> 00:24:52,600 Speaker 1: built a private school. Boy, That's an entry. You could 509 00:24:52,600 --> 00:24:54,800 Speaker 1: write a book about that. Chris, Okay, I have a 510 00:24:54,880 --> 00:24:57,879 Speaker 1: question I have kept for you from Nathan. He says, 511 00:24:57,960 --> 00:25:01,720 Speaker 1: listen to your last episode about super I've been in 512 00:25:01,760 --> 00:25:04,520 Speaker 1: the bullmarket for a few years now. Would this be 513 00:25:04,640 --> 00:25:08,320 Speaker 1: any reason to hold off switching from conservative to high 514 00:25:08,359 --> 00:25:11,639 Speaker 1: growth super options? For example, if there was theoretically a 515 00:25:11,680 --> 00:25:13,680 Speaker 1: downturn in the next year, there would it be any 516 00:25:14,200 --> 00:25:19,440 Speaker 1: positive to holding off switching. I'm twenty three, so presuming 517 00:25:19,480 --> 00:25:22,080 Speaker 1: that any downturn that would drive growth stocks lower would 518 00:25:22,119 --> 00:25:24,560 Speaker 1: be followed in my lifetime by an upturn that would 519 00:25:24,560 --> 00:25:30,879 Speaker 1: effectively cancel out any losses. Also, I'm aware I'm being 520 00:25:30,880 --> 00:25:32,880 Speaker 1: way too cautious as a twenty three year old. 521 00:25:32,880 --> 00:25:32,920 Speaker 2: Ha. 522 00:25:33,160 --> 00:25:37,520 Speaker 1: Thanks James, Okay, that's Nathan. So he's saying, why on 523 00:25:37,560 --> 00:25:39,280 Speaker 1: earth he'd being conservative at twenty three? 524 00:25:39,320 --> 00:25:40,120 Speaker 2: I just don't know. 525 00:25:40,480 --> 00:25:43,240 Speaker 1: But on the broader issue, for anyone like Nathan or 526 00:25:43,280 --> 00:25:47,560 Speaker 1: anyone as who's looking at the markets now and making 527 00:25:47,640 --> 00:25:50,880 Speaker 1: guesses as how to how it will operate, and then 528 00:25:51,240 --> 00:25:57,040 Speaker 1: concluding from those guesses how they should fix their choices 529 00:25:57,040 --> 00:26:01,120 Speaker 1: in super conservative balanced growth, you have to say about that. 530 00:26:02,359 --> 00:26:04,720 Speaker 4: I mean, it's great that Nathan's so engaged in here Super. 531 00:26:04,880 --> 00:26:07,640 Speaker 4: I think he raises a couple of really interesting areas 532 00:26:07,680 --> 00:26:10,400 Speaker 4: to talk about. One is that, you know, changing from 533 00:26:10,440 --> 00:26:13,920 Speaker 4: a one investment mix like high growth to conservative, I mean, 534 00:26:13,960 --> 00:26:16,200 Speaker 4: super is actually a market timing kind of call. 535 00:26:16,840 --> 00:26:17,320 Speaker 3: Obviously. 536 00:26:17,400 --> 00:26:20,080 Speaker 4: Here he's decided that he wants to time the market 537 00:26:20,119 --> 00:26:22,479 Speaker 4: and hope that he can buy lower. The big challenge 538 00:26:22,480 --> 00:26:25,160 Speaker 4: with timing markets is that it's very difficult to get 539 00:26:25,200 --> 00:26:27,120 Speaker 4: it right because you have to make two decisions right. 540 00:26:27,200 --> 00:26:29,040 Speaker 4: You need to work out when to sell and when 541 00:26:29,080 --> 00:26:31,879 Speaker 4: to buy back again. Sometimes easy to get one right, it's. 542 00:26:31,840 --> 00:26:34,760 Speaker 3: Very difficult to get ors right and to work out 543 00:26:34,760 --> 00:26:35,520 Speaker 3: where the bottom is. 544 00:26:35,760 --> 00:26:39,400 Speaker 4: Ask Nathan, at what point you know, will you decide 545 00:26:39,440 --> 00:26:42,520 Speaker 4: that maybe your decision to move to conservative wasn't right 546 00:26:42,560 --> 00:26:45,320 Speaker 4: and move back to high growth because sometimes markets never 547 00:26:45,400 --> 00:26:47,240 Speaker 4: go back down to the point that you sold them, 548 00:26:47,600 --> 00:26:50,359 Speaker 4: and you could be in the same conservative mix for 549 00:26:50,359 --> 00:26:54,640 Speaker 4: forty years if you don't switch back. So for our clients, 550 00:26:54,640 --> 00:26:57,639 Speaker 4: we recommend up until the age of fifty two a 551 00:26:57,760 --> 00:27:00,520 Speaker 4: high growth mix, you know, simply because is that you 552 00:27:00,560 --> 00:27:03,560 Speaker 4: do have that time to recover from market downturns. You've 553 00:27:03,560 --> 00:27:06,440 Speaker 4: got those SG contributions coming in allowing you to dollar 554 00:27:06,480 --> 00:27:10,160 Speaker 4: cost average in over time, and market timing is so 555 00:27:10,600 --> 00:27:13,880 Speaker 4: difficult to do consistently over time. So you know, we 556 00:27:14,520 --> 00:27:19,000 Speaker 4: we certainly wouldn't recommend our clients switch to conservative options 557 00:27:19,000 --> 00:27:22,480 Speaker 4: to time the market because the chances are you won't 558 00:27:22,480 --> 00:27:25,520 Speaker 4: time it correctly and it's just adding extra risk and 559 00:27:25,880 --> 00:27:28,440 Speaker 4: extra hassle for something that should be a passive, long 560 00:27:28,520 --> 00:27:29,640 Speaker 4: term investment. 561 00:27:29,560 --> 00:27:34,280 Speaker 1: Strategic rather than tactical. Okay, last question. Anna Shelley was 562 00:27:34,320 --> 00:27:37,040 Speaker 1: on the show last week, chief investment officer of AMP, 563 00:27:37,320 --> 00:27:41,280 Speaker 1: really interesting making the point that the old sixty forty idea, 564 00:27:41,480 --> 00:27:43,720 Speaker 1: the idea that you have your age, you know that 565 00:27:43,760 --> 00:27:48,119 Speaker 1: your age determines how much growth stocks you have, And 566 00:27:48,200 --> 00:27:50,879 Speaker 1: she challenged that and she basically said, you know that 567 00:27:51,000 --> 00:27:57,239 Speaker 1: people should have much higher growth portfolios, higher portion of 568 00:27:57,280 --> 00:28:01,280 Speaker 1: their portfolios in growth in super for much longer than 569 00:28:01,320 --> 00:28:04,320 Speaker 1: they ever had before, because we're all living longer and 570 00:28:04,359 --> 00:28:05,720 Speaker 1: we will needed for longer. 571 00:28:05,480 --> 00:28:08,280 Speaker 2: And super What do you think of that? 572 00:28:08,440 --> 00:28:11,359 Speaker 1: And have you have your own has your own work 573 00:28:12,040 --> 00:28:14,800 Speaker 1: reflected that or the way you advise people. 574 00:28:16,800 --> 00:28:18,560 Speaker 4: It's something we've had to think about a lot recently 575 00:28:18,560 --> 00:28:21,280 Speaker 4: because we launched a super product chain, so in designing 576 00:28:21,280 --> 00:28:23,600 Speaker 4: that product, we've really had to do the analysis to 577 00:28:23,720 --> 00:28:27,159 Speaker 4: understand this quite well. Our view is that really up 578 00:28:27,240 --> 00:28:29,320 Speaker 4: until the age, as I mentioned before, a fifty two 579 00:28:29,440 --> 00:28:32,320 Speaker 4: at least high growth makes sense, you know, and this 580 00:28:32,359 --> 00:28:35,400 Speaker 4: is based on a typical retirement age in your mid sixties. 581 00:28:36,320 --> 00:28:37,600 Speaker 3: Then typically we. 582 00:28:37,480 --> 00:28:41,120 Speaker 4: Would migrate someone gradually from a high growth mix to 583 00:28:41,440 --> 00:28:45,400 Speaker 4: a forty sixty so forty percent growth asset sixty percent 584 00:28:45,440 --> 00:28:49,479 Speaker 4: defensive asset mix by the time they reach retirement. This 585 00:28:49,520 --> 00:28:51,320 Speaker 4: is where it gets interesting. I think a lot of 586 00:28:51,360 --> 00:28:54,600 Speaker 4: people then would potentially leave it as conservative or even 587 00:28:54,640 --> 00:28:58,240 Speaker 4: go more conservative over time. The research that we've read, 588 00:28:58,280 --> 00:29:00,840 Speaker 4: and the best research I've come across, really suggests that 589 00:29:01,400 --> 00:29:04,720 Speaker 4: from a sequencing risk perspective, sequencing risk is about the 590 00:29:05,000 --> 00:29:08,360 Speaker 4: risk of the timing of market falls. Your biggest risk 591 00:29:08,400 --> 00:29:11,880 Speaker 4: comes in the ten years after you retire, because the 592 00:29:12,000 --> 00:29:14,840 Speaker 4: impact of market falls has the biggest impact on your 593 00:29:14,880 --> 00:29:18,080 Speaker 4: overall outcome. So the theory goes is you should actually 594 00:29:18,160 --> 00:29:21,720 Speaker 4: stay conservative for the first ten years after retirement, but 595 00:29:21,840 --> 00:29:24,520 Speaker 4: then after that it actually makes sense to dial up 596 00:29:24,520 --> 00:29:25,440 Speaker 4: the risk again. 597 00:29:25,280 --> 00:29:29,000 Speaker 1: Which is a which psychologically I a mug as exceptionally difficult. 598 00:29:29,680 --> 00:29:31,960 Speaker 4: Of course, for most people this isn't something they're likely 599 00:29:32,040 --> 00:29:34,320 Speaker 4: to do, but the theory goes, that's going to give 600 00:29:34,320 --> 00:29:37,640 Speaker 4: you the best chance of extending that money as long 601 00:29:37,680 --> 00:29:41,080 Speaker 4: as possible. See not even do it, Chris No, I think, 602 00:29:41,160 --> 00:29:44,360 Speaker 4: like you say, it's psychologically so difficult, you know. I think, 603 00:29:44,720 --> 00:29:48,440 Speaker 4: you know, my parents have a very long term time horizon. 604 00:29:48,720 --> 00:29:51,400 Speaker 4: So for their self managed super fun I think even 605 00:29:51,400 --> 00:29:54,480 Speaker 4: though they're now in their sixties and seventies, they don't 606 00:29:54,480 --> 00:29:56,880 Speaker 4: think a conservative mix makes sense, and so they're in 607 00:29:56,920 --> 00:29:59,800 Speaker 4: a higher growth mix. But I think particularly for people 608 00:29:59,800 --> 00:30:02,480 Speaker 4: who who haven't lived through market cycles or who don't 609 00:30:02,480 --> 00:30:04,880 Speaker 4: have that experience, I think it's difficult, you know, to 610 00:30:05,320 --> 00:30:08,320 Speaker 4: weather a you know, twenty percent fall in your portfolio 611 00:30:08,440 --> 00:30:10,760 Speaker 4: if you're relying on drawing down five or six percent 612 00:30:10,800 --> 00:30:11,200 Speaker 4: every year. 613 00:30:11,840 --> 00:30:14,240 Speaker 1: And I did put forward the idea of the bucket strategy, 614 00:30:14,360 --> 00:30:16,480 Speaker 1: you know, where people put a certain amount of cash site, 615 00:30:16,560 --> 00:30:17,959 Speaker 1: say for a year or two years, so they can 616 00:30:17,960 --> 00:30:19,040 Speaker 1: write out any storms. 617 00:30:19,320 --> 00:30:19,520 Speaker 2: Yeah. 618 00:30:19,520 --> 00:30:21,640 Speaker 4: I think that's a way to get around it psychologically, 619 00:30:21,720 --> 00:30:23,680 Speaker 4: is to take out a couple of years of cash 620 00:30:23,840 --> 00:30:26,640 Speaker 4: and then go into a you know, a less conservative 621 00:30:26,680 --> 00:30:28,920 Speaker 4: mix so you don't feel like you've got that time 622 00:30:28,960 --> 00:30:31,920 Speaker 4: pressure of taking out money. But I think really you 623 00:30:31,960 --> 00:30:33,960 Speaker 4: don't even need to do that if you consider that 624 00:30:34,240 --> 00:30:36,000 Speaker 4: markets are going to go up and down, and each 625 00:30:36,080 --> 00:30:39,040 Speaker 4: year are only taking out four or five or six percent. 626 00:30:39,320 --> 00:30:41,680 Speaker 4: It doesn't matter if the market's down twenty percent because 627 00:30:41,680 --> 00:30:43,920 Speaker 4: you're only taking out five percent and next. 628 00:30:43,880 --> 00:30:44,560 Speaker 3: Year it will be up. 629 00:30:44,600 --> 00:30:47,040 Speaker 4: And so actually the fact that you're only drawing down 630 00:30:47,240 --> 00:30:51,000 Speaker 4: a small percentage every year negates the concern around markets. 631 00:30:51,000 --> 00:30:56,760 Speaker 2: Anyway, Easier said than done, I would think. Terrific. Kay, 632 00:30:56,760 --> 00:30:58,560 Speaker 2: Thank you very much, Chris RICKI, great to have you 633 00:30:58,600 --> 00:30:59,960 Speaker 2: on the show again. We'll talk again. 634 00:31:00,560 --> 00:31:01,320 Speaker 3: Thanks James. 635 00:31:02,320 --> 00:31:04,480 Speaker 2: That was Chris Brickey of the stock Spot Group. 636 00:31:04,800 --> 00:31:07,560 Speaker 1: Great to talk to him. As always, do keep the 637 00:31:07,600 --> 00:31:10,400 Speaker 1: correspondence up. Thank you for that. Nathan. I have many 638 00:31:10,440 --> 00:31:12,920 Speaker 1: other questions for different guess that was one that was 639 00:31:12,960 --> 00:31:13,680 Speaker 1: suitable for Chris. 640 00:31:13,760 --> 00:31:15,000 Speaker 2: I have a lot of questions that. 641 00:31:14,960 --> 00:31:17,400 Speaker 1: Will be aimed at a financial advisor. We'll get to 642 00:31:17,440 --> 00:31:20,520 Speaker 1: them next week on Tuesday with James Gerard. We'ld definitely 643 00:31:20,560 --> 00:31:22,560 Speaker 1: get through a few of those. Keep them rolling the 644 00:31:22,600 --> 00:31:25,240 Speaker 1: money puzzle at the Australian dot com dot Au