1 00:00:14,920 --> 00:00:18,080 Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm 2 00:00:18,160 --> 00:00:21,959 Speaker 1: James Kirby, the editor at the Australian. Welcome aboard everybody. 3 00:00:22,440 --> 00:00:27,480 Speaker 1: You've probably seen our market being in exceptionally good shape 4 00:00:27,480 --> 00:00:30,040 Speaker 1: in recent weeks. We're going to talk about the market, 5 00:00:30,360 --> 00:00:33,479 Speaker 1: about the outlook for the year ahead. When I say 6 00:00:33,479 --> 00:00:35,760 Speaker 1: the year ahead, of financial year ahead, if you're an 7 00:00:35,760 --> 00:00:38,760 Speaker 1: active investor, you've probably had a good idea already how 8 00:00:38,800 --> 00:00:42,159 Speaker 1: you did last year, the year to June. You're probably 9 00:00:42,360 --> 00:00:45,920 Speaker 1: starting in terms of planning what you might do this year. 10 00:00:46,640 --> 00:00:49,239 Speaker 1: And I've got the ideal guest to give us a 11 00:00:49,280 --> 00:00:52,120 Speaker 1: steer basically as an investor, how to approach that. A 12 00:00:52,200 --> 00:00:54,960 Speaker 1: couple of other things I want to talk about as well. 13 00:00:55,400 --> 00:00:58,000 Speaker 1: It was very interesting, I thought this week to see 14 00:00:58,040 --> 00:01:01,240 Speaker 1: Joe Biden step down. What I mean by that is 15 00:01:01,400 --> 00:01:04,480 Speaker 1: it was very interesting to see someone at that age 16 00:01:05,600 --> 00:01:08,880 Speaker 1: where time had basically caught up with them. They resisted 17 00:01:08,959 --> 00:01:12,960 Speaker 1: that in an unfortunate way, and then of course they 18 00:01:13,000 --> 00:01:16,640 Speaker 1: were humiliated really and forced to stand down. And I 19 00:01:16,680 --> 00:01:21,080 Speaker 1: wonder as an investor many people will will ultimately face 20 00:01:21,160 --> 00:01:24,520 Speaker 1: the same problem, or their parents will face the same problem. 21 00:01:24,959 --> 00:01:27,720 Speaker 1: And at what point do you let go? And how 22 00:01:27,760 --> 00:01:29,440 Speaker 1: would you know when to let go? I want to 23 00:01:29,440 --> 00:01:32,080 Speaker 1: talk about that too, because it's a really interesting topic. 24 00:01:33,000 --> 00:01:36,560 Speaker 1: My guest today is Hugh Robertson of Centaur Financial Services. 25 00:01:36,600 --> 00:01:39,080 Speaker 1: He's a regular on the show. He's always going to 26 00:01:39,120 --> 00:01:42,440 Speaker 1: talk to. He is sitting this morning in some splendor, 27 00:01:42,560 --> 00:01:45,800 Speaker 1: I might say. I can see him. He's in Brisbane 28 00:01:46,319 --> 00:01:48,520 Speaker 1: and I can see out his office window, and I 29 00:01:48,560 --> 00:01:51,360 Speaker 1: gotta tell you it just looks fantastic. What are those 30 00:01:51,480 --> 00:01:53,040 Speaker 1: What are the name of those hills that I can 31 00:01:53,080 --> 00:01:54,120 Speaker 1: see out your window? 32 00:01:54,160 --> 00:01:57,160 Speaker 2: Hugh, that's the great divide in range, James. But it 33 00:01:57,280 --> 00:02:00,520 Speaker 2: is with Don on the Gold Coast today, and that's 34 00:02:00,600 --> 00:02:02,520 Speaker 2: just the hinter land, right. 35 00:02:02,600 --> 00:02:04,480 Speaker 1: That's one of the most beautiful places in the world, 36 00:02:04,520 --> 00:02:05,160 Speaker 1: isn't it really. 37 00:02:05,760 --> 00:02:07,560 Speaker 3: We are very blessed, very lucky. 38 00:02:07,800 --> 00:02:09,840 Speaker 1: Yeah. And I see the other thing I see is 39 00:02:09,880 --> 00:02:12,280 Speaker 1: blue sky, which I must say looks so good this 40 00:02:12,360 --> 00:02:14,920 Speaker 1: morning as well, because I'm not seeing any I can 41 00:02:15,040 --> 00:02:17,640 Speaker 1: tell you out of my window. Now we talk about 42 00:02:17,680 --> 00:02:21,680 Speaker 1: Biden in a minute. But original idea we had thrashed 43 00:02:21,720 --> 00:02:23,640 Speaker 1: out in having you on the show. I want to 44 00:02:23,639 --> 00:02:27,400 Speaker 1: do firstly, which is about setting up for the year 45 00:02:27,520 --> 00:02:31,760 Speaker 1: ahead as an investor, really, unless you did something really 46 00:02:31,800 --> 00:02:34,519 Speaker 1: wrong or you were awfully unlucky, you've probably had a 47 00:02:34,600 --> 00:02:37,280 Speaker 1: damn good year. In the year to June. You can 48 00:02:37,320 --> 00:02:39,120 Speaker 1: see that all the big super funds have had a 49 00:02:39,240 --> 00:02:42,360 Speaker 1: very good year, and they're talking eight percent and eight percent, 50 00:02:42,919 --> 00:02:44,960 Speaker 1: you bet. I think most investors would have got that 51 00:02:45,200 --> 00:02:48,040 Speaker 1: at least. And on the share market, I'm betting that 52 00:02:48,120 --> 00:02:51,400 Speaker 1: anyone who had a decent share portfolio, their return was 53 00:02:51,440 --> 00:02:54,880 Speaker 1: in the teens. If you happen to own an investment property, 54 00:02:55,040 --> 00:02:58,040 Speaker 1: it probably did eight or nine percent. If you owned one, 55 00:02:58,040 --> 00:03:01,880 Speaker 1: and it probably did twenty percent plus a lot of numbers. 56 00:03:01,919 --> 00:03:03,800 Speaker 1: Going the right way, you can still get five percent 57 00:03:03,960 --> 00:03:07,240 Speaker 1: government guaranteed in cash. It's like a what they call 58 00:03:07,280 --> 00:03:10,880 Speaker 1: a Goldilocks environment in many ways for investors. But what 59 00:03:10,919 --> 00:03:13,520 Speaker 1: I want to ask you, Hugh, is if I were 60 00:03:13,560 --> 00:03:15,320 Speaker 1: sitting in your office and I was saying to you, 61 00:03:16,200 --> 00:03:19,000 Speaker 1: what should I do this year? What should I be 62 00:03:19,040 --> 00:03:22,400 Speaker 1: aware of? How are you guiding people at the moment. 63 00:03:23,040 --> 00:03:26,560 Speaker 2: It's a great question and very topical. As we're doing 64 00:03:26,600 --> 00:03:29,200 Speaker 2: our reviews with our clients. This is these are the 65 00:03:29,240 --> 00:03:32,560 Speaker 2: conversations and if you go back sort of twelve months, 66 00:03:33,040 --> 00:03:35,320 Speaker 2: we were going to have a hard landing. Remember that 67 00:03:35,400 --> 00:03:37,960 Speaker 2: was the narrative. It's we've gone from a hard landing 68 00:03:38,080 --> 00:03:42,280 Speaker 2: to a soft land into no landing. Everyone who's confusing 69 00:03:42,360 --> 00:03:45,600 Speaker 2: us with pilots at the moment, and it's a difficult 70 00:03:46,040 --> 00:03:50,440 Speaker 2: terrain to navigate because you are the information is changing 71 00:03:50,520 --> 00:03:55,520 Speaker 2: very quickly, so you've really got to be proactive in 72 00:03:55,560 --> 00:03:59,480 Speaker 2: your decision making and not take big bets. I feel 73 00:04:00,200 --> 00:04:02,520 Speaker 2: that we've seen where people have gone wrong is they've 74 00:04:02,560 --> 00:04:05,040 Speaker 2: taken a big bet. It might be that we think 75 00:04:05,160 --> 00:04:07,880 Speaker 2: interest rates are going to go down substantially, so we're 76 00:04:07,880 --> 00:04:10,240 Speaker 2: going to put all of our fixed interest portion of 77 00:04:10,280 --> 00:04:14,680 Speaker 2: our portfolio into long duration bonds as an example, And 78 00:04:14,720 --> 00:04:17,240 Speaker 2: if you did that, you would have definitely been impacted 79 00:04:17,640 --> 00:04:20,680 Speaker 2: negatively over the past twelve months. So when the facts change, 80 00:04:20,720 --> 00:04:22,760 Speaker 2: our views need to change. And if we're going on 81 00:04:23,040 --> 00:04:29,400 Speaker 2: under the current assumption that no landing scenario and everything's good, 82 00:04:29,760 --> 00:04:32,160 Speaker 2: there is some geopolitical risk out there in the world. 83 00:04:32,240 --> 00:04:34,839 Speaker 2: There is who would have thought would be doing a 84 00:04:34,880 --> 00:04:38,880 Speaker 2: podcast saying that someone tried to assassinate Donald Trump. So 85 00:04:39,600 --> 00:04:43,840 Speaker 2: there's some uncertainty out there, and in times of uncertainty, 86 00:04:44,400 --> 00:04:47,600 Speaker 2: you diversify so that you want to stay in your 87 00:04:47,640 --> 00:04:52,640 Speaker 2: large caps internationally and domestically, maybe entertained some small caps 88 00:04:52,760 --> 00:04:56,440 Speaker 2: because of the valuation divergence evaluation gap as at a 89 00:04:56,680 --> 00:05:01,880 Speaker 2: historically high level. And I feel not chasing last year's winners, 90 00:05:01,880 --> 00:05:04,599 Speaker 2: that Magnificent seven, A lot of people now want to 91 00:05:04,600 --> 00:05:07,000 Speaker 2: get into that maybe the time's too late, or if 92 00:05:07,000 --> 00:05:10,520 Speaker 2: you did want to get in very small exposure. I 93 00:05:10,560 --> 00:05:13,200 Speaker 2: feel even post COVID, it's just been a very different 94 00:05:13,240 --> 00:05:16,919 Speaker 2: investing regime, so you've got to not get too confident 95 00:05:17,000 --> 00:05:20,600 Speaker 2: that you're a stock picking guru. And I can tell 96 00:05:20,600 --> 00:05:22,839 Speaker 2: you that the majority of fund managers we spoke to 97 00:05:22,880 --> 00:05:26,240 Speaker 2: over the past twelve months have been bearish on financials, 98 00:05:26,440 --> 00:05:31,320 Speaker 2: and for the financial year twenty three twenty four, financials 99 00:05:31,360 --> 00:05:33,800 Speaker 2: delivered thirty percent yet a lot of managed funds and 100 00:05:33,800 --> 00:05:34,840 Speaker 2: professional fundmations. 101 00:05:34,880 --> 00:05:38,159 Speaker 1: So they've been bearish on financials and they've been completely wrong, right. 102 00:05:39,080 --> 00:05:41,680 Speaker 3: Yeah, And they were bullish on resources, which. 103 00:05:42,320 --> 00:05:44,400 Speaker 1: You know, which kind of tells us no one actually 104 00:05:44,440 --> 00:05:47,040 Speaker 1: knows what's going to happen next. But because they have 105 00:05:47,160 --> 00:05:49,280 Speaker 1: an extraordinary thing locally at least, so we have the 106 00:05:49,320 --> 00:05:53,440 Speaker 1: common Went Bank just basically carrying the locomotive basically in 107 00:05:53,480 --> 00:05:58,040 Speaker 1: the market one hundred and thirty dollars extraordinary price, number 108 00:05:58,160 --> 00:06:02,360 Speaker 1: one bigger stock in the market now comfortably bigger than BHP, 109 00:06:02,839 --> 00:06:04,800 Speaker 1: and all the top ten full of banks, all four 110 00:06:04,839 --> 00:06:08,360 Speaker 1: of them in there, plus Macquarie. Okay, so just develop 111 00:06:08,440 --> 00:06:10,560 Speaker 1: that a little bit about big bets. Would you say 112 00:06:10,600 --> 00:06:11,960 Speaker 1: that every year anyway here? 113 00:06:13,440 --> 00:06:18,160 Speaker 2: Yeah, yes I would, And I feel ass allocations becoming 114 00:06:19,320 --> 00:06:23,120 Speaker 2: more important to the everyday investor. If you imagine your portfolios, 115 00:06:23,200 --> 00:06:25,920 Speaker 2: you've probably never been wealthier for the listeners out there 116 00:06:25,920 --> 00:06:28,720 Speaker 2: in terms of house price, are their superannuation or in 117 00:06:29,000 --> 00:06:33,159 Speaker 2: a non superinvestment portfolio with that, but it really starts 118 00:06:33,200 --> 00:06:38,160 Speaker 2: to come with some much needed discipline and some strategy 119 00:06:38,160 --> 00:06:40,840 Speaker 2: around how you allocate your capital. What we mean by 120 00:06:40,880 --> 00:06:42,839 Speaker 2: that is if you want to take a if you 121 00:06:42,880 --> 00:06:45,479 Speaker 2: want to make a move to going back to that, 122 00:06:45,640 --> 00:06:49,479 Speaker 2: rebalancing your portfolio into some bonds, maybe taking some equity exposure, 123 00:06:49,680 --> 00:06:51,440 Speaker 2: or maybe selling some of your banks. Let's go with 124 00:06:51,560 --> 00:06:55,320 Speaker 2: selling some of the banks, don't sell the whole exposure. 125 00:06:55,720 --> 00:06:58,840 Speaker 2: Maybe you sell it off over four installments for five installments, 126 00:06:58,880 --> 00:07:00,680 Speaker 2: you know your dollar cost average on your way into 127 00:07:00,720 --> 00:07:03,280 Speaker 2: investments and your dollar cost average your way out. That way, 128 00:07:03,320 --> 00:07:06,400 Speaker 2: if the facts change and financials have a run, you're 129 00:07:06,440 --> 00:07:11,080 Speaker 2: not left naked and alone. So I think that's where 130 00:07:11,640 --> 00:07:15,120 Speaker 2: that's probably the one difference in conversation of to what 131 00:07:15,160 --> 00:07:17,320 Speaker 2: we used to have, where we might make a ten 132 00:07:17,360 --> 00:07:20,400 Speaker 2: percent out of one investment into another. Now it's usually 133 00:07:20,400 --> 00:07:21,920 Speaker 2: a bit smaller and we do it over a few 134 00:07:21,920 --> 00:07:22,680 Speaker 2: more periods. 135 00:07:22,920 --> 00:07:26,000 Speaker 1: Okay, So caution there all the way. When you were 136 00:07:26,200 --> 00:07:27,560 Speaker 1: tell me, it's just a little bit more about what 137 00:07:27,560 --> 00:07:30,360 Speaker 1: you were trying to say about big bets and rates. 138 00:07:31,840 --> 00:07:36,480 Speaker 1: There was an assumption that rates would drop. There was 139 00:07:36,520 --> 00:07:40,720 Speaker 1: an assumption in the US at rates would drop, particularly 140 00:07:40,880 --> 00:07:45,840 Speaker 1: and here you're not convinced with that assumption any longer. 141 00:07:46,960 --> 00:07:51,679 Speaker 2: Yes, I feel that we were led by the Federal 142 00:07:51,760 --> 00:07:56,440 Speaker 2: Reserve and the Reserve Bank and the quote unquote experts 143 00:07:56,840 --> 00:07:59,360 Speaker 2: giving us direction and consensus views. And I think we 144 00:07:59,480 --> 00:08:03,160 Speaker 2: had US rates were going to go down six times 145 00:08:03,200 --> 00:08:05,880 Speaker 2: in calendar year twenty four, and Aussie rates might have 146 00:08:05,920 --> 00:08:08,160 Speaker 2: been going to go down three times, if memory serve's 147 00:08:08,240 --> 00:08:10,880 Speaker 2: right at the start of the year, and todate we 148 00:08:10,960 --> 00:08:13,400 Speaker 2: haven't had rates go down in either, And in fact, 149 00:08:13,400 --> 00:08:17,000 Speaker 2: it looks like within Australia, rates actually may go. 150 00:08:17,160 --> 00:08:18,080 Speaker 1: Up, So. 151 00:08:19,560 --> 00:08:20,720 Speaker 3: You can't. 152 00:08:21,600 --> 00:08:25,280 Speaker 2: You shouldn't as an investor, you shouldn't make your investment 153 00:08:25,280 --> 00:08:29,080 Speaker 2: decision based off that economic forecast or that consensus view. 154 00:08:29,440 --> 00:08:31,440 Speaker 2: You've got to make it based off what you need 155 00:08:31,520 --> 00:08:36,280 Speaker 2: personally in your portfolio and how much down downside risk 156 00:08:36,360 --> 00:08:40,280 Speaker 2: can you take. And I feel people have tried to 157 00:08:40,360 --> 00:08:43,160 Speaker 2: use macroeconomic indicators maybe a little bit too much to 158 00:08:43,160 --> 00:08:45,800 Speaker 2: predict what's going to happen with markets. We saw that 159 00:08:46,160 --> 00:08:48,360 Speaker 2: over the last couple of years with the magnificence or 160 00:08:48,400 --> 00:08:51,160 Speaker 2: even just tech stocks in general. You know, they got 161 00:08:51,320 --> 00:08:55,439 Speaker 2: hammered in what was that twenty two and so then 162 00:08:55,520 --> 00:08:57,640 Speaker 2: a lot of people weren't in them at all when 163 00:08:57,679 --> 00:09:00,520 Speaker 2: they recovered in twenty three, and when they did get 164 00:09:00,559 --> 00:09:02,960 Speaker 2: into them eventually, you know that already gone up. 165 00:09:03,880 --> 00:09:07,480 Speaker 1: They had done this amazing run. Yes, yeah, as people 166 00:09:07,520 --> 00:09:10,880 Speaker 1: forget that, the entire lift on the markets driven by 167 00:09:10,920 --> 00:09:14,200 Speaker 1: the US, the entire lift on the US driven by 168 00:09:14,679 --> 00:09:17,800 Speaker 1: the big tech stocks, the entire lift in the big 169 00:09:17,840 --> 00:09:21,160 Speaker 1: stocks substantially driven by a company called Nvidio, which no 170 00:09:21,200 --> 00:09:23,040 Speaker 1: one had heard of a couple of years ago, being 171 00:09:23,040 --> 00:09:25,439 Speaker 1: an AI stock. I read for it was responsible for 172 00:09:25,520 --> 00:09:27,240 Speaker 1: one third of the lift to one third of the 173 00:09:27,280 --> 00:09:29,240 Speaker 1: lift of the US market, and the US market is 174 00:09:29,240 --> 00:09:32,040 Speaker 1: seventy percent of the world, so you could extrapolate there, 175 00:09:32,040 --> 00:09:35,440 Speaker 1: and it's really quite stunning. Looking at another point you 176 00:09:35,520 --> 00:09:37,400 Speaker 1: made there, I just wanted to tease out that a 177 00:09:37,440 --> 00:09:39,480 Speaker 1: little about small caps. What are you leading to there 178 00:09:39,520 --> 00:09:42,520 Speaker 1: about small caps and if the theory is that small 179 00:09:42,559 --> 00:09:45,640 Speaker 1: caps are due their day and that they lagged to 180 00:09:45,679 --> 00:09:48,360 Speaker 1: some extent, that they'll run now behind the large caps, 181 00:09:48,360 --> 00:09:51,200 Speaker 1: this is their phase. If that's the case, first of all, 182 00:09:51,440 --> 00:09:54,280 Speaker 1: is that what you're thinking? And secondly, how would an 183 00:09:54,280 --> 00:09:57,240 Speaker 1: investor listen to the show get in on the action? 184 00:09:58,040 --> 00:09:58,800 Speaker 3: Great question. 185 00:09:59,120 --> 00:10:03,080 Speaker 2: If you look at traditionally, small caps would have a 186 00:10:03,080 --> 00:10:06,520 Speaker 2: greater upside than large caps, and it's a greater reward 187 00:10:06,520 --> 00:10:09,160 Speaker 2: and therefore we have greater risk. If you look over 188 00:10:09,480 --> 00:10:13,200 Speaker 2: the past few years, the divergence in terms of valuation 189 00:10:13,360 --> 00:10:17,080 Speaker 2: between the large caps versus the small caps has never 190 00:10:17,120 --> 00:10:21,600 Speaker 2: been greater. And what that means from our perspective is 191 00:10:22,360 --> 00:10:26,400 Speaker 2: that it's worth looking there. And I think within the 192 00:10:26,400 --> 00:10:29,760 Speaker 2: past week we saw small caps global small caps go 193 00:10:29,840 --> 00:10:31,800 Speaker 2: up about ten percent. I know for the month of July, 194 00:10:31,840 --> 00:10:33,000 Speaker 2: they are up about ten percent. 195 00:10:33,280 --> 00:10:36,320 Speaker 1: Yeah, they've had a suddainly had this hotter on, haven't 196 00:10:36,360 --> 00:10:38,240 Speaker 1: they just this last few weeks? Yeah? 197 00:10:38,360 --> 00:10:40,760 Speaker 2: Yeah, And this was off the back of again the 198 00:10:40,800 --> 00:10:43,880 Speaker 2: forecasts around Okay, it's not going to be a recession, 199 00:10:43,920 --> 00:10:47,600 Speaker 2: so it's almost like risk is back on the table. 200 00:10:47,640 --> 00:10:50,960 Speaker 2: People are willing to take risk again. And the NA videos. 201 00:10:51,520 --> 00:10:54,319 Speaker 2: Every large cap company started as a small cap company, 202 00:10:54,800 --> 00:10:58,880 Speaker 2: and you've got now when there was a chart released 203 00:10:58,880 --> 00:11:03,880 Speaker 2: by JP recently as talking about the relative pe gap 204 00:11:03,920 --> 00:11:07,400 Speaker 2: and it's never been larger. So what that's telling you 205 00:11:07,559 --> 00:11:11,079 Speaker 2: is that small caps are cheap and you don't need 206 00:11:11,120 --> 00:11:14,480 Speaker 2: a lot right for that to go well because it's selling. 207 00:11:14,840 --> 00:11:16,920 Speaker 2: Some of them are at a price to earnings ratio 208 00:11:16,960 --> 00:11:20,280 Speaker 2: of eight to ten times, and their earnings, like their 209 00:11:20,280 --> 00:11:23,760 Speaker 2: earnings yield is ten percent right now, so they don't 210 00:11:23,840 --> 00:11:26,120 Speaker 2: need to necessarily even make a lot more money for 211 00:11:26,160 --> 00:11:27,760 Speaker 2: the share price to go up. It could just be 212 00:11:27,880 --> 00:11:31,760 Speaker 2: that the price to earnings ratio reverts to normal and 213 00:11:32,080 --> 00:11:35,320 Speaker 2: there's you know, there could be a substantial return on 214 00:11:35,400 --> 00:11:36,120 Speaker 2: investment there. 215 00:11:36,559 --> 00:11:39,040 Speaker 1: Okay, So yeah, I didn't quite realize that it's not 216 00:11:39,120 --> 00:11:43,079 Speaker 1: just that they are due there d but that they 217 00:11:43,160 --> 00:11:47,240 Speaker 1: are the pricing of the small cap stocks is actually 218 00:11:47,480 --> 00:11:50,240 Speaker 1: behind the eirport in terms of the rest of the market. 219 00:11:51,080 --> 00:11:55,120 Speaker 2: Yes, and on all historic sort of tangibles. I know 220 00:11:55,200 --> 00:11:57,280 Speaker 2: that the data that I was looking at was from 221 00:11:57,720 --> 00:12:02,480 Speaker 2: just going back fifteen fifteen plus years, and on the 222 00:12:02,600 --> 00:12:04,920 Speaker 2: chart you've had that the small caps had never been 223 00:12:05,280 --> 00:12:09,440 Speaker 2: never been cheaper. And that also makes sense in a 224 00:12:09,480 --> 00:12:12,480 Speaker 2: way too. During a recession and if people are scared, 225 00:12:12,880 --> 00:12:17,640 Speaker 2: small caps will go down further, and because people will 226 00:12:17,720 --> 00:12:20,880 Speaker 2: leave that space and go into large caps, which by 227 00:12:21,320 --> 00:12:24,880 Speaker 2: theory are safer. So it makes sense why it has 228 00:12:24,960 --> 00:12:27,400 Speaker 2: been that way over the past few years. People have 229 00:12:27,440 --> 00:12:28,959 Speaker 2: been a bit scared and they've been able to put 230 00:12:29,000 --> 00:12:34,520 Speaker 2: their money into From a global perspective, Microsoft, Google and 231 00:12:34,559 --> 00:12:37,320 Speaker 2: those big businesses that aren't going to go broke. But 232 00:12:37,679 --> 00:12:40,400 Speaker 2: now there's the opportunity there to maybe exploit some of 233 00:12:40,440 --> 00:12:43,000 Speaker 2: those up and coming businesses that are the future leaders 234 00:12:43,000 --> 00:12:45,240 Speaker 2: that are outside those sort of top one hundred two 235 00:12:45,320 --> 00:12:48,720 Speaker 2: hundred companies on the Australian Stock Exchange or globally. 236 00:12:49,000 --> 00:12:51,079 Speaker 1: Well, so if I was with you and folks, it's 237 00:12:51,120 --> 00:12:54,880 Speaker 1: we're telling you that he was a regular invariably in 238 00:12:54,920 --> 00:12:58,440 Speaker 1: the upper reaches of our Tough Financial Advisors list that 239 00:12:58,480 --> 00:13:01,559 Speaker 1: we release every year with Barons. He's also one of 240 00:13:01,600 --> 00:13:03,920 Speaker 1: the younger advisors at the upper reaches of that list. 241 00:13:04,120 --> 00:13:05,600 Speaker 1: So if I was looky enough to be sitting in 242 00:13:05,640 --> 00:13:08,400 Speaker 1: your splendid office and we were both gazing out over 243 00:13:08,440 --> 00:13:10,839 Speaker 1: the Gold Coast hinterland on a lovely morning, and I 244 00:13:10,880 --> 00:13:13,320 Speaker 1: said to you, that's all fine, Hugh, how do I 245 00:13:13,360 --> 00:13:16,079 Speaker 1: go near small caps? Even in the Australian market, it's 246 00:13:16,120 --> 00:13:23,120 Speaker 1: probably roughly two thousand small caps, of which perhaps a 247 00:13:23,160 --> 00:13:25,920 Speaker 1: few dozen are going to be great, But how do 248 00:13:26,040 --> 00:13:28,560 Speaker 1: I find them or how do I approach that area 249 00:13:28,640 --> 00:13:30,040 Speaker 1: as an investor. 250 00:13:30,679 --> 00:13:34,880 Speaker 2: We've got the rise and rise of exchange traded funds, 251 00:13:35,400 --> 00:13:37,280 Speaker 2: is the answer to that. So you've got a lot 252 00:13:37,320 --> 00:13:41,839 Speaker 2: of options and even there's active active exchange traded funds 253 00:13:41,840 --> 00:13:45,200 Speaker 2: now online. So I feel you want to you do 254 00:13:45,280 --> 00:13:49,240 Speaker 2: want to diversify, because you only need if you are 255 00:13:49,360 --> 00:13:52,800 Speaker 2: called Tesla back a few years ago, as it was 256 00:13:52,800 --> 00:13:56,800 Speaker 2: having its meteoric rise, it was exceeding ten percent of 257 00:13:57,520 --> 00:13:59,800 Speaker 2: it went up one hundred percent or something or even 258 00:13:59,840 --> 00:14:02,679 Speaker 2: more over the year, so she needed some discipline there. 259 00:14:02,679 --> 00:14:05,959 Speaker 2: So a portfolio manager that was sort of taking profits 260 00:14:06,480 --> 00:14:09,800 Speaker 2: routinely off the table just to manage risk. But you 261 00:14:09,840 --> 00:14:13,560 Speaker 2: could go in exchange traded funds they've got, there's small 262 00:14:13,600 --> 00:14:16,839 Speaker 2: cap index funds, there's small cap active managers. If you're 263 00:14:16,880 --> 00:14:19,760 Speaker 2: a client coming in to our office, we would want 264 00:14:19,760 --> 00:14:23,320 Speaker 2: to We think that small caps usually aren't as well 265 00:14:23,360 --> 00:14:26,840 Speaker 2: researched as the large caps, so there is an advantage 266 00:14:26,880 --> 00:14:31,200 Speaker 2: for a skilled manager to add value there, to find some. 267 00:14:31,640 --> 00:14:34,160 Speaker 1: A staff picker can really add value on like. 268 00:14:34,320 --> 00:14:38,920 Speaker 2: Picking, definitely in small companies which aren't as well covered 269 00:14:38,920 --> 00:14:41,640 Speaker 2: as large ones and emerging markets. I think that the 270 00:14:41,840 --> 00:14:45,160 Speaker 2: evidence and the academic research has always shown. 271 00:14:44,960 --> 00:14:48,800 Speaker 1: That even in our own market, who I would imagine 272 00:14:48,840 --> 00:14:50,800 Speaker 1: that's the case, isn't it. There's some really good small 273 00:14:50,800 --> 00:14:53,760 Speaker 1: caps that basically no one the brokers don't look at them, 274 00:14:54,160 --> 00:14:56,120 Speaker 1: no one ever visits them. They don't get covered in 275 00:14:56,200 --> 00:14:58,520 Speaker 1: the papers in the Australian, you don't read about them 276 00:14:58,560 --> 00:15:00,640 Speaker 1: right because they just can't get out there to them all. 277 00:15:01,040 --> 00:15:04,600 Speaker 1: But there are managers that specialize in literally going out 278 00:15:04,640 --> 00:15:07,280 Speaker 1: and sitting in front of these people and studying them. Yeah. 279 00:15:07,360 --> 00:15:10,240 Speaker 2: Yeah, And I think those managers have got some great 280 00:15:10,280 --> 00:15:13,680 Speaker 2: track records that with a little bit of research. 281 00:15:13,720 --> 00:15:14,800 Speaker 3: You could feel quite. 282 00:15:14,600 --> 00:15:18,160 Speaker 2: Confident there, and then what are we talking about allocation 283 00:15:18,280 --> 00:15:21,680 Speaker 2: wise of your portfolio. It's probably only a maximum of 284 00:15:21,720 --> 00:15:24,480 Speaker 2: five percent of your portfolio would then go into that manager. 285 00:15:24,960 --> 00:15:28,080 Speaker 2: We're still trying to manage risk, but we're trying to 286 00:15:28,080 --> 00:15:32,000 Speaker 2: get that manager really to all that investment strategy of 287 00:15:32,040 --> 00:15:34,640 Speaker 2: small caps really to add a benefit. That five percent 288 00:15:34,680 --> 00:15:38,280 Speaker 2: exposure could still add a good benefit if it goes 289 00:15:38,360 --> 00:15:42,800 Speaker 2: well to the whole portfolio, whereas if it doesn't go well, 290 00:15:43,480 --> 00:15:45,920 Speaker 2: then it hasn't hurt too much. And I think when 291 00:15:45,920 --> 00:15:48,440 Speaker 2: I was looking at the June thirty numbers, just at 292 00:15:48,440 --> 00:15:52,720 Speaker 2: the ax the two hundred accumulation next did twelve point 293 00:15:52,760 --> 00:15:55,920 Speaker 2: one and the small lords. So the small caps did 294 00:15:56,000 --> 00:15:58,680 Speaker 2: nine point three, so it was catching up. But over 295 00:15:58,760 --> 00:16:03,160 Speaker 2: three years IX two hundred delivered six point four and 296 00:16:03,240 --> 00:16:05,280 Speaker 2: small caps was negative one point five. 297 00:16:05,880 --> 00:16:07,960 Speaker 3: So you can say that there's opportunity there. 298 00:16:08,080 --> 00:16:10,880 Speaker 1: Okay, So if we get a reversion to the mean, 299 00:16:11,560 --> 00:16:14,920 Speaker 1: then they should have their day. Very interesting. Okay, Hey, 300 00:16:15,240 --> 00:16:17,560 Speaker 1: we will take a break and we will come back 301 00:16:17,560 --> 00:16:20,360 Speaker 1: and talk about something quite different that we allude to 302 00:16:20,480 --> 00:16:30,040 Speaker 1: at the start of the show. Hello, and welcome back 303 00:16:30,080 --> 00:16:33,240 Speaker 1: to the Money Puzzle Podcast. I'm James Kirby. I'm talking 304 00:16:33,240 --> 00:16:37,520 Speaker 1: to Hugh Robertson, and it's been an amazing couple of weeks, 305 00:16:38,040 --> 00:16:41,840 Speaker 1: that's for sure. It matters. It always matters if you're 306 00:16:41,880 --> 00:16:45,520 Speaker 1: an investor, especially in share markets. Folks. We just lemming 307 00:16:45,760 --> 00:16:49,880 Speaker 1: like really follow the momentum at least of the US markets, 308 00:16:50,120 --> 00:16:52,200 Speaker 1: and if they're going well, we're going well. And if 309 00:16:52,240 --> 00:16:54,680 Speaker 1: they're not going well, we are not going well. And 310 00:16:54,720 --> 00:16:57,040 Speaker 1: that is unavoidable and has been the case for as 311 00:16:57,120 --> 00:17:01,400 Speaker 1: long as anyone can remember. Hence the importance of US 312 00:17:01,560 --> 00:17:06,360 Speaker 1: national economy news, Hence the importance of the assassination attempt 313 00:17:06,400 --> 00:17:09,400 Speaker 1: on Trump, the big sympathy vote he's going to get 314 00:17:09,400 --> 00:17:12,800 Speaker 1: on the back of that, the increased chances and assumption 315 00:17:12,920 --> 00:17:16,080 Speaker 1: actually that he will win. Now, adding to that, then 316 00:17:16,119 --> 00:17:19,520 Speaker 1: we had this week, we had finally, and probably too late, 317 00:17:20,000 --> 00:17:26,080 Speaker 1: Joe Biden resigning as a sitting president as such, because 318 00:17:27,320 --> 00:17:31,679 Speaker 1: everyone finally the pressure came to him that he was 319 00:17:32,359 --> 00:17:34,800 Speaker 1: not so much too old. I don't think that's the 320 00:17:34,840 --> 00:17:39,040 Speaker 1: accurate word at all, but his condition, if you like, 321 00:17:40,160 --> 00:17:44,720 Speaker 1: and his ability to operate at the level expected of 322 00:17:44,800 --> 00:17:49,600 Speaker 1: a president, it's simply not there. And became terribly obvious 323 00:17:49,840 --> 00:17:53,280 Speaker 1: at the worst possible time in the US presidential debates 324 00:17:53,320 --> 00:17:56,560 Speaker 1: and in press conferences, etc. And what may meant impressure 325 00:17:56,600 --> 00:18:00,240 Speaker 1: on me was I was just thinking about investors. The 326 00:18:00,320 --> 00:18:04,679 Speaker 1: same thing will happen to a lot of investors. And 327 00:18:04,720 --> 00:18:07,359 Speaker 1: if it doesn't happen to them that who are listening now, 328 00:18:07,680 --> 00:18:09,800 Speaker 1: it could be happening to their parents at the very 329 00:18:09,840 --> 00:18:14,960 Speaker 1: same time. And there's a point at which many people 330 00:18:15,480 --> 00:18:17,960 Speaker 1: will have to think about throwing in the towel, just 331 00:18:18,040 --> 00:18:22,800 Speaker 1: like Biden did, tell me about this area first of all, 332 00:18:24,880 --> 00:18:27,400 Speaker 1: about the issue as it comes across your desk and 333 00:18:27,880 --> 00:18:28,720 Speaker 1: what do you do. 334 00:18:29,240 --> 00:18:35,240 Speaker 2: This is extremely common conversations nowadays, and it's a great 335 00:18:35,440 --> 00:18:39,160 Speaker 2: way of framing the question. Watching Biden and how he's 336 00:18:39,200 --> 00:18:41,480 Speaker 2: gone over the past few weeks and conducted himself, you 337 00:18:41,520 --> 00:18:44,280 Speaker 2: don't think he could really be. 338 00:18:43,440 --> 00:18:46,040 Speaker 3: The leader of a world powerhouse. 339 00:18:46,480 --> 00:18:49,399 Speaker 2: And it's the same sort of analogy of people that 340 00:18:49,480 --> 00:18:52,000 Speaker 2: have made a lot of money during their working career 341 00:18:52,160 --> 00:18:55,440 Speaker 2: and they've got a pretty good financial powerhouse right now, 342 00:18:55,440 --> 00:18:57,840 Speaker 2: and how do we make decisions going forward. There's more 343 00:18:57,880 --> 00:19:02,120 Speaker 2: noise than ever, it's more fusing than ever. The volatility 344 00:19:02,160 --> 00:19:06,520 Speaker 2: seems greater than ever. And I remember a stat once 345 00:19:06,800 --> 00:19:09,520 Speaker 2: years ago that I read that it was to the 346 00:19:09,560 --> 00:19:13,240 Speaker 2: extent of every year after the age of sixty, you 347 00:19:13,359 --> 00:19:18,159 Speaker 2: lose about two percent of your financial literacy capability. And 348 00:19:18,160 --> 00:19:20,000 Speaker 2: when you play that out, you go, okay. There's a 349 00:19:20,000 --> 00:19:23,640 Speaker 2: lot of people who are sixty right now who they're fine, 350 00:19:23,680 --> 00:19:26,840 Speaker 2: they've only lost two percent, But after ten years they've 351 00:19:26,840 --> 00:19:29,560 Speaker 2: lost twenty percent, and you start to go okay, Now 352 00:19:29,600 --> 00:19:32,920 Speaker 2: that starts to become a little bit problematic. 353 00:19:33,119 --> 00:19:35,840 Speaker 3: By eighty five, they've lost fifty percent. 354 00:19:36,280 --> 00:19:40,239 Speaker 2: And the challenge is from an investment perspective, is that 355 00:19:40,440 --> 00:19:43,960 Speaker 2: everyone's going to live longer than they expect. We sort 356 00:19:43,960 --> 00:19:46,640 Speaker 2: of benchmark how long our parents lived as to our 357 00:19:47,400 --> 00:19:51,840 Speaker 2: life expectancy, but we're all we're living longer. The people now, 358 00:19:51,920 --> 00:19:54,359 Speaker 2: the retirees now, are going to live longer than their parents. 359 00:19:54,400 --> 00:19:57,840 Speaker 2: I think we've now got actually a negative life expectancy 360 00:19:57,840 --> 00:20:01,199 Speaker 2: for people being born today. So from that perspective, you 361 00:20:01,240 --> 00:20:05,359 Speaker 2: really want to make sure you've got good discipline around 362 00:20:05,400 --> 00:20:08,800 Speaker 2: what you do. And I think it's necessarily just a 363 00:20:08,880 --> 00:20:11,600 Speaker 2: buy and hold approach. If you look at Commonwealth Bank shares, 364 00:20:11,600 --> 00:20:16,119 Speaker 2: which we just talked about previously, everyone just holds them 365 00:20:17,000 --> 00:20:20,920 Speaker 2: because they'll never go down, they'll never do anything poor. 366 00:20:20,960 --> 00:20:24,080 Speaker 2: But that doesn't mean there's not an opportunity cost of 367 00:20:24,359 --> 00:20:27,960 Speaker 2: holding that and other assets doing better or protecting your estate. 368 00:20:28,080 --> 00:20:31,400 Speaker 3: And I think when I. 369 00:20:30,480 --> 00:20:33,760 Speaker 2: Think about if someone like Biden was managing their money, 370 00:20:34,040 --> 00:20:37,080 Speaker 2: they just wouldn't know where it all is either. So 371 00:20:37,800 --> 00:20:41,199 Speaker 2: I think there's a really important aspect of and not 372 00:20:41,640 --> 00:20:44,040 Speaker 2: saying that people necessarily have to deal with the utilized 373 00:20:44,080 --> 00:20:47,720 Speaker 2: professional advisors, but I think they definitely get the peace 374 00:20:47,720 --> 00:20:49,000 Speaker 2: of mind benefit of that. 375 00:20:49,680 --> 00:20:51,720 Speaker 1: Can I ask you just even separate to the sort 376 00:20:51,760 --> 00:20:56,440 Speaker 1: of pure scientific research that says that sort of drop 377 00:20:56,480 --> 00:20:59,120 Speaker 1: in in literacy, which might be relevant, but then you're 378 00:20:59,119 --> 00:21:02,600 Speaker 1: talking about some people who are highly literate financially really 379 00:21:02,640 --> 00:21:05,600 Speaker 1: smart and capable, so they've got a long way to drop. 380 00:21:06,480 --> 00:21:09,000 Speaker 1: But I what I want to ask you is more 381 00:21:09,080 --> 00:21:13,120 Speaker 1: than that. It's about attitude, like attitude to risk. For instance, 382 00:21:13,160 --> 00:21:16,960 Speaker 1: do you think that changes as people become advanced stalledage? 383 00:21:17,680 --> 00:21:18,760 Speaker 3: Yes, I. 384 00:21:20,359 --> 00:21:25,120 Speaker 2: Think there's risk capacity and there's risk tolerance. What's someone's 385 00:21:25,200 --> 00:21:28,639 Speaker 2: capacity for risk? Obviously people with high net wealth can 386 00:21:28,680 --> 00:21:31,880 Speaker 2: take more risk, but then what's their tolerance to risk? 387 00:21:31,960 --> 00:21:33,840 Speaker 2: So that's where you really come back to that goals 388 00:21:33,880 --> 00:21:37,320 Speaker 2: based advice and what people are trying to achieve, and 389 00:21:37,359 --> 00:21:41,000 Speaker 2: you work it towards the goals. I think more than 390 00:21:41,080 --> 00:21:46,960 Speaker 2: ever now, as we're allocating capital for clients, we're doing short, medium, 391 00:21:47,000 --> 00:21:50,000 Speaker 2: and long term buckets and that's got very different risk 392 00:21:50,040 --> 00:21:55,280 Speaker 2: return profiles, income profiles, and that's something that's proven really 393 00:21:55,320 --> 00:21:58,320 Speaker 2: appropriate with the clients, and it's meant that just even 394 00:21:58,359 --> 00:22:03,640 Speaker 2: that if the listeners imagine having those three different buckets 395 00:22:03,680 --> 00:22:05,600 Speaker 2: of wealth, you know that what you're allocating in your 396 00:22:05,640 --> 00:22:07,880 Speaker 2: long term bucket that's meant to be volatile, but that's 397 00:22:07,880 --> 00:22:11,800 Speaker 2: going to keep pace with inflation. It's going to mitigate 398 00:22:11,880 --> 00:22:14,280 Speaker 2: longevity risk by continuing to go up in value even 399 00:22:14,320 --> 00:22:17,240 Speaker 2: though it's going to be more volatile your medium and 400 00:22:17,280 --> 00:22:20,720 Speaker 2: for that we've been using index options. We feel that's 401 00:22:20,760 --> 00:22:23,520 Speaker 2: quite appropriate. And maybe if we break it off twenty 402 00:22:23,520 --> 00:22:26,600 Speaker 2: percent of the portfolio into that longevity where we don't 403 00:22:26,600 --> 00:22:29,680 Speaker 2: necessarily mind the volatility of an index and we're happy 404 00:22:29,720 --> 00:22:31,760 Speaker 2: to and it's low cost, so that works well, then 405 00:22:31,760 --> 00:22:35,639 Speaker 2: you've got sixty percent in that middle term bucket and 406 00:22:35,680 --> 00:22:39,639 Speaker 2: that's managed more actively because we're really trying to manage 407 00:22:39,680 --> 00:22:44,240 Speaker 2: that downside risk and take advantage of opportunities they emerge, and. 408 00:22:44,200 --> 00:22:46,480 Speaker 3: That's a very diversified portfolio. 409 00:22:47,000 --> 00:22:49,840 Speaker 2: And then you've got your short term bucket, which is 410 00:22:49,880 --> 00:22:53,720 Speaker 2: really your fixed interest, your hybrids, your credit, some bonds, 411 00:22:53,760 --> 00:22:57,359 Speaker 2: and I think if listeners fill their portfolios that way, 412 00:22:57,840 --> 00:23:01,440 Speaker 2: it gives you three different you're very clear on which 413 00:23:01,480 --> 00:23:03,440 Speaker 2: bucket is doing what job for you. 414 00:23:04,080 --> 00:23:05,880 Speaker 1: Can I ask you one thing for a practical thing 415 00:23:06,400 --> 00:23:08,480 Speaker 1: for people who are managing their own money, or I 416 00:23:08,480 --> 00:23:11,960 Speaker 1: suppose the ultimate example of that being self managed super funds. 417 00:23:12,760 --> 00:23:17,160 Speaker 1: What happens if someone had a super fund, they started 418 00:23:17,160 --> 00:23:20,840 Speaker 1: it in their thirties or forties, it did well, They 419 00:23:21,000 --> 00:23:24,040 Speaker 1: was proud of how they did it, doing fine. They 420 00:23:24,080 --> 00:23:28,920 Speaker 1: get older, they get to eighty or seventy five or 421 00:23:29,080 --> 00:23:33,920 Speaker 1: eighty five or whatever, and something happens, right, something pragmatic happens, 422 00:23:34,040 --> 00:23:38,840 Speaker 1: there are some health issues or whatever, or even they 423 00:23:39,040 --> 00:23:42,399 Speaker 1: just find it all too hard. They're just fed up 424 00:23:42,440 --> 00:23:46,960 Speaker 1: of the documentation, they're fed up of the cybersecurity, et cetera. 425 00:23:47,040 --> 00:23:48,840 Speaker 1: Because one of the things was running a self managed 426 00:23:48,840 --> 00:23:50,960 Speaker 1: super fund. And I have noticed, even over the twenty 427 00:23:51,040 --> 00:23:55,959 Speaker 1: years I've had mine is level of documentation that I 428 00:23:56,000 --> 00:23:59,240 Speaker 1: am asked to do the slightest damn thing, Especially once 429 00:23:59,240 --> 00:24:02,639 Speaker 1: you move outside conventional funds, it's just utterly tiresome. And 430 00:24:02,680 --> 00:24:06,000 Speaker 1: I could see a d where perhaps depends on the rewards. 431 00:24:06,000 --> 00:24:07,879 Speaker 1: I suppose if I'm knocking it out of the park 432 00:24:07,960 --> 00:24:09,680 Speaker 1: every year, and I say, all right, that's the price 433 00:24:09,720 --> 00:24:12,560 Speaker 1: you pay. But what I'm leading to is where someone 434 00:24:12,680 --> 00:24:16,920 Speaker 1: just says, I'm really I've had enough. I've got plenty, 435 00:24:17,440 --> 00:24:20,359 Speaker 1: and I'm tired of the stress and strain and work 436 00:24:20,400 --> 00:24:23,800 Speaker 1: of running my own money. Problem is the person is older, right, 437 00:24:24,480 --> 00:24:26,920 Speaker 1: what can they do? Can they turn around and say 438 00:24:27,119 --> 00:24:29,680 Speaker 1: can they call a big super fund and say can 439 00:24:29,720 --> 00:24:30,400 Speaker 1: I join you? 440 00:24:31,240 --> 00:24:31,960 Speaker 3: Absolutely? 441 00:24:32,280 --> 00:24:35,639 Speaker 2: And I feel that's appropriate for a lot of people 442 00:24:35,640 --> 00:24:39,320 Speaker 2: as they get older, whether they want to get their 443 00:24:39,400 --> 00:24:42,959 Speaker 2: kids into self made super fund, so the intergenerational wealth 444 00:24:43,680 --> 00:24:47,800 Speaker 2: is playing a more active role, and as they slowly 445 00:24:47,840 --> 00:24:50,840 Speaker 2: sort of exit through, they might if there's lumpy assets 446 00:24:50,840 --> 00:24:53,160 Speaker 2: in the self made super fund, for example, you might 447 00:24:53,200 --> 00:24:56,119 Speaker 2: bring the kids in and then the kids kind of 448 00:24:56,200 --> 00:25:00,840 Speaker 2: contributions going in is what's funding the parents exit out 449 00:25:01,000 --> 00:25:04,320 Speaker 2: with pension payments and or if you if it was 450 00:25:04,359 --> 00:25:07,239 Speaker 2: all liquid when you were you could sell it all 451 00:25:07,240 --> 00:25:10,160 Speaker 2: a couple of it's all in pension phase. You sell, 452 00:25:10,280 --> 00:25:12,280 Speaker 2: you can roll it all over and there's no tax 453 00:25:12,320 --> 00:25:15,399 Speaker 2: on there because you're in pension phase. A couple of 454 00:25:15,440 --> 00:25:17,920 Speaker 2: gainst tax free, and you could roll over into a 455 00:25:17,960 --> 00:25:20,000 Speaker 2: super fund. Then you don't have any of the trustee 456 00:25:20,000 --> 00:25:24,240 Speaker 2: responsibilities and you just get your regular pension payments. You 457 00:25:24,280 --> 00:25:28,040 Speaker 2: can do a reversionary pension nomination to your spouse if 458 00:25:28,040 --> 00:25:29,760 Speaker 2: you want, or you can leave it to the estates. 459 00:25:29,840 --> 00:25:32,160 Speaker 2: I feel a lot of people that were in self 460 00:25:32,200 --> 00:25:34,719 Speaker 2: made super funds, we see that, you know, in their eighties, 461 00:25:34,760 --> 00:25:37,119 Speaker 2: they don't really want the hussle of things. They just 462 00:25:37,119 --> 00:25:40,199 Speaker 2: want simplicity in their life in every area, and they 463 00:25:40,200 --> 00:25:43,280 Speaker 2: don't want to leave a big mess for their family 464 00:25:43,359 --> 00:25:47,400 Speaker 2: as well, So you really work hard over the years. 465 00:25:47,920 --> 00:25:50,480 Speaker 2: Usually the first step will be that they will relinquish 466 00:25:50,840 --> 00:25:53,560 Speaker 2: control over the investment strategy and they'll engage someone like 467 00:25:53,640 --> 00:25:55,800 Speaker 2: us to say, hey, can you run the money for 468 00:25:55,920 --> 00:25:59,159 Speaker 2: us and allocate it because we just we don't have 469 00:25:59,200 --> 00:26:01,560 Speaker 2: the time nor the care to read about it. And 470 00:26:01,600 --> 00:26:03,080 Speaker 2: they might say, you know, we want to keep the 471 00:26:03,080 --> 00:26:05,880 Speaker 2: Westpac shares though, because we've had them forever, but they 472 00:26:05,880 --> 00:26:08,400 Speaker 2: don't want to when I'm eighty. I'm not sure that. 473 00:26:08,320 --> 00:26:10,119 Speaker 3: I'm going to be wanting to manage my own money. 474 00:26:10,320 --> 00:26:10,960 Speaker 3: I'm going to want to. 475 00:26:10,960 --> 00:26:13,159 Speaker 2: Look at like the day we've got outside here, i 476 00:26:13,200 --> 00:26:15,240 Speaker 2: want to be out walking the beach and having a 477 00:26:15,240 --> 00:26:18,600 Speaker 2: coffee with my wife and seeing grandkids. So I feel 478 00:26:18,640 --> 00:26:23,679 Speaker 2: from that perspective that listeners and people being aware that 479 00:26:23,720 --> 00:26:27,120 Speaker 2: you can actually roll up, wind up the self managed 480 00:26:27,119 --> 00:26:30,560 Speaker 2: superfund and roll into an industry superfund or a retail 481 00:26:30,600 --> 00:26:34,480 Speaker 2: superfund or in some instances, James, we will just put 482 00:26:34,520 --> 00:26:35,760 Speaker 2: into their bank accounts. 483 00:26:35,760 --> 00:26:37,200 Speaker 3: So that way, if there's. 484 00:26:37,040 --> 00:26:40,359 Speaker 2: A taxable component within the super we've wiped out the 485 00:26:40,960 --> 00:26:43,400 Speaker 2: death tax that we don't talk about in Australia. 486 00:26:43,040 --> 00:26:47,520 Speaker 1: The defacto inheritance tax that's applied a supervins if the 487 00:26:47,560 --> 00:26:50,040 Speaker 1: person when the person dies, if it goes to the 488 00:26:50,240 --> 00:26:53,679 Speaker 1: adult children. Yeah, that's basically it isn't it. Yeah, seventeen percent. 489 00:26:54,119 --> 00:26:57,200 Speaker 1: We I'm sure you know about this, folks. If you don't, 490 00:26:57,400 --> 00:26:59,360 Speaker 1: and we can come back to with another time, let 491 00:26:59,400 --> 00:27:01,399 Speaker 1: me know in the emails. Okay, we have to go 492 00:27:01,440 --> 00:27:03,400 Speaker 1: for a break and we will do some questions back 493 00:27:03,440 --> 00:27:14,160 Speaker 1: in a moment. Hello, and welcome back to the Australian's 494 00:27:14,200 --> 00:27:18,120 Speaker 1: Money Puzzle. I'm James Kirby talking to Hugh robertson regular 495 00:27:18,160 --> 00:27:20,359 Speaker 1: guest on the show. We're having a really good discussion 496 00:27:20,680 --> 00:27:24,720 Speaker 1: about some very interesting issues. We just covered the issue 497 00:27:24,800 --> 00:27:29,560 Speaker 1: there provoked ily like are prompted by the Joe Biden resignation, 498 00:27:29,680 --> 00:27:31,560 Speaker 1: which is at what stage do you throw in the 499 00:27:31,600 --> 00:27:35,200 Speaker 1: towel as an investor? And you might say I'm never 500 00:27:35,200 --> 00:27:37,439 Speaker 1: going to throw in the towel, but you might change 501 00:27:37,480 --> 00:27:40,679 Speaker 1: your mind when you're easy, or you might change your 502 00:27:40,720 --> 00:27:44,040 Speaker 1: mind when you're fifty five, a reason that I can't 503 00:27:44,080 --> 00:27:46,560 Speaker 1: tell you, but it's worth knowing that you can move 504 00:27:46,600 --> 00:27:48,639 Speaker 1: across and if you had a certain managed superfund, you 505 00:27:48,680 --> 00:27:51,280 Speaker 1: can actually pick it up and you can switch back 506 00:27:51,359 --> 00:27:55,800 Speaker 1: into institutional investment. And it's nice to know that. I 507 00:27:55,840 --> 00:27:58,280 Speaker 1: have a couple of questions, Hugh. Could I put a 508 00:27:58,359 --> 00:28:00,600 Speaker 1: question if you don't mind, could I give you? Could 509 00:28:00,600 --> 00:28:03,680 Speaker 1: I ask you a question without notice? The only reason 510 00:28:03,720 --> 00:28:07,240 Speaker 1: I wanted I've just remembered that I promised on Monday 511 00:28:07,240 --> 00:28:10,080 Speaker 1: we had a question we couldn't answer about CGT couldn't 512 00:28:10,080 --> 00:28:13,320 Speaker 1: answer fully and I'd just like to know what your 513 00:28:13,400 --> 00:28:15,399 Speaker 1: broad observation is on it, would you mind if I 514 00:28:15,440 --> 00:28:17,760 Speaker 1: read it out? Even though I didn't it didn't send 515 00:28:17,760 --> 00:28:20,920 Speaker 1: it to you in advance. It's from a listener called 516 00:28:20,960 --> 00:28:24,560 Speaker 1: Beryl b. E Ryl. She says, I purchased an apartment 517 00:28:25,040 --> 00:28:27,080 Speaker 1: which I lived in for five years, and then I 518 00:28:27,240 --> 00:28:30,040 Speaker 1: moved out, and I've been renting it for twenty years, okay, 519 00:28:30,640 --> 00:28:34,480 Speaker 1: and I'm looking at moving back into it. And I've 520 00:28:34,480 --> 00:28:36,240 Speaker 1: heard that if I moved back into it and lived 521 00:28:36,240 --> 00:28:38,840 Speaker 1: there for the rest of my life, that those inherit 522 00:28:39,160 --> 00:28:42,880 Speaker 1: who this property will not pay CGT if they said it, 523 00:28:42,920 --> 00:28:45,120 Speaker 1: is it true that after all the years I rented 524 00:28:45,120 --> 00:28:50,600 Speaker 1: out that property and the CGT liability is wiped out? Beryl, 525 00:28:50,880 --> 00:28:54,400 Speaker 1: I said, And I wanted the second opinion on this, 526 00:28:54,480 --> 00:28:56,479 Speaker 1: but I said, whatever else is going on, and this 527 00:28:56,520 --> 00:28:59,200 Speaker 1: is never advice, and this is information only to all 528 00:28:59,200 --> 00:29:02,200 Speaker 1: the barrels in the world world that if a property 529 00:29:02,280 --> 00:29:05,440 Speaker 1: is rented out for a couple of years, then it 530 00:29:05,480 --> 00:29:07,760 Speaker 1: was an investment property and for those years that it 531 00:29:07,800 --> 00:29:09,920 Speaker 1: was rented out, it's an investment property and the CGT 532 00:29:10,080 --> 00:29:12,800 Speaker 1: would be applicable to that. Is that? Am I right 533 00:29:12,880 --> 00:29:14,040 Speaker 1: or wrong? But do you know. 534 00:29:15,600 --> 00:29:17,040 Speaker 3: That's my understanding. 535 00:29:17,040 --> 00:29:20,360 Speaker 2: We had a client this week in the office that 536 00:29:20,800 --> 00:29:22,520 Speaker 2: I one hundred percent agree with you, And we had 537 00:29:22,520 --> 00:29:25,000 Speaker 2: a client this week in the office that said, no, 538 00:29:25,120 --> 00:29:28,479 Speaker 2: there's something about pro rata, and there's something about this. 539 00:29:29,280 --> 00:29:32,800 Speaker 2: My understanding is that for the time you live in it, 540 00:29:32,800 --> 00:29:36,400 Speaker 2: it's PPR, you do always get there is that window 541 00:29:36,640 --> 00:29:39,200 Speaker 2: of time where you're allowed to not live in it 542 00:29:39,280 --> 00:29:42,520 Speaker 2: and still claim it, that six year window. But if 543 00:29:42,560 --> 00:29:44,880 Speaker 2: you've rented it out for twenty years, my understanding is 544 00:29:44,880 --> 00:29:47,480 Speaker 2: that when you moved out of it, it ceased to 545 00:29:47,520 --> 00:29:50,520 Speaker 2: be your PPR, and you would your principal place of 546 00:29:50,560 --> 00:29:54,040 Speaker 2: residence and then you would have assigned effectively a value 547 00:29:54,400 --> 00:29:56,920 Speaker 2: of that. So from that first five years you lived 548 00:29:56,960 --> 00:29:59,800 Speaker 2: there that was capital gains tax free. Then there's all 549 00:29:59,840 --> 00:30:02,520 Speaker 2: my like a reset of the cost space over that 550 00:30:02,560 --> 00:30:05,000 Speaker 2: twenty years from what it was at the start when 551 00:30:05,000 --> 00:30:07,080 Speaker 2: you rent out valuation wise to what it was when 552 00:30:07,080 --> 00:30:10,960 Speaker 2: you moved out. Then you would get your CGT discount 553 00:30:10,960 --> 00:30:13,479 Speaker 2: on that as well, and then the period that you 554 00:30:13,600 --> 00:30:17,840 Speaker 2: moved in at the end, whatever that went up by 555 00:30:18,160 --> 00:30:22,680 Speaker 2: that would be your principal place for residence exemption. Again 556 00:30:23,080 --> 00:30:27,560 Speaker 2: assuming that yeah, she's that's my understanding. 557 00:30:27,040 --> 00:30:29,040 Speaker 1: So yeah, it would seem the years that it was 558 00:30:29,080 --> 00:30:32,880 Speaker 1: rented our CGT applicable years, it would seem because it 559 00:30:32,920 --> 00:30:34,000 Speaker 1: was rented for twenty years. 560 00:30:34,080 --> 00:30:35,880 Speaker 2: Yeah, and if the account had gone back to me, 561 00:30:35,920 --> 00:30:38,240 Speaker 2: I could have given you the exact answer right now. 562 00:30:38,080 --> 00:30:41,440 Speaker 3: But they haven't got back to me. So hope, I 563 00:30:41,480 --> 00:30:43,360 Speaker 3: think seventy percent confident. 564 00:30:43,480 --> 00:30:48,200 Speaker 1: All right, Well, we've tried twice, and I think you 565 00:30:48,200 --> 00:30:52,240 Speaker 1: will find the chances that CGT free after renting it 566 00:30:52,240 --> 00:30:54,840 Speaker 1: for twenty years are slim. Indeed, I think that would 567 00:30:54,840 --> 00:30:58,240 Speaker 1: be fair to see as a very broad observation about 568 00:30:58,360 --> 00:31:01,720 Speaker 1: that type of situation for everybody, not just one person. Okay, 569 00:31:02,120 --> 00:31:05,600 Speaker 1: Now some quick questions and we'll roll through. There's quite 570 00:31:05,880 --> 00:31:09,600 Speaker 1: a couple of interesting questions here, Jared says. Roger Montgomery 571 00:31:09,880 --> 00:31:12,400 Speaker 1: has promoted it, and a recent art good by Tim 572 00:31:12,800 --> 00:31:16,680 Speaker 1: Buam has encouraged it. Private credit and private credit funds, 573 00:31:16,720 --> 00:31:19,520 Speaker 1: so there's probably some bad private credit groups out there. 574 00:31:19,520 --> 00:31:21,400 Speaker 1: How does a newcomer get a chance to look at 575 00:31:21,440 --> 00:31:25,479 Speaker 1: the providers and undertake analysis? Whoa Jared, I don't know, 576 00:31:25,560 --> 00:31:28,080 Speaker 1: because ASSEK this morning, Joe Longo, the chairman of Asked 577 00:31:28,160 --> 00:31:29,840 Speaker 1: this Morning, is saying, Hey, hang on a second, this 578 00:31:29,920 --> 00:31:31,680 Speaker 1: private credit we're not totally on top of it. We 579 00:31:31,720 --> 00:31:34,160 Speaker 1: want to see more though it's all the fashion at 580 00:31:34,200 --> 00:31:36,400 Speaker 1: the moment. Have you any if I come into you 581 00:31:36,480 --> 00:31:38,600 Speaker 1: you and I said, hey, I don't have private credit. 582 00:31:38,680 --> 00:31:41,000 Speaker 1: I'm reading about it everywhere. All these people seem to 583 00:31:41,000 --> 00:31:43,720 Speaker 1: be making lots of money and there's piles of new funds. 584 00:31:44,280 --> 00:31:47,120 Speaker 1: Would you say, hold on, James, I don't like this 585 00:31:47,160 --> 00:31:49,240 Speaker 1: at all, or would you say, I have a suggestion. 586 00:31:49,640 --> 00:31:50,320 Speaker 1: What would you do? 587 00:31:50,760 --> 00:31:53,920 Speaker 2: We don't use private credit, and that's not to say 588 00:31:53,960 --> 00:31:57,600 Speaker 2: we never would. The challenge is there's a lot of 589 00:31:57,600 --> 00:32:01,040 Speaker 2: different conflicting conversations. So private credit will come here out 590 00:32:01,080 --> 00:32:04,280 Speaker 2: and say, look, banks aren't lending anymore. So that's what's 591 00:32:04,320 --> 00:32:08,600 Speaker 2: given prominence to us, which is great, and you need lending, 592 00:32:08,640 --> 00:32:11,680 Speaker 2: and we're very selective. We underwrite all of our deals 593 00:32:11,720 --> 00:32:15,760 Speaker 2: and we're very good with it. So you definitely need 594 00:32:15,800 --> 00:32:19,000 Speaker 2: to be very active in that space and choosing a 595 00:32:19,120 --> 00:32:22,080 Speaker 2: very capable manager so you are looking at track record. 596 00:32:22,520 --> 00:32:24,800 Speaker 3: One of the challenges I see. 597 00:32:24,800 --> 00:32:29,960 Speaker 2: With it, and this takes me back to GFC days, 598 00:32:29,960 --> 00:32:33,680 Speaker 2: Global Financial Crisis days, and the challenge that I have 599 00:32:34,000 --> 00:32:36,280 Speaker 2: with it is if all this money flows in because 600 00:32:36,320 --> 00:32:38,600 Speaker 2: you're saying we're going to pay you eight to ten percent, 601 00:32:39,120 --> 00:32:42,920 Speaker 2: ten to twelve percent. All the money's flowing in, those 602 00:32:42,960 --> 00:32:46,200 Speaker 2: guys have to keep finding deals to make then, so 603 00:32:46,880 --> 00:32:53,320 Speaker 2: my concern becomes, do those deals start to get a 604 00:32:53,360 --> 00:32:55,880 Speaker 2: little bit looser and looser just to make sure that 605 00:32:55,920 --> 00:32:59,800 Speaker 2: they're employing the client the investors' money to generate that 606 00:32:59,880 --> 00:33:02,280 Speaker 2: income that they've promised. 607 00:33:02,640 --> 00:33:05,480 Speaker 1: Yes, I really like the way you're thinking, and that's 608 00:33:05,560 --> 00:33:08,800 Speaker 1: exactly instinctively how I would think the same thing. If 609 00:33:08,800 --> 00:33:11,600 Speaker 1: it's a boom area. Okay, and it is, and there's 610 00:33:11,680 --> 00:33:16,520 Speaker 1: piles of funds being leashed unleashed, then by definition the 611 00:33:16,560 --> 00:33:19,840 Speaker 1: mathematics are simple. There are only so many private credit 612 00:33:19,840 --> 00:33:21,960 Speaker 1: deals out there. And ten years ago, I bet it 613 00:33:22,000 --> 00:33:24,440 Speaker 1: was great. Even five years ago it must have been terrific. Okay, 614 00:33:24,680 --> 00:33:27,520 Speaker 1: But now there are so many fund managers running around, 615 00:33:27,600 --> 00:33:29,520 Speaker 1: and if they all collect lots of money to go 616 00:33:29,560 --> 00:33:33,200 Speaker 1: and enter this business, then guess what. They can't sit 617 00:33:33,280 --> 00:33:36,040 Speaker 1: there and do nothing. They have to do deals. They 618 00:33:36,080 --> 00:33:38,440 Speaker 1: have to invest for you. The problem is there's ten 619 00:33:38,480 --> 00:33:41,040 Speaker 1: other funds that want to invest. Hey, guess what happens? 620 00:33:41,120 --> 00:33:42,880 Speaker 1: It gets bid up, just like the house around the 621 00:33:42,880 --> 00:33:45,360 Speaker 1: corner at the auction on a Saturday morning, and so 622 00:33:45,560 --> 00:33:50,360 Speaker 1: the valuations, which are not as transparent as share market valuations, 623 00:33:50,680 --> 00:33:54,640 Speaker 1: we could become a problem. Is that some of what 624 00:33:54,680 --> 00:33:55,400 Speaker 1: you're alluding to. 625 00:33:56,360 --> 00:33:57,640 Speaker 3: Yeah, very much. 626 00:33:57,680 --> 00:34:02,920 Speaker 2: So it's a trade case carefully area. I don't disregard it, 627 00:34:03,200 --> 00:34:07,520 Speaker 2: and we're looking at it often to meeting with managers 628 00:34:07,520 --> 00:34:10,920 Speaker 2: and talking to it. But it's it reminds me of 629 00:34:10,960 --> 00:34:13,960 Speaker 2: the mortgage funds back in global financially, and I'm not 630 00:34:14,000 --> 00:34:18,440 Speaker 2: saying it is like that, but it just it rhymes 631 00:34:18,520 --> 00:34:20,560 Speaker 2: with the things like that and some of the stories, 632 00:34:20,560 --> 00:34:23,400 Speaker 2: and I'm just cautious. If we went into a recession, 633 00:34:23,400 --> 00:34:27,160 Speaker 2: there could be really difficult times. If interest rates continue 634 00:34:27,200 --> 00:34:29,840 Speaker 2: to rise, there could be different So it's not I 635 00:34:29,880 --> 00:34:32,760 Speaker 2: think the point for me is it's. 636 00:34:32,640 --> 00:34:34,480 Speaker 3: Not an alternative to a term deposit. 637 00:34:34,960 --> 00:34:39,720 Speaker 2: It is very much a sits as in the risky 638 00:34:39,760 --> 00:34:42,640 Speaker 2: side of your portfolio. Doesn't mean it's not good, but 639 00:34:42,840 --> 00:34:45,960 Speaker 2: just you've got to you want someone that's very well 640 00:34:46,000 --> 00:34:50,359 Speaker 2: diversified in that space. They're big, they're diversified. It does 641 00:34:50,480 --> 00:34:53,400 Speaker 2: mean that you're going to get slightly less income some 642 00:34:53,440 --> 00:34:55,400 Speaker 2: of these things that some are saying twelve percent, some 643 00:34:55,440 --> 00:34:58,200 Speaker 2: are saying ten, some are saying eight. For me, just 644 00:34:58,640 --> 00:35:01,560 Speaker 2: understanding risk and reward, I'd more align myself to the 645 00:35:01,600 --> 00:35:04,600 Speaker 2: eight percent one because you know, for them to make 646 00:35:04,640 --> 00:35:07,719 Speaker 2: their money, if they're paying you twelve percent, what they've 647 00:35:07,719 --> 00:35:10,440 Speaker 2: got to be earning fifteen percent. So if I'm a 648 00:35:10,480 --> 00:35:13,640 Speaker 2: borrow wife, if I'm borrowing and I've got to pay 649 00:35:13,680 --> 00:35:15,560 Speaker 2: fifteen percent, I'm high risk by nature. 650 00:35:16,000 --> 00:35:18,960 Speaker 1: That's right. If they're paying you ten and they have 651 00:35:19,000 --> 00:35:21,680 Speaker 1: to get a few percent themselves, and what on earth 652 00:35:22,760 --> 00:35:27,319 Speaker 1: are they lending to? Whom are they lending? Who is 653 00:35:27,360 --> 00:35:30,359 Speaker 1: in the position that they're so bad basically that they 654 00:35:30,440 --> 00:35:33,400 Speaker 1: must pay those rates. That's what you have to think about. Okay, 655 00:35:33,480 --> 00:35:36,160 Speaker 1: terrific answer, Thank you very much. And the other issue is, 656 00:35:36,200 --> 00:35:40,080 Speaker 1: of course, if things go south, as you mentioned, how 657 00:35:40,120 --> 00:35:43,160 Speaker 1: do you get your money out? Okay? And okay, So 658 00:35:43,280 --> 00:35:45,880 Speaker 1: them are listed on the share market, but hey, you 659 00:35:45,920 --> 00:35:49,319 Speaker 1: know there's a basic oxymoron there. Private credit listed on 660 00:35:49,360 --> 00:35:51,600 Speaker 1: the share market. It's not private. It's not private. It's 661 00:35:51,640 --> 00:35:54,600 Speaker 1: not private anymore of it's public market. Come on. Okay, now, 662 00:35:54,680 --> 00:35:57,120 Speaker 1: as a technical question from Stephen though, it's interesting because 663 00:35:57,120 --> 00:36:00,480 Speaker 1: it's Frank dividends. I have a listed investment companies that 664 00:36:00,560 --> 00:36:04,120 Speaker 1: aren't doing great are paying partially franked dividends instead of 665 00:36:04,160 --> 00:36:07,440 Speaker 1: fully franked dividends. I assume it's because their profit reserve 666 00:36:07,480 --> 00:36:10,919 Speaker 1: has dwindled. I do not understand where the unfranked part 667 00:36:11,000 --> 00:36:15,759 Speaker 1: of the dividend comes from. Okay, what did you think 668 00:36:15,800 --> 00:36:19,000 Speaker 1: of that question? Hue from Stephen. 669 00:36:19,480 --> 00:36:23,600 Speaker 2: So Stevens writing, sort of the profit reserves dwindling if 670 00:36:23,600 --> 00:36:27,040 Speaker 2: you went, like a few years ago, they were paying 671 00:36:27,400 --> 00:36:32,080 Speaker 2: like ridiculous amounts of dividends. The listed investment companies so 672 00:36:32,160 --> 00:36:35,960 Speaker 2: different from listed investment trusts that have to pay out distributions. 673 00:36:36,320 --> 00:36:39,480 Speaker 2: Listed investment companies get to choose what they pay out. 674 00:36:39,760 --> 00:36:43,120 Speaker 2: So what I was thinking of with the unfranked part 675 00:36:43,200 --> 00:36:47,000 Speaker 2: of the dividend is probably international shares that have come through. 676 00:36:47,560 --> 00:36:49,960 Speaker 2: You know, there's some of those things won't have the 677 00:36:50,040 --> 00:36:54,320 Speaker 2: franking attached to them, whereas if it was a Shawan 678 00:36:54,680 --> 00:36:58,800 Speaker 2: share fund that's or listed investment company that's invested in 679 00:36:58,840 --> 00:37:02,000 Speaker 2: all in bank shares, that would typically be fully franked. 680 00:37:02,960 --> 00:37:04,680 Speaker 2: So that that's the only thing that I thought of. 681 00:37:04,719 --> 00:37:08,000 Speaker 2: There's you know, Stephen was riding his the profit reserves 682 00:37:08,040 --> 00:37:10,319 Speaker 2: is what they're using to pay and they get to 683 00:37:10,400 --> 00:37:12,520 Speaker 2: set there so they don't need to because it's a company, 684 00:37:12,520 --> 00:37:15,840 Speaker 2: they don't need to pay out all the income they receive, 685 00:37:16,600 --> 00:37:20,880 Speaker 2: so usually they will. They like it to be fully franked, 686 00:37:20,880 --> 00:37:23,160 Speaker 2: but it's not a condition, and you just have to 687 00:37:23,200 --> 00:37:25,319 Speaker 2: go in and read the company's and your reports to 688 00:37:25,320 --> 00:37:28,520 Speaker 2: find out. It's hard to find information on franking credits, 689 00:37:28,880 --> 00:37:31,920 Speaker 2: but it is. We see it's very valuable to investors. 690 00:37:32,239 --> 00:37:34,080 Speaker 2: But he'd have to look in the annual report. 691 00:37:34,400 --> 00:37:37,080 Speaker 1: So Stephen, if it had two stocks and one was 692 00:37:37,480 --> 00:37:40,399 Speaker 1: one hundred percent Australian focused, come by bank did nothing 693 00:37:40,400 --> 00:37:43,000 Speaker 1: else for Australia, then it's one hundred percent franked. But 694 00:37:43,040 --> 00:37:44,799 Speaker 1: if the other one was a minor see and they 695 00:37:44,800 --> 00:37:47,680 Speaker 1: had ninety percent of their operations around the world outside Australia, 696 00:37:47,719 --> 00:37:49,399 Speaker 1: then they'd never be able to get one hundred percent 697 00:37:49,400 --> 00:37:53,240 Speaker 1: franking in here the domestic market. That's generally the explanation, 698 00:37:53,320 --> 00:37:55,799 Speaker 1: not always, but that would invariably be the explanation. Okay, 699 00:37:55,880 --> 00:38:00,560 Speaker 1: final question from lil. Could you provide listeners with information 700 00:38:00,640 --> 00:38:04,239 Speaker 1: on investment bonds also known as insurance bonds for what 701 00:38:04,400 --> 00:38:07,919 Speaker 1: might be an alternative option if you're looking for tax 702 00:38:07,960 --> 00:38:11,480 Speaker 1: efficient structures. It comes up all the time. I've had 703 00:38:11,600 --> 00:38:16,279 Speaker 1: advisors who will not touch these bonds, hate them. I've 704 00:38:16,280 --> 00:38:19,480 Speaker 1: had advisors who say, look, they're okay. Again, it's often 705 00:38:19,800 --> 00:38:23,719 Speaker 1: put forward as an alternative to SUPER. So what I 706 00:38:23,719 --> 00:38:25,840 Speaker 1: would say, what everyone has said so far, for what 707 00:38:25,840 --> 00:38:29,080 Speaker 1: it's worth listeners, is get your super sorted out first, 708 00:38:29,160 --> 00:38:32,600 Speaker 1: because that's the best tax break from most people most 709 00:38:32,640 --> 00:38:35,600 Speaker 1: of the time. But the insurance of the investment bonds, 710 00:38:36,080 --> 00:38:38,959 Speaker 1: could you explain to you what they are and why 711 00:38:39,000 --> 00:38:41,680 Speaker 1: someone might want one in our market and there and 712 00:38:41,719 --> 00:38:43,440 Speaker 1: their pros and cons if you could. 713 00:38:43,520 --> 00:38:43,880 Speaker 3: You're right. 714 00:38:43,920 --> 00:38:46,880 Speaker 2: A lot of advisors to discredit the investment bonds are 715 00:38:46,920 --> 00:38:49,320 Speaker 2: insurance bonds, and I know a lot of the advisors 716 00:38:49,360 --> 00:38:52,279 Speaker 2: that appear on this podcast that do so. From the 717 00:38:52,320 --> 00:38:56,799 Speaker 2: point of view in its simplicity, the insurance bond, it's 718 00:38:56,840 --> 00:39:00,520 Speaker 2: a friendly society bond that comes under sort of insurance 719 00:39:00,600 --> 00:39:03,600 Speaker 2: law as opposed to investment law. So it's internally taxed 720 00:39:03,640 --> 00:39:08,080 Speaker 2: at thirty percent, but then it's CGT three after ten 721 00:39:08,160 --> 00:39:10,800 Speaker 2: years or in the event of death. Then the investment 722 00:39:10,840 --> 00:39:13,960 Speaker 2: component you get to choose a host of different investments. 723 00:39:14,000 --> 00:39:17,440 Speaker 2: So this is where with all the superinnuation changes. The 724 00:39:17,560 --> 00:39:20,880 Speaker 2: last few years, insurance bonds have tried to have a 725 00:39:20,920 --> 00:39:24,120 Speaker 2: bit of a resurgence as the Super two point zero 726 00:39:24,160 --> 00:39:28,160 Speaker 2: once you can't put any more into Super sho exactly right, James. 727 00:39:28,200 --> 00:39:32,760 Speaker 2: You utilize super first, then whatever's not there goes into 728 00:39:33,200 --> 00:39:36,040 Speaker 2: an insurance bond. Challenges have been that they can be 729 00:39:36,080 --> 00:39:39,440 Speaker 2: a little bit expensive and the investment options haven't traditionally 730 00:39:39,480 --> 00:39:42,719 Speaker 2: been that great, so most people would say, look, we'd 731 00:39:42,719 --> 00:39:46,520 Speaker 2: prefer to put it into a trust because remembering that 732 00:39:46,640 --> 00:39:50,439 Speaker 2: death doesn't constitute a capital gains tax event, so if 733 00:39:50,440 --> 00:39:53,959 Speaker 2: you had it in a trust with your children's beneficiaries, 734 00:39:53,960 --> 00:39:57,840 Speaker 2: you wouldn't have to sell everything and you could easily 735 00:39:57,880 --> 00:40:02,960 Speaker 2: do that intergenerational wealth. As in terms of where's the 736 00:40:03,520 --> 00:40:09,080 Speaker 2: tax efficiency, it's debatable because you could have around one 737 00:40:09,160 --> 00:40:11,520 Speaker 2: hundred and eighty thousand dollars a year before you're at 738 00:40:11,520 --> 00:40:15,040 Speaker 2: that average tax rate of thirty percent. It certainly kicks 739 00:40:15,080 --> 00:40:19,000 Speaker 2: in with the marginal tax rates, but your average tax 740 00:40:19,080 --> 00:40:22,759 Speaker 2: rate is pretty high. Level of income earned, a lot 741 00:40:22,800 --> 00:40:25,479 Speaker 2: of investors might be better off investing in their own 742 00:40:25,600 --> 00:40:28,160 Speaker 2: names and then passing the money on. 743 00:40:28,239 --> 00:40:29,399 Speaker 3: But the good thing. 744 00:40:29,440 --> 00:40:32,120 Speaker 2: One thing that's probably little known about insurance bonds that 745 00:40:33,200 --> 00:40:36,440 Speaker 2: is pretty unique outside of the souper is that you 746 00:40:36,480 --> 00:40:40,640 Speaker 2: can switch the investment options without capital gains tax. So 747 00:40:40,680 --> 00:40:43,720 Speaker 2: if you think if you had been in a tech 748 00:40:44,360 --> 00:40:47,959 Speaker 2: a fund that had tech exposure over the past twelve months, 749 00:40:47,960 --> 00:40:49,480 Speaker 2: it's done really great, And you say I want to 750 00:40:49,480 --> 00:40:52,200 Speaker 2: rebalance my portfolio, You're not going to have to pay 751 00:40:52,239 --> 00:40:54,360 Speaker 2: capital gains tax on that, whereas if if it was 752 00:40:54,400 --> 00:40:57,920 Speaker 2: in your personal portfolio, you probably wouldn't sell because of 753 00:40:57,960 --> 00:41:02,200 Speaker 2: the capital gains tax. So I think it's definitely worth 754 00:41:02,200 --> 00:41:02,560 Speaker 2: looking at. 755 00:41:02,640 --> 00:41:04,799 Speaker 1: Yeah, that's useful. I can I ask you one last thing. 756 00:41:05,160 --> 00:41:07,359 Speaker 1: It's a big difference between you must hold for ten years? 757 00:41:07,400 --> 00:41:07,839 Speaker 1: Is that right? 758 00:41:08,000 --> 00:41:08,160 Speaker 3: That? 759 00:41:08,200 --> 00:41:10,480 Speaker 1: Have I got that right to optimize it? 760 00:41:10,840 --> 00:41:13,560 Speaker 2: If you die, it's okay, if you die, it goes 761 00:41:13,600 --> 00:41:15,840 Speaker 2: through capital gains tax free. 762 00:41:16,040 --> 00:41:17,760 Speaker 1: We have you assuming you say a lot. 763 00:41:17,960 --> 00:41:21,160 Speaker 2: Yes, So the investment component it starts to kick in 764 00:41:21,239 --> 00:41:24,200 Speaker 2: pro rated discounts in year eight and nine. 765 00:41:24,719 --> 00:41:26,759 Speaker 1: Okay, So you really have to this a long term thing, 766 00:41:26,840 --> 00:41:29,640 Speaker 1: right you really want to be thinking eight nine, ideally 767 00:41:29,680 --> 00:41:30,640 Speaker 1: ten years plus. 768 00:41:31,239 --> 00:41:34,120 Speaker 2: Yeah, And I know, yes, absolutely, And I know a 769 00:41:34,160 --> 00:41:36,680 Speaker 2: few of the product providers are really going out there 770 00:41:36,680 --> 00:41:40,760 Speaker 2: trying to produce information now as an estate planning vehicle. 771 00:41:41,160 --> 00:41:44,879 Speaker 2: We certainly haven't seen a lot of traction for it 772 00:41:44,960 --> 00:41:47,040 Speaker 2: at this point in time because the other aspect that 773 00:41:47,560 --> 00:41:49,120 Speaker 2: we're seeing right now is if you're going to get 774 00:41:49,160 --> 00:41:53,000 Speaker 2: an inheritance from your parents and say you're forty or 775 00:41:53,000 --> 00:41:55,760 Speaker 2: fifty years old, right now, the first thing you should 776 00:41:55,760 --> 00:41:58,279 Speaker 2: be doing is putting that money off your mortgage, and 777 00:41:58,320 --> 00:42:01,239 Speaker 2: then if you have more more money, then maybe it's 778 00:42:01,440 --> 00:42:04,920 Speaker 2: topping up super So they haven't really needed the benefit 779 00:42:04,920 --> 00:42:07,960 Speaker 2: of a bond or a trust. It's and I think 780 00:42:08,000 --> 00:42:10,200 Speaker 2: with that Intergenerational Wealth Report, I think we might have 781 00:42:10,280 --> 00:42:13,080 Speaker 2: touched on this last time. I think the government's really 782 00:42:13,080 --> 00:42:15,959 Speaker 2: going to crack down on more ways to get tax 783 00:42:16,000 --> 00:42:19,439 Speaker 2: revenue out of deceased estates. There's thought there on rather 784 00:42:19,520 --> 00:42:23,560 Speaker 2: than doing something for a state planning wealth transfer purposes, 785 00:42:23,960 --> 00:42:26,680 Speaker 2: giving the money now to your kids and helping pay 786 00:42:26,680 --> 00:42:28,960 Speaker 2: off the debt, mortgages and things like that might be. 787 00:42:28,920 --> 00:42:32,200 Speaker 1: A yeah, that's a really good answer. Yes, that's really 788 00:42:32,200 --> 00:42:34,799 Speaker 1: worth thinking it through. Little so they look they have 789 00:42:34,880 --> 00:42:37,360 Speaker 1: their advantage. Just be careful with the sales talk on 790 00:42:37,440 --> 00:42:40,439 Speaker 1: that stuff. Think about what you need first. Think about 791 00:42:40,480 --> 00:42:43,720 Speaker 1: the fact that what else is out there as Hugh says, 792 00:42:43,920 --> 00:42:46,400 Speaker 1: is there a mortgage debt that's not tax deductible? Just 793 00:42:46,560 --> 00:42:51,040 Speaker 1: whole mortgage debt? Going to get that first superinnuation contributions 794 00:42:51,080 --> 00:42:55,080 Speaker 1: because that's speet and then you can get into the 795 00:42:55,120 --> 00:42:59,319 Speaker 1: blue sky if you're looky enough to even consider the 796 00:42:59,480 --> 00:43:03,040 Speaker 1: products of that nature. This again is information only, but 797 00:43:03,120 --> 00:43:05,480 Speaker 1: this is as you can see, a repeated line of 798 00:43:06,239 --> 00:43:09,000 Speaker 1: a repeated view on the show from Top Advisors and 799 00:43:09,239 --> 00:43:12,160 Speaker 1: always worth listening to. Okay, hey, we're running out of time. 800 00:43:12,560 --> 00:43:15,120 Speaker 1: Thank you very much, Hugh. That was great. We really 801 00:43:15,320 --> 00:43:18,759 Speaker 1: rolled around there, lots of different subjects. Thanks a lot you. 802 00:43:19,080 --> 00:43:20,800 Speaker 3: Thank you very much for having me. It's been great. 803 00:43:20,920 --> 00:43:23,279 Speaker 1: We'll have you on the show again. All right. That 804 00:43:23,400 --> 00:43:28,520 Speaker 1: was Hugh Robertson folks of Centaur Financial Services, and he 805 00:43:28,640 --> 00:43:31,040 Speaker 1: is one of the top advisors in the land regularly, 806 00:43:31,760 --> 00:43:34,600 Speaker 1: as they say, ranks high on the top advisors list. 807 00:43:35,760 --> 00:43:40,160 Speaker 1: I'd love to have some more questions or comments sentiment. 808 00:43:40,320 --> 00:43:43,359 Speaker 1: The email is the Money Puzzle at the Australian dot 809 00:43:43,360 --> 00:43:45,520 Speaker 1: com dot au. Talk to you soon.