Speaker 1: Hello, and welcome to The Australian's Money Puzzitive podcast. I'm
Speaker 1: James Kirby, the World's editor at The Australian. Welcome aboard
Speaker 1: everybody you know. Occasionally I'm prompted to cover an issue,
Speaker 1: what you might say, like by public demand. And I
Speaker 1: can tell you that this fire movement FIRI fire movement,
Speaker 1: Financial independence Retire Early, that's the acronym. It's been knocking
Speaker 1: on my door for some time. Comes up regularly in correspondence,
Speaker 1: comes up in conversation, and I find people love this
Speaker 1: idea and it's, you know, a subject of videos and books, documentaries.
Speaker 2: For what it's worth, it all goes back.
Speaker 1: To a book that came out in nineteen ninety two
Speaker 1: called Your Money or Your Life. I think sooner or
Speaker 1: later we might have a fire advocate on the show.
Speaker 1: But first of all, we're going to have a look
Speaker 1: at it and examine it really and to see what
Speaker 1: it is and what are its pros and cons. I
Speaker 1: wanted to get someone who could really talk about it.
Speaker 1: I've got the idea guest, of course, it's.
Speaker 2: James Gerard of Financial advisor dot com.
Speaker 3: How are you, James, I'm doing well. Thanks for having
Speaker 3: me on James.
Speaker 1: I imagine you've had people come up to you on
Speaker 1: this one. And I've had people. I haven't actually asked
Speaker 1: you that. Have you had people come up to you
Speaker 1: and talk about it fire? The fire movement?
Speaker 3: Yeah? I have, yes, So that said, can you help
Speaker 3: me achieve fire?
Speaker 2: Yeah? It's interesting, isn't it.
Speaker 1: You get a concept that everyone you know. It's like
Speaker 1: everyone already knows this, but you if you conceptualize something.
Speaker 1: I was just thinking about this and I was thinking
Speaker 1: about this thing in Ireland called the Wild Atlantic Way,
Speaker 1: and so I grew up done around there and it's
Speaker 1: it's a strip of coast and there was all these
Speaker 1: towns on it and everyone they're always nice. It's fine.
Speaker 1: It's all very interesting West coast of Ireland. Everyone of
Speaker 1: the tourist level. But absolutely brilliant marketing ploy. Maybe a
Speaker 1: decade ago or whatever, the Irish Tourism Board came up
Speaker 1: with this thing, the Wild Atlantic Way.
Speaker 2: It never existed, right, no, never heard of it. They
Speaker 2: just let it up in a boardroom.
Speaker 1: And it has been so successful and you meet people
Speaker 1: and they say, I want to do that. The Wild
Speaker 1: Atlantic Way. It captures people's imagination. It's the same towns,
Speaker 1: it's the same roads, but it just managed to get
Speaker 1: it in a way that people could have this particular
Speaker 1: focused ambition, and I think Fire is very similar financial
Speaker 1: independence retire early. Before we kick it around, we have
Speaker 1: to explain to people what it is if they don't
Speaker 1: already know, Like, could you explain the core proposal if
Speaker 1: you like of what FIORI Fire is.
Speaker 3: Sure, I'll try to explain it. In a nutshell. It's basically,
Speaker 3: most people work from the start, working between eighteen to
Speaker 3: twenty five. They'll work forty or fifty years, they'll retire,
Speaker 3: usually in their sixties, and then they'll live thirty or
Speaker 3: forty years into retirement. That's what happens traditionally. Under fire,
Speaker 3: it's well, let's accelerate the wealth accumulation park, let's work
Speaker 3: for less years and enjoy more years in retirement. So
Speaker 3: to do that, they're basically sacrificing enjoyment today so that
Speaker 3: they can retire early and enjoy themselves later. So what
Speaker 3: that means practically is that they save a lot. They
Speaker 3: aim to save between fifty to seventy percent of their
Speaker 3: their incomes. They try and retire between the ages of
Speaker 3: thirty and fifty and in terms of how much they
Speaker 3: try and save up, they go, well, I probably need
Speaker 3: about twenty five times my annual expenditure, because if I
Speaker 3: assume that I'm going to make four percent return on
Speaker 3: my capital, I need twenty five times of my annual expenditure.
Speaker 2: There.
Speaker 3: So basically, say up a lot of money by being frugal,
Speaker 3: by working a lot, and then retire as early as
Speaker 3: you can and then live the rest of your life happy.
Speaker 3: So it sounds simple in practice, but in reality, less
Speaker 3: than five percent of people who in back on a
Speaker 3: fire strategy actually achieve it.
Speaker 1: Where did you get those numbers from James Gerard?
Speaker 2: The internet?
Speaker 1: Right?
Speaker 3: You can trust you today?
Speaker 1: As my teacher used to say, where did you get
Speaker 1: those numbers from Kirby.
Speaker 3: For various websites academic research papers into the fire movement?
Speaker 2: I wonder we'll come back to that. At the moment.
Speaker 2: It does sound low.
Speaker 1: If it was half successful, then what's wrong with that?
Speaker 1: If someone said I aspired to retire at fifty and
Speaker 1: I didn't do it till I was fifty seven, Well,
Speaker 1: you know that's not about achievement. Assuming you want to
Speaker 1: we'll working one thing. We have to challenge you some assumptions.
Speaker 1: We assume, folks, that the attraction of the fire movement
Speaker 1: is this notion that you can retire early and you
Speaker 1: want it. It would take that as a given, and
Speaker 1: then it's about how you actually construct this and what
Speaker 1: you must do, and I don't want to simplify it. Delayed
Speaker 1: gratification is a major part of it. Saving, real saving
Speaker 1: is a major part of it. I was just looking
Speaker 1: at these sort of three core principles of fire, the
Speaker 1: fire number, the fire lifestyle, and this idea of protecting
Speaker 1: your savings, and I'd like to just go through them.
Speaker 1: James with them in this segment. So they have this
Speaker 1: key thing where you must figure out how much you'd
Speaker 1: need as a retired person. And in a way, again
Speaker 1: I do not want to be cynical here, but in
Speaker 1: a way, you don't need anything, right that is, if
Speaker 1: you've got to retirement days, there's a government pension.
Speaker 2: That will pay you.
Speaker 1: And maybe it's about how long is a piece of string.
Speaker 1: But they say, what they say to people is if
Speaker 1: you want to do this, you have to assume you
Speaker 1: need it for twenty five years or more, and you.
Speaker 2: Needed about four.
Speaker 1: You need to take out four percent of your savings
Speaker 1: each year. To these are American numbers, so they are
Speaker 1: oblivious if you'd like to our social security system, which
Speaker 1: would give you a core amount, assuming that you qualify
Speaker 1: for it or partially qualify for it. But anyway, it
Speaker 1: runs on this basis that you stack up an amount
Speaker 1: of money and then you take out a certain amount
Speaker 1: of that each year.
Speaker 2: Their number is four percent. This is the famous fire.
Speaker 1: Number, right, So I'll just read out what they have here.
Speaker 1: If you had a one point seventy five million, if
Speaker 1: that was your fire number, right, which is the amount
Speaker 1: you haven't super basically in our world, you'd have to
Speaker 1: have it in the supersystem, but saved up for your retirement.
Speaker 1: If you have one point seventy five million was your
Speaker 1: fire number, using their four percent guideline, this would allow
Speaker 1: you to withdraw twenty eight annually. Okay, So that's what
Speaker 1: it would be when I say, we'll put the pension
Speaker 1: to one side, but you can probably no doubt you'd
Speaker 1: be able to supplement this with what your pench and
Speaker 1: access is. Part I want to make is that's principle
Speaker 1: in the system already, isn't it, James? If you were
Speaker 1: a self funded retiree. It just so happens that that
Speaker 1: is what they demand. Is it by lower that you
Speaker 1: take out? Isn't it four percent? So is that the
Speaker 1: fire number? The fire number being what number you save
Speaker 1: and then what number you must have from that to
Speaker 1: live per year? Is that basically the first principle there?
Speaker 2: Fire number?
Speaker 3: Yeah, that's basically it. The thinking is that if you're
Speaker 3: earning four percent on your capital, so if you've got
Speaker 3: it in a term deposit or an ETF portfolio, in
Speaker 3: the share market and bond and property markets, you're probably
Speaker 3: going to earn about four percent income, which means that
Speaker 3: once you've saved up that capital. So if we use
Speaker 3: around number like a million dollars, you're expected to get
Speaker 3: probably about forty thousand dollars per year. And if you
Speaker 3: can live off that forty thousand dollars per year, you're
Speaker 3: going to maintain a million dollars and you don't have
Speaker 3: to work anymore. But as you've alluded to that, there
Speaker 3: is the government age pension, but that comes in at
Speaker 3: age sixty seven. You can access your super but that's
Speaker 3: at age sixty. So for people who want to embark
Speaker 3: on a fire strategy and retire in their twenties, thirties
Speaker 3: and forties, they need to have personal money outside of
Speaker 3: Super so that they can sustain themselves up until the
Speaker 3: point where they can access their their super or the
Speaker 3: government age pension. So one variation of the fire strategy
Speaker 3: is called a lean fire, and that's where you minimize
Speaker 3: your outgoing, do your living expenses when you decide to
Speaker 3: stop working. So think about moving out into the bush,
Speaker 3: going off the grid, getting a few chickens, having some
Speaker 3: solar panels, and minimizing your costs so you know you
Speaker 3: spending ten fifteen thousand dollars a year, which means that
Speaker 3: the money that you need to save up isn't as
Speaker 3: much as if you're living in to Rack, Melbourne for example.
Speaker 1: Okay, assuming that majority of our audience are not on
Speaker 1: have their chickens in a hot in the woods somewhere,
Speaker 1: they're probably in town. But assume that right doesn't safe assumption,
Speaker 1: then a point that immediately hits me is our entire
Speaker 1: saving system is turns on.
Speaker 2: Super.
Speaker 1: Super is a tax protected vehicle and the catches you
Speaker 1: must keep the money in there till the day you retire.
Speaker 1: Sixty is the earliest you can get that tax protected
Speaker 1: money out and so ironically the super system works against
Speaker 1: the notion of fire, or certainly against the notion the
Speaker 1: fire concept of retiring really early forties or fifties.
Speaker 2: Is that fair to say?
Speaker 3: It is fair to say, yeah, yeah, you accumulate assets
Speaker 3: in your personal name, you're subject to capital gains tax.
Speaker 3: You generate that income from the dividends, the interest and
Speaker 3: distributions on the investments. Again, you're taxed on that as well.
Speaker 3: So it is harder to retire before the normal retirement
Speaker 3: age's just due to your money being in your personal
Speaker 3: name and being taxed at our marginal tax rates, which
Speaker 3: can be up to forty seven percent.
Speaker 1: Yes, exactly, So that's what I'm saying that ironically, folks,
Speaker 1: system actually wants you to keep working longer than the
Speaker 1: fire concept suggests. But okay, let's take the second thing now,
Speaker 1: on fire, the three big principles, right, one was the
Speaker 1: calculator fire number, another one was commit to the lifestyle,
Speaker 1: the fire lifestyle, and the third one was to grow
Speaker 1: and protect your savings. Now this is where I do
Speaker 1: get cynical. Okay, So there's this idea spending little as
Speaker 1: little as you can, saving as much as you can
Speaker 1: find fine by me. But then there's like they have
Speaker 1: these sort of like sub notions. They have fire movement
Speaker 1: approaches that two ways coast and barrista right coast, save
Speaker 1: and invest much of their money decades before retirement, and
Speaker 1: then when they hit their fire number, they can coast
Speaker 1: through retirement because they've fired enough, because they've saved enough.
Speaker 1: The second type is the barista. This refers to having
Speaker 1: a low stress, part time job with flexible hours, and
Speaker 1: the barista fire advocate typically set a lower retirement front
Speaker 1: target for themselves and choose to work part time jobs
Speaker 1: to supplement their income once they hit retirement. Come on,
Speaker 1: part time barrista, I think you know it's a tough job.
Speaker 1: That's a hard job, standing there, making coffees for people
Speaker 1: and being socially gregarious. But what I'm saying is it's
Speaker 1: harder than that line suggests to me.
Speaker 2: That's not on.
Speaker 1: I don't think you could be a part time barrister
Speaker 1: and finance anything close to a comfortable retirement. I'm under
Speaker 1: cutting it here, but I have to feel a responsibility
Speaker 1: to tell people it's not that easy. What do you
Speaker 1: think about that? As a qualified advisor?
Speaker 3: I agree yeah, so that the barista fire is like,
Speaker 3: save really hard and then stop working full time and
Speaker 3: then work part time and be a barrista or something
Speaker 3: like that to cover part of your cost. So you
Speaker 3: partly live off your savings, partly still work part time.
Speaker 3: But as you say, that might not be easier, may
Speaker 3: be stressful, and you may have been better just to
Speaker 3: stay working part time and pace yourself out a little
Speaker 3: bit more. Now, with regards to the fire lifestyle in general,
Speaker 3: I've gone through the depths of the internet looking at
Speaker 3: different forums on fire so that your listeners don't have
Speaker 3: to and I've actually found a few different examples of
Speaker 3: what people have actually done extreme fire measures with regards
Speaker 3: to their lifestyle. So if you're like, I'll read out
Speaker 3: some of them that I had noted. Okay, So some
Speaker 3: people they live with their parents into their forties because
Speaker 3: they don't want to pay rent, they don't want to
Speaker 3: have a mortgage. Some of them were living in vans,
Speaker 3: some bought tiny homes. I saw another person who posted
Speaker 3: that they don't have friends as part of their fire strategy,
Speaker 3: because friends are expensive. If you don't have friends, you
Speaker 3: don't have to buy anyone birthday gifts no wedding gifts,
Speaker 3: you don't have to go out for drinks.
Speaker 2: Makes sense, right, exire are extreme examples, get logitic, can't
Speaker 2: knock them. Yeah.
Speaker 3: Another one was this a little bit more contentious. Don't
Speaker 3: have children because you know, we know how expensive children.
Speaker 3: And then there's more practical ones. Don't have a car, walk,
Speaker 3: use a bike, public transport. And then there was a
Speaker 3: whole section on food, a whole sub fire category on food.
Speaker 3: So people just living off rice and eggs and pasta,
Speaker 3: the low cost staples and all the different recipes they
Speaker 3: could make on that.
Speaker 1: Is it all about saving gyms? Is it all about
Speaker 1: saving Is it no emphasis on building your income?
Speaker 3: Well, there's two parts to it. There's the what you
Speaker 3: can control, and you can really control what you spend.
Speaker 3: So a lot of people spend a lot of effort
Speaker 3: on the fire movement on reducing their expenditure so that
Speaker 3: they can save sixty seventy, sometimes eighty percent of their income.
Speaker 3: And then the other part is generating your income. Which
Speaker 3: it was interesting that it's very much an economic decision,
Speaker 3: a cost benefit analysis when it comes to almost everything
Speaker 3: with fire. So, for example, when it comes to your
Speaker 3: job and your income, the decision around do you go
Speaker 3: to university if you're pursuing the fire strategy really comes
Speaker 3: down to how many years is it going to take
Speaker 3: you to get your university degree. How many years are
Speaker 3: you not earning income that you could have been earning
Speaker 3: while you're study in what's the cost of that degree.
Speaker 3: But on the other side of the equation, how much
Speaker 3: extra income per hour are you going to make if
Speaker 3: you do have that degree qualification. So everything is very
Speaker 3: thought out with that the fire strategy. And then the
Speaker 3: last part which will come to is that the investing part.
Speaker 3: So there is some focus on that as well. But
Speaker 3: I did see a lot of emphasis around ways to
Speaker 3: cut down on spending so you can save more.
Speaker 1: Okay, I suppose that is reasonable, and so there are
Speaker 1: certain things to be greatly admired in this far strategy.
Speaker 1: Not everyone can increase their income, particularly people on salary arrangements,
Speaker 1: but you can always save that as a lever we
Speaker 1: can all pull. We can all save more. Every single
Speaker 1: person listening to this show, including me and you, James,
Speaker 1: we could save more. I could not have lunch downstairs today,
Speaker 1: or I can have a smaller one, and I would say,
Speaker 1: so I have that we all have that power.
Speaker 2: We'll be back in a moment. It is very interesting.
Speaker 1: It really is the fire concept and we're going to
Speaker 1: take a look at the most important part, I would
Speaker 1: think from our listeners point of view, which is that
Speaker 1: this aspect of growing your income and protecting protecting your income,
Speaker 1: which they put up very high as a priority. Back
Speaker 1: in the moment, Hello and welcome back to The Australian's
Speaker 1: Money Puzzle podcast. I'm James Kirby Well at The Australian
Speaker 1: and I'm talking to regular guests of the show and
Speaker 1: contributor to the Worst Section, James Gerard, who will also
Speaker 1: be hosting some shows Folks with Stuart Weems in September.
Speaker 1: When I am taking a holiday, Are you allowed to
Speaker 1: take a holiday? I bet You're not allowed to take holidays
Speaker 1: at all. On the fire and movements just plow away
Speaker 1: week after week, half starved.
Speaker 2: See.
Speaker 1: I have to stop myself. I have to stop myself
Speaker 1: under cutting this. It's not fair, okay, and it depends.
Speaker 1: But as I say, I completely like, I completely admire
Speaker 1: concepts within this. All I'm actually skeptical about, James, is
Speaker 1: that they mislead people into thinking that you could retire,
Speaker 1: that it's easier, that it might that you might be
Speaker 1: make a terrible mistake, and assume that it is easier
Speaker 1: to do so. I have often been asked, you know, well,
Speaker 1: why are you still working? You don't have to keep working,
Speaker 1: do you? And it's true, I don't have to. Maybe
Speaker 1: you don't have to change. Certainly I don't have to.
Speaker 1: My my family are older than yours. So but it's
Speaker 1: a question of the lifestyle I want. I could stop tomorrow,
Speaker 1: but I couldn't live the way I live now tomorrow
Speaker 1: if I was to be realistic about it. And you
Speaker 1: can apply that to anyone's life. I think in terms
Speaker 1: of what's the reality of this, retire early? Assuming you
Speaker 1: want to write I don't even want to, but I'm
Speaker 1: assuming that people want to. Okay, now here's getting down
Speaker 1: the brass tax Here about what I think is a
Speaker 1: very important part of it is they talk about how
Speaker 1: to build income. They begin to passive income. Again, A
Speaker 1: part of me is going to say passive income. Yeah,
Speaker 1: but it's never going to have the returns of active income.
Speaker 1: It just isn't. It certainly doesn't offer the same possibilities,
Speaker 1: it offers the same return as the market, but it
Speaker 1: doesn't offer to beat the market, which you can do
Speaker 1: if you're active. We'll put that to one side for
Speaker 1: a moment. So James, before we talk about how they
Speaker 1: talk about making money, they've got a really big emphasis
Speaker 1: on protecting yourself, enforcing circumstances, building up three to six
Speaker 1: months worth of savings. Gee, honestly, that's a very slow
Speaker 1: way to start building money, rainy day funds and ensuring
Speaker 1: everything you can think of. What do you think of
Speaker 1: that central concept?
Speaker 3: Yeah, it makes sense. It's prudent. It's good to have
Speaker 3: that cash buffer there for unforeseen circumstances. It is very sensible.
Speaker 3: For a large part what the fire philosophy is, it's
Speaker 3: really just been more frugal in these earlier years and
Speaker 3: then enjoying yourself later. So even though I said earlier
Speaker 3: that only five percent of people is successful in achieving that,
Speaker 3: the majority of people do get closer to their financial
Speaker 3: goals because they have saved more, they have worked harder,
Speaker 3: they have invested better, they have implemented good solid financial
Speaker 3: Fundacians like having a cash reserve. So overall it's a
Speaker 3: good thing, But it's really that degree of how far
Speaker 3: do you push it do you not have friends, do
Speaker 3: you know, dive into dumpsters and get out expired food
Speaker 3: so they don't have to buy a loaf of bread
Speaker 3: at the local shops. Yeah.
Speaker 1: The point is which frugal becomes being mean or miserly
Speaker 1: from one of a better word, and miserly has connotations,
Speaker 1: all sorts of connotations, and rarely linked with happiness, which
Speaker 1: is something you can't really measure. Maybe you do it
Speaker 1: and you retire at fifty and you look back and
Speaker 1: you say, gosh, you know, I can't really go to
Speaker 1: nightclubs now till four in the morning. And I could
Speaker 1: have in those days, or you know, I could have
Speaker 1: sailed around the world, or I could have whatever, played
Speaker 1: soccer at a high level or whatever, but I didn't
Speaker 1: because I didn't want to buy expensive boots.
Speaker 2: Whatever.
Speaker 1: I'm just again playing Devil's advocate here. Okay, So they're
Speaker 1: big into insurance, and I am not that I'm not
Speaker 1: big into insurance. I think you should ensure yourself.
Speaker 2: WHOA, I would be.
Speaker 1: Extremely careful in spending a penny more than you actually
Speaker 1: need to from an actual point.
Speaker 2: Of view passive income. They think that this is the
Speaker 2: big secret.
Speaker 1: I don't think it's a secret. But maybe here's a
Speaker 1: secret to many people. They still don't realize what ETFs
Speaker 1: are and index funds. What do you think of this
Speaker 1: building passive income concept for the average person and the
Speaker 1: average situation who doesn't have much money, and it only
Speaker 1: has a very limited amount to apply to wealth building.
Speaker 3: So the building the passive income under the fire strategy
Speaker 3: isn't really any different to how most people build their wealth.
Speaker 3: They have a bit of cash at buffer, they start
Speaker 3: to have a surplus every month that they identify, they
Speaker 3: put that aside, and then they invest that into something,
Speaker 3: whether that's to save a deposit and then purchase an
Speaker 3: investment property or a home and pay down the mortgage,
Speaker 3: or whether that's into an ETF portfolio. The goal is
Speaker 3: to grow the asset. So what I observed is that
Speaker 3: the fire strategies to have more growth based assets in
Speaker 3: those earlier years to try and get dearly double digit returns.
Speaker 1: Okay, interesting, Okay, and then they have the I think
Speaker 1: the third prong of this is to basically work more
Speaker 1: side gigs, side hustles, again, which I would completely agree
Speaker 1: with and I think we probably all of us did
Speaker 1: at various times in our lives when we wanted, when
Speaker 1: you're in that early accumulation phase and you just had
Speaker 1: to get going, that would seem to make a perfect
Speaker 1: sense towards financial independence. So having had a look at
Speaker 1: it all, James and I've had a good look at
Speaker 1: it all, but haven't met anyone who's a disciple as such.
Speaker 1: Maybe we have some listenings to the show. I'm really
Speaker 1: keen to hear from you, folks if you are have
Speaker 1: tried it, or you've experimented with it, or you've met
Speaker 1: people who live by it, havn't taken the deep dive, James.
Speaker 1: If I came to you in earnest and said, I'm
Speaker 1: applying myself to the fire concept, I love it. It's
Speaker 1: going to It's changed my life so far, and I'm
Speaker 1: really starting to save. What would you say a broad
Speaker 1: advice to someone like that? What would your instinct be
Speaker 1: to tell them.
Speaker 3: It's really just having balance in your life? What makes
Speaker 3: you happy? You know, I'll sound a little bit philosophical here,
Speaker 3: but any of us can drop dead tomorrow. And if
Speaker 3: you've spent your twenties and your thirties being frugal and
Speaker 3: almost misily, and then you pass away, unexpectedly. You know,
Speaker 3: what is your life been. You've been working towards this
Speaker 3: future that you haven't had. So there's something to say
Speaker 3: about enjoying every day as much as you can. But
Speaker 3: then on the other hand, there's that you need to
Speaker 3: think about the future as well. So if people are
Speaker 3: comfortable with their lifestyle while pursuing a fire strategy, So
Speaker 3: if they're comfortable to work, do extra side gigs, do
Speaker 3: lots of hours, save more than the average person, be
Speaker 3: a little bit more aggressive than the average person in
Speaker 3: their investing activities, and they're comfortable with that, fantastic. You're
Speaker 3: probably going to retire earlier than most people and have
Speaker 3: more passive income than the average person would in retirement.
Speaker 3: But if you're finding you're not enjoying it and it's
Speaker 3: really grinding on your lifestyle, well then it's not for you.
Speaker 2: Very good.
Speaker 1: It's really interesting, isn't it. It's look hats off to
Speaker 1: whoever came up with the concept. People love the concept.
Speaker 1: I like the five part financial independence. I reckon that's great.
Speaker 1: Retirely that's your recall. I imagine it does instill for
Speaker 1: people who have never really thought about it or review
Speaker 1: their own situation. I think it's got a lot going
Speaker 1: for it. I would just be careful, as James says
Speaker 1: about overdoing it, because you only live once, or you're
Speaker 1: certainly only twenty or thirty once, and you don't get
Speaker 1: those years back, as everyone will tell you when they're older.
Speaker 1: All right, we'll take short break. We have some great
Speaker 1: questions back in a moment. Hello and welcome back to
Speaker 1: the Australians Money Puzzle podcast. James Kirkby here with James
Speaker 1: Gerard from a Financial Advice Dot. One thing we should
Speaker 1: have covered there because Tuesday is very much as an emphasis
Speaker 1: on property and I see much in the way a
Speaker 1: property investment mentioned in that in as fire coverage. A
Speaker 1: lot of it is the US, of course, and property
Speaker 1: is so much more central to our building than there is,
Speaker 1: particularly residential property. Did you come across anything on property
Speaker 1: as such as an asset?
Speaker 3: I did. They were. The people were very rational when
Speaker 3: they spoke about it. It was basically what works out
Speaker 3: better and when I say better, what means that they
Speaker 3: can retire sooner under the fire movement. So if they
Speaker 3: can buy a property in a cheap location, pay off
Speaker 3: that mortgage over a ten year period. Fantastic they're not
Speaker 3: having to pay rent, whereas others have figured that, Okay,
Speaker 3: I'm happy to build a tiny home for fifty thousand
Speaker 3: dollars and plant that somewhere in a friend's backyard, and
Speaker 3: that's fine. That means that I can retire early. I
Speaker 3: don't need to buy the land and have a proper house.
Speaker 3: So it really came down to how much they were
Speaker 3: willing to compromise where they wanted to live as to
Speaker 3: decide in between a property and then or otherwise just
Speaker 3: renting under the fire movement. And maybe just one other
Speaker 3: thing which I wanted to mention about the fire movement
Speaker 3: is that I actually have a client who pursued it.
Speaker 3: He worked really hard in his twenties and thirties, and
Speaker 3: he retired in his early forties. And he said to
Speaker 3: me the other day that, look, it's great on paper
Speaker 3: to retire in your forties, but the thing is that
Speaker 3: your friends aren't retired. They're working Monday to Friday. So
Speaker 3: you know, I can go play golf every day, but
Speaker 3: I've got no one to go play golf with. I
Speaker 3: can go to lunch every day, I've got no one
Speaker 3: to go to lunch with. Everyone else is busy and.
Speaker 1: He really can live in Sydney and he's retired and
Speaker 1: he's in his forties.
Speaker 2: Yeah, that's right. Yeah, what does he do then?
Speaker 3: He's a doctor, so he worked tirelessly, but not just
Speaker 3: as a GP. He started to buy and grow medical practices,
Speaker 3: so he built up a very good empire of businesses
Speaker 3: there and has been able to retire in his foresting.
Speaker 1: Interesting, my dad retired when he was sixty, which was
Speaker 1: early at the time or at this wasnt common at
Speaker 1: the time, and he lukely loved it and he took
Speaker 1: to it straight away, and like literally was a model
Speaker 1: of how to retire. He had a lot of interests
Speaker 1: outside of work, and he found work very hard in
Speaker 1: the end because he was in building, which is a
Speaker 1: tough game, as anyone knows. Okay, now some questions, we'll
Speaker 1: only get through a few, just James, I might just
Speaker 1: zone in on one or two.
Speaker 2: I really want to get covered. Sally says.
Speaker 1: I found your interview with Eliza Owen of Core Logic interesting,
Speaker 1: but I disagree with her conclusion of oversupply in Victoria
Speaker 1: based on the number of supply over sold. The supply
Speaker 1: problem is a chronic problem. I'm very surprised that all
Speaker 1: of a sudden we have oversupply problem based on auction rates. Okay, Sally, well,
Speaker 1: Eliza was fairly convincing on that. I think there's a
Speaker 1: couple of things there. Melbourne is in relative oversupply and
Speaker 1: the other states are undersupplied. Melbourne had one hundred thousand
Speaker 1: more houses built than Sydney, for instance, which is a
Speaker 1: larger city. So in that, to that extent, it is
Speaker 1: the stet with relative ulversupply. We probably could examine that
Speaker 1: harder and have a long debate about it, but that
Speaker 1: I think would hopefully cover the bases there. Carl asks
Speaker 1: very simple question Car, at Car, are you generally better
Speaker 1: off borrowing a million to negatively gear an invest in
Speaker 1: a property? Are salary sacrificing salary sacrificing into super? I
Speaker 1: presume he means jams, we do you reckon?
Speaker 3: Yeah, salary sacrifice it into super? You get a tax break.
Speaker 3: So rather than pay tax at your marginal tax rate
Speaker 3: of up to forty seven percent, the money that goes
Speaker 3: into Super gets tax at fifteen percent, or if you
Speaker 3: eard more than two hundred and fifty thousand dollars, it
Speaker 3: gets taxed at thirty percent. So there's this benefit, this
Speaker 3: tax benefit of putting money into super So that's great.
Speaker 3: The downside is that you have to wait until you're
Speaker 3: sixty and retire to access that money. The alternative, which
Speaker 3: Cayl mentioned is borrowing a million dollars and negatively gearing
Speaker 3: that so buying an investment property fine, but the risk
Speaker 3: there is that your gain or loss is magnified because
Speaker 3: you've borrowed a heap of money. You've put in minimal
Speaker 3: of your own capital there, and so there's a really
Speaker 3: big risk that if you get it wrong, you really
Speaker 3: get it wrong, and it can. It's ruined some people
Speaker 3: financially where they've borrowed a lot, bought property and it
Speaker 3: hasn't gone to plan. So we think about mining towns
Speaker 3: in Western Australia or Queensland in the past where they
Speaker 3: want to ride the wave the market's been going up.
Speaker 3: They buy, unfortunately at the top of the market, and
Speaker 3: then they see the property drop by fifty percent in
Speaker 3: a few years. That follows they're left with debt that
Speaker 3: they need to pay off over a twenty year period
Speaker 3: and they've had to sell the property.
Speaker 1: So Carl History would suggests you could be better off.
Speaker 1: What you're really asking is if I gear up on property,
Speaker 1: well I do better than on geared diversified investments and superannuation.
Speaker 1: And no one can really tell you that to be fair,
Speaker 1: you should gear your superannuation to gear against to match
Speaker 1: dollar for dollar the geared dollars in property. I think
Speaker 1: the essential point of which James is making, and by
Speaker 1: the way, this has never advised its information only is
Speaker 1: that if all your eggs in one basket, it's not complicated.
Speaker 1: If all your eggs in one basket Australian residential property,
Speaker 1: and there's nothing to say that Australian residential property will
Speaker 1: be a knockout investment forever. It's been pretty good for
Speaker 1: a long time and will probably continue to be. But
Speaker 1: you will go against the basic core principles of diverse
Speaker 1: lofication which we all sincerely believe in around here at
Speaker 1: the Money Puzzle. Okay, final question if I can, James,
Speaker 1: sorry to bounced through this, but it's interesting. I'm going
Speaker 1: to read out what the reader Kate says, and then
Speaker 1: I'm going to read out the response from a previous guest,
Speaker 1: because previous guests have the writer reply just like you
Speaker 1: have James. Should anyone come marching in on what you
Speaker 1: said today so fire people might okay? Kate says, I
Speaker 1: enjoyed this seems the podcast here in New Zealand. I
Speaker 1: was listening to some back episodes and I listened to
Speaker 1: why rental growth is going to weaken? This was from April.
Speaker 1: It was near the connesty from Rewhit, she says. Kate says,
Speaker 1: from New Zealand, I was interested to hear Nerida's comment
Speaker 1: on New Zealand rental market and the anecdote provided that
Speaker 1: was the opposite of what the data shows.
Speaker 2: She said.
Speaker 1: The changes met by the government here in stopping negative
Speaker 1: gearing has seen landlords leave the market. This was what
Speaker 1: was expected to happen, but data says differently. In New Zealand,
Speaker 1: it is the law that bonds collected are lodged with
Speaker 1: Tenancy Servances, a government agency, and they also report on
Speaker 1: bond data. This is the best record of tenancies in
Speaker 1: the country and it shows in June twenty twenty one,
Speaker 1: before the law changed, the number of bonds lodge Worth
Speaker 1: three hundred and eighty five thousand. A year later it
Speaker 1: was three hundred and eighty eight thousand. That is the
Speaker 1: opposite of landlords leaving the market. So Kate is making
Speaker 1: the point, Hey, if you remove negative gearing, it doesn't
Speaker 1: hit the market as badly as men and he say, Nereada,
Speaker 1: I had to go back, obviously to Newada and say
Speaker 1: this is what Kate has said. I've sent her your
Speaker 1: correspondence Kate, and Nereada says, okay, she says it's interesting.
Speaker 1: I double checked what Kate is saying is correct about
Speaker 1: rental bonds. However, investor lending has plummeted, it basically cut
Speaker 1: in half. So investors are certainly not entering the market
Speaker 1: in New Zealand like they were. It's also extremely challenging
Speaker 1: to sell a house in New Zealand at the moment
Speaker 1: with interest rates.
Speaker 2: So HI.
Speaker 1: On rental demand New Zealand's extremely low population growth in
Speaker 1: twenty twenty one and twenty two as a result, there
Speaker 1: is no additional demand for rental accommodation. The main challenge
Speaker 1: right now is that it is the least affordable country
Speaker 1: in the world to be a renter. So and Or
Speaker 1: doesn't deny what you've said, Kate, as she challenges your
Speaker 1: interpretation of the data. And we will leave those that
Speaker 1: that amazing question hanging out there. If we scrap negative gearing,
Speaker 1: would it make the market better or worse for investors?
Speaker 1: Many say it would, and Vida implies that, and Kate
Speaker 1: implies that the experience in New Zealand hasn't suggested that,
Speaker 1: using the one criteria being the registration of bonds in
Speaker 1: the market. Interesting though we'll never know. Part Keating tried it,
Speaker 1: he only lasted about a year and a half and
Speaker 1: then he backtracked and put it back in.
Speaker 2: And Partkating didn't backtrack on much.
Speaker 1: And I don't think anyone We always say we don't
Speaker 1: know if anybody will go near it here, but perhaps
Speaker 1: somebody will be clever enough to find a way to
Speaker 1: look at all tax reform without having themselves voted out
Speaker 1: of office.
Speaker 2: That remains to be seen.
Speaker 1: James Gerard, financial advisor dot com and regular contributor, weekly
Speaker 1: contributor to the Australian Web Section.
Speaker 2: Lovely to have you on again.
Speaker 3: Thank you my pleasure as always, great.
Speaker 1: To talk to you, great to have the questions rolling in. Everybody,
Speaker 1: do mention us to someone you know mentioned the show.
Speaker 1: It would be lovely if you did that. I really
Speaker 1: appreciate that. The email is the money puzzle at the
Speaker 1: Australian dot com dot Au and the producer today was
Speaker 1: Liah Samando.
Speaker 3: Hope you soon