1
00:00:09,920 --> 00:00:13,080
Speaker 1: Hello and welcome to the Australians Money Puzzle podcast. I'm

2
00:00:13,160 --> 00:00:15,760
Speaker 1: James Kirby. Welcome aboard everybody, and I've had a.

3
00:00:15,680 --> 00:00:17,360
Speaker 2: Really interesting few weeks.

4
00:00:17,480 --> 00:00:20,160
Speaker 1: Unusually I think in some ways that the shows have

5
00:00:20,280 --> 00:00:24,640
Speaker 1: been dominated by themes. I think it's probably because there's

6
00:00:24,640 --> 00:00:26,800
Speaker 1: a couple of really big issues out there at the moment.

7
00:00:26,880 --> 00:00:28,960
Speaker 1: I mean, obviously, the returns for the year have been

8
00:00:29,040 --> 00:00:32,559
Speaker 1: quite astonishing. As one analyst put it, that that is

9
00:00:32,600 --> 00:00:36,600
Speaker 1: the financial year that's we've just come in with. We've

10
00:00:36,600 --> 00:00:41,320
Speaker 1: also had a very interesting shows on crypto, on bad

11
00:00:41,479 --> 00:00:44,559
Speaker 1: property returns. Who would have thought, but as you know,

12
00:00:44,640 --> 00:00:46,879
Speaker 1: the apartment market is very weak, and we've covered that

13
00:00:46,920 --> 00:00:50,839
Speaker 1: and the new super tax. Now on that issue of

14
00:00:50,880 --> 00:00:54,080
Speaker 1: how good the markets are, if you had index funds

15
00:00:54,560 --> 00:00:58,920
Speaker 1: or exchange traded funds now increasingly dominant for investors, you'd

16
00:00:58,920 --> 00:01:02,200
Speaker 1: have had a terrific return because you would have just

17
00:01:02,240 --> 00:01:04,479
Speaker 1: captured the market. And the market was very good. It's

18
00:01:04,480 --> 00:01:06,480
Speaker 1: one of those years when it's well above average in

19
00:01:06,560 --> 00:01:12,640
Speaker 1: terms of returns, double digit returns, so it looks like easy.

20
00:01:12,680 --> 00:01:14,199
Speaker 2: It looks easy. It looks easy.

21
00:01:14,200 --> 00:01:17,479
Speaker 1: You buy these edfs and they roll home with high returns.

22
00:01:17,520 --> 00:01:18,039
Speaker 2: You don't have.

23
00:01:18,040 --> 00:01:20,520
Speaker 1: To think, you don't have to do a damn thing.

24
00:01:20,640 --> 00:01:22,480
Speaker 1: You just sort of look and see how high it

25
00:01:22,600 --> 00:01:24,639
Speaker 1: is each day. It's not that easy.

26
00:01:24,640 --> 00:01:26,760
Speaker 2: There is no perfect investment. I want to look at that.

27
00:01:27,080 --> 00:01:31,240
Speaker 1: My guest today is Jack Toussall of the Partner's Wealth Group.

28
00:01:31,280 --> 00:01:34,560
Speaker 1: That's a financial advisory group which is in the Baron's

29
00:01:34,600 --> 00:01:37,520
Speaker 1: Top fifteen. We've had Matthew has today on the show

30
00:01:37,560 --> 00:01:42,120
Speaker 1: from Partners before. Jack's got some really interesting views on

31
00:01:42,360 --> 00:01:45,520
Speaker 1: these subjects and I wanted to have him on the

32
00:01:45,520 --> 00:01:46,320
Speaker 1: show for some time.

33
00:01:46,480 --> 00:01:48,400
Speaker 2: All right, Jack, I'm doing great.

34
00:01:48,480 --> 00:01:49,120
Speaker 3: Thanks for having me.

35
00:01:49,200 --> 00:01:52,240
Speaker 1: James, great to have you on the show. I know

36
00:01:52,320 --> 00:01:54,400
Speaker 1: that I suppose it was the time, really it was

37
00:01:54,560 --> 00:02:00,840
Speaker 1: difficult for financial advisors to express views, larger views beyond

38
00:02:00,920 --> 00:02:03,960
Speaker 1: the sort of the details of financial advice itself, and

39
00:02:04,080 --> 00:02:06,960
Speaker 1: maybe they spoke at conferences or whatever. That's all changed

40
00:02:07,000 --> 00:02:09,160
Speaker 1: now and people are able to sort of get their

41
00:02:09,240 --> 00:02:12,320
Speaker 1: views out there, and you're one of the advisors of

42
00:02:12,360 --> 00:02:15,720
Speaker 1: that new crop of advisors who've come to prominence with

43
00:02:15,880 --> 00:02:19,960
Speaker 1: clear views just about that issue of the markets. So

44
00:02:20,400 --> 00:02:23,800
Speaker 1: the ASX two hundred has given me what eleven percent

45
00:02:24,080 --> 00:02:26,800
Speaker 1: for the year. The s and P five hundred. I'm

46
00:02:26,800 --> 00:02:29,640
Speaker 1: talking about the financial year, very strong year as well.

47
00:02:30,960 --> 00:02:31,639
Speaker 2: But you have.

48
00:02:33,400 --> 00:02:35,800
Speaker 1: You have been arguing that people have to be very

49
00:02:35,840 --> 00:02:40,240
Speaker 1: careful about thinking about just the index, the ASX two

50
00:02:40,320 --> 00:02:42,720
Speaker 1: hundred or the S and P five hundred or whatever

51
00:02:42,760 --> 00:02:43,119
Speaker 1: you've got.

52
00:02:43,200 --> 00:02:44,639
Speaker 2: What is the issue for you?

53
00:02:44,919 --> 00:02:47,320
Speaker 3: Well, I think it's been quite distorted. So you said

54
00:02:47,360 --> 00:02:50,200
Speaker 3: there the IX has gone up by about eleven percent,

55
00:02:50,320 --> 00:02:53,440
Speaker 3: but come up bank. You know one individual out top

56
00:02:53,440 --> 00:02:56,120
Speaker 3: two hundred company US has gone up about fifty percent

57
00:02:56,160 --> 00:02:59,680
Speaker 3: of the time. If you took that senior investment out,

58
00:03:00,360 --> 00:03:03,920
Speaker 3: your returns only really around six percent. So it's not

59
00:03:04,080 --> 00:03:07,160
Speaker 3: really reflective of how the grand market has performed.

60
00:03:08,040 --> 00:03:11,520
Speaker 1: One so in the ASX two hundreds, which did over

61
00:03:11,600 --> 00:03:17,760
Speaker 1: ten percent, yah of those two hundred stocks, one stock, Yeah,

62
00:03:18,120 --> 00:03:20,840
Speaker 1: is it if you didn't have it would have taken Well,

63
00:03:20,840 --> 00:03:23,360
Speaker 1: it isn't that an argument for ETFs in some fashion

64
00:03:23,440 --> 00:03:24,240
Speaker 1: that you capture.

65
00:03:25,120 --> 00:03:27,519
Speaker 3: It's an argument when it's going one. But if you

66
00:03:27,560 --> 00:03:30,640
Speaker 3: can go up in going you on the dance slide

67
00:03:30,639 --> 00:03:31,120
Speaker 3: as well.

68
00:03:31,440 --> 00:03:33,720
Speaker 1: Okay, So what you're saying is that if I had

69
00:03:33,720 --> 00:03:37,560
Speaker 1: the ASX two hundred in an ETF, for instance, in

70
00:03:37,600 --> 00:03:39,760
Speaker 1: the last year and they were down fifty percent.

71
00:03:40,200 --> 00:03:41,800
Speaker 3: Yeah, then that would.

72
00:03:41,560 --> 00:03:44,480
Speaker 1: Have really dragged me down as well. Because so the

73
00:03:44,520 --> 00:03:48,880
Speaker 1: point I think behind this what you're saying is concentration, right,

74
00:03:49,000 --> 00:03:51,960
Speaker 1: is that the problem that one bank is too important

75
00:03:52,000 --> 00:03:55,000
Speaker 1: for this index, it doesn't really reflect the market.

76
00:03:55,600 --> 00:03:59,080
Speaker 3: Yes, spot on. What I'd say is they typically sprouted

77
00:03:59,160 --> 00:04:02,840
Speaker 3: as being well diversified. You've got save the ASEX two hundred,

78
00:04:02,840 --> 00:04:05,000
Speaker 3: you've got access to two hundred companies, and your risk

79
00:04:05,120 --> 00:04:07,880
Speaker 3: is quite well spread out. The reality is the top

80
00:04:08,000 --> 00:04:11,160
Speaker 3: ten companies of that whole index are about fifty percent

81
00:04:11,240 --> 00:04:14,200
Speaker 3: of it. So if you add two hundred companies, ten

82
00:04:14,240 --> 00:04:15,839
Speaker 3: of them are half of it, and then the other

83
00:04:15,960 --> 00:04:19,520
Speaker 3: night one hundred and ninety spread across the other fifty percent.

84
00:04:20,040 --> 00:04:23,599
Speaker 3: And that's not even before we delve into diversification of

85
00:04:23,720 --> 00:04:26,280
Speaker 3: sectors of the economy as well. So Australia is really

86
00:04:26,279 --> 00:04:28,520
Speaker 3: good and the bigg at two key things. The first

87
00:04:28,520 --> 00:04:31,240
Speaker 3: one is banking and financials and then the second is

88
00:04:31,279 --> 00:04:33,920
Speaker 3: digging sup out of the dirt. So mine those two

89
00:04:34,000 --> 00:04:37,120
Speaker 3: industries as a whole represent half of the whole index.

90
00:04:37,200 --> 00:04:39,000
Speaker 3: So really what you're doing is having a punt on

91
00:04:39,800 --> 00:04:42,679
Speaker 3: whether banking, financials and mining are going to do well.

92
00:04:42,839 --> 00:04:44,719
Speaker 3: And so you go on a situation where we have

93
00:04:45,440 --> 00:04:49,680
Speaker 3: another financial services review and that sector tanks or China

94
00:04:49,720 --> 00:04:51,920
Speaker 3: cracks it at us again like they did in twenty

95
00:04:51,960 --> 00:04:55,159
Speaker 3: twenty one, stops buying our coal and iron ore. Well,

96
00:04:55,160 --> 00:04:59,400
Speaker 3: then you complete portfolios, Cactus. It's not actually as diversified

97
00:04:59,400 --> 00:05:00,560
Speaker 3: as what people think it is.

98
00:05:02,000 --> 00:05:05,400
Speaker 1: So it's not as easy as it seems to capture

99
00:05:05,760 --> 00:05:09,760
Speaker 1: an economy or a market, because you're saying that if

100
00:05:09,760 --> 00:05:13,120
Speaker 1: we look at the share market, we think we're buying

101
00:05:13,680 --> 00:05:19,360
Speaker 1: the market and a good wide diversified hundreds of companies.

102
00:05:19,440 --> 00:05:23,040
Speaker 1: In fact, banks, we're really buying banks and miners. And

103
00:05:23,080 --> 00:05:26,200
Speaker 1: if the banks and miners don't go well, you're in trouble.

104
00:05:26,279 --> 00:05:27,240
Speaker 1: But can you avoid that.

105
00:05:28,320 --> 00:05:30,800
Speaker 3: You can have an actively managed portfolio, and really, if

106
00:05:30,800 --> 00:05:33,719
Speaker 3: you look at building out a portfolio, really what you

107
00:05:33,720 --> 00:05:37,120
Speaker 3: want to do is have allocations towards all the key

108
00:05:37,880 --> 00:05:41,080
Speaker 3: sectors of the economy. So if one individual sector isn't

109
00:05:41,080 --> 00:05:44,120
Speaker 3: doing that well, it's not going to tank your whole portfolio.

110
00:05:44,240 --> 00:05:44,400
Speaker 1: You know.

111
00:05:44,520 --> 00:05:47,279
Speaker 3: Part of crafting that is say I'm trying to build

112
00:05:47,279 --> 00:05:50,000
Speaker 3: out my personal portfolio and I go, look, I need

113
00:05:50,040 --> 00:05:54,640
Speaker 3: some banking financial sector allocation. There's a four big banks.

114
00:05:54,760 --> 00:05:57,280
Speaker 3: I think you know cbas are value. Not going to

115
00:05:57,320 --> 00:06:00,240
Speaker 3: invest in that, I might invest in NAB instead, might

116
00:06:00,279 --> 00:06:02,640
Speaker 3: leg the two hours out. If you're just going to

117
00:06:02,760 --> 00:06:05,960
Speaker 3: invest in index fund like Fast for example, you're buying

118
00:06:06,080 --> 00:06:09,200
Speaker 3: all four of those investments in the exact sound white

119
00:06:09,240 --> 00:06:11,080
Speaker 3: and you actually buy the ones which you might think

120
00:06:11,120 --> 00:06:14,719
Speaker 3: are more overvalued higher and the lower ones less.

121
00:06:14,960 --> 00:06:18,240
Speaker 1: Okay, it's interesting, and what we're going to do. What

122
00:06:18,279 --> 00:06:19,960
Speaker 1: are we're just doing here? Focus is and we're just

123
00:06:20,000 --> 00:06:22,839
Speaker 1: going to have a look at the indices on which

124
00:06:23,240 --> 00:06:27,040
Speaker 1: the index investing are passive investing rules. And then in

125
00:06:27,120 --> 00:06:28,680
Speaker 1: the second hope we're going to do is we're going

126
00:06:28,720 --> 00:06:32,360
Speaker 1: to look at the problems. Obviously, then that loom if

127
00:06:32,400 --> 00:06:34,960
Speaker 1: you like. For ETF, they seem just now to be

128
00:06:35,520 --> 00:06:37,040
Speaker 1: I suppose in a way it's like they're too good

129
00:06:37,080 --> 00:06:40,599
Speaker 1: to be true, because because an advisor can say, hey,

130
00:06:40,640 --> 00:06:42,960
Speaker 1: i'll put you into this ETF, you won't do any

131
00:06:43,000 --> 00:06:44,400
Speaker 1: better or worse than anybody else.

132
00:06:44,560 --> 00:06:46,520
Speaker 2: It just so happens for the last three years you

133
00:06:46,640 --> 00:06:47,440
Speaker 2: do really well.

134
00:06:47,520 --> 00:06:50,840
Speaker 1: Right, so everyone sort of nobody asks hard questions when

135
00:06:50,920 --> 00:06:52,880
Speaker 1: things are arising. We look at that at the moment,

136
00:06:52,960 --> 00:06:55,800
Speaker 1: So just look at that wider issue. So in Australia,

137
00:06:56,120 --> 00:06:59,240
Speaker 1: the failing if you like, of an indicy's being the

138
00:06:59,279 --> 00:07:02,719
Speaker 1: asex too, is that it's literally half banks and miners.

139
00:07:02,720 --> 00:07:04,599
Speaker 1: And if you have a period where banks and miners

140
00:07:04,640 --> 00:07:07,599
Speaker 1: are not going well, and let's see other parts of

141
00:07:07,640 --> 00:07:10,120
Speaker 1: the economy are going really well, you're going to pay

142
00:07:10,160 --> 00:07:15,800
Speaker 1: for that. And it isn't Oddly Wall Street, which we

143
00:07:15,800 --> 00:07:18,679
Speaker 1: were always told as the world was a magnificent apros

144
00:07:18,720 --> 00:07:23,320
Speaker 1: fate market. Those in the sense really aren't really reflect that,

145
00:07:23,400 --> 00:07:23,720
Speaker 1: do they.

146
00:07:23,840 --> 00:07:25,160
Speaker 3: It's inn where if you look at the S and

147
00:07:25,160 --> 00:07:27,440
Speaker 3: P five hundreds of the top five hundred bise counties

148
00:07:27,480 --> 00:07:29,880
Speaker 3: in the US, they the top seven, which they call

149
00:07:29,960 --> 00:07:35,160
Speaker 3: the magnificent seven examples of metal also known as Facebook apples,

150
00:07:35,160 --> 00:07:38,400
Speaker 3: your amazons, et cetera. Those seven out of five hundred

151
00:07:38,480 --> 00:07:41,920
Speaker 3: represent a third, about thirty three percent of that whole index.

152
00:07:42,000 --> 00:07:44,720
Speaker 3: So again, what you're doing personally if you invest in

153
00:07:44,720 --> 00:07:47,520
Speaker 3: that index fund is you're taking a punt on the

154
00:07:47,600 --> 00:07:49,960
Speaker 3: tech he's going to do well, and look if it doesn't,

155
00:07:50,000 --> 00:07:51,040
Speaker 3: you're going to get burnt.

156
00:07:51,760 --> 00:07:54,640
Speaker 1: Right, So you're not really buying the US market, I'll say,

157
00:07:54,680 --> 00:07:56,520
Speaker 1: you're not really buying it, but you think you're buying

158
00:07:56,560 --> 00:07:59,640
Speaker 1: the US market, but you're actually taking a substantial bet

159
00:08:00,960 --> 00:08:03,600
Speaker 1: on tech. And more than that, you were taking a

160
00:08:03,600 --> 00:08:06,520
Speaker 1: substantial bet on just seven companies in tech.

161
00:08:06,920 --> 00:08:09,720
Speaker 3: Exactly seven companies, all within the same industry.

162
00:08:10,040 --> 00:08:13,280
Speaker 1: You said something pretty entertaining about the Dow one time,

163
00:08:13,320 --> 00:08:15,320
Speaker 1: so the that was even worse, I believe. Is it

164
00:08:16,040 --> 00:08:17,560
Speaker 1: Dow Jones index.

165
00:08:17,680 --> 00:08:23,120
Speaker 3: That is my objectively the least beneficial index in the world.

166
00:08:24,880 --> 00:08:26,400
Speaker 2: Sucks.

167
00:08:26,480 --> 00:08:29,440
Speaker 3: Why, Well, it's a product of when it was made,

168
00:08:29,520 --> 00:08:32,960
Speaker 3: which was in the late eighteen hundreds, and effectively I

169
00:08:33,000 --> 00:08:35,280
Speaker 3: think it was Charles doubt someone plays.

170
00:08:35,040 --> 00:08:38,960
Speaker 1: Correct, dal Jones, Wall Street Jungle, Yeah, I think cooperation

171
00:08:39,040 --> 00:08:42,160
Speaker 1: which John's the Australian just for disclosure.

172
00:08:44,120 --> 00:08:46,880
Speaker 3: Looks out the time he made this index, it was

173
00:08:46,920 --> 00:08:50,040
Speaker 3: purely based on stocks which he thought were relevant to

174
00:08:50,080 --> 00:08:52,520
Speaker 3: the everyday man. There was no sort of objectivity of

175
00:08:52,559 --> 00:08:55,720
Speaker 3: it representing the great market. I think there were nine

176
00:08:55,840 --> 00:08:59,680
Speaker 3: or ten, but at the moment there's thirty. The biggest

177
00:08:59,720 --> 00:09:03,120
Speaker 3: issue is that it's price weighted, not market cap weighted.

178
00:09:03,240 --> 00:09:07,960
Speaker 1: So what so Jack tell the everyday listener that's really

179
00:09:08,000 --> 00:09:09,360
Speaker 1: important and we're going to talk about that.

180
00:09:09,480 --> 00:09:10,920
Speaker 2: But explain what.

181
00:09:11,240 --> 00:09:13,719
Speaker 1: That is and the difference between the two categories.

182
00:09:14,000 --> 00:09:16,400
Speaker 3: Yeah, well, I've got a good example of that. So

183
00:09:16,679 --> 00:09:20,600
Speaker 3: the index will increase if phenomenal value of a stock

184
00:09:20,720 --> 00:09:23,040
Speaker 3: goes up. So save for stocks worth ten dollars and

185
00:09:23,120 --> 00:09:25,720
Speaker 3: increases by ten percent, goes to eleven, you know, then

186
00:09:25,760 --> 00:09:27,480
Speaker 3: the index would go up by that much. There are

187
00:09:27,559 --> 00:09:31,120
Speaker 3: multiples in there. It's weighted by, say, if you had

188
00:09:31,160 --> 00:09:33,319
Speaker 3: a larger company in there, if it goes up by

189
00:09:33,320 --> 00:09:34,880
Speaker 3: one percent, and the index is going to go up

190
00:09:34,960 --> 00:09:37,000
Speaker 3: a greater around than say a company which is half

191
00:09:37,040 --> 00:09:40,240
Speaker 3: the value went up by one percent. I've got an example.

192
00:09:40,520 --> 00:09:44,120
Speaker 3: So two companies which are both in the Dow Jones

193
00:09:44,240 --> 00:09:48,319
Speaker 3: are Bowing and Amazon. Prices are pretty much the same.

194
00:09:48,400 --> 00:09:50,640
Speaker 3: I think Bowing's about two hundred and twelve dollars and

195
00:09:50,720 --> 00:09:54,400
Speaker 3: Amazon's two hundred and twenty dollars. For share buying market

196
00:09:54,480 --> 00:09:58,720
Speaker 3: capitalization of one hundred and sixty billion, Amazon two point

197
00:09:58,760 --> 00:10:03,040
Speaker 3: three trillions, about fifty teen sixteen times larger. Its Boeing

198
00:10:03,120 --> 00:10:06,760
Speaker 3: share price increases by one percent and Amazon's goes up

199
00:10:06,760 --> 00:10:10,440
Speaker 3: by one percent, then the index goes up the exact

200
00:10:10,480 --> 00:10:14,760
Speaker 3: same amount. It doesn't take any factors such as that

201
00:10:14,880 --> 00:10:19,000
Speaker 3: Amazon's fifteen times the size of Boeing. There's another example

202
00:10:19,040 --> 00:10:21,680
Speaker 3: as well which just shows how much of a data

203
00:10:21,720 --> 00:10:24,400
Speaker 3: in the index it is. In my opinion, Apple used

204
00:10:24,400 --> 00:10:27,080
Speaker 3: to have share prices of seven hundred dollars and at

205
00:10:27,120 --> 00:10:30,080
Speaker 3: the time they will consue putting the doubt, but they

206
00:10:30,120 --> 00:10:33,200
Speaker 3: really didn't do it because it would have just pushed

207
00:10:33,240 --> 00:10:35,560
Speaker 3: up the price significantly. So what did Apple do? They said, look,

208
00:10:35,559 --> 00:10:38,400
Speaker 3: we're going to do stock split. One share becomes seven,

209
00:10:38,559 --> 00:10:40,720
Speaker 3: it's worth one hundred and it goes in the index.

210
00:10:41,160 --> 00:10:44,400
Speaker 3: It's the exact same company, it's got the same financial metrics,

211
00:10:44,440 --> 00:10:47,680
Speaker 3: it's worth the same amount. But what it can go

212
00:10:47,840 --> 00:10:50,760
Speaker 3: in now because it's got seven times as many shares,

213
00:10:50,760 --> 00:10:52,720
Speaker 3: which you know, one seventh of value, that just doesn't

214
00:10:52,720 --> 00:10:53,440
Speaker 3: make sense to me.

215
00:10:53,960 --> 00:10:55,640
Speaker 2: We'll take a short breath back in the moment.

216
00:11:05,200 --> 00:11:08,679
Speaker 1: Hello, Welcome back to The Australian's Money Puzzle podcast. James

217
00:11:08,720 --> 00:11:11,760
Speaker 1: Kirkby with Jack Tussel of the Partner's Wealth Group. We've

218
00:11:11,800 --> 00:11:16,319
Speaker 1: just been talking now about stock market indices and the

219
00:11:17,600 --> 00:11:20,800
Speaker 1: distortions around them, and it's really important to grab this

220
00:11:21,320 --> 00:11:25,720
Speaker 1: point that the ASX two hundred is heavily dependent on

221
00:11:25,800 --> 00:11:28,400
Speaker 1: banks and minors if they go south and have a

222
00:11:28,440 --> 00:11:28,920
Speaker 1: bad year.

223
00:11:29,120 --> 00:11:30,560
Speaker 2: It's not that you're going to have a bad year.

224
00:11:30,600 --> 00:11:33,000
Speaker 1: You're going to have a much worse year than you

225
00:11:33,800 --> 00:11:36,560
Speaker 1: would have had if you had a more properly diversified

226
00:11:36,960 --> 00:11:40,719
Speaker 1: share portfolio. Similarly, the US, funnily enough, though, for all

227
00:11:40,760 --> 00:11:43,360
Speaker 1: its reputation, as Jack was explaining in the first part,

228
00:11:43,880 --> 00:11:46,280
Speaker 1: indices like S and P and the Dow in particular,

229
00:11:46,320 --> 00:11:49,520
Speaker 1: they're really narrow and they had the really strange distortions,

230
00:11:49,520 --> 00:11:51,080
Speaker 1: so they could have a good year, but it wasn't

231
00:11:51,160 --> 00:11:55,240
Speaker 1: really that good for most investors or vice versa. So

232
00:11:55,360 --> 00:11:59,280
Speaker 1: this is an issue, but it's it was never very important, Jack,

233
00:11:59,360 --> 00:12:03,520
Speaker 1: but suddenly it is. Because exchange traded funds are now

234
00:12:03,840 --> 00:12:07,719
Speaker 1: so common, they become very popular, and I think it's

235
00:12:07,760 --> 00:12:11,000
Speaker 1: probably a time that people really need to know more

236
00:12:11,040 --> 00:12:14,319
Speaker 1: about them and their limitations. I mean, the obvious thing

237
00:12:14,440 --> 00:12:16,320
Speaker 1: I have always thought about them is it's like it's

238
00:12:16,400 --> 00:12:20,880
Speaker 1: dull money. No one's thinking as such. They set their sales.

239
00:12:20,960 --> 00:12:23,600
Speaker 1: This is an a conventionality. If they set their sales,

240
00:12:23,880 --> 00:12:27,000
Speaker 1: they say we buy the top two hundred, close our eyes,

241
00:12:28,520 --> 00:12:32,320
Speaker 1: and you can get all sorts of issues. Then you're

242
00:12:32,840 --> 00:12:36,720
Speaker 1: consciously buying the worst rubbish on the market because if

243
00:12:36,720 --> 00:12:39,320
Speaker 1: it's there, you're going to buy it. And there's this

244
00:12:39,440 --> 00:12:42,360
Speaker 1: argument that ethically you're oblivious. I mean, there could be

245
00:12:42,400 --> 00:12:44,720
Speaker 1: a company where you know, the most atrocious things are

246
00:12:44,760 --> 00:12:47,560
Speaker 1: going on. Again you're buying it because your ETF just

247
00:12:47,640 --> 00:12:51,040
Speaker 1: buys it. I mean, are they fair criticisms?

248
00:12:51,440 --> 00:12:54,440
Speaker 3: No, I'd say absolutely fair, and you know, I'd say

249
00:12:54,440 --> 00:12:56,040
Speaker 3: it's going to get worse and worse. At the moment.

250
00:12:56,400 --> 00:12:59,280
Speaker 3: In Australia they say about eighty five percent of new

251
00:12:59,320 --> 00:13:03,959
Speaker 3: investment can rule is going towards just passive index funds.

252
00:13:04,120 --> 00:13:06,760
Speaker 3: And I'm at the argument right Look at Commonwealth Bank.

253
00:13:06,960 --> 00:13:10,400
Speaker 3: It is the most expensive bank in the world. It

254
00:13:10,480 --> 00:13:13,600
Speaker 3: resides strictly in Australia, a country twenty seven million people,

255
00:13:13,640 --> 00:13:17,080
Speaker 3: doesn't do any international business. Can anyone honestly tell me

256
00:13:17,160 --> 00:13:20,679
Speaker 3: that it is the best bank in the world. And

257
00:13:20,720 --> 00:13:23,280
Speaker 3: I've asked myself where is the money coming from that

258
00:13:23,360 --> 00:13:26,000
Speaker 3: pushes it up? If individuals already own it, I can

259
00:13:26,080 --> 00:13:29,239
Speaker 3: understand why you continue to hold it and ride the momentum.

260
00:13:30,000 --> 00:13:32,680
Speaker 3: But if you're looking to invest in chairs, who's actually

261
00:13:33,679 --> 00:13:35,959
Speaker 3: buying dedicating the money to go there? You know, in

262
00:13:36,000 --> 00:13:39,439
Speaker 3: my opinion, what it is index funds further pushing it up,

263
00:13:39,520 --> 00:13:42,760
Speaker 3: and then super funds as well, who at the moment,

264
00:13:42,800 --> 00:13:47,720
Speaker 3: as a result of regulation, effectively market huggling index funds

265
00:13:47,760 --> 00:13:49,880
Speaker 3: in practice, not in name, but in practice.

266
00:13:50,440 --> 00:13:53,680
Speaker 1: Right, So there is that notion of the closet index

267
00:13:53,760 --> 00:13:57,240
Speaker 1: fund right, yeah, yeah, yeah, explain what that means to

268
00:13:57,400 --> 00:13:59,240
Speaker 1: our listeners, because it's very interesting.

269
00:14:00,120 --> 00:14:03,200
Speaker 3: So about four years ago they had your Future your

270
00:14:03,280 --> 00:14:05,800
Speaker 3: supernw rulins which came in and look, you know, it

271
00:14:05,960 --> 00:14:09,920
Speaker 3: sounds very good in principle, which is to name and

272
00:14:10,000 --> 00:14:14,760
Speaker 3: chain poor at performing super funds. But the consequence of

273
00:14:14,880 --> 00:14:18,480
Speaker 3: that is that no one's chasing better returns now because

274
00:14:19,080 --> 00:14:21,680
Speaker 3: the consequences of doing so is you can also deviate

275
00:14:21,720 --> 00:14:24,560
Speaker 3: from what the market's doing. So rather than actually trying

276
00:14:24,600 --> 00:14:26,400
Speaker 3: me better, it's like it's a how of a lot

277
00:14:26,400 --> 00:14:29,240
Speaker 3: easier just to track the indexes and you know, if

278
00:14:29,280 --> 00:14:31,360
Speaker 3: they go up, we go up. If they go down,

279
00:14:32,040 --> 00:14:33,800
Speaker 3: we go down as well, and can say, oh, that's

280
00:14:33,880 --> 00:14:34,800
Speaker 3: just the markets.

281
00:14:35,200 --> 00:14:40,760
Speaker 1: Yes, right, so it's sort of self perpetuating failure feelings.

282
00:14:40,480 --> 00:14:41,680
Speaker 3: Yeah, exactly, spot on.

283
00:14:42,200 --> 00:14:45,400
Speaker 1: So the way the mechanics are it is come WO Bank,

284
00:14:45,440 --> 00:14:49,320
Speaker 1: which has I can't recall, but it's like single digit growth, Yeah,

285
00:14:49,440 --> 00:14:54,880
Speaker 1: a couple of percent. It's only in Australia. Australia is

286
00:14:54,920 --> 00:14:57,200
Speaker 1: only three percent of the world and it's top fifty percent.

287
00:14:57,440 --> 00:14:58,000
Speaker 2: Go figure.

288
00:14:58,440 --> 00:15:01,680
Speaker 1: And you're saying this is perhaps one of the first

289
00:15:01,720 --> 00:15:05,600
Speaker 1: sort of iterations of the issues of the ETF and

290
00:15:05,680 --> 00:15:08,160
Speaker 1: what they're distorted, how they're distorted in the market.

291
00:15:08,440 --> 00:15:10,280
Speaker 3: Yeah, exactly. And I put in one of my LinkedIn

292
00:15:10,320 --> 00:15:13,800
Speaker 3: person was Michael Burry, who is made famous by the

293
00:15:13,920 --> 00:15:16,280
Speaker 3: Great with the Big Short and you know, one of

294
00:15:16,360 --> 00:15:19,040
Speaker 3: his catch phrases was that index funds may be worse

295
00:15:19,040 --> 00:15:22,920
Speaker 3: than Marxism because they effectively just destroy efficiencies, you know

296
00:15:23,240 --> 00:15:26,840
Speaker 3: overall markets that you know, price discovery mechanism of you know,

297
00:15:27,000 --> 00:15:29,960
Speaker 3: say individual investors or funds going well, hey, you know,

298
00:15:30,400 --> 00:15:32,800
Speaker 3: do the metrics stack up? Should I invest in or not?

299
00:15:32,920 --> 00:15:35,520
Speaker 3: Whereas as you touched on the dumb money, index funds

300
00:15:35,560 --> 00:15:40,160
Speaker 3: just throw it out regardless of any outwards considerations.

301
00:15:41,040 --> 00:15:42,840
Speaker 1: So let's just and I'm not saying this is going

302
00:15:42,880 --> 00:15:45,200
Speaker 1: to happen, but I think it's something everybody should be

303
00:15:45,240 --> 00:15:52,000
Speaker 1: aware of. What is the risk here for all investors

304
00:15:52,040 --> 00:15:54,320
Speaker 1: if they if it keeps going like this where the

305
00:15:54,400 --> 00:15:58,720
Speaker 1: question where it's all mechanical algorithm based buying. And then

306
00:15:58,760 --> 00:16:03,800
Speaker 1: if the everything amplified, So if Coverwealth Bank is going well,

307
00:16:04,160 --> 00:16:09,360
Speaker 1: it goes even better because the amplification of index funds

308
00:16:09,360 --> 00:16:11,000
Speaker 1: for the money chases the money.

309
00:16:11,160 --> 00:16:12,440
Speaker 2: It's it's gone up.

310
00:16:12,400 --> 00:16:14,520
Speaker 1: Five percent, so we have to buy five percent more

311
00:16:14,560 --> 00:16:15,640
Speaker 1: of it because that's.

312
00:16:15,480 --> 00:16:16,920
Speaker 2: Our game as an index fund.

313
00:16:17,000 --> 00:16:19,560
Speaker 1: And if things turn down, I presume it's the same

314
00:16:19,680 --> 00:16:21,840
Speaker 1: that if they're falling ten percent, so then we have

315
00:16:22,000 --> 00:16:24,800
Speaker 1: to sell because we've got too much because they've shunk,

316
00:16:24,840 --> 00:16:27,800
Speaker 1: so we must shrink our holdings. So ultimately, is there

317
00:16:27,800 --> 00:16:31,400
Speaker 1: actually like systemic risk to the actual nature of markets here?

318
00:16:32,000 --> 00:16:36,880
Speaker 3: That's absolutely just with the concentration of those specific indusues

319
00:16:36,880 --> 00:16:38,920
Speaker 3: and holding teeth in the market. Absolutely there is.

320
00:16:39,560 --> 00:16:42,720
Speaker 1: So what should the active investor do. I'm going to

321
00:16:42,760 --> 00:16:45,360
Speaker 1: take it that. I'm still going to say that I

322
00:16:45,360 --> 00:16:49,640
Speaker 1: think ETFs are useful. They're useful from two ways. One

323
00:16:49,840 --> 00:16:52,400
Speaker 1: for the new investor who has never bought anything for it.

324
00:16:52,440 --> 00:16:54,120
Speaker 1: Once upon a time they said what chairs do I

325
00:16:54,160 --> 00:16:54,360
Speaker 1: buy it?

326
00:16:54,360 --> 00:16:54,720
Speaker 2: To start?

327
00:16:54,760 --> 00:16:58,640
Speaker 1: And you said, oh, oh by BHP bye app by couse,

328
00:16:58,920 --> 00:17:01,120
Speaker 1: this sort of thing that was actually quite risky. I

329
00:17:01,200 --> 00:17:03,320
Speaker 1: always say the first two shares I bought and they

330
00:17:03,400 --> 00:17:06,080
Speaker 1: be in Pacific done, loop one, doubled.

331
00:17:05,680 --> 00:17:06,400
Speaker 2: One disappeared.

332
00:17:06,480 --> 00:17:09,000
Speaker 1: This was in the period of whatever ten years, but

333
00:17:09,119 --> 00:17:11,439
Speaker 1: it captured the issue. So I think they're good for

334
00:17:11,480 --> 00:17:14,320
Speaker 1: introductory investors getting to know how to invest, and I

335
00:17:14,400 --> 00:17:17,040
Speaker 1: think they can't be useful as a core approach core

336
00:17:17,080 --> 00:17:21,200
Speaker 1: on satellite with some sophisticated thinking around it maybe market

337
00:17:21,200 --> 00:17:23,439
Speaker 1: way that we won't go into that just now. But

338
00:17:23,520 --> 00:17:26,280
Speaker 1: what I'm saying is, what do you think the active

339
00:17:26,320 --> 00:17:30,200
Speaker 1: investor should do? Knowing what you've just been telling us, Well.

340
00:17:30,040 --> 00:17:31,600
Speaker 3: You know, as a touch on before, you want to

341
00:17:31,600 --> 00:17:35,200
Speaker 3: have a well curated portfolio which you know, diversify as

342
00:17:35,200 --> 00:17:37,480
Speaker 3: you reached you know, you always touch on the adage

343
00:17:37,520 --> 00:17:39,879
Speaker 3: don't have all your eggs in one basket. That is

344
00:17:40,040 --> 00:17:41,720
Speaker 3: literally what people are doing.

345
00:17:42,160 --> 00:17:44,760
Speaker 1: That's that's the Yeah, that's what I need to have,

346
00:17:45,000 --> 00:17:45,320
Speaker 1: isn't it.

347
00:17:45,320 --> 00:17:47,479
Speaker 2: It's a basket. They actually call it a basket.

348
00:17:47,520 --> 00:17:50,400
Speaker 3: And then the consequence is, yes, you know, these funds

349
00:17:50,480 --> 00:17:52,880
Speaker 3: might have had an absolutely cracking you know the last

350
00:17:52,880 --> 00:17:55,760
Speaker 3: twelve months, but if it's so hedge on one sector

351
00:17:55,840 --> 00:17:58,320
Speaker 3: or one stock align, how would you feel if your

352
00:17:58,359 --> 00:18:02,239
Speaker 3: portfolio underperform relative to all the other investments for the

353
00:18:02,280 --> 00:18:05,000
Speaker 3: next five plus years, I don't imagine people will be

354
00:18:05,040 --> 00:18:05,760
Speaker 3: too happy.

355
00:18:05,520 --> 00:18:08,080
Speaker 2: With that, right, So do you.

356
00:18:09,600 --> 00:18:09,679
Speaker 3: Do?

357
00:18:10,320 --> 00:18:13,520
Speaker 1: Is your approach that core and satellite idea where an

358
00:18:13,560 --> 00:18:18,040
Speaker 1: ETF ETF are in the mix or are you actually

359
00:18:18,760 --> 00:18:19,600
Speaker 1: don't like them at all?

360
00:18:20,160 --> 00:18:23,639
Speaker 3: Well, it depends on the individual client. Yes, both would

361
00:18:23,640 --> 00:18:26,800
Speaker 3: work well in the expands you touch on. Can serve

362
00:18:26,840 --> 00:18:30,600
Speaker 3: a great purpose, especially getting into the markets and giving

363
00:18:30,640 --> 00:18:34,320
Speaker 3: you an allocation towards other sort of markets, for example,

364
00:18:34,560 --> 00:18:38,280
Speaker 3: especially within the international side, because it can be extremely

365
00:18:38,320 --> 00:18:42,280
Speaker 3: expensive to say, invest directly, and there's a heap of

366
00:18:42,320 --> 00:18:45,119
Speaker 3: tax consequences which I don't need to go into. Cheering.

367
00:18:45,320 --> 00:18:47,920
Speaker 1: Yes, yeah, something like if you want to buy American

368
00:18:47,920 --> 00:18:50,359
Speaker 1: small CAFs or something. Yeah, I mean that would be

369
00:18:50,400 --> 00:18:53,200
Speaker 1: quite difficult to sitting here. You'd have to buy twenty

370
00:18:53,240 --> 00:18:55,719
Speaker 1: of them. How on earth would you pick them? How

371
00:18:55,760 --> 00:18:57,520
Speaker 1: would you get to know them? You buy an ETF,

372
00:18:57,600 --> 00:18:59,720
Speaker 1: but you won't get the big winners, but you know,

373
00:19:00,160 --> 00:19:01,720
Speaker 1: get a big winner or a big loser, but you'll

374
00:19:02,600 --> 00:19:05,320
Speaker 1: you will reflect the general tempo of small caps, so

375
00:19:05,359 --> 00:19:08,840
Speaker 1: they have their uses there. Okay, very interesting, Just one

376
00:19:08,920 --> 00:19:10,760
Speaker 1: last thing, and I mean, I must say, if you

377
00:19:10,800 --> 00:19:14,960
Speaker 1: are as skeptical as you are about conventional mainstream ETFs

378
00:19:15,080 --> 00:19:17,880
Speaker 1: as we know them, you must be terribly skeptical about

379
00:19:18,040 --> 00:19:22,240
Speaker 1: the new wave of uts where they unfortunately are starting

380
00:19:22,280 --> 00:19:24,760
Speaker 1: to innovator. And I use the word in sneak quotes,

381
00:19:25,200 --> 00:19:28,280
Speaker 1: where they're coming up with all sorts of smart ideas,

382
00:19:28,720 --> 00:19:33,440
Speaker 1: thematic ETFs leverage dtfs, and in a way they're kind

383
00:19:33,440 --> 00:19:35,439
Speaker 1: of to me at least, they're kind of polluting the

384
00:19:35,480 --> 00:19:40,400
Speaker 1: original notion, the Jack Bogel notion of a straight mirror index.

385
00:19:40,920 --> 00:19:43,000
Speaker 3: Yeah. I think that the issue with those is they're

386
00:19:43,040 --> 00:19:44,840
Speaker 3: easy to sell, right, and you get all of these

387
00:19:45,440 --> 00:19:48,840
Speaker 3: cowboys social media influences out there. You just tell every

388
00:19:48,920 --> 00:19:51,879
Speaker 3: random person I dedicate Twain CENTI bi checking in missing

389
00:19:51,920 --> 00:19:55,399
Speaker 3: these index funds and now right up about oh this

390
00:19:55,600 --> 00:19:58,000
Speaker 3: industry is going wow. So they'll just put it all

391
00:19:58,000 --> 00:20:01,360
Speaker 3: in there. And then again, you can't and training your

392
00:20:01,440 --> 00:20:04,840
Speaker 3: risk in one sector, which just completely flies in the

393
00:20:04,920 --> 00:20:09,520
Speaker 3: face of sound financial management diversification.

394
00:20:10,280 --> 00:20:12,399
Speaker 1: Which brings us back to that thing that you're buying.

395
00:20:12,760 --> 00:20:16,200
Speaker 1: You're buying everything, Yeah, good stuff, the good stuff under rubbish.

396
00:20:16,440 --> 00:20:20,000
Speaker 1: Yeah yeah, Okay, just one nice thing. You didn't pick

397
00:20:20,080 --> 00:20:25,120
Speaker 1: up on my contention, which for some reason people don't

398
00:20:25,119 --> 00:20:25,560
Speaker 1: seem to be.

399
00:20:25,720 --> 00:20:26,840
Speaker 2: I was ranged about it all.

400
00:20:27,160 --> 00:20:30,639
Speaker 1: But it's like, to me, the ethical side of things,

401
00:20:30,720 --> 00:20:34,120
Speaker 1: they're ethically oblivious.

402
00:20:33,000 --> 00:20:34,280
Speaker 2: For you at all. Yeah.

403
00:20:34,400 --> 00:20:36,600
Speaker 3: So for example, right, if you buying the S and

404
00:20:36,640 --> 00:20:39,000
Speaker 3: P five hundred, you know you're getting the American to pacco,

405
00:20:39,080 --> 00:20:43,040
Speaker 3: you're getting Lockheed Martin, most notably known for making bombs

406
00:20:43,040 --> 00:20:46,560
Speaker 3: which get dropped on families and mulance. It's helping to

407
00:20:46,600 --> 00:20:49,480
Speaker 3: that too much. You know, you've got gambling, you've got alcohol,

408
00:20:49,520 --> 00:20:51,479
Speaker 3: You've got everything in there. You know, especially as an

409
00:20:51,480 --> 00:20:54,800
Speaker 3: advisor ethical investors, you know, it's becoming more and more

410
00:20:54,800 --> 00:20:57,200
Speaker 3: of a talking point. And look, everyone's got their own

411
00:20:57,320 --> 00:21:01,399
Speaker 3: view on it. Everyone's moral is different. But for a

412
00:21:01,440 --> 00:21:04,240
Speaker 3: lot of individuals out there who are quite moral paper

413
00:21:04,320 --> 00:21:06,359
Speaker 3: and they're just investing in these in the expands, not

414
00:21:06,400 --> 00:21:10,400
Speaker 3: actually realizing that they're getting exposure to these companies, which

415
00:21:10,520 --> 00:21:12,679
Speaker 3: is flying the face of everything they stand for as a.

416
00:21:12,720 --> 00:21:16,040
Speaker 1: Person understand for Yeah, Look, I think if anything, just

417
00:21:16,320 --> 00:21:18,440
Speaker 1: from what we've talked about today, Jack, I think it's

418
00:21:18,440 --> 00:21:23,040
Speaker 1: been a really good illustration to all investors and our

419
00:21:23,119 --> 00:21:26,800
Speaker 1: listeners that do you actually know what an ETF is.

420
00:21:27,240 --> 00:21:29,680
Speaker 1: It's easy to give you a top line explanation. It's

421
00:21:29,680 --> 00:21:33,520
Speaker 1: a mirror of an indices, but behind that there is

422
00:21:33,680 --> 00:21:37,600
Speaker 1: all sorts of distortions and games being played and issues

423
00:21:37,600 --> 00:21:40,840
Speaker 1: that perhaps really it's time to get some air. And

424
00:21:40,920 --> 00:21:46,600
Speaker 1: luckily perhaps the Commonwealth Bank. The extraordinary, astonishing and really

425
00:21:46,760 --> 00:21:50,960
Speaker 1: unconvincing fifty percent increase in comebank in the last year

426
00:21:51,000 --> 00:21:56,600
Speaker 1: in our market has brought the issue of the other side,

427
00:21:56,640 --> 00:22:00,159
Speaker 1: the ETFs, the issues, the problems that they have, the

428
00:22:00,200 --> 00:22:03,760
Speaker 1: problems that may loom for them, really interesting. Jack, we'll

429
00:22:03,760 --> 00:22:05,600
Speaker 1: take a short breakase. I also want to talk to

430
00:22:05,640 --> 00:22:09,760
Speaker 1: you about sophisticated investors, a different issue, but another issue

431
00:22:09,800 --> 00:22:11,879
Speaker 1: that I think our listeners will be really keen to

432
00:22:11,920 --> 00:22:12,720
Speaker 1: hear your views on.

433
00:22:13,000 --> 00:22:13,680
Speaker 2: Back in a moment.

434
00:22:27,000 --> 00:22:29,960
Speaker 1: Hello, Welcome back to The Australian's Money Puzzle podcast. I'm

435
00:22:30,040 --> 00:22:34,320
Speaker 1: James Kirby from The Australian and I'm talking to Jack

436
00:22:34,640 --> 00:22:37,600
Speaker 1: Tossl of the Partner's Wealth Group. Now, Jack, I don't

437
00:22:37,640 --> 00:22:39,800
Speaker 1: know your client list. I haven't seen them, but I

438
00:22:39,800 --> 00:22:43,520
Speaker 1: imagine that they are. We could classify them all as

439
00:22:43,880 --> 00:22:48,080
Speaker 1: wealthy one way or another. And it is a big

440
00:22:48,160 --> 00:22:52,840
Speaker 1: trend now in financial advice, particularly at the top end,

441
00:22:53,200 --> 00:22:57,000
Speaker 1: to make things simple for everybody, they simply classify their

442
00:22:57,040 --> 00:23:01,959
Speaker 1: investors as sophisticated investors. In doing so, it opens up

443
00:23:02,000 --> 00:23:05,840
Speaker 1: future of canvas of investments that they can access that

444
00:23:05,880 --> 00:23:09,240
Speaker 1: they couldn't as a retail investor. And they also the

445
00:23:09,320 --> 00:23:11,560
Speaker 1: price of that is that they give up, if you like,

446
00:23:11,640 --> 00:23:15,200
Speaker 1: some of the regulatory protections that are in there, such

447
00:23:15,200 --> 00:23:19,359
Speaker 1: as the Australian Financial Complaints Authority or the Conversation Scheme

448
00:23:19,400 --> 00:23:20,200
Speaker 1: of Last Resorts.

449
00:23:20,240 --> 00:23:20,920
Speaker 2: So that's the deal.

450
00:23:20,960 --> 00:23:24,080
Speaker 1: But advisors love it right because it makes it really

451
00:23:24,119 --> 00:23:26,560
Speaker 1: simple and they don't have to sign as many documents

452
00:23:26,640 --> 00:23:30,040
Speaker 1: or go through as much red tape. The criteria for

453
00:23:30,160 --> 00:23:34,080
Speaker 1: becoming a sophisticated investor, if you don't already know, is

454
00:23:34,240 --> 00:23:37,639
Speaker 1: two point five million in assets and that can include

455
00:23:37,640 --> 00:23:40,840
Speaker 1: the family home. It shouldn't, but it does. Or two

456
00:23:40,960 --> 00:23:43,080
Speaker 1: hundred and fifty grand a year for two years in

457
00:23:43,119 --> 00:23:46,080
Speaker 1: a rowan income. There was a time that was a

458
00:23:46,160 --> 00:23:50,800
Speaker 1: really lot of money when they created this system. So Jack,

459
00:23:51,520 --> 00:23:53,560
Speaker 1: there's also the problems with it, isn't there. I mean,

460
00:23:53,800 --> 00:23:57,399
Speaker 1: it's been abused as people who are not sophisticated or

461
00:23:57,440 --> 00:24:01,679
Speaker 1: classified as sophisticated. So there's all sorts of issues and

462
00:24:01,720 --> 00:24:05,439
Speaker 1: it's under review at the moment. The push is to

463
00:24:05,560 --> 00:24:09,720
Speaker 1: make it even harder to qualify, like ACID is talking about.

464
00:24:09,840 --> 00:24:12,919
Speaker 1: I said, four millions you're supposed to have, perhaps in

465
00:24:12,960 --> 00:24:16,840
Speaker 1: the future, to be to qualify a sophisticated investor. What

466
00:24:16,920 --> 00:24:19,160
Speaker 1: do you think about this? What do you think our

467
00:24:19,160 --> 00:24:21,240
Speaker 1: listeners should know about this area?

468
00:24:21,400 --> 00:24:24,040
Speaker 3: In my opinion, I believe that the current tests it

469
00:24:24,200 --> 00:24:26,920
Speaker 3: is so completely arbitrary. Now the two point five million

470
00:24:26,960 --> 00:24:29,359
Speaker 3: dollars in net assets or you've two hundred and fifty

471
00:24:29,400 --> 00:24:31,359
Speaker 3: thousand dollars a year for the last two years, you know,

472
00:24:32,080 --> 00:24:34,840
Speaker 3: and you instantly tick a box and you're sophisticate investor.

473
00:24:34,840 --> 00:24:37,120
Speaker 3: You can have someone that's never invested, is sharing their life,

474
00:24:37,160 --> 00:24:40,480
Speaker 3: has no financial literacy, and gets a three million dollar

475
00:24:40,600 --> 00:24:43,720
Speaker 3: inheritance because one of their realities pass away, and then

476
00:24:43,800 --> 00:24:47,320
Speaker 3: they can access all these away unlistened investments.

477
00:24:48,000 --> 00:24:50,359
Speaker 1: It's actually it's made me think it's dumb money again.

478
00:24:50,480 --> 00:24:53,159
Speaker 1: There is actually a segue here between part between the

479
00:24:53,200 --> 00:24:55,600
Speaker 1: first two segments and the third segment, folks, and the

480
00:24:55,640 --> 00:25:00,280
Speaker 1: segue is it's the dumb money issue because I if

481
00:25:00,280 --> 00:25:03,560
Speaker 1: I'm wrong, But okay, so I know nothing. I'm hopeless.

482
00:25:03,600 --> 00:25:06,600
Speaker 1: I am the worst investor you ever came across. But

483
00:25:06,680 --> 00:25:12,000
Speaker 1: I inherit three million tick. I'm classified as a sophisticated inventor.

484
00:25:12,160 --> 00:25:17,920
Speaker 2: Isn't it that easy? Yes? And no, it's that easy

485
00:25:17,920 --> 00:25:18,639
Speaker 2: to be classified.

486
00:25:18,760 --> 00:25:21,360
Speaker 3: If advisor is doing a duty dilidence, then they need

487
00:25:21,400 --> 00:25:24,680
Speaker 3: to actually note know that you are actually scare investor

488
00:25:24,720 --> 00:25:29,720
Speaker 3: and capable of making financial decisions. But in practice, whether

489
00:25:29,760 --> 00:25:32,840
Speaker 3: that actually happens across the country, I'll a bit dubious.

490
00:25:33,160 --> 00:25:36,680
Speaker 1: I'd be bore than jubious. I doubt it happens at all,

491
00:25:37,520 --> 00:25:39,960
Speaker 1: to be honest, because the person says, well, that's my

492
00:25:40,080 --> 00:25:43,080
Speaker 1: legal classification. Now I want to buy hedge fund number four.

493
00:25:43,760 --> 00:25:47,320
Speaker 1: It's only for sophisticated investors. I qualify as once, so

494
00:25:47,400 --> 00:25:49,520
Speaker 1: I want it. What can you say to me? What

495
00:25:49,560 --> 00:25:51,240
Speaker 1: could you possibly say to me to stop me?

496
00:25:51,720 --> 00:25:53,359
Speaker 3: Exactly? And that's the thing. I can just go straight

497
00:25:53,359 --> 00:25:56,320
Speaker 3: to a fund man injury or get off. And they're

498
00:25:56,359 --> 00:25:59,240
Speaker 3: not making financially sound decisions. And you know, leaning under

499
00:25:59,240 --> 00:26:02,520
Speaker 3: what I said before, you, an individual is extremely financially

500
00:26:02,560 --> 00:26:05,439
Speaker 3: A student who's invested for ten or twenty years, but

501
00:26:05,480 --> 00:26:07,240
Speaker 3: doesn't have the privilege of having a lot of family

502
00:26:07,280 --> 00:26:09,480
Speaker 3: wealth which has passed on to them, and then they

503
00:26:09,560 --> 00:26:13,760
Speaker 3: can't access these investments. It's interesting the US is actually

504
00:26:13,800 --> 00:26:16,560
Speaker 3: looking at going down a different route. Hasn't been brought

505
00:26:16,600 --> 00:26:20,760
Speaker 3: in yet, but they're considering bringing in an effectively financial

506
00:26:20,840 --> 00:26:23,320
Speaker 3: literacy test. And the key reason they're doing that is

507
00:26:23,320 --> 00:26:27,320
Speaker 3: because they're saying that this divide between you know, ticking

508
00:26:27,320 --> 00:26:30,440
Speaker 3: a box man sophisticated investor not just based on assets,

509
00:26:30,600 --> 00:26:34,960
Speaker 3: is further exacerbating the wealth divide, the inequality between the

510
00:26:35,000 --> 00:26:35,760
Speaker 3: haves and have not.

511
00:26:36,400 --> 00:26:39,840
Speaker 1: Yeah, yeah, I see the upset of meritocracy. The professor

512
00:26:39,880 --> 00:26:47,280
Speaker 1: of finance. Yes, no, inheritance is excluded from the person

513
00:26:47,560 --> 00:26:50,639
Speaker 1: who picked up the four million from Anti lou And

514
00:26:50,680 --> 00:26:52,320
Speaker 1: there was nothing.

515
00:26:52,280 --> 00:26:55,560
Speaker 3: Exactly and it's ridiculous. Do you like a fantastic statistic

516
00:26:55,560 --> 00:26:58,960
Speaker 3: which is actually from Tony Robbins's recent book where you

517
00:26:59,040 --> 00:27:02,000
Speaker 3: know he actually solid what are these issues? And you said, look,

518
00:27:02,080 --> 00:27:04,679
Speaker 3: the last thirty five years in the US, the private

519
00:27:04,720 --> 00:27:09,359
Speaker 3: equity asset class returned fourteen point two percent compared to

520
00:27:09,600 --> 00:27:11,840
Speaker 3: the list of markets in the US, which shares a

521
00:27:11,880 --> 00:27:14,320
Speaker 3: bible to your everyday retail investor which did nine point

522
00:27:14,320 --> 00:27:18,320
Speaker 3: two percent. That's a fifty percent difference in annual returnments.

523
00:27:18,320 --> 00:27:20,440
Speaker 3: And you think about the multiplier effect of that. So

524
00:27:20,560 --> 00:27:23,280
Speaker 3: you had one hundred thousand dollars one individual put it

525
00:27:23,320 --> 00:27:25,200
Speaker 3: in private equity left it there for twenty years, to

526
00:27:25,240 --> 00:27:27,480
Speaker 3: the other individual put it into public equity and left

527
00:27:27,480 --> 00:27:30,160
Speaker 3: it there for twenty years. The difference is one point

528
00:27:30,200 --> 00:27:34,359
Speaker 3: four million dollars versus five hundred and eighty thousand dollars.

529
00:27:34,520 --> 00:27:36,439
Speaker 3: You know, it's a bit more than a round drinks.

530
00:27:37,480 --> 00:27:40,159
Speaker 1: As a round the drinks, and you were saying the

531
00:27:40,200 --> 00:27:43,840
Speaker 1: investor was excluded. The investors were excluded from that party

532
00:27:43,880 --> 00:27:47,959
Speaker 1: basically because they weren't classified the sophicity exactly. Yeah, so

533
00:27:48,000 --> 00:27:51,200
Speaker 1: what should they do? Should they raise the bar, which

534
00:27:51,200 --> 00:27:52,240
Speaker 1: is what Assek wants, or.

535
00:27:52,200 --> 00:27:53,800
Speaker 2: Should they scrap it?

536
00:27:54,000 --> 00:27:55,320
Speaker 1: Should they have scrap the whole thing.

537
00:27:55,520 --> 00:27:57,480
Speaker 3: I'd scrap it all together and I'd replace it with

538
00:27:57,480 --> 00:27:59,080
Speaker 3: the financial literacy.

539
00:27:58,640 --> 00:28:01,000
Speaker 1: Test, but that's still that they're still a test.

540
00:28:01,080 --> 00:28:03,760
Speaker 3: Then, Yeah, it should show that you actually have you know,

541
00:28:03,800 --> 00:28:06,199
Speaker 3: the financial competence and the knowage of it, and you

542
00:28:06,240 --> 00:28:09,639
Speaker 3: actually understand, you know, what the benefits are of proceeding

543
00:28:09,760 --> 00:28:12,840
Speaker 3: with these types of investments and also what the consequences

544
00:28:12,840 --> 00:28:13,760
Speaker 3: are if that goes wrong.

545
00:28:14,240 --> 00:28:18,080
Speaker 1: Okay, that's very interesting. I mean I must say if

546
00:28:18,080 --> 00:28:20,840
Speaker 1: you had to choose between the two, I mean, logically

547
00:28:20,880 --> 00:28:23,399
Speaker 1: it does make a lot of sense. Why continue the

548
00:28:23,440 --> 00:28:24,280
Speaker 1: separation at all?

549
00:28:24,400 --> 00:28:24,600
Speaker 2: Jack?

550
00:28:24,640 --> 00:28:28,800
Speaker 1: Why have sophisticated and unsophisticated anyway? I mean I can buy,

551
00:28:29,200 --> 00:28:31,840
Speaker 1: I can go on a crypto size, and I can

552
00:28:31,880 --> 00:28:33,640
Speaker 1: put my life savings on it.

553
00:28:34,160 --> 00:28:36,840
Speaker 3: Yeah, we can talk about hours talked about crypto. But

554
00:28:36,880 --> 00:28:39,400
Speaker 3: I think it's about if you look at why they

555
00:28:39,440 --> 00:28:42,280
Speaker 3: have the asset tests, you know those tests. The reality

556
00:28:42,360 --> 00:28:44,959
Speaker 3: is because you know, the government goes look if you've

557
00:28:44,960 --> 00:28:47,640
Speaker 3: got two three million investment goes bale up and you

558
00:28:47,720 --> 00:28:50,920
Speaker 3: are these two hundred three hundred thousand not that consequence

559
00:28:50,920 --> 00:28:52,960
Speaker 3: you all whereis what they're worried about is if you

560
00:28:53,000 --> 00:28:56,280
Speaker 3: get saying everyday retail investors only got one hundred grand

561
00:28:56,280 --> 00:28:59,840
Speaker 3: in super and one hundred percentage of that is invested

562
00:28:59,880 --> 00:29:01,680
Speaker 3: in you know, just a typical mom and dad and

563
00:29:01,680 --> 00:29:03,800
Speaker 3: that goes belly up. That's going to be you know,

564
00:29:04,520 --> 00:29:07,080
Speaker 3: not good at all. The every every day I.

565
00:29:07,000 --> 00:29:09,440
Speaker 2: We just try Okay, So that's there.

566
00:29:10,440 --> 00:29:15,640
Speaker 1: Yeah, the separation between sophisticated and unsophisticated has to remain

567
00:29:15,720 --> 00:29:17,880
Speaker 1: a retailer, as they say, it has to refeel it.

568
00:29:17,880 --> 00:29:19,280
Speaker 2: It's there as a safety net.

569
00:29:19,480 --> 00:29:21,560
Speaker 3: There's yeah, there's less guard rails as well.

570
00:29:21,880 --> 00:29:23,720
Speaker 1: But you think it should be based on basically, it

571
00:29:23,720 --> 00:29:27,680
Speaker 1: should be based on competence, not money exactly. Okay, I

572
00:29:27,800 --> 00:29:31,160
Speaker 1: like that. Well, who could argue against meritocracy? All right,

573
00:29:31,280 --> 00:29:33,720
Speaker 1: very good, it's been really interesting. We have just do

574
00:29:33,720 --> 00:29:36,920
Speaker 1: a couple of quick questions that I have here. You

575
00:29:37,120 --> 00:29:39,360
Speaker 1: may chip in if you like, Jack, I just want

576
00:29:39,400 --> 00:29:41,320
Speaker 1: to try and catch up we have. We have had

577
00:29:41,640 --> 00:29:43,800
Speaker 1: a lot of questions of course, on the super tax,

578
00:29:43,920 --> 00:29:46,760
Speaker 1: on crypto, on apartments, a couple of other questions that

579
00:29:47,080 --> 00:29:50,880
Speaker 1: haven't getting issues that have not been getting the sort.

580
00:29:50,640 --> 00:29:52,800
Speaker 3: Of light that they have.

581
00:29:53,400 --> 00:29:55,200
Speaker 1: One is from Anna who says, I don't think there's

582
00:29:55,200 --> 00:29:58,840
Speaker 1: any point knocking the home buyer incentives. It's free money

583
00:29:58,880 --> 00:30:01,280
Speaker 1: and a competitive mark. When I get a chance, I'm

584
00:30:01,280 --> 00:30:06,040
Speaker 1: going to use every grant or assistance I can find. Yes, okay,

585
00:30:06,080 --> 00:30:09,560
Speaker 1: and a point taking yes, I suppose the issue with

586
00:30:09,600 --> 00:30:13,280
Speaker 1: these boys we're making with these on the grants in

587
00:30:13,320 --> 00:30:15,920
Speaker 1: the context of an apartment market that is very weak

588
00:30:16,440 --> 00:30:20,400
Speaker 1: just now is that at its worst, people are being

589
00:30:20,440 --> 00:30:24,920
Speaker 1: incentivized to buy into weak spots in the market. And

590
00:30:25,000 --> 00:30:28,840
Speaker 1: we mentioned the course in Queensland state budget you could

591
00:30:28,840 --> 00:30:31,560
Speaker 1: buy a million dollar house with a two percent mortgage

592
00:30:31,600 --> 00:30:33,400
Speaker 1: back if you don't mind buy the government.

593
00:30:33,920 --> 00:30:34,480
Speaker 2: I don't know if.

594
00:30:34,480 --> 00:30:37,800
Speaker 1: That's really great from a macro perspective, it certainly isn't.

595
00:30:37,840 --> 00:30:41,360
Speaker 1: But I take your point all right, and charm Me asks,

596
00:30:42,200 --> 00:30:46,680
Speaker 1: our superannuation is meant to replace the government pension. But

597
00:30:46,720 --> 00:30:51,040
Speaker 1: everyone calculates assuming you claim the pension when your fund's

598
00:30:51,120 --> 00:30:53,280
Speaker 1: run out. Now, But that's about is the retirement calculator.

599
00:30:53,360 --> 00:30:54,840
Speaker 1: So you go in and you say how much should

600
00:30:54,840 --> 00:30:58,040
Speaker 1: I have? You say how much you have, etc. And

601
00:30:58,040 --> 00:31:02,200
Speaker 1: they make an assumption. Careful with that. The general retirement

602
00:31:02,280 --> 00:31:06,440
Speaker 1: calculator assumes not that you live forever, that you're going

603
00:31:06,480 --> 00:31:09,480
Speaker 1: to live forever. It doesn't assume you live to one hundred.

604
00:31:10,080 --> 00:31:13,520
Speaker 1: It assumes you live to an average life expectancy. And

605
00:31:13,600 --> 00:31:18,240
Speaker 1: then it assumes you go on the pension. You may

606
00:31:18,240 --> 00:31:21,320
Speaker 1: not want to do that. That might not be exactly

607
00:31:21,320 --> 00:31:23,640
Speaker 1: what you aspired to. So I think that's just be

608
00:31:23,680 --> 00:31:26,600
Speaker 1: careful with those calculators. I think you want to chip

609
00:31:26,600 --> 00:31:27,360
Speaker 1: in on those two.

610
00:31:27,440 --> 00:31:30,120
Speaker 3: Jack touching the last one. You know, if you bank

611
00:31:31,560 --> 00:31:34,440
Speaker 3: relying on the government pension later on, the issue is

612
00:31:34,480 --> 00:31:38,680
Speaker 3: that you completely lose your control. The government changes the

613
00:31:38,720 --> 00:31:42,480
Speaker 3: rules every single year every time your government gets elected.

614
00:31:42,720 --> 00:31:45,480
Speaker 3: What happens when they pull the carpet out from benetti faith.

615
00:31:46,200 --> 00:31:48,840
Speaker 1: Yes and yeah, well exactly, or what happens when they

616
00:31:48,880 --> 00:31:52,840
Speaker 1: can't afford in real terms the pensions perhaps that we

617
00:31:52,920 --> 00:31:55,800
Speaker 1: have today. It's a rich country, remains a rich country,

618
00:31:55,800 --> 00:31:59,000
Speaker 1: but will we always have the ability to pay as

619
00:31:59,040 --> 00:32:02,560
Speaker 1: we do now? Very interesting, Great to have you on, Jack.

620
00:32:02,600 --> 00:32:05,000
Speaker 1: We will have you on again. That was very interesting.

621
00:32:05,080 --> 00:32:06,760
Speaker 1: I think there was a couple of issues that are

622
00:32:07,160 --> 00:32:09,320
Speaker 1: very timely. I think the ETFs this is the time

623
00:32:09,400 --> 00:32:13,960
Speaker 1: to reconsider them really and understand what they are, because

624
00:32:14,920 --> 00:32:16,800
Speaker 1: it's not always going to be this easy, is it.

625
00:32:16,800 --> 00:32:18,800
Speaker 1: It's not every year your shares are going to roll in.

626
00:32:20,600 --> 00:32:22,440
Speaker 3: You're working on the laws of averages, and as we

627
00:32:22,600 --> 00:32:27,680
Speaker 3: just showcase, you don't have much diversification over on your

628
00:32:27,680 --> 00:32:30,840
Speaker 3: portfolios if you're just chasing those behind in next ONNSE.

629
00:32:31,480 --> 00:32:32,200
Speaker 2: Very interesting.

630
00:32:32,600 --> 00:32:34,920
Speaker 1: It's very interesting because that's the whole proposal.

631
00:32:35,280 --> 00:32:37,040
Speaker 2: Thanks Jack, Love you to have you on the show.

632
00:32:37,200 --> 00:32:39,840
Speaker 4: Thanks having me, Jame, It's been absolute pleasure. That was

633
00:32:39,920 --> 00:32:42,520
Speaker 4: Jack Tossl of the Partner's Wealth Group. Let's have some

634
00:32:42,520 --> 00:32:47,479
Speaker 4: more correspondents the Money Puzzle at the Australian dot com

635
00:32:47,520 --> 00:32:50,400
Speaker 4: dot au. Love to hear what you thought of those

636
00:32:50,440 --> 00:32:53,800
Speaker 4: observations on ETFs, which I must say are rarely made,

637
00:32:54,000 --> 00:32:55,680
Speaker 4: but I think you'll find they're going to be made

638
00:32:55,760 --> 00:32:57,760
Speaker 4: much more often in the near future.

639
00:32:57,920 --> 00:32:58,520
Speaker 1: Talk to you soon.

640
00:33:00,280 --> 00:33:04,360
Speaker 3: The wood, the collect the